Income Tax Appellate Tribunal - Hyderabad
Maddi Lakshmaiah And Co. (P.) Ltd. vs Income-Tax Officer on 30 January, 1987
Equivalent citations: [1987]21ITD114(HYD)
ORDER
G. Santhanam, Accountant Member
1. These are appeals, one by the assessee and another by the department. For the sake of convenience, a common order is passed.
2. In the assessee's appeal, the jurisdiction of the Commissioner over the assessee's case in relation to the assessment year 1979-80 is challenged. Another point in the assessee's appeal is that the earned leave with wages actually paid during the year amounting to Rs. 49,125 should have been allowed as deduction in computing the net income of the assessee.
3. The assessee was under the jurisdiction of the ITO, A-Ward, Guntur. For the assessment year under appeal the following facts are relevant:
Date Event
31-3-1981 : Date on which order under Section 143(3) read
with Section 144B of the Income-tax Act, 1961
(draft assessment) was made by Income-tax
Officer, A-Ward, Guntur.
5-5-1981 Date on which the draft assessment order was
served on the assessee.
9-5-1981 Date on which objections were filed against the
draft assessment order.
30-9-1981 Date on which the file of the assessee was
transferred from Income-tax Officer, A-Ward,
Guntur, to Income-tax Officer, Special Investigation
Circle, Guntur, under a notification
under Section 127(1) of the Income-tax Act by
Commissioner in SAP. CR. No. 2/IAC/R-I of
1980-81 dated 23-9-1981.
19-10-1981 Case posted for examination by Inspecting
Assistant Commissioner (Assessment), Guntur,
who was regular Inspecting Assistant Commissioner,
Vijayawada, holding additional charge
of Inspecting Assistant Commissioner (Assessment),
Guntur.
29-3-1982 Inspecting Assistant Commissioner (Assessment),
Guntur, passed assessment order.
The assessee's objection is that the ITO, A-Ward, who was having jurisdiction over the assessee, served a draft assessment order on the assessee under Section 144B(1) of the Income-tax Act, 1961 ('the Act'). On receipt of objections from the assessee, the ITO, A-Ward, forwarded the draft assessment order together with the objections to the IAC, Range-I, Hyderabad, for issuing directions to the ITO under Section 144B(4). On 30-9-1981, the Commissioner, in his proceedings cited supra, transferred the file of the assessee along with some others from the jurisdiction of the ITO, A-Ward, to the jurisdiction of the ITO, Special Investigation Circle, Guntur. This transfer of file was made under Section 127(1) of the Act. No notification under Section 123(1) of the Act was made in the case of the assessee. Notwithstanding the objections of the assessee, the assessment was completed by the IAC (Assessment) who was the regular IAC, Vijayawada, holding additional charge of the IAC (Assessment) having concurrent jurisdiction over the assessee with the ITO, Special Investigation Circle. The assessee's preliminary objection is that such a course of action is not open to the IAC (Assessment), unless the jurisdiction of the IAC, Range-I, Hyderabad, was taken away or removed by an appropriate order under Section 123(1).
4. Another objection of the assessee is that there was no notification under Section 125A of the Act conferring jurisdiction on the IAC (Assessment) concurrent with that of the ITO, Special Investigation Circle, with effect from 30-9-1981.
5. In the first appeal, the Commissioner (Appeals) held that the order under Section 127(1) clearly mentioned that the IAC (Assessment) will have concurrent jurisdiction along with the ITO, Special Investigation Circle, with effect from 30-9-1981. Secondly, he held that any objection regarding jurisdiction should have been raised before the assessing officer and not in the course of the appeal. He also felt that if the assessee was aggrieved by the decision of the IAC (Assessment) to proceed with the assessment by exercise of his jurisdiction, it should have raised the matter at that stage and requested for specific ruling from the IAC (Assessment) on that matter and the question of jurisdiction could not be raised at the stage of appeal. In the circumstances, he rejected the preliminary objection raised by the assessee.
6. Shri M.J. Swamy, the learned counsel for the assessee, submitted that the assessee had raised the preliminary objections orally in the course of the proceedings before the IAC (Assessment). When an authority lacks jurisdiction in toto, the entire proceedings are vitiated and are void ab initio. This is not the case of jurisdiction of the ITO under Section 124 of the Act wherein the time limit is prescribed under Sub-section (5) thereof for calling in question the jurisdiction of the ITO. This is a case of the jurisdiction of the IAC for which no time limit has been prescribed. So, the question of jurisdiction could be raised at any stage of the proceedings including the appellate stage.
7. It was the submission of Shri Swamy that when the draft assessment order together with the objections was forwarded by the ITO, A-Ward, to the IAC Range-I, under Section 144B(1), it was the latter who was in season of the matter. It was his responsibility to give directions to the ITO under Section 144B(4). At that point of time, if at all the Commissioner wanted to effect a transfer of file, he ought to have passed an order under Section 123(1) transferring the file from one IAC to another IAC. This he did not do. Instead, he sought to transfer the file from the ITO, A-Ward, to the ITO, Special Investigation Circle under Section 127(1). This he is not entitled to do as the matter was pending before the IAC, Range-I. Even if the file had been transferred under Section 127(1) it will have prospective application only and not retrospective application, because no case was pending before the ITO once the matter was referred to the IAC, Range-I, for issue of directions. Therefore, the transfer of file to the ITO, Special Investigation Circle was without proper exercise of authority on the part of the Commissioner in relation to the assessment year 1979-80. Once this premise is granted, the subsequent clothing of the IAC (Assessment) with jurisdiction will equally fail and, therefore, the order passed by him is void ab initio and a non est in the eye of law. He relied on the decision of the Calcutta High Court in ITO v. Ashoke Glass Works [1980] 125 ITR 491.
8. Shri C.V. Padmanabhan, the learned senior departmental representative, submitted that the question of jurisdiction was raised by the assessee only before the Commissioner (Appeals). In fact, as the jurisdiction of the IAC (Assessment) depended upon the jurisdiction of the ITO, Special Investigation Circle, the challenge to jurisdiction should have been raised within the time limit prescribed under Section 124(5). Therefore, the plea of the assessee should not be entertained. He further submitted that when the ITO, Special Investigation Circle, had concurrent jurisdiction with the IAC (Assessment), the transfer of file from one ITO, vis., ITO, A-Ward, to another ITO, vis., ITO, Special Investigation Circle, was valid in terms of Section 127(1) and there was no need to give any opportunity to the assessee for such transfer especially when all such officers are situated in the same city, locality or place. In the circumstances, no order need be passed under Section 123(1).
9. Having regard to rival submissions and the materials on record, we uphold the order of the IAC (Assessment). There is no dispute that the ITO, A-Ward, proposed a draft assessment order which was served on the assessee; within the time perscribed under Section 144B the said draft order together with the objections thereto was forwarded to the IAC, Range-I, under Section 144B(4). Thus, the matter was pending before the IAC, Range-I, for issuance of directions under Section 144B(4). At this stage of the proceedings, the Commissioner, by virtue of the impugned order under Section 127(1), transferred the case of the assessee from the file of the ITO, A-Ward, to that of the ITO, Special Investigation Circle, having concurrent jurisdiction with the IAC (Assessment), The question for consideration is whether such a course is permissible for the Commissioner when the IAC, Range-I, was in season of the case on a reference by the ITO, A-Ward, under Section 144B(4). Shri Swamy argued that when the IAC, Range-I, was seized of the matter under Section 144B, no case was pending before the ITO, A-Ward, and it was the IAC, Range-I, who had jurisdiction over the case. Shri Padmanabhan, on the other hand, argues that Section 144B is only a procedural section and ultimately it is the referring ITO who has to pass the order under Section 144B incorporating the directions of the IAC and, therefore, the case is pending with the ITO, A-Ward. As the case was pending with the ITO, A-Ward, awaiting directions from the IAC, Range-I, he submitted that the Commissioner was perfectly justified in invoking the provisions of Section 127(1) to transfer the case from the jurisdiction of the ITO, A-Ward, to that of the ITO, Special Investigation Circle.
10. It is no doubt true that the provisions of Section 144B are procedural in nature and it has been held in G.R. Steel & Alloys (P.) Ltd. v. CIT [1984] 17 Taxman 29 (Kar.) that Section 144B contains procedure for completing the assessment and it cannot have the effect of invalidating the assessment when not complied with. In that case, the ITO varied the income returned by more than Rs. 1 lakh without following the precedure laid down in Section 144B. The AAC cancelled the assessment for failure on the part of the ITO to follow the procedure laid down in Section 144B. The Tribunal reversed his order and directed the ITO to make fresh assessment after complying with Section 144B. The High Court upheld the order of the Tribunal holding that Section 144B contained only procedure for completing the assessment and it cannot have the effect of invalidating the assessment when not complied with. In H.H. Maharaja Raja Pawer Dewas v. CIT [1982] 138 ITB 518, the Madhya Pradesh High Court held as follows :
Besides the argument, that the assessment order was totally invalid or non est on account of non-compliance with the procedure laid down under Section 144B of the Act, is not correct. There was no jurisdictional error even though the procedure under Section 144B of the Act was not complied with. The scheme of Section 144B of the Act clearly envisages that the jurisdiction to pass an order even when there is a variance of rupees one lakh and more between the income returned and the income assessed, is with the ITO, though Section 144B provides for a machinery for the service of a draft order on the assessee and a consultation with a superior officer. This is only a procedural matter not involving jurisdiction and, therefore, if there is a non-compliance or an irregular compliance with this provision, it is only a procedural irregularity which can be cured by directing the ITO to frame an assessment after following the correct procedure. The Madhya Pradesh High Court in Banarasidas Bhanot & Sons v. CIT [1981] 129 ITR 488, has considered this Question and held that non-compliance with the provisions of Section 144B of the Act is only a procedural irregularity and no question of jurisdiction is involved in such cases.
[Emphasis supplied] In other words, a case was very much pending before the ITO even though the same had been referred to the IAC for directions under Section 144B(4).
11. In this context, we may usefully recall the explanation of the word 'case' for purposes of Sections 127, 121, 123, 124, and 125 of the Act. It is provided :
... the word 'case', in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year." [Explanation to Section 127] Thus, 'case' would cover not only the past, the present, but also the future proceedings under the Act. Therefore, we uphold the contention of the revenue that the Commissioner had jurisdiction to transfer the case when the matter was pending before the IAC, Range-I.
12. Shri Swamy relied on the decision of the Calcutta High Court in Ashoke Glass Works' case (supra). That was a case concerning the jurisdiction of the IAC and the ITO in regard to penalty proceedings. The cardinal point in that decision is that as it was for the IAC to levy penalty or drop the proceedings, the referring ITO becomes a functus offlcio once a reference is made to the IAC and, therefore, the Commissioner withdrawing the cover of jurisdiction from the existing authority (IAC) while the same cover is spread over to the other authority (another IAC) by an order under Section 123(1), was held to be valid. In the case before us, in a proceeding under Section 144B, the referring ITO does not become a functus offlcio upon a reference being made by him to the IAC. Therefore, we reject the argument of Shri Swamy that the ratio of the decision of the Calcutta High Court cited supra should be applied to the facts of the instant case.
13. In this view of the matter, we uphold the contention of Shri Padmanabhan that there was no want of jurisdiction on the part of the Commissioner to transfer the case from the ITO, A-Ward, to the ITO, Special Investigation Circle, when a reference was pending with the IAC, Range-I. As we have decided the jurisdictional issue in favour of the revenue, we do not deem it necessary to consider whether objection to the assumption of jurisdiction should be made at the initial stage itself or at the appellate stage.
14 to 18. [.These paras are not reproduced here as they involve minor issues.]