Notice under s.158BC activates bar under s.124(3); s.127 cannot retrospectively validate notices issued without jurisdiction

HC held that a notice under s.158BC filed with the Nagpur ITO activated the bar in s.124(3), rendering proceedings between 6.7.1999 and the 18.1.2000 order regular and vesting the Deputy Commissioner with retrospective assessing-officer status as of 22.9.1999. The court ruled that s.127 cannot retrospectively confer jurisdiction on an officer who lacked it when issuing notices, and does not validate notices issued without jurisdiction. The substantial question of law was answered against the revenue and in favour of the respondent/assessee.

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Issues Involved:
1. Jurisdiction of the Deputy Commissioner of Income Tax, Nagpur to issue notice under Section 158BC.
2. Applicability of Section 124(3) of the Income Tax Act to bar the respondent/assessee from questioning jurisdiction.
3. Effect of participation in assessment proceedings on waiver of the right to challenge jurisdiction.
4. Retrospective effect of the transfer order under Section 127 of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction of the Deputy Commissioner of Income Tax, Nagpur to issue notice under Section 158BC:
The primary issue was whether the Deputy Commissioner of Income Tax, Nagpur had the jurisdiction to issue a notice under Section 158BC on 22.9.1999. The court noted that the respondent/assessee was originally assessed at Rajnandgaon (M.P.) and the jurisdiction was transferred to Nagpur by an order dated 6.7.1999 under Section 127. However, this order was quashed by the Madhya Pradesh High Court on 17.9.1999, before the notice under Section 158BC was issued. Since the order transferring jurisdiction was quashed, the Deputy Commissioner of Income Tax, Nagpur did not have the authority to issue the notice on 22.9.1999. The issuance of the notice by an officer without jurisdiction rendered all subsequent proceedings void.

2. Applicability of Section 124(3) of the Income Tax Act:
The Revenue argued that Section 124(3) barred the respondent/assessee from questioning the jurisdiction of the Assessing Officer after participating in the proceedings. However, the court clarified that Section 124(3) applies to returns filed under Section 139(1) and within one month of notices under Sections 142(1) or 143(2). The return in this case was filed in response to a notice under Section 158BC, not under Section 142(1)(i). Therefore, Section 124(3) did not apply, and the respondent/assessee was not barred from challenging the jurisdiction.

3. Effect of participation in assessment proceedings on waiver of the right to challenge jurisdiction:
The Revenue contended that by participating in the assessment proceedings, the respondent/assessee waived the right to challenge jurisdiction. The court rejected this argument, stating that waiver cannot confer jurisdiction on an officer who inherently lacks it. Jurisdiction is a legislative function and cannot be conferred by consent or participation in proceedings. The court cited the Supreme Court's decision in Kanwar Singh Saini vs. High Court of Delhi, emphasizing that participation in proceedings does not validate actions taken without jurisdiction.

4. Retrospective effect of the transfer order under Section 127 of the Income Tax Act:
The Revenue argued that the subsequent order dated 18.1.2000, which reaffirmed the earlier transfer order, retrospectively validated the jurisdiction of the Deputy Commissioner of Income Tax, Nagpur. The court dismissed this argument, stating that Section 127 does not provide for retrospective validation of jurisdiction. The explanation under Section 127 clarifies that the transfer of proceedings is effective from the date of the order and does not validate actions taken without jurisdiction prior to that date.

Conclusion:
The court concluded that the notice issued under Section 158BC by the Deputy Commissioner of Income Tax, Nagpur was without jurisdiction, rendering all subsequent proceedings void. The respondent/assessee was not barred by Section 124(3) from challenging the jurisdiction, and mere participation in the proceedings did not amount to waiver. The transfer order under Section 127 could not retrospectively confer jurisdiction. Consequently, the appeal was dismissed in favor of the respondent/assessee, with no order as to costs.

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