2017 (7) TMI 695 - HC - Income Tax

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 ... Transfer of cases - Notice under Section 158BC by assessee with Nagpur I.T.O. sufficient to apply bar under Section 124(3) of the Income Tax Act in the matter - Held that:- All the proceedings taken between 6.7.1999 till the Order dated 18.1.2000 by the Deputy Commissioner of Income Tax, Nagpur become regular and he will retrospectively enjoy the status of the Assessing Officer even on 22.9.1999, when he issued the notice u/s.158 BC of the Act. Transfer of proceedings u/s.127 of the Act cannot be retrospective so as to confer jurisdiction on a person who does not have it. This provision makes it clear that though transfer would come into effect from the date the order of Commissioner passed under Section 127(1) the proceedings already commenced would not abate and continue with new Assessing Officer, who assumes charge consequent to transfer subject of-course to the pending notices being within jurisdiction of the Officer issuing the notices. It is not a provision which validates without jurisdiction notice issued by an Income Tax Officer. If the submission of the Revenue on the above account is to be accepted, then an order which is without jurisdiction could be bestowed with jurisdiction by passing an order of transfer with retrospective effect. Section 127 of the Act does not validate notices/orders issued without jurisdiction, even if they are transferred to a new Officer by an Order under Section 127 of the Act. Substantial question of law is answered in the negative i.e. in favour of the respondent/assessee and against the appellant/revenue. 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.