IT: Where reason to believe escapement of income was recorded by Assessing Officer who did not exercise relevant jurisdiction, i.e., jurisdiction over matter, such reason being non-est and in flagrant violation of provisions of section 147 read with those of section 2(7A), any proceedings in furtherance thereof, culminating in impugned reassessment order were also void ab initio and deserved to be quashed

[2018] 91 taxmann.com 185 (Agra - Trib.)

IN THE ITAT AGRA BENCH 'SMC'

Jawahar Lal Agarwalv.Income Tax Officer-4(2), Agra*

A.D. JAIN, JUDICIAL MEMBER,IT APPEAL NO. 336 (AGRA) OF 2014

[ASSESSMENT YEAR 2005-06]

NOVEMBER 24, 2017

Section 147 of the Income-tax Act, 1961 - Income escaping assessment - General (Jurisdiction of) - Assessment year 2005-06 - Whether in view of provisions of section 147, it is only officer having jurisdiction over matter, who can form any reason to believe in respect of escapement of income and none other - Held, yes - Whether, therefore, where reason to believe escapement of income was recorded by Assessing Officer who did not exercise relevant jurisdiction, i.e., jurisdiction over matter, such reason being non-est and in flagrant violation of provisions of section 147 read with those of section 2(7A), any proceedings in furtherance thereof, culminating in impugned reassessment order were also void ab initio and deserved to be quashed - Held, yes [Paras 11 and 16] [In favour of assessee]

FACTS

The reassessment proceedings in assessee's case were initiated by the Assistant Commissioner Agra, whereas the assessment order was passed by the Income Tax Officer, Agra.

The assessee thus filed instant appeal contending that assessment was not completed in accordance with law.

HELD

As per section 147, the Assessing Officer may assess or reassess any income escaping assessment, if he has reasons to believe such escapement of income. The section starts with the words 'If the Assessing Officer has reason to believe'. The word 'assessee' in this phrase was substituted for the words 'Income Tax' by the Direct Tax Laws (Amendment) Act 1987, with effect from 1-4-1988. The same enactment also introduced section 2(7A) in the Act. As per this section, 'Assessing Officer' means an Officer, as named therein, who is vested with the relevant jurisdiction. [Para 10]

Thus, it was only the Officer having jurisdiction over the matter who, under section 147, could have formed by reason to believe in respect of escapement of income and none other. It has not been shown otherwise. To reiterate, in the present case, the Assistant Commissioner Agra, who recorded the reasons to believe escapement of income and issued the notice under section 148 of the Act admittedly did not exercise jurisdiction over the matter. In fact, evidently, this was the reason why the matter was transferred from the Asstt. CIT-I, Agra to the ITO Agra. Therefore, the formation of the reasons to believe escapement of income is in direct violation of the provisions of section 147 of the Act. [Para 11]

Then, section 147 also provides that the Assessing Officer, if he has reason to believe escapement of income, he may assess or reassess such income subject to the provision of sections 148 to 153 of the Act. So, the assessment or reassessment under section 147 is subject to, inter alia, the provisions of section 148 of the Act. [Para 12]

Section 148(1), again, uses the expression 'Assessing Officer' which, as considered above, is the expression defined in section 2(7A), to mean the authority exercising the relevant jurisdiction. Since the Asstt. CIT-I, Agra, did not have jurisdiction over the matter, he could not, in law, have issued the notice under section 148 of the Act. [Para 14]

In view of the above, since the reasons to believe escapement of income were recorded by Assessing Officer who did not exercise the relevant jurisdiction, i.e., jurisdiction over the matter, such reasons were non-est, being in flagrant violation of the express provisions of section 147 read with those of section 2(7A) of the Act. These reasons are, thus, struck down as void ab initio, null and void. Since, the reasons to believe escapement of income themselves had been declared null and void, all proceedings in furtherance thereof, culminating in the impugned reassessment order were also void ab initio and deserved to be quashed as such. [Para 16]

In the result, the assessee's appeal is allowed. [Para 17]

CASE REVIEW

Manju Agarwal v. ITO [IT Appeal No. 550 (Agra) of 2012, dated 23-8-2013] (para 15) followed.

CASES REFERRED TO

Manju Agarwal v. ITO [IT Appeal No. 550 (Agra) of 2012, dated 23-8-2013] (para 15).

Navin Gargh, AR for the Appellant. Waseem Arshad, Sr. DR for the Respondent.

ORDER

1. This is assessee's appeal for Assessment Year 2005-06, taking the following grounds:

"1.Because in any view, the ld. CIT(A) has erred in disallowing deduction u/s. 54B of the I.T. Act for making investment of Amount of Rs. 14,09,670/- in purchase of agriculture land being in the name of minor Daughter, which is grossly, arbitrarily, perverse, wrong & illegal in the Peculiar facts and circumstances of the case.

2.Because in any view, the proceeding u/s. 147/148 of the I.T. Act is wrong, illegal and bad in law.

3.Because in any view, the addition confirmed by ld. CIT (A) of Rs. 2,17,800/- out of addition of Rs. 7,17,800/- is wrong, illegal & against the facts and law of the case.

4.Because in any view, the Id. CIT (A) has erred in not giving benefit for deduction u/s. 54F and 54B taking the provisions of section 50C of the I.T. Act not applying on it.

5.Because in any view, the ld. CIT (A) has erred in confirming the interest charged u/s. 234A, 234B & 234C, which is wrong and illegal."

2. The following additional ground has also been raised:

"7.Because in any view, the Assessment framed u/s. 143/147 of the IT Act is without Jurisdiction void-ab-initio, as the proceedings u/s. 147/148 were initiated by other A.O. (not having Jurisdiction of the case of the appellant), the impugned Assessment/Additions are bad in law, and are liable to be quashed/annulled."

3. This being a legal ground requiring no fresh material to be gone into, it is admitted.

4. Apropos the merits of the additional ground, the ld. Counsel for the assessee has contended that the reassessment proceedings in this case were initiated by the ACIT-I, Agra, whereas the assessment order dated 28.12.2011 has been passed by the ITO-4(2), Agra. The assessee's grievance is that this is not in accordance with law. According to the ld. DR, per contra, the competence or jurisdiction of the AO passing the assessment order has never been called into question by the assessee and so, he cannot be allowed to do so now. The ld. DR has also placed reliance on section 129 of the IT Act, 1961.

5. I have heard the parties and have perused the material on record. As per the first para of the assessment order, notice dated 09.03.2011 was issued to the assessee. A copy thereof has been produced before this bench.

6. This notice has been issued by the ACIT-I, Agra. The first para of the assessment order further states that since it is the ITO-4(2), Agra who holds jurisdiction over the assessee's case, all correspondence, etc., relating to the proceedings were transferred to the office of the ITO-4(2), Agra, and that the assessment proceedings were accordingly continued by the ITO-4(2), Agra.

7. Therefore, it is evident from the assessment order itself that whereas the notice u/s. 148 of the Act was issued on 09.03.2011 by the ACIT-I, Agra, who did not have jurisdiction over the assessee's case, the assessment proceedings were continued, on transfer of the case to him, by the ITO-4(2), Agra, who actually held jurisdiction over the matter. It is a matter of record that the reasons (APB 64) to believe escapement of income were recorded by the ACIT-I, Agra. The questions arising for adjudication are, thus, really two:

'(i)whether the reasons to believe escapement of income, if recorded by the AO not having jurisdiction over the matter, are not unsustainable in law;

And

(ii)where assessment proceedings are carried on by the AO having jurisdiction in continuation of such reasons recorded by an AO, within whose jurisdiction the matter did not lie, whether such proceedings and the consequent assessment order are not liable to be declared void ab initio.'

8. Apropos the first issue, as noted above, the assessment order itself admits that the ACIT-I, Agra, who recorded the reasons to believe escapement of income and issued the notice u/s. 148 of the Act, did not exercise jurisdiction over the matter and so it was, that the matter was transferred to the correct AO, i.e., the AO actually having jurisdiction over the matter, viz., the ITO-4(2), Agra.

9. Section 147 of the Act reads as follows:

"147. If the 77[Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)"

10. Now, as per section 147 of the Act, the AO may assess or reassess any income escaping assessment, if he has reasons to believe such escapement of income. The section starts with the words 'If the Assessing Officer has reason to believe'. The word 'Assessee' in this phrase was substituted for the words 'Income Tax' by the Direct Tax Laws (amendment) Act 1987, w.e.f. 1.04.1988. The same enactment also introduced section 2(7A) in the Act. As per this section, 'Assessing Officer' means an Officer, as named therein, who is vested with the relevant jurisdiction.

11. Thus, it was only the Officer having jurisdiction over the matter who, u/s. 147, could have formed any reason to believe escapement of income and none other. It has not been shown otherwise. To reiterate, in the present case, the ACIT-1 Agra, who recorded the reasons to believe escapement of income and issued the notice u/s. 148 of the Act admittedly did not exercise jurisdiction over the matter. In fact, evidently, this was the reason why the matter was transferred from the ACIT-1, Agra to the ITO 4(2) Agra. Therefore, the formation of the reasons to believe escapement of income is in direct violation of the provisions of section 147 of the Act.

12. Then, section 147 also provides that the Assessing Officer, if he has reason to believe escapement of income, he may assess or reassess such income subject to the provision of sections 148 to 153 of the Act. So, the assessment or reassessment u/s. 147 is subject to, inter alia, the provisions of section 148 of the Act.

13. Section 148(1) (relevant portion) is:

"148 (1) before making the assessment, reassessment u/s. 147, the Assessing Officer shall serve on the assessee a notice"

14. Section 148 (1), again, uses the expression 'Assessing Officer' which, as considered above, is the expression defined in section 2(7A), to mean the authority exercising the relevant jurisdiction. Since the ACIT-1, Agra, did not have jurisdiction over the matter, he could not, in law, have issued the notice u/s. 148 of the Act.

15. Reliance on 'Manju Agarwal v. ITO', (APB, 89/1 to 89/23), decision dated 23.08.2013, in ITA No.550/Agra/2012, rendered by this Bench, is appropriate in this regard.

16. In view of the above, I hold that since the reasons to believe escapement of income in this case were recorded by the AO who did not exercise the relevant jurisdiction, i.e., jurisdiction over the matter, such reasons are non-est, being in flagrant violation of the express provisions of section 147 read with those of section 2(7A) of the Act. These reasons are, thus, struck down as void ab initio, null and void. Since the reasons to believe escapement of income themselves have been declared null and void, all proceedings in furtherance thereof, culminating in the impugned order are also void ab initio and are quashed as such. Nothing further survives for adjudication.

17. In the result, the appeal is allowed.

Source:- Taxmann