27 Assessment – Jurisdiction of AO – AO not having jurisdiction – Effect of transfer of case u/s. 127 – Waiver by assessee and assessee taking part in assessment proceedings – Waiver will not confer jurisdiction on AO – Order passed by AO not valid

CIT vs. Lalitkumar Bardia; 404 ITR 63 (Bom): Date of Order: 11^th July, 2017:

F. Ys.: 1989-90 to 1999-2000:

Sections 124, 127 and 158BC of I. T. Act, 1961

Search and seizure – Block assessment – Notice – Jurisdiction of AO – Objection to jurisdiction u/s. 124(3) – Limitation – Limitation not applicable to return filed u/s. 158BC

Search was carried out u/s. 132 of the Income-tax Act, 1961 in the case of assessee in February 1999. At that time, the assessee was being assessed at Rajnandgaon (MP). On  06/07/1999, the Commissioner, Raipur, in exercise of powers u/s. 127 of the Act, transferred the assessee’s assessment proceedings (case) from ITO Rajnandgaon to the Dy. Commissioner, Nagpur. The assessee challenged the order dated 06/07/1999 before Madhya Pradesh High Court. On 17/09/1999, the Madhya Pradesh High Court quashed the order dated 06/07/1999 and directed the Commissioner to hear the assessee and pass a reasoned order in support of the transfer of the case. On 22/09/1999, the Dy. Commissioner Nagpur issued a show cause notice u/s. 158BC of the Act calling upon the assessee to file his return of income. In response to the notice, on 05/05/2000, the assessee filed his return of income declaring undisclosed income at Rs. “Nil”. In the mean time, the Commissioner passed a fresh order u/s. 127 dated 18/01/2000 maintaining the order dated 06/07/1999. On 12/08/2000, the Dy. Commissioner, Nagpur issued notices u/ss. 142(1) and 143(2) of the Act. The assessee participated in the proceedings and consequent thereto an order of assessment dated 28/02/2001 was passed u/s. 143(3) r.w.s. 158BC of the Act by the Dy. Commissioner , Nagpur.

The Commissioner (Appeals) partly allowed the appeal filed by the assessee. Before the Tribunal, the assessee raised an additional ground that the assessment order dated 28/02/2001 passed by the Dy. Commissioner, Nagpur, was without jurisdiction. Holding that on 22/09/1999 when the notice u/s. 158BC of the Act was issued, the Dy. Commissioner, Nagpur did not have jurisdiction, the Tribunal allowed the assessee’s appeal.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The issue of notice u/s. 158BC of the Act, consequent to search is mandatory, as it is the very foundation for jurisdiction. Therefore, the notice u/s. 158BC of the Act has necessarily to be issued by a person who is the Assessing Officer and not by any officer of the Income-tax Department.

ii) A waiver would mean a case where a party decides not to exercise its right to a particular privilege, available under the law. However, non-exercise of the right or privilege will not bestow jurisdiction on a person who inherently lacks jurisdiction. Therefore, the principle of waiver cannot be invoked so as to confer jurisdiction on an officer who is acting under the Act when he does not have jurisdiction. The Act itself prohibits an officer of income-tax from exercising jurisdiction u/s. 158BC, unless he is an Assessing Officer. This limit in the power of the Income-tax Officer in exercise of jurisdiction is independent of the conduct of any party. Waiver can only be of irregular exercise of jurisdiction and not of lack of jurisdiction.

iii) Transfer of proceedings u/s. 127 of the Act cannot be retrospective so as to confer jurisdiction on a person who does not have it. Section 127 of the Act does not empower the authorities under the Act to confer jurisdiction on a person who does not have jurisdiction with retrospective effect. Section 127 does not validate notices or orders issued without jurisdiction, even if they are transferred to a new officer by an order u/s. 127.

iv) The amendment by the Finance Act, 2016 w.e.f. 01/06/2016 brings cases within the ambit of section 124(3) of the Act when notice is issued consequent to search u/s. 153A or section 153C of the Act prohibiting an assessee from raising the issue of jurisdiction. It does not include notices issued u/s. 158BC. Hence the time bar u/s. 124(3) to question the jurisdiction of the Income-tax Officer would not apply to the cases where return has been filed consequent to notice u/s. 158BC.

v) It was an undisputed position that the return of income was filed declaring undisclosed income at “nil” on 05/05/2000 in response to the notice dated 22/09/1999 issued u/s. 158BC of the Act and not consequent to notice u/s. 142(1)(i) of the Act which was issued on 12/08/2000. The bar of section 124(3) of the Act, would not prohibit the assessee from calling in question the jurisdiction of the Dy. Commissioner, Nagpur in passing the assessment order beyond the period provided therein.

vi) On 22/09/1999, when the notice u/s. 158BC was issued by the Dy. Commissioner, Nagpur, he was not the Assessing Officer of the assessee. The notice and the consequent assessment were not valid.”