Income Tax Appellate Tribunal - Nagpur
Assistant Commissioner Of Income Tax vs Shravan Mahipat Hedau (Huf). on 28 February, 1997
Equivalent citations: (1997)58TTJ(NAG)771
ORDER
R. SWARUP, J.M. :
As all these appeals concern the same assessee, they are being disposed of together for the sake of convenience. In all, there are seven appeals and three cross-objections involving the asst. yrs. 1982-83, 1983-84, 1984-85 and 1985-86. Four of the appeals have been filed by the Department and other three appeals are the cross appeals filed by the assessee for the same assessment years. For the asst. yrs. 1982-83 to 1984-85, the point in the departmental appeal and the assessees appeals and the cross-objections is common. In the departmental appeal for the asst. yr. 1985-86, the point is slightly different.
2. The facts of this case are as below :
(a) The assessee, an HUF, filed the return of income for the asst. yr. 1982-83 before the ITO, Bhandara on 15th June, 1983.
(b) On 30th September, 1983, the proceedings under s. 132 were conducted at the business and the residential premises of the assessee.
(c) On the request of the ITO, Bhandara, the cases of the assessee were transferred under s. 127 by the CIT, Vidarbha, Nagpur to the 2nd ITO (assessment), Nagpur on 26th October, 1983.
(d) The returns for the asst. yr. 1983-84 and 1984-85 were filed before the ITO, Nagpur on 7th December, 1983 and 7th November, 1984, respectively.
(e) The assessments for the asst. yrs. 1982-83 to 1984-85 were completed by the ITO, Nagpur, on 25th March, 1986.
(f) Against these orders, the assessee filed the appeals before the CIT(A) who set aside all these orders and directed the AO to reframe the assessments in accordance with law. This order was passed on 15th April, 1988.
(g) After completion of the assessment and after decision of the appeals, the CIT, Vidarbha, Nagpur passed an order under s. 124 on 25th March, 1988, directing that the case of the assessment should be reverted back to the territorial ITO.
(h) While the cases were pending before the ITO, Bhandara, on the request of the ITO, Bhandara, the CIT, Nagpur passed another order under s. 127 of the Act on 6th September, 1989, transferring the cases of the assessee to the Asstt. CIT, Investigation Circle (1), Nagpur.
(i) The above transfer was made in accordance with the guidelines issued by the CBDT for distribution and allocation of the works among the various AOs and on a specific request made by the ITO, Bhandara for such transfer to Dy. CIT (Assessment), Nagpur.
(j) In view of the subsequent events which are not denied by the parties, it is clear that the CIT, Nagpur had not given an opportunity to the assessee before passing order under s. 127 before making such transfer.
(k) After this order of transfer, the Asstt. CIT, Nagpur issued notices to the assessee under ss. 142(1) and 143(2) of the Act number of times. The assessee attended at some of the hearings and made certain submissions. Such proceedings culminated with framing of the assessments under s. 143(3) on 5th March, 1991, 27th March, 1991, and 27th March, 1991, respectively for the asst. yrs. 1982-83, 1983-84 and 1984-85 respectively.
(l) For the first time, the assessee objected to the jurisdiction of the Asstt. CIT, Nagpur on 9th March, 1991, that is to say, after the assessment for the asst. yr. 1982-83 was completed but before the assessments for the asst. yrs. 1983-84 and 1984-85 could be completed.
(m) The assessee filed a writ petition before the High Court of Bombay at Nagpur challenging the jurisdiction of the AO, on 3rd May, 1991, the High Court quashed and set aside the order of the CIT, Vidarbha, Nagpur, dt. 6th September, 1989 transferring the cases of the assessee to the Asstt. CIT, Nagpur from ITO, Bhandara.
(n) The Bombay High Court passed the following order :
"Rules returnable forthwith. Heard parties at length. There is absolutely no reason to interfere with the assessment order which is appealable. It appears that the order of transfer under s. 127 of the IT Act dt. 6th September, 1989 has been passed without hearing the other side and is also not communicated to the petitioner. The point stands concluded by a decision of the Supreme Court in the case of Ajanta Industries vs. CBDT (1976) 102 ITR 281 (SC). Under the circumstances, the order dt. 6th September, 1989 is quashed and set aside. Needless to mention that the CIT is free to pass appropriate order in accordance with law after hearing the petitioner. Rule accordingly. No costs."
while communicating the decision of the High Court, it was further mentioned that the Court has passed the following order :
"As stated in the accompanied order, the Court disposes of writ and quashes and set aside the order dt. 6th September, 1989, and direct that the CIT is free to pass appropriate order in accordance with law after hearing the petitioner, Court makes this rule accordingly and makes no order as to costs."
(o) In compliance with the directions of the High Court dt. 3rd May, 1991, the CIT, Vidarbha, Nagpur, passed a detailed fresh order under s. 127 on 9th August, 1991 transferring the cases of the assessee from ITO, Bhandara to Asstt. CIT, Nagpur, after removing the technical error which had crept in his earlier order dt. 6th September, 1989. The order is stated to have been passed conformably to the High Courts order dt. 3rd May, 1991, and in continuation of earlier order dt. 6th September, 1989.
(p) The assessee filed the appeals before the CIT(A) on various grounds against the assessment orders dt. 5th March, 1991, and 27th March, 1991. However, the CIT(A) dealt with the plea of lack of jurisdiction of the AO, that is to say, the Asstt. CIT, Nagpur who passed the impugned orders for the asst. yrs. 1982-83 to 1984-85. The CIT(A), in detailed order, has discussed elaborately the law on question of jurisdiction. He held that the Asstt. CIT, Nagpur had no jurisdiction to pass the assessment orders for the above three years. He further proceeded to hold that the assessee did not acquiesce to the jurisdiction and the question of objection as contemplated under s. 124(3) of the Act did not apply to an order under s. 127 of the Act. He further proceeded to observe in para 22 of his order that "consequently though one would be inclined to annul the assessment, but one has also to bear in mind that the basis of jurisdiction under the IT Act is the liability to pay tax and not merely the jurisdiction possessed by an AO. Bearing that in mind and also the observations of the various Courts of law in the context of jurisdiction possessed by the AO, I CIT(A) would, from the point of view of fairness to both the Department and the assessee, set aside the assessments for all the three years for reframing by the AO possessing jurisdiction at the relevant assessment years in accordance with law". The CIT(A) preferred to decide the appeals on the following ground :
"The Asstt. CIT, Investigation, Circle-I, Nagpur had no jurisdiction to assess the assessee, the orders passed are without jurisdiction and void ab initio including other proceedings"
The CIT(A) after hearing the parties has passed a detailed order and thereby elaborately discussed the law on the question of jurisdiction. As mentioned above, the CIT(A) held that the Asstt. CIT, Investigation, Circle-I, Nagpur, had no jurisdiction to pass the assessment orders for the above three years because the original order passed by the CIT under s. 127 validly did not give jurisdiction to him to pass the assessment orders as the same was subsequently quashed and set aside by the High Court and the fresh order passed by the CIT dt. 9th August, 1991 did not validly give jurisdiction to him. The CIT(A) further observed that the assessee did not acquiesce to the jurisdiction and the question of objection as contemplated under s. 124(3) did not apply to an order under s. 127 of the IT Act. Keeping in view the above fact and also the observations of the various High Courts in the context of jurisdiction possessed by the AO, he set aside the assessment for all the three years for reframing by the AO initially possessing jurisdiction at the relevant assessment order in accordance with law, that is to say, the AO (ITO), Bhandara.
(q) Both the assessee and the Department are in appeal before us. The Department is in appeal against the finding of the operative part of the CIT(A), order and also the appeals were not decided on merits. The assessee is in appeal against the various operative parts of the CIT(A), order whereby he did not annul the assessments but only set aside the assessments.
3. The Departmental Representative assailed the CIT(A), order on various grounds. He in the very beginning assailed the CIT(A)s order on the ground that he cannot sit in appeal on the order of the CIT passed under s. 127 of the Act and the relevant decision of the then Federal Court in the case of Wallace Bros. & Co. Ltd. vs. CIT (1945) 13 ITR 39 (FC) and the decision of the Supreme Court in the case of Rai Bahadur Seth Teomal vs. CIT (1959) 36 ITR 9 (SC), were relied upon. The Departmental Representative further submitted that the question of jurisdiction was not appealable and once the assessee has accepted the order of transfer without filing any objection, he cannot challenge the jurisdiction subsequently before the CIT(A). The learned Departmental Representative submitted that the jurisdiction under the IT Act is administrative in nature and the assessee has no vested rights. He invited our attention to the commentary of the learned authors Sarvashri N. A. Palkhivala and B. A. Palkhivala on the Law and Practice of Income-tax, 5th Edn., p. 1058 to 1062. The learned author has observed that if an order is made by an AO other than the one entitled to exercise jurisdiction, it may amount merely to irregular exercise or assumption of jurisdiction; and if the assessee has not objected within the time prescribed by sub-s. (3) of s. 124, he would be deemed to have waived his objection and the order would be valid and effective. He further observed that if an administrative order transferring a case from one AO to another is set aside by the Court, that would not necessarily invalidate all action taken, before the Courts decision, by the AO to whom the case was transferred. The question as to whether an AO has jurisdiction within this section to assess any person, cannot be the subject-matter of appeal, the appellate authorities are not competent to decide the question as to the AOs jurisdiction. Such a question is to be decided by the director general or the CIT or the Board. The Departmental Representative further proceeded to argue that the provisions of s. 124 are clear and the assessee was barred from challenging the jurisdiction as he has failed to raise such objection within the time allowed under s. 124(3) of the Act. He invited our attention to the decision of the Bombay High Court dt. 3rd May, 1991 whereby their Lordships of the Bombay High Court had quashed and set aside the order of the CIT passed under s. 127 on 6th September, 1989 and the High Court also directed the CIT to pass fresh order after affording reasonable opportunity of being heard to the assessee in accordance with law. He contended that this decision of the High Court will have no effect to obliterate the action taken by the Asstt. CIT during the intervening period, i.e., to say, from 6th September, 1989 to the various dates on which he passed the orders for the asst. yrs. 1982-83 to 1985-86. At the time of passing the assessment orders, he had valid jurisdiction to do so. The order transferring jurisdiction to him was quashed and set aside by the High Court as on 3rd May, 1991. The High Court, according to him, has neither quashed the notice issued by the AO nor the assessment orders and the entire matter was left open to the appellate authorities. The High Court in so many words held that there is absolutely no reason to interfere with the assessment order which is appealable. It would mean that it is the duty of the appellate authorities to decide the consequential effect of the High Courts order while disposing of the appeal against the order which was validly passed.
He further invited our attention to the decision of the Patna High Court in the case of Raja Bahadur Kamakshya Narain Singh vs. ITO (1969) 74 ITR 563 (Pat) whereby it was held that if an order under s. 127 is set aside by the Supreme Court, that order did not make invalid the action taken by the ITO under s. 46(7) of the IT Act, 1922, invalidating the certificate in that section forwarded to the State Government for recovery of taxes during the period of transfer and quashing of the order by the Supreme Court. The ratio of this decision is quoted below :
"The decision of the Supreme Court setting aside the order of transfer to the officer at Calcutta had not the effect of declaring the order of transfer ultra vires or a nullity for all purposes or of invalidating all orders passed by the officer at Calcutta or any action taken by him during the pendency of the income-tax file of the petitioner before him."
He further contended that the allocation and distribution of the functions under the IT Act is not a matter of substance but is purely one of procedural and administrative matter. Therefore, any error or defect in the procedure is only irregularity and it is only a curable defect which will not affect the end result. In this connection he invited our attention to the decision of the Allahabad High Court in the case of Hindustan Transport Co. vs. IAC (1991) 189 ITR 326 (All). In this case, their Lordships of the Allahabad High Court held that even in spite of the fact that an order under s. 127 was passed by the Board transferring a case from one AO to another AO within the same locality, the transferor AO made an assessment in ignorance of the said order. From the case, it is clear that the fact of the existence of that order came to the knowledge of the assessee and the AO only after the assessment order was passed. The Court yet held that the order of the IAC was valid. The ratio of the decision of the Allahabad High Court is reproduced as under :
"Sec. 124 of the Act covers territorial jurisdiction as well as other kinds of jurisdiction and that an objection raised at the appellate stage as to the jurisdiction of the particular ITO to assess the assessee is hit by sub-s. (5) of s. 124 of the Act. The present writ petition raising an objection on the ground that the assessing authority had no jurisdiction to assess was not barred on account of the filing of appeal by the petitioner under s. 246. However, on merits, the petitioners plea that the impugned assessment was without jurisdiction had to be dismissed."
4. The Departmental Representative proceeding further relied on the decisions reported in Smt. Sohani Devi Jain vs. ITO (1977) 109 ITR 130 (Gau) (FB), Kanji Mal & Sons vs. CIT (1982) 138 ITR 391 (Del), Nund & Samont Co. (P) Ltd. vs. CIT (1976) 102 ITR 376 (Pat), Kistoor Mall vs. C. P. Singh, ITO (1983) 140 ITR 95 (Raj) and Kakunuru Venkata Reddy vs. CIT (1979) 118 ITR 917 (AP) to make a strong submission that to claim that the jurisdiction is not justiciable. Inviting our attention to the order of the Bombay High Court dt. 3rd May, 1991, it was again submitted that the High Court quashed the order of the CIT passed under s. 127 but did not interfere with the orders of assessment and the notice, it means that the assumption of jurisdiction by the Asstt. CIT, Nagpur, was proper and the High Court left the entire matter to the discretion of the appellate authorities to decide the consequential effect of the High Courts order. It was further submitted that later on the CIT, Vidarbha, Nagpur, in compliance with the High Courts order, passed another order dt. 9th August, 1991 after removing the deficiency as pointed out by the High Court in the order passed under s. 127. Therefore, the assessment orders passed by the AO were in accordance with law and were passed by the AO having jurisdiction over such cases. He has also placed reliance on the following decisions :
1.
Wallace Bros & Co. Ltds case (supra);
2. Rai Bahadur Seth Teomals case (supra);
3. Nund & Samont Co. (P) Ltd.s case (supra);
4. Kanji Mal & Sons case (supra);
5. Smt. Sohani Devi Jains case (supra);
6. Indra & Co. vs. CIT (1982) 134 ITR 466 (Raj);
7. Kakunuru Venkata Reddys case (supra);
8. Hindustan Transport Co.s case (supra). dismissed by the Supreme Court vide (1991) 188 ITR (St.) 84;
9. Dhrangadhra Trading Co. (P) Ltd. vs. CIT (1966) 60 ITR 674 (Guj);
10. Kistoor Malls case (supra);
11. Pannalal Binjraj vs. Union of India (1957) 31 ITR 565 (SC);
12. Raja Bahadur Kamakshya Narain Singh vs. Union of India (1964) 51 ITR 596 (Pat);
13. CIT vs. National Taj Traders (1980) 121 ITR 535 (SC);
14. Raja Bahadur Kamakshya Narain Singhs case (supra);
15. CIT vs. Indra Jitendra Narain Singh (1974) 95 ITR 512 (Pat),
16. Guduthur Bros. vs. ITO (1960) 40 ITR 298 (SC) and
17. Kapurchand Shrimal vs. CIT (1981) 131 ITR 451 (SC).
He has further assailed the order of the CIT(A) on the ground that the CIT(A) has not decided the appeals on merits and the directions of the CIT(A) given on preliminary ground are unwarranted and impossible to be implemented in view of the order of the CIT passed under s. 124, r/w s. 127. He further pointed out that at the first instance the CIT(A) said that after considering the facts and circumstances of the case, the order of assessment passed by the AO should have been annulled but taking into account the interest of Revenue, the orders are being set aside to the file of AO who initially had jurisdiction. He contended that the CIT(A) has no jurisdiction to pass such type of order and thus the order passed by him is illegal, perverse and against the provisions of law as the CIT(A) cannot give jurisdiction under s. 124 or s. 127 to any AO. In the impugned order, CIT(A) observed that in view of the fact of the case the orders of AO be declared nullity yet keeping into mind the interests of Revenue the matter is set aside to the AO who initially had jurisdiction to do so. According to him, the later part of his direction ran contrary to the above and he had not realised the consequences of such invalid order. He has further placed reliance on the written submissions placed by the AO before the CIT(A) and had also read over p. 9 of the CIT(A) order. He, on the basis of above facts, contended that the order of the CIT(A) may be quashed and he may be directed to decide the appeals on merits. He also contended that the orders passed by the AO were in accordance with law and thus the Departments appeals be allowed.
5. The learned counsel for the assessee invited our attention to the various provisions of IT Act, 1961. He submitted that as per definition of s. 2(7A), the AO means the Asstt. CIT or the ITO who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-s. (1) or sub-s. (2) of s. 120 or any other provision of the IT Act and the Dy. CIT who is directed under cl. (b) of sub-s. (4) of that s. 120 to exercise or perform all or any of the powers and functions conferred on, or assigned to an AO under the IT Act. An AO is vested with a specific jurisdiction and in any case, cannot enjoy global jurisdiction. He proceeded to invite our attention to the provisions of ss. 120, 124 and 127 of the IT Act, 1961 and the notification issued by the CIT on 1st June, 1989, defining the jurisdiction of the Asstt. CIT, Investigation Circle-I, Nagpur, to whom the assessees case was transferred on 6th September, 1989 under s. 127. This notification is a part of the assessees paper-book. According to this notification, the Asstt. CIT, Investigation Circle-I, Nagpur, had jurisdiction only in respect of the case assigned to him under s. 127. The counsel further proceeded to invite our attention to the fact that ss. 124 and 127 are operating in different fields. According to him s. 124 is general in nature and s. 127 confers special jurisdiction. It was further submitted that as s. 127 confers special jurisdiction, it overrides the general provision of s. 124. In this connection, he placed reliance on the ratio of the decision of the Supreme Court in the case of Rai Bahadur Seth Teomal (supra) and he thereby stressed the point that such distinction was made by the Court in that case also. He further invited our attention to the ratio of the decision of the Calcutta High Court in the case of ITO vs. Ashoke Glass Works (1980) 125 ITR 491 (Cal) to submit that ss. 124 and 127 operate in different fields. Their Lordships have brought out the distinction on p. 500 of their decision. He submitted that the question of jurisdiction under s. 127 could be raised at any stage and the limitation prescribed under s. 124(3) of the Act could have no application as the Asstt. CIT, Nagpur had no definite territorial jurisdiction under s. 124. He further submitted that s. 124(3) had no application to the assessees case because he had filed the returns before the AO, Bhandara and the 2nd ITO (Asstt.), Nagpur, voluntarily and who had the valid jurisdiction at that time when he filed the returns and he had no reason for raising any objection and the time of which had expired long ago. It was submitted that the question of raising objections arose only after this case was transferred under s. 127 on 6th June, 1989 and not at any time before it. Replying to the arguments raised by the Departmental Representative that the jurisdiction under the IT Act was not a matter of substance but only procedural and administrative, it was submitted that the order under s. 127 is not an administrative or procedural order when the case is transferred from one place to another as held in Ajantha Industries vs. CBDT (supra) which was relied upon by the Bombay High Court in quashing and setting aside the order of the CIT dt. 6th September, 1989. He, however, contended that the order passed under s. 127 is a quasi-judicial order and affected substantial rights of the assessee. He contended that the decision relied upon by the Departmental Representative of the Allahabad High Court reported in Hindustan Transport Co.s case (supra) is distinguishable on facts. Shri Mani further proceeded to submit that the assessee had not questioned the legality of the order of the CIT under s. 127 passed on 6th September, 1989. Before the CIT(A) that order was not in existence as the same was quashed and set aside by the High Court. The High Court observed that as the assessment orders were appealable, they were not interfered. The jurisdiction being a question of law which goes to the very root of the matter, therefore, it could be raised at any time before any one of the appellate authorities prescribed under the IT Act. It was submitted that the CIT decided only the validity of the assessment order of the Asstt. CIT. He found that the Asstt. CIT had total lack of jurisdiction. He found that the Asstt. CIT had no jurisdiction as there was no order under s. 127 as the order was quashed by the High Court passed under s. 127 and for this he relied upon the decision of the Bombay High Court in the case of CIT vs. Smt. Godavaridevi Saraf (1978) 113 ITR 589 (Bom) and the decision of the Madhya Pradesh High Court in the case of CIT vs. Vrajlal Manilal & Co. (1981) 127 ITR 512 (MP).
6. The authorised representative for the assessee further submitted that the jurisdiction was the power to decide and adjudicate a matter before the authority who has been vested with that power unless that authority is empowered in a regular manner, the proceedings before him became quorum non judis. He stressed a point that there is distinction between the conferment of power and its regular exercise. It was submitted that the same cannot be waived or created by sanction. Our attention was also invited to the decision of the Supreme Court in AIR 1990 SC 193 (sic) and Fonseca (P) Ltd. vs. L. C. Gupta AIR 1973 SC 563. It was also submitted that there was a distinction between want of jurisdiction and erroneous exercise of jurisdiction. He also invited our attention to the decision of the Supreme Court in the case of R. B. Shreeram Durga Prasad & Fatechand Nursingh Das vs. Settlement Commission (1989) 176 ITR 169 (SC). He also submitted that rejection of application without hearing a person is a denial of principles of natural justice and the rejection order, under such circumstances, is to be treated as nullity only. He relied upon the decision of the Supreme Court in Surinder Nath Kapoor vs. Union of India (1988) 173 ITR 469 (SC). He also submitted that the effect of quashing an order by the High Court is to restore the same position as it stood on the date of passing the order. The combined effect of this is that on quashing an order under s. 127 by High Court on 3rd May, 1991, the position is restored to the stage as on 6th September, 1989, that is to say that the assessees case is restored to the ITO, Bhandara as on 6th September, 1989 and anything done during the intervening period is void, ineffective and has no existence in law. He relied upon the decision of the Karnataka High Court in the case of Y. Moideen Kunhi & Co. vs. ITO (1993) 204 ITR 29 (Kar). Our attention was further invited to the decision of the Bombay High Court in the case of CST vs. Ravi Coffee Works (1983) 52 STC 432 (Bom). It was also submitted that the facts of the said case are almost identical with the facts of this case and should be relied upon for annulling the order passed by the AO. Regarding the reliance of the Departmental Representative on the decision in Smt. Sohani Devi Jains case (supra) and Kanji Mal & Sons case (supra), it was submitted that in these cases, the question of jurisdiction did not involve any transfer under s. 127 but it involved the same city and the locality and the question was covered under s. 124(3). Finally it was urged that the order under s. 127 passed by the CIT on 9th August, 1991 purported to be w.e.f. 6th September, 1989 could not have a retrospective effect. In this regard he relied on the decisions in ITO vs. M. C. Ponnoose (1970) 75 ITR 174 (SC) and CIT vs. Bazpur Co-operative Sugar Factory Ltd. (1988) 172 ITR 321 (SC). It was submitted that the words "quashed" and "set aside" mean the same thing and, therefore, the High Court used the words in that order and it obliterated the order of the CIT dt. 6th September, 1989. It also submitted that the Department intended to give retrospective effect to the order passed under s. 127 in compliance with the High Courts order dt. 3rd May, 1991. The assessee preferred a writ petition before the High Court and the Department stated before the High Court that order may not be passed giving retrospective effect. He contended that the High Court under these circumstances dismissed the second writ petition challenging the order of the CIT passed on 9th August, 1991, under s. 127.
7. The authorised representative for the assessee proceeded further to argue that the assessee in his own cross-appeals submitted that the CIT(A) should not have set aside the assessment orders to be done de novo by the ITO to exercise jurisdiction at the relevant point of time. It was also contended that in view of the decision of the Supreme Court in Baradakanta Mishra vs. High Court of Orissa AIR 1976 SC 1899, if the order of the initial authority is void, an order of the appellate authority cannot make it valid. It was, therefore, submitted that the CIT(A) should have annulled the orders of the AO.
8. In reply the Departmental Representative relied upon the submissions made by him earlier and also submitted that the CIT(A) was not justified in setting aside the assessments holding that the AO had no jurisdiction, and he was also not justified in directing to frame reassessment by the AO who originally had jurisdiction to decide the matter, i.e., ITO, Bhandara. He also contended that subsequent order passed under s. 127 has rectified the technical defect as pointed out by the High Court and thus it is a continuing order and as such the AO has valid jurisdiction under s. 127 vide order of the CIT passed under s. 127 at the time of framing assessment orders. He further contended that the decisions relied upon by the authorised representative for the assessee are distinguishable on facts and they are of no avail to the assessee. Proceeding further he contended that the CIT(A) had no powers to direct a particular AO to frame assessment in spite of the fact that as on that date the CIT had passed fresh order under s. 127 as on 9th August, 1991, as per directions of the High Court. This aspect of the matter was ignored by the CIT(A). So this latter direction of the CIT(A) is illegal and unwarranted. The CIT(A) according to him should have decided the appeals on merits and not on the point of jurisdiction.
9. We have considered the submissions of the parties and have also gone through the entire material placed on record including the ratio of the decisions relied upon by either of the parties.
10. The first point for determination before us is whether the AO validly exercised the jurisdiction by framing assessments on the basis of order passed by the CIT under s. 127 on 6th September, 1989 and also whether by the decision of the High Court dt. 3rd May, 1991 the said assessment orders have been rendered invalid or nullity or ultra vires. In this connection, it would be relevant to refer the decision of the High Court communicated by the Registrar, Bombay High Court, Nagpur Bench, Nagpur and the said order is reproduced as under :
"Rules returnable forthwith. Heard parties at length. There is absolutely no reason to interfere with the assessment order which is appealable. It appears that the order of transfer under s. 127 of the IT Act, dt. 6th September, 1989 has been passed without hearing the other side and is also not communicated to the petitioner. The point stands concluded by a decision of the Supreme Court in the case of Ajanta Industries vs. CBDT (1976) 102 ITR 281 (SC). Under the circumstances, the order dt. 6th September, 1989 is quashed and set aside. Needless to mention that the Commissioner is free to pass appropriate order in accordance with law after hearing the petitioner. Rule accordingly. No costs."
The High Court in the aforesaid order held that there is absolutely no reason to interfere with the assessment order which is appealable. However, the Court further held that it appeared that the order of transfer under s. 127 of the IT Act dt. 6th September, 1989 had been passed without hearing the other side and is also not communicated to the petitioner. The Court accordingly quashed and set aside the order dt. 6th September, 1989 on the basis that the CIT has not followed the principle of natural justice and thereby directed the CIT to pass appropriate order in accordance with law after hearing the petitioner. The order of the High Court did not say that the assessment orders passed by the Asstt. CIT on the basis of the order passed under s. 127 was either invalid exercise of jurisdiction or was ultra vires or nullity but the Court did not interfere with the assessment orders. Thus the Court has neither quashed the notice issued by the AO nor the assessment order itself, but left the entire matter for adjudication to the appellate authority as the order is appealable. The entire matter was thus left to the appellate authority to consider the validity, etc., of the assessment orders keeping into account the order of the High Court whereby the order passed by the CIT dt. 6th September, 1989 was quashed and set aside. In IT proceedings, the words "quashed" and "set aside" are two different aspects of the matter and they are quite distinct to each other. The meaning of the word "quash" means tearing off and "set aside" means restoration of the order to the authorities below for re-adjudication by passing a fresh order as directions of the superior Court or authority and in the latter case the proceedings are continuous as the same was set aside on account of procedural and curable defect and thus proceedings are pending for all purposes. This view finds support from the order of the High Court communicated by the Registrar and reproduced above. As already stated above, it was the duty of the CIT(A) to have decided the appeals on merit keeping into account the observations of the High Court passed in the writ petition of the assessee and referred to in pre-paragraph. The CIT(A) instead of deciding the appeals on merits preferred to dispose it of on preliminary ground which reads as under :
"That the Asstt. CIT Investigation Circle-I, Nagpur had no jurisdiction to assess the assessee. The orders passed are without jurisdiction and void ab initio including other proceedings."
The learned CIT(A) to our mind had ignored this important aspect of the matter and had erroneously proceeded to decide the jurisdiction conferred on the AO by the CIT under s. 127 mistakenly believing that the order passed under s. 127 was appealable. It is known fact that the CIT(A) cannot sit in appeal on the order passed under s. 127 by the CIT. He cannot decide the validity of the order transferring jurisdiction of one AO to another. The learned CIT(A) all through in his lengthy order has discussed in detail whether the AO has validly exercised the jurisdiction on the basis of order passed under s. 127 by the CIT. In our considered opinion, the CIT(A) proceeded on wrong premises. The CIT(A) to our mind should have examined whether the AO lacked jurisdiction between 6th September, 1989 to 3rd May, 1991 or at the time of framing the assessments he had valid jurisdiction.
This important aspect of the matter had absolutely escaped attention of the learned CIT(A). The Patna High Court in the case of Raja Bahadur Kamakshya Narain Singh (supra) relevant at p. 574 discussed all consequences in such identical set of circumstances and their Lordships have amply enumerated the entire legal position by giving an example. The ratio of the decision is quoted below :
"This is quite a reasonable view to take, otherwise, by just giving an example, I will illustrate the disastrous result which may follow to the Central Revenue. Supposing by an order made under s. 5 of the Act a case or a particular class of cases is transferred from the file of one ITO to another. The order of transfer is challenged by a particular assessee. The proceeding in which the order is challenged remains pending, say, for a period of five years or more. Until the order of transfer is successfully challenged, it cannot be assumed that the ITO who is in seisin of the file in pursuance of the order of transfer, is to sit idle and take no action in regard to the file of a particular assessee. He takes action, finding that, unless he takes action, the realisation or recovery of the tax will be barred under s. 46(7) of the Act. The order of transfer of the file to him is eventually set aside. If a view were to be taken that the action taken by him will be invalid within the meaning of the Explanation appended to the seventh sub-section of s. 46 of the Act, the position will be too obviously anomalous. No other ITO except the one before whom the file of a particular assessee was pending in pursuance of the impugned order of transfer, could forward a certificate under s. 46(2); and if his forwarding is accepted to be invalid because of the subsequent annulment of the order of transfer, the result will be that the Central Revenue will suffer and no competent officer would be there to realise it by forwarding a certificate under s. 46(2) of the Act during the pendency of the proceeding challenging the order of transfer. To my mind, to put such an interpretation or to accept such effect of the action taken by the ITO on the 20th March, 1955, will be too obviously wrong."
From this case it is clear that if the AO has exercised jurisdiction on the basis of valid order at the relevant point of time, it is still good even if the order of transfer had been annulled. The idea behind this type of order is to protect the interest of Revenue as a consequence of annulment of this order and no competent officer would be there to realize the dues during the pendency of the proceedings challenging the transfer order. The decision relied upon by the authorised representative for the assessee in 92 ITR 143 (SC) (sic) is however distinguishable on facts. The Authorised Representative for the assessee has further placed reliance on the ratio of the decisions of the Supreme Court in P. Dasa Muni Raddy vs. P. Appa Rao AIR 1974 SC 2089 and AIR 1990 a SCC 193 (sic). The ratio of these decisions are of no help to the assessee because there decisions are distinguishable on facts. The authorised representative for the assessee has further placed reliance on the ratio of the decision of the Orissa High Court in the case of Commercial Enterprises vs. State of Orissa (1991) 81 STC 84. After going through the facts of this case, we find that on different set of facts, the Orissa High Court observed that if the AO has total lack of jurisdiction and the assessment order framed by him is to be annulled and if the assessment suffers from technical or procedural or curable defect, in that case such order cannot be annulled. So this case helps the Department because the assessments suffered from curable defect. In this case the order passed under s. 127 by the CIT was intact at the point of time when the assessment orders were framed by the Asstt. CIT, Nagpur. So the Asstt. CIT had valid jurisdiction on that point of time. The Bombay High Court vide its decision dt. 3rd May, 1991 neither quashed the notice issued by the AO nor the assessment order framed therein but held that there is absolutely no reason to interfere with the assessment order which is appealable. Here after considering the entire facts it may be pointed out that it is absolutely incorrect to say that the AO lacked total jurisdiction on the date of framing assessment and also between 6th September, 1989, and 3rd May, 1991, when the AO framed the assessment but he had valid jurisdiction in this regard. Consequently, the ratio of the decision of the Bombay High Court in the case of Ravi Coffee Works (supra) is of no avail to the assessee as the same is distinguishable on facts. Moreover this decision was given by the Bombay High Court in respect of ST proceedings, so it cannot be safely applied to the IT proceedings. Much emphasis was laid by the authorised representative for the assessee on the fact that in the second writ petition filed by the assessee before the High Court while challenging the retrospective effect of the set aside order to be passed under s. 127 of the Act (as per direction of the High Court), the Departmental Representative averred that consequential order under s. 127 would have no retrospective effect. The High Court had neither dealt with this issue in the body of the order nor taken notice of it while dismissing the writ. Therefore, this assertion of the assessee will have no effect in view of the order of the High Court whereby the CIT had to proceed from the stage the irregularity had intervened by providing opportunity of hearing to the assessee before passing the order under s. 127 as per the decision of the High Court. In this connection, the Departmental Representative has drawn our attention to the ratio of the decision of Supreme Court in the case of Guduthur Bros. (supra). In this case, their Lordships have held as under :
"That as the AAC pointed out only to an illegality which vitiated the proceedings after they were lawfully initiated, the notice issued under s. 28(1) (a) did not cease to be operative and it was open to the ITO to take up the matter at the point at which the illegality supervened and to correct his proceedings. The notice under s. 28(1) (a) having remained still to be disposed of, the proceedings started after the order passed by the AAC could be described as during the course of the assessment proceedings, because the action would relate back to the time when the first notice was issued. The ITO had jurisdiction to continue the proceedings from the stage at which the illegality had occurred."
It is, therefore, clear from this decision that it is the duty of the appellate authority to set at rest the controversy by setting aside the matter to the AO to take up the matter at the point at which the illegality supervened and to correct his proceedings. In this way the CIT(A) ought to have acted in accordance with the decision of the Supreme Court in the case of Guduthur Bros. (supra) by deciding the appeals on merits in accordance with the law of the land. In this regard it would be relevant to refer the duties of the appellate authority as enunciated by the Supreme Court in the case of Kapurchand Shrimal (supra). The Supreme Court in this case observed as under :
"It is well-known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute."
Keeping in view the ratio of the decision of the Supreme Court in the case of Kapurchand Shrimal (supra), it was the duty of the learned CIT(A) to have corrected all errors in his proceedings under appeal by deciding the issue on merits. So the CIT(A) ought to have proceeded as directed by the Supreme Court in this case, that the earlier order passed under s. 127 by the CIT was no more in existence as per the order of the High Court dt. 3rd May, 1991. While considering the above legal position it is settled law that the powers of the CIT(A) are co-terminus with that of the AO. He can do what ITO can do and direct him to do what he had failed to do. Reliance is placed on the decision of the Supreme Court in the case of CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC). But the learned CIT(A) has not acted accordingly.
11. So the learned CIT(A) has not discharged duties of the appellate Court as defined by the Supreme Court in the above two cases. It is obviously clear from the facts mentioned above that after the decision of the High Court dt. 3rd May, 1991, the assessment orders suffered from technical and procedural defect because after 3rd May, 1991 the CIT had to pass a fresh order under s. 127 as per directions of the Court to set right the said controversy. So for these reasons we agree with the submissions of the Departmental Representative that the assessment orders passed by the AO as per order under s. 127 were validly passed and they cannot be interfered with by the appellate authorities on the point of jurisdiction. It is notable that in view of the aforesaid facts the CIT(A) cannot look into validity of the jurisdiction on a subsequent date and that too after the decision of the High Court. The finding of the CIT(A) on this aspect of the matter is hit by the ratio of the decision in the case of Raja Bahadur Kamakshya Narain Singh (supra). The decision of the Allahabad High Court in the case of Hindustan Transport Co. (supra) relied upon by the Departmental Representative is also on all fours, because it has considered the provisions of ss. 124 and 127 of the IT Act. It may be noted that the decision relied upon by the authorised representative for the assessee in the case of R. B. Shreeram Durga Prasad & Fatechand Nursing Das (supra) is clearly distinguishable on facts. After considering the entire facts, we find that the CIT(A) has proceeded on wrong premises by deciding the jurisdiction of the AO at the time of the appellate stage by ignoring the decision in the case of Guduthur Bros. (supra) and Orissa High Court decision in Raja Bhahadur Kamakshya Narain Singhs case (supra). The CIT(A) has not considered the fact in the order that the High Court quashed the order passed by the CIT passed under s. 127 because the CIT has not followed procedure as laid down by law. He passed the order without affording opportunity of being heard to the assessee. Therefore, the High Court has set aside the proceedings as per the law laid down by the Supreme Court in the case of Guduthur Bros. (supra). At this stage it will also be relevant to point out that CIT(A) has observed in the body of the impugned order that the facts of the case warranted that the assessment should be held as nullity but simply because he has to protect the interest of the Revenue, therefore, he preferred to set aside the assessments to the file of the AO who initially had jurisdiction to frame the assessments prior to the Asstt. CIT to whom the CIT had transferred jurisdiction under s. 127. In view of the facts of the case, we have to consider the legality and validity of this part of the order of the CIT(A). The CIT(A) being a quasi-judicial authority has to decide the appeal on merits and in accordance with law and he is duty bound to decide the cases on merits as per law and while doing so he is required to be independent and unbiased. He is nobody to protect the interest of the Revenue. Therefore, this finding of the CIT(A) is self-contradictory and against the provisions of law. The later finding of the CIT(A) that the case will go back to the AO having original jurisdiction. This finding of the CIT(A) unwarranted keeping in view the aforesaid discussion and is also not in accordance with law because it is not the CIT(A) who can transfer the jurisdiction of one AO to another but it is only the CIT who can do so. The CIT(A) in our view has exceeded his powers. This finding of the CIT(A) to our mind is against the provisions of law. Therefore, we hold that while giving directions, the CIT(A) has acted beyond his powers. Having taken into account the facts and circumstances of the case and the aforesaid legal position, we are of the opinion that the CIT(A) ought to have followed the ratio of the decision in the case of Raja Bahadur Kamakshya Narain Singh (supra) and also the case of Guduthur Bros. (supra) and would have decided the issue in question as per law. The conditional set aside order of the CIT(A) thus cannot be sustained.
12. It is further notable that the High Court quashed the initial order passed by the CIT under s. 127 of the ground that he has not afforded an opportunity of hearing to the assessee. So this procedural mistake was rectified by the High Court as it was a curable defect and thus it cannot be held that the AO totally lacked jurisdiction at the time of framing of the assessments. The CIT(A) has neither considered nor examined the legal position about the interregnum period involved in this case. In view of fact we find that the proceedings were continuing and the AO had valid jurisdiction at the point of framing assessments but subsequently on the order of the High Court the said assessment orders may not stand because the High Court has quashed the order passed by the CIT under s. 127 and restored the matter back at the file of the CIT for fresh decision. At this stage it would be relevant to point out that the High Court quashed the order under s. 127 on the ground that the CIT failed to give an opportunity of hearing to the assessee. The CIT in the set aside proceedings personally served the notice on the assessee but the assessee did not avail this opportunity and failed to place his viewpoint for which he went to the Bombay High Court twice over in the writ petitions. It shows that the assessee adopted dilatory tactics to delay and prolong the proceedings with a view to defeat the purpose of IT law by not paying the correct tax. This is the settled law that one who knowingly abuses the process of the Court he cannot take benefit out of his ill deeds. It is thus clear that the assessee had prolonged the proceedings for the reasons best known to him.
13. Having considered the facts and circumstances of the case, we are of the opinion that the CIT(A) was not at all justified in setting aside the assessments to the file of the AO who originally had jurisdiction to decide the issue in question because it was beyond his jurisdiction. The authorised representative for the assessee had conceded on this point. Therefore, the order of the CIT(A) is modified to the extent that the assessment orders are set aside to the AO who had jurisdiction as a consequence of an order of the CIT passed under s. 127 and he shall frame the assessments as per law after affording reasonable opportunity of being heard to the assessee. Therefore, the departmental appeals are partly allowed and the cross-appeals are dismissed.
14. The cross objections were not pressed by the authorised representative for the assessee and they are accordingly dismissed.
ITA No. 599/Nag/1992 for asst. yr. 1985-86 :15. As far as the departmental appeal for 1985-86 is concerned, the facts are different. Originally an order under s. 144 was passed by the 2nd ITO (Assessment), Nagpur, on 23rd March, 1988. The CIT(A) vide his order dt. 3rd November, 1989, set aside the order with a direction that a fresh order be passed after allowing an opportunity of being heard. Therefore, the Asstt. CIT (Investigation) Circle-2, Nagpur, passed a fresh order dt. 12th March, 1992, again under s. 144. The CIT(A) has held that non-compliance under s. 143(2) was unintentional and the assessee had a reasonable cause in not complying with the notices. He, therefore, set aside the assessment with a direction that a fresh order in accordance with law be passed. It is notable that the CIT(A) did not set aside the assessment on the ground that the Asstt. CIT, Nagpur, had no jurisdiction. In fact, no such ground was taken before him and the assessee also had no such grievance. When the order under s. 144 was passed by the Asstt. CIT, Nagpur, dt. 12th March, 1992, the jurisdiction was with the Asstt. CIT, Nagpur and the assessment was made on conferment of jurisdiction by a proper order under s. 127 on 9th August, 1991. Therefore, the set aside order of the CIT(A) was on a ground different than in the asst. yrs. 1982-83 to 1984-85 and is based on the assessees reasonable cause in not complying the notices under s. 142. That being so the CIT(A) was justified in setting aside the order and no prejudice is shown to be caused to the Department. We are, therefore, of the opinion that the departmental appeal has no force and the same should be dismissed.
16. In the result, appeal for 1985-86 is dismissed.
H. C. SHRIVASTAVA, A.M. :
I have the benefit of going through the order of my learned colleague, Judicial Member. I am unable to agree with the same. In my opinion, the real controversy boils down on one aspect of the matter, that is, what is the effect of the order of the High Court dt. 3rd May, 1991 quashing and setting aside the order of the CIT dt. 6th September, 1989 on the jurisdiction of the CIT, Nagpur. It is, therefore, important to examine this aspect in all its dimension and I do not propose to go into all the case laws that have been cited before us and only those relevant to this aspect will be referred by me.
2. At the very outset, the submission of the Departmental Representative that the exercise of powers under s. 127 is purely an administrative act cannot be accepted as the same is contrary to the decision of the Supreme Court in the case of Ajantha Industries (supra). Their Lordships have stated :
"It is manifest that once an order is passed transferring the case file of an assessee to another area, the order has to be communicated. Communication of the order is an absolutely essential requirement since the assessee is then immediately made aware of the reasons which impelled the authorities to pass the order of transfer. It is apparent that if the case file is transferred from the usual place or residence or office where ordinarily assessments are made to a distant area, a great deal of inconvenience and even monetary loss is involved. That is the reason why before making an order of transfer the legislature has ordinarily imposed the requirement of a show-cause notice and also recording of reasons."
Turning to p. 286, it is seen that the Supreme Court proceeded to observe that :
"When law requires reasons to be recorded in a particular order affecting prejudicially the interests of any person, who can challenge the order in Court, it ceases to be a mere administrative order and the vice of violation of the principles of natural justice on account of omission to communicate the reason is not expiated."
The Departments other contention was that the assessee is estopped from objecting to the jurisdiction cannot be entertained. As stated by the assessees counsel, s. 124 and s. 127 operate in different fields, even though both deal with the powers and functions of the AOs. Such distinction was recognised by the Supreme Court in Rai Bahadur Seth Teomals case (supra) while dealing with the similar corresponding provisions of 1922 IT Act. In this contention, the decision of the Calcutta High Court in Ashoke Glass Works case (supra) is relevant. In this case, the Calcutta High Court has observed that the powers under ss. 123 and 124 of the IT Act, 1961 are general administrative act of policy and convenience, particularly, absolute and suffers from no fetters like the power under s. 127. The incidents of orders under ss. 123 and 127 are completely different and distinct. I am, therefore, of the opinion that in this background, the assessees right to object cannot be denied. As s. 127 places no limitation to the time in which it has to be exercised, it is notable that the objection of the assessee before the CIT(A) is not against the order of the CIT dt. 6th September, 1989. The assessees contention before the CIT(A) was that in view of the High Courts order, quashing and setting aside the order under s. 127 dt. 6th September, 1989, the Asstt. CIT, Nagpur lacks the jurisdiction ab initio and, therefore, his order was invalid.
3. Jurisdiction in the context of the IT Act is powers and functions, i.e., exercised by the AO by virtue of an order issued under ss. 120(1) and 120(2) and 127 of the Act. While going through the terms of the CIT, Vidarbha, Nagpurs notification dt. 1st June, 1989, it is seen that the jurisdiction of the Asstt. CIT, Investigation Circle, Nagpur is "all the cases assigned under s. 127 of the IT Act". It is, thus, a special jurisdiction. Whenever, the jurisdiction is conferred under any provisions, the AO exercises the said jurisdiction in relation to definite and ascertainable number of persons within that sphere. But there can be neither jurisdiction comprehensive enough to extend to the whole territory to which the Act extends nor can a few or more AOs exercise the powers of jurisdiction in regard to the same matter on the same person at the same time. In my opinion, therefore, this stands to reason that the Asstt. CIT, Investigation Circle, Nagpur had jurisdiction only in regard to cases finally transferred under s. 127 of the Act and the provisions of sub-s. (3) of s. 124 cannot have any application in relation to such transfers and the cases referred to by the Senior Departmental Representative in relation to non-justifiability of the jurisdiction in appeal have no relevance to the facts of the case.
4. The next issue is regarding the effect of the High Courts order dt. 3rd May, 1991 on the order under s. 127. The High Court quashed and set aside the order dt. 6th September, 1989 of the CIT, Vidarbha, Nagpur passed under s. 127 holding that order was passed in violation of the provisions of s. 127. The words "quashing and setting aside" generally mean same thing, namely, annulment of an order. Whenever an order is annulled, the annulment deprives from an order its force, that is to say, it operates retrospectively and not prospectively. That is why the quashing of the order sends back the authority to the same position as they stood on the date of the passing of the quashing order and in my opinion, the assessees counsel was correct in his submission relying on the decision in Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association AIR 1992 SC 1439. The Supreme Court observed as under :
"While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order results in the restoration of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed."
In the case of P. D. M. Reddy vs. P. A. Rao AIR 1974 SC 2089, the Supreme Court observed in para 12 as under :
"The absence of a condition necessary to found the jurisdiction to make an order or give a decision deprives the order or decision of any conclusive effect."
The Supreme Court further in the case of Sushil Kumar Mehta vs. Govind Ram Bohra 1990 1 SCC 193 observed :
"Thus, it is settled law that normally a decree passed by a Court of competent jurisdiction, after adjudication on merits of the rights of the parties operates as resjudicata in a subsequent suit or proceedings and the parties or the persons claiming right, title or interest from the suits, its validity should be assailed only in an appeal or revision as the case may be. In subsequent proceedings, its validity cannot be questioned. A decree passed by a Court without jurisdiction over the subject-matter or on the other grounds which goes to the root of its existence or jurisdiction lack inherent jurisdiction. It is a coram non judice."
The Orissa High Court in the case of Commercial Enterprises (supra) held that annulment of an assessment is permissible where the taxing authority had no jurisdiction to assess. The assessee, in this case, challenged the jurisdiction of the AO to assess him.
The two orders of the High Court of Bombay at Nagpur rendered the AO with total lack of jurisdiction between 6th September, 1989, and 3rd May, 1991. In this connection, there is a very important decision of the jurisdictional High Court in the case of Ravi Coffee Works (supra). In that case, the place of the business of the assessee was visited by the STO, Encroachment Branch, on 12th August, 1986. They took the possession of certain books from the premises. After scrutinising the same, they came to a conclusion that the assessee suppressed the sales. Therefore, the STO reassessed the assessee in the financial year 1962-63. As assessment order for this period was passed by the STO E-(III) Ward and the reassessment order in respect of this period was passed by the STO, Enforcement Branch on 26th December, 1988. There was no order under s. 70 of the Bombay ST Act transferring the proceedings from STO E(III) Ward to the STO, Enforcement Branch prior to the reassessment order of 26th December, 1968. An appeal was preferred from the order of the reassessment by the STO, Enforcement Branch by the assessee to Asstt. CST. The Asstt. CST allowed the appeal in part scaling down the estimated sales. Against this order, the second appeal was filed before the Tribunal and the Tribunal came to the conclusion that the reassessment order was passed without jurisdiction inasmuch as the reassessment order was passed without there being a transfer order under s. 70 of the Bombay ST Act transferring the proceedings from STO E(III) Ward to STO, Enforcement Branch. The Tribunal held that the transfer order passed after the reassessment proceedings had already been completed could not have given retrospective jurisdiction to the STO, Enforcement Branch to reassess. The Tribunal then referred the following question of law to the High Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the reassessment order passed by the STO, Enforcement Branch, on 26th December, 1968 in respect of the assessment for the period from 1st April, 1962 to 31st March, 1963, was bad in law being the order passed without jurisdiction ?"
The Bombay High Court, went through the provisions of s. 70 of the Bombay ST Act and various validation of jurisdiction ordinances. It was held that all such orders passed were bad and had to be annulled. I am of the opinion that the facts of that case are quite similar to the facts of this case. As the provisions of s. 70 of the Bombay ST Act are pari materia with s. 127 of the IT Act, 1961. I am of the opinion that same case is enforceable in the entire State of Maharashtra.
5. It is also notable that when the assessee filed the second writ petition before the Bombay High Court challenging the retrospective effect of the second order of the CIT under s. 127, it was conceded on the part of the Department that second order under s. 127 did not have a retrospective effect. It means that there was no order of the CIT in existence between 6th September, 1989 to 3rd March, 1991, the date on which the High Court passed an order and the subsequent date on which the CIT passed an order under s. 127 giving effect to the High Courts order dt. 3rd May, 1991.
6. In my opinion, there are certain fundamental principles which apply to all proceedings before a Court or any Tribunal or any authority vested with statutory powers. I am, therefore, of the opinion that the assessee is entitled to take the plea of want of inherent jurisdiction before the appellate authority as in the instant case. It is distinguishable from irregular exercise of jurisdiction. In my opinion, it is not an irregular exercise of jurisdiction but is a clear case of want or absence of jurisdiction on the part of the Asstt. CIT, Nagpur. While I say that the Asstt. CIT, Nagpur had no jurisdiction, it should not be understood that I am adjudicating on the validity of the order passed by the CIT Vidarbha, Nagpur, under s. 127 dt. 6th September, 1989. That order was quashed on 3rd May, 1991 by the High Court. The Tribunal is no body to decide that issue at all now. We are only determining the validity of the assessment order passed by the Asstt. CIT, Nagpur on the basis of such order which did not exist in law ab initio. It is the High Court which has quashed that order for violation of principles of natural justice. I am of the opinion that two decisions of the Supreme Court in R. B. Shreeram Durga Prasad & Fatechand Nursing Das vs. Settlement Commissioners case (supra) and Surinder Nath Kapoors case (supra) are clearly applicable to the facts of this case. If the very foundation on the basis of which the assessments have been made by the AO during the interregnum does not exist, the entire body of the assessments have to fall. I am, therefore, of the opinion that the decision of the Supreme Court reported in Raja Bahadur Kamakshya Narain Singhs case (supra) and (1991) 189 ITR 331 (sic) relied upon by the Departmental Representative do not help the Department.
7. In view of the above, I am of the opinion that the CIT(A) was correct in holding that the Asstt. CIT Nagpur, had no jurisdiction and that orders passed by him are invalid. I am, therefore, of the opinion that the CIT(A) was right in observing that the assessments should be annulled. He committed an error in setting aside the assessments even after making such an observation in the body of his order. In my opinion, he should not have set aside the assessment orders with a direction to do the assessments de novo. I find that the assessees counsel was justified in contending that the order which is void cannot be made valid by an appellate authority. This is a case of lack of jurisdiction and, therefore, the assessment orders should have been annulled as held in Sant Baba Mohan Singh vs. CIT (1973) 90 ITR 197 (All). I, therefore, annul the assessments made by the Asstt. CIT, Nagpur. Therefore, the departmental appeals are dismissed and the assessees cross-appeals are allowed. The counsel for the assessee has not pressed the cross-objections, hence they are dismissed.
8. In the result, the assessees appeals are allowed and the departmental appeals and the assessees cross-objections are dismissed.
Appeal for the asst. yr. 1985-86 :
9. As far as the departmental appeal for the asst. yr. 1985-86 is concerned, the facts are different. Originally an order under s. 144, was passed by the Second ITO, (Assessment), Nagpur on 23rd March, 1988. The CIT(A) vide his order dt. 3rd November, 1989, set aside the order with a direction that a fresh order be passed after allowing an opportunity of being heard. Therefore, the Asstt. CIT, Investigation Circle-2, Nagpur passed a fresh order dt. 12th March, 1992 again under s. 144. The CIT(A) has held that non-compliance under s. 143(2) was unintentional and the assessee had a reasonable cause in not complying with the notices. He, therefore, set aside the assessment with a direction that a fresh order in accordance with law be passed. It is notable that the CIT(A) did not set aside the assessment on the ground that the Asstt. CIT, Nagpur, had no jurisdiction. In fact, no such ground was taken before him and the assessee also had no such grievance. When the order under s. 144 was passed by the Asstt. CIT, Nagpur dt. 12th March, 1992, the jurisdiction was with the Asstt. CIT, Nagpur and the assessment was made on conferment of jurisdiction by a proper order under s. 127 on 9th August, 1991. Therefore, the set aside order of the CIT(A) was on a ground different than in the asst. yrs. 1982-83 to 1984 and is based on the assessees reasonable cause in not complying the notices under s. 142. That being so, the CIT(A) was justified in setting aside the order and no prejudice is shown to be caused to the Department. I am, therefore, of the opinion that the departmental appeal has no force and the same requires to be dismissed. It is accordingly dismissed.
ORDER UNDER S. 255(4) OF THE IT ACT, 1961 A difference of opinion has arisen amongst, the Members, who heard the abovementioned appeals. For resolving the issue, the following questions are referred to the President of the Tribunal with a request that a Third Member be appointed so that the dispute is settled :
"1. Whether, on the facts and in the circumstances of the case, the Asstt. CIT, Nagpur, had valid jurisdiction at the time of framing of the assessment or not ?
2. Whether, on the facts and in the circumstances of the case, the order of the AO was irregular or invalid or it was a nullity and whether it should be set aside and restored to the file of the AO, or may be quashed ?"
J. KATHURIA, A.M. :
A difference of opinion having arisen between the Members who originally heard these appeals, the matter has come to be referred to me by the President, Tribunal under s. 255(4) of the IT Act. The points of difference are as under :
"(1). Whether on the facts and in the circumstances of the case, the Asstt. CIT, Nagpur, had valid jurisdiction at the time of framing of the assessments or not ?
(2). Whether, on the facts and in the circumstances of the case, the order of the AO was irregular or invalid or it was a nullity and whether it should be set aside and restored to the file of the AO, or may be quashed ?"
The assessee is a HUF. This case has a chequered history. Search under s. 132 of the Act in this case took place on 30th September, 1983. The CIT vide order dt. 26th October, 1983 transferred the case to ITO (Asst.), Nagpur. The ITO (Asst.), Nagpur, completed the assessments for the asst. yrs. 1982-83 to 1984-85 on 25th March, 1986. These assessment orders were set aside by the learned CIT(A) on 15th April, 1988. The CIT again transferred the case of the assessee from ITO (Asst.), Nagpur, to ITO, Bhandara, vide order under s. 127 of the Act dt. 25th May, 1988. Another order under s. 127 of the Act was passed by the CIT which took effect from 6th September, 1989. According to this order, the assessees case was transferred from ITO, Bhandara to Asstt. CIT, Investigation Circle-I, Nagpur. This order under s. 127 of the Act was challenged in a writ petition by the assessee before the Bombay High Court vide writ petition No. 1129 of 1991 and the High Court vide order dt. 3rd May, 1991 quashed and set aside the order under s. 127 of the Act aforesaid in the following terms :
"Rule returnable forthwith.
Heard parties at length.
There is absolutely no reason to interfere with the assessment order which is appealable.
It appears that the order of transfer under s. 127(1) of the IT Act dt. 6th September, 1989 has been passed without hearing the other side and is also not communicated to the petitioner. The point stands concluded by a decision of the Supreme Court in the case of Ajanta Industries vs. CBDT (1976) 102 ITR 281 (SC). Under the circumstances, the order dt. 6th September, 1989 is quashed and set aside.
Needless to mention that the CIT is free to pass appropriate order in accordance with law after hearing the petitioner.
Rule accordingly. No costs."
2. In the meantime the Asstt. CIT, Investigation Circle-I, Nagpur, completed the set aside assessments of the assessee for the asst. yrs. 1982-83 to 1984-85 as per the following details :
Asst. yr.
Assessment completed on 1982-83 5-3-1991 1983-84 27-3-1991 1984-85 27-3-1991
3. From the above, it would be immediately discernible that all the three fresh assessments were completed by Asstt. CIT, Investigation Circle-I, Nagpur, before the Bombay High Courts order dt. 3rd May, 1991 quashing and setting aside the order under s. 127 of the Act passed by the CIT transferring the jurisdiction over the assessees case from ITO, Bhandara to Asstt. CIT, Investigation Circle-I, Nagpur. To complete the narration, the CIT passed a fresh order under s. 127 of the Act on 9th August, 1991 "in obedience to the order of the Bombay High Court in the matter of civil writ No. 1129 of 1991". It is because the High Court in its order dt. 3rd May, 1991 had mentioned that the CIT was free to pass appropriate order in accordance with law after hearing the petitioner. This order was also made effective from 6th September, 1989.
4. The assessment orders for the asst. yrs. 1982-83, 1983-84 and 1984-85 dt. 5th March, 1991, and 27th March, 1991, respectively were the subject-matter of appeal before the CIT(A), Nagpur, who vide order dt. 17th January, 1992 set aside the assessment orders of 5th March, 1991, and 27th March, 1991 to be made afresh by the AO "possessing jurisdiction at the relevant point of time for the relevant assessment years in accordance with law".
5. Both the assessee and the Revenue came in appeal before the Tribunal.
6. Broadly speaking, while the Revenue challenged the setting aside of the assessment orders by the learned CIT(A), the assessee projected its grievance that instead of cancelling the assessment orders, the learned CIT(A) had merely set aside the same.
7. The matter was heard by the Tribunal. The learned Judicial Member who wrote the leading order held that the Asstt. CIT, Investigation Circle I, Nagpur, had valid jurisdiction when he passed the assessment orders on 5th March, 1991, and 27th March, 1991, because the Bombay High Court quashed the order of the CIT under s. 127 of the Act, later on 3rd May, 1991. The learned Judicial Member further held that the CIT(A) was not at all justified in setting aside the assessments to the file of the AO who originally had jurisdiction to decide the issue in question. He accordingly modified the order of the CIT(A) to the extent that the assessment orders were set aside to the AO who had jurisdiction as a consequence of an order of the CIT passed under s. 127 of the Act and he shall frame the assessments as per law after affording reasonable opportunity of being heard to the assessee.
8. The learned Judicial Member, therefore, partly allowed the departmental appeals, but dismissed the assessees cross-appeals.
9. The learned Accountant Member, however, disagreed. According to him the Asstt. CIT, Investigation Circle-I, Nagpur, had no jurisdiction to pass the orders and the assessment orders passed by him were invalid. He, therefore, annulled the assessments made by the Asstt. CIT, Investigation Circle-I, Nagpur, thereby dismissing the departmental appeals and allowing the assessees cross-appeals.
10. It is because of the above position that the two questions noted above were referred to the Third Member by the President.
11. The learned Departmental Representative submitted that when the AO completed the assessments for the asst. yrs. 1982-83, 1983-84 and 1984-85 on 5th March, 1991 and 27th March, 1991, the High Courts order dt. 3rd May, 1991, quashing and setting aside the order of the CIT under s. 127 of the Act dt. 6th September, 1989 was not available. It was submitted that so far as the AO, namely, Asstt. CIT, Investigation Circle-I, Nagpur, was concerned, he had validly assumed jurisdiction on the basis of the order of the learned CIT under s. 127 of the Act. It was also submitted that all the three assessments in question were getting barred by limitation on 31st March, 1991 and if the AO had not completed the assessments, these would have become time-barred and considerable revenue would have been lost. It was submitted that the AO in such circumstances validly completed the assessments and such assessments cannot be assailed. Reliance in this regard was placed on the ratio of the Patna High Courts decision in Raja Bahadur Kamakshya Narain Singh vs. ITO (1969) 74 ITR 563 (Pat), for the proposition that the decision of the Supreme Court setting aside the order of transfer to the officer at Calcutta had not the effect of declaring the order of transfer ultra vires or a nullity for all purposes or of invalidating all orders passed by the officer at Calcutta or any action taken by him during the pendency of the income-tax file of the petitioner before him. It was pointed out that in that case also the order of transfer passed by the CIT had been quashed by the Supreme Court, but in the meantime ITO, Calcutta, had issued the recovery certificate and this action of the ITO, Calcutta, was found to be legal and valid by the Patna High Court. My attention was specifically drawn to the observation of the Patna High Court at p. 574 of the report in which the High Court observed that until the order of transfer is successfully challenged, it cannot be assumed that the ITO, who is in seisin of the file in pursuance of the order of transfer, is to sit idle and take no action in regard to the file of a particular assessee. It was pointed out that the High Court further observed that if the action taken during the intervening period was accepted to be invalid because of the subsequent annulment of the order of transfer, the result would be that the central revenue would suffer. It was, therefore, vehemently argued that the AO at Nagpur was competent to complete the assessments which he did because at that point of time he was the only competent officer to complete the assessments.
12. The learned Departmental Representative further submitted that jurisdiction under the IT Act comprised three stages. It was submitted that the first stage was that an assessee who has income chargeable to tax had to pay the tax and as such the AO would have jurisdiction to assess such an assessee. The second stage, according to the learned Departmental Representative, was regarding the computation of total income and the third stage regarding the recovery of tax. It was submitted that while the first function was substantive, the other two functions were procedural. It was pointed out that s. 127 of the Act was a procedural section in the sense that it only provided a machinery for completing the assessment and for computing the total income. It was submitted that the AO had the inherent jurisdiction to assess the income of the assessee and in that sense there would be no illegality attaching to his orders. It was submitted that at best it could be a procedural defect which had also been removed when the CIT by a subsequent order dt. 9th August, 1991, passed under s. 127 of the Act transferred the case from ITO, Bhandara, to Asstt. CIT, Investigation Circle-I, Nagpur, and again w.e.f. 6th September, 1989. It was, therefore, submitted that the assessments completed by the AO were valid in the eye of law and any procedural defect that may have occurred as a result of the quashing and setting aside of the earlier order of transfer passed by the CIT under s. 127 of the Act had also been set right by the subsequent order of transfer by the CIT. It was argued that in the fiscal statutes distinction had to be made between inherent lack of jurisdiction and mere procedural defects in the jurisdiction. Reliance was placed on the Allahabad High Courts decision in Hindustan Transport Co. vs. IAC (1991) 189 ITR 326 (All), for the proposition that the Board or the CIT exercised the power of allocation of functions to various authorities or officers in the exigency of tax collection and the allocation is a measure of administrative convenience and that in such a situation the concept of jurisdiction cannot be imported and certainly not in the sense of invalidating the resultant action on account of the defect in the exercise of functions. My attention was specifically drawn to the observations at p. 331 and 332 of the report according to which the High Court observed that the IT Act does not treat the allocation of functions to various authorities or officers as one of substance : it treats the matter as one of procedure and a defect of procedure does not invalidate the end action and that a defect arising from allocation of functions is a mere irregularity which does not affect the resultant action.
13. The learned Departmental Representative also referred to the Karnataka High Courts decision in Y. Moideen Kunhi & Co. vs. ITO (1993) 204 ITR 29 (Kar). That was a case where the Chief CIT had transferred the case from one AO to another AO and no opportunity had been given to the assessee to counter or explain the reasons on the basis of which the case was transferred. The High Court held that the mandatory requirement of s. 127 of the Act had not been fulfilled and hence the order was contrary to s. 127(1) of the Act and was liable to be quashed. It was pointed out that after quashing the order, the High Court gave liberty to the chief CIT to initiate fresh action for transfer in accordance with law. It was, however, pointed out that the High Court went further and held that as a consequence of quashing the order of transfer : (a) the concerned assessing authorities shall also be entitled to issue fresh notices for completion of assessment proceedings for the relevant assessment years, and (b) any order passed pursuant to the transfer will be void and will not affect or bind the petitioner. In this regard it was submitted that the observation of the High Court regarding any order passed pursuant to the transfer being void was a casual remark because that was not germane to the controversy at hand. It was submitted that such a remark could at best be treated as obiter dicta which may have persuasive value, but which may not be binding on the authorities. Reliance in this regard was placed on the Bombay High Courts decision in CIT vs. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom). It was pointed out that at p. 740 and 741 of the report, the High Court had elaborated that while ratio decidendi could be binding on the Courts or the Tribunal, the observation by way of obiter dicta which at best may have persuasive efficacy, do not have the binding character of a precedent. It was, therefore, submitted that the observation made by the Karnataka High Court was made in passing and was not relevant to the controversy which was whether the transfer order passed by the Chief CIT was valid or not.
14. Reliance was placed on the Allahabad High Court decision in Sant Baba Mohan Singh vs. CIT (1973) 90 ITR 197 (All), for the proposition that a proceeding is a nullity when the authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject-matter of proceeding. It was submitted that in the present case assessment orders passed by the AO would not be called a nullity.
15. The learned Departmental Representative, therefore, submitted that the Asstt. CIT, Investigation Circle-I, Nagpur, had valid jurisdiction at the time of framing of assessments and that it was not even necessary to set aside the assessments for being made de novo.
16. Shri M. Mani, the learned counsel for the assessee, submitted that jurisdiction was not a procedural matter. Relying on the Bombay High Courts decision in Devidas vs. Union of India & Anr. (1993) 200 ITR 697 (Bom), it was submitted that in that case the order of transfer was vitiated because of absence of hearing and recording of reasons. It was submitted that in the present case also the order of transfer under s. 127 of the Act in the absence of an opportunity of hearing given to the assessee had been quashed and set aside by the High Court because the mandatory requirements of law had not been complied with.
17. Relying on the Supreme Courts decision in Bidi Supply Co. vs. Union of India & Ors. (1956) 29 ITR 717 (SC), it was submitted that the order of transfer by the CIT is calculated to inflict considerable inconvenience and harassment on the petitioner and was, therefore, liable to be set aside.
18. Reliance was also placed on the Supreme Courts decision in R. B. Shreeram Durga Prasad & Fatechand Nursing Das vs. Settlement Commission & Anr. (1989) 176 ITR 169 (SC). That was a case where the Settlement Petition of the assessee was rejected without furnishing to the assessee any opportunity of being heard. The Supreme Court held that the order passed by the Settlement Commission was a nullity because it was made in violation of the principles of natural justice. It was submitted that any order made in violation of the principles of natural justice was of no value. It was, therefore, argued that since the order of transfer was itself a nullity, the orders of assessment passed by the AO were also null and void.
19. The learned counsel for the assessee submitted that the word "set aside" has been defined in the Dictionary of Modern Legal Usage by Bryan A. Garner, to mean "to vacate", "to annul" and "to make void". It was, therefore, submitted that once the High Court set aside and quashed the order of transfer under s. 127 of the Act, this order stood vacated and annulled and invalidated and any subsequent order passed as a result of such an order would also be void ab initio.
20. Relying on the Supreme Courts decision in Nawabkhan vs. State of Gujarat AIR 1974 SC 1471, it was submitted that where a fundamental right of a petitioner had been encroached upon by the Police Commissioner without due hearing and the Court quashed the order, such order had died at birth. It was submitted that the legal result of quashing of such an order would be that the accused was never guilty of flouting an order which never legally existed.
21. The learned counsel for the assessee also relied on the Supreme Courts decision in Surinder Nath Kapoor vs. Union of India & Ors. (1988) 173 ITR 469 (SC). That was a case where a garnishee notice was issued to a third party for a specified amount and consequently the property in question had been put to sale also. Later on it was shown that the garnishee order was for a fictitious amount. The Supreme Court held that when a garnishee order was made for the payment of a fictitious amount without giving an opportunity to the person against whom the order is made to show-cause against the passing of such an order for that amount, the order was a nullity. The Supreme Court further held that in the eye of law it would be deemed that there was in existence no such order and any step taken pursuant to or enforcement of such an order would also be a nullity. Reliance was placed on the observations of the Supreme Court that when a decree or order is a nullity, it will be deemed to have no existence at all and any sale held in execution of such a decree or order must also be held to be null and void. Relying on this decision, the learned counsel for the assessee submitted that in the present case also since the order of transfer by the CIT was a nullity, any assessment order passed by the AO in pursuance of the order of transfer would also be null and void.
22. The learned counsel for the assessee submitted that the Karnataka High Courts decision in Y. Moideen Kunhi & Co. vs. ITO (supra), was also an authority for the proposition that where the order of transfer was quashed, the assessment order passed pursuant to the transfer order was held to be void. It was submitted that the observations of the High Court were by way of an obiter dicta, but were of a binding character. As regards the Patna High Courts decision in the case of Raja Bahadur Kamakshya Narain Singh (supra), relied upon by the learned Departmental Representative, the learned counsel for the assessee submitted that when the Patna High Court rendered the decision, the concept of natural justice had not crystallised. It was submitted that law on this issue had developed later and so the position of law which obtained in sixties when the said decision was rendered would not apply now when the law has crystallised and violation of natural justice has been held to rendering the order a nullity.
23. The learned counsel for the assessee, therefore, submitted that the assessment orders passed by the AO on 5th March, 1991, 27th March, 1991 and 27th March, 1991 respectively were invalid and the Asstt. CIT Investigation Circle-I, Nagpur, had no valid jurisdiction at the time of framing the assessments. It was further submitted that since the order of transfer had been quashed and set aside by the High Court, it was a nullity ab initio and any order passed subsequent to that would also be a nullity and hence the assessment orders could not be set aside and had to be quashed.
24. In reply, the learned Departmental Representative submitted that all the case law relied upon by the learned counsel for the assessee related either to criminal cases or civil cases, but not to cases involving fiscal statute. It was submitted that the concept of jurisdiction in fiscal laws was materially different from the other laws. It was submitted that once an assessee had taxable income there would be inherent jurisdiction to assess his income and it would be immaterial whether one AO made the assessment or another AO. Relying on the Supreme Courts decision in CIT vs. National Taj Traders (1980) 14 (SC) 348 : (1980) 121 ITR 535 (SC), it was submitted that the principle that a fiscal statute should be construed strictly is applicable only to taxing provisions such as a charging provision or a provision imposing penalty and not to those parts of the statutes which contain machinery provisions. It was reiterated that there was distinction between want of inherent jurisdiction and an irregular exercise of jurisdiction. It was also submitted that at least for the asst. yr. 1982-83, the assessee never objected to the assumption of jurisdiction by the Asstt. CIT, Investigation Circle-I, Nagpur. According to the learned Departmental Representative, it was significant to note that though the High Court in the present case had quashed and set aside the order of transfer passed under s. 127 of the Act, the assessment orders passed by the Asstt. CIT, Investigation Circle-I, Nagpur, had not been quashed. It was also submitted that the Supreme Courts decision in the case of Surinder Nath Kapoor vs. Union of India & Ors. (supra) was distinguishable because in that case there was inherent lack of jurisdiction because the demand itself was fictitious and on top of it no opportunity of hearing was granted. It was submitted that the Supreme Court in Ice & General Mills vs. ITO (1980) 121 ITR 547 (SC), observed that where jurisdictional or foundational notice under s. 148 of the Act was quashed any orders passed pursuant to the said notice would be of no avail to the Revenue. It was submitted that in that case the jurisdictional notice itself had been quashed and hence there was lack of inherent jurisdiction. It was submitted that this was not the position in the present cases where jurisdiction to assess was very much there and only the procedure for transferring the case had not been followed. The learned Departmental Representative vehemently argued that what was to be decided in this case was as to what would happen to the proceedings which had been completed during the interregnum i.e., between the date of the order of transfer and the date of quashing of the same by the High Court. According to the learned Departmental Representative any action taken during that period (sic) was valid in the eye of law and hence the AO had the valid jurisdiction to frame the assessments for all the three years.
25. I have carefully considered the submissions of both the sides. In these cases there was no lack of inherent jurisdiction. If the CIT had not passed the order of transfer under s. 127 of the Act, then the ITO, Bhandara would have completed the assessments and such assessments could not have been called into question. Sec. 127 of the Act is a machinery section. The CIT without giving opportunity to the assessee transferred the case to the Asstt. CIT Investigation Circle-I, Nagpur. The order of transfer was challenged in a writ petition by the assessee before the Bombay High Court. The High Court quashed and set aside the order. In the meantime the AO had completed the assessments on 5th March, 1991, 27th March, 1991, and 27th March, 1991 respectively. The High Court has not quashed these assessment orders. The question to be decided is as to whether the assessment orders passed before the quashing and setting aside the order of transfer are valid or not.
26. As already pointed out above, there was no lack of inherent jurisdiction in this case. The returns of the assessee had been filed and the jurisdiction of the AO had been validly assumed. For the asst. yr. 1982-83 the assessee never called into question the jurisdiction of the AO at Nagpur and cooperated during the assessment proceedings. It is true that for the asst. yrs. 1983-84 and 1984-85 the question of jurisdiction was raised before the AO, Nagpur, but at that time there was no order of the High Court quashing the order of transfer by the CIT. The assessments were getting barred by limitation. The AO in such circumstances could not sit idle or be a mute spectator. He had to bestir himself to complete the proceedings which would have become time-barred after 31st March, 1991. The order transferring the jurisdiction from ITO, Bhandara to Asstt. CIT, Investigation Circle-I, Nagpur, was a subsisting and a competent order.
The AO was bound to act upon and comply with such an order. It is a different matter that the said order came to be quashed and set aside by the High Court later on 3rd May, 1991.
27. The authority which is nearest to the facts of the present case is the authority of the Patna High Court in the case of Raja Bahadur Kamakshya Narain Singh (supra). In that case the order of transfer was set aside and quashed by the Supreme Court and in the meantime the ITO to whom the case had been transferred had taken some necessary action. This action was upheld by the High Court on the ground that it was the ITO who was in seisin of the file in pursuance of the order of transfer and he could not sit idle and take no action. His inaction in such a situation would have meant loss of central revenue. In the present case also if the AO had been sitting quiet because for two years at least the assessee had challenged his jurisdiction to assess, the result would have been considerable loss of central revenue.
28. I also agree with the learned Departmental Representative that jurisdiction as contemplated in the fiscal statute has a different connotation. If the income is not chargeable, then there is inherent lack of jurisdiction on the part of the AO to assess that income. But if the income is chargeable and returns, etc. have been filed by the assessee, the jurisdiction has been validly assumed by the AO. The quantification of income and the recovery of the tax are procedural matters of jurisdiction. The Supreme Court in the case of National Taj Traders (supra), has made the distinction that so far as charging provisions or penalty provisions in a fiscal statute are concerned, these have to be construed strictly, but not the machinery provisions. The provisions contained in s. 127 of the Act regarding the allocation of functions are machinery provisions. These do not affect the inherent jurisdiction. The assessee has no vested right to be assessed by a particular AO.
29. I also agree with the learned Departmental Representative that the observations of the Karnataka High Court in Y. Moideen Kunhi & Co. vs. ITO (supra), are by way of an obiter dicta. The controversy before the High Court was whether the mandatory provisions of s. 127(1) of the Act had been violated or not and the High Court came to the conclusion that these provisions had been violated and hence the order of transfer was quashed. At the end the High Court observed that any order passed pursuant to the transfer order would be void. No arguments appear to have been addressed on this point and this remark appears more by way of an obiter dicta with ratio decidendi. As held by the Bombay High Court in the case of CIT vs. Thana Electricity Supply Ltd. (supra), the observations by way of obiter dicta may have persuasive efficacy but do not have the binding character of a precedent.
30. The learned counsel for the assessee has laid great stress on the evolution of the principle of natural justice by the High Courts and the Supreme Court and submitted that this principle had not crystallised in the sixties when the decision came to be rendered by the Patna High Court in Raja Bahadur Kamakshya Narain Singh (supra). Most of the case law relied upon pertains to either criminal cases or civil cases. A distinction has got to be made between the criminal/civil cases, on the one hand and the cases under the fiscal statute, on the other. In a criminal case for instance if the original order is held to be a nullity, the subsequent order shall also be held null and void, but in cases of fiscal law this is not the position. Even if the order of the High Court quashing the order of transfer in the present cases be held a nullity all acts done in pursuance to the order quashed would not be a nullity per se. This is one of those cases where the assessment orders passed by the AO, Nagpur, would not be a nullity otherwise the central revenue would suffer irretrievably. This is particularly so when the CIT had since rectified the procedural irregularity and passed a fresh order under s. 127 w.e.f. 6th September, 1985, after hearing the assessee.
31. Taking into consideration the entire facts and circumstances of the case and the case law cited by both the sides and perusing the material on record, I hold that the AO had valid jurisdiction at the time of framing of assessments on 5th March, 1991, 27th March, 1991, and 27th March, 1991 respectively. So far as question No. 1 is concerned, I would agree with the view expressed by the learned Judicial Member.
32. As regards question No. 2, left to myself, I may have come to a different conclusion. I may have held that if the assessments had been made validly, there was no question of setting aside the same for de novo assessments. As Third Member, however, my job is tailor-made. I have either to agree with one learned Member or with the other learned Member and cannot give expression to my own views. Since I have held that Asstt. CIT, Investigation Circle-I, Nagpur, had valid jurisdiction at the time of framing of assessments, it is not possible for me to agree with the view expressed by the learned Accountant Member that the assessment orders were a nullity. Since I have no choice in the matter, I would agree with the learned Judicial Member that the assessments be set aside and restored to the file of the AO.
33. The matter will now go to the Bench which originally heard the appeals for disposal in accordance with law.