2019 (5) TMI 2017 - AT - Income Tax

ITO lacks jurisdiction over NRI assessee residing in UK, reassessment proceedings void ab initio under section 148

The ITAT Chandigarh held that reassessment proceedings initiated by ITO Nakodar were void ab initio due to lack of jurisdiction over a non-resident Indian ... Validity of Reassessment proceedings - no notice u/s 148 as issued to the assessee at his correct address - assessee was a non-resident Indian (NRI) residing in U.K., however, all the notices were issued at the Nakodar address of the assessee, whereas, the assessee had left residing there long back - HELD THAT:- Facts itself speaks that the amount in question were deposited in the NRI account of the assessee and since the assessee was an NRI, which fact was duly available on record, the ITO Nakodar had no jurisdiction to initiate reopening of the assessment by way of issuing a notice u/s 148 of the Act. Even the said notice has not been served upon the assessee. ITO, Nakodar had no jurisdiction to reopen or pass the assessment order and that is why he had transferred the pending assessment proceedings to the DCIT (IE), Chandigarh. Admittedly, the DCIT (IE) having specific information that the assessee was residing at U.K. and also having the U.K. address of the assessee chose to issue notice u/s 142(1) of the Act dated 22.11.2016 at the Nakodar address of the assessee and not at the U.K. address. Argument of the DR that the ITO, Nakodar had transferred the case to DCIT (IE), Chandigarh and, hence, there was no requirement of issuing of fresh notice u/s 148 as per the provisions of section 127 (4) - No force in the above contention of the DR. Firstly, the re-assessment proceedings initiated by the ITO, Nakodar were without jurisdiction and the same were void abinitio, hence, any transfer of such void proceedings to the Assessing officer of competent jurisdiction did not validate his action and the proceedings. Even otherwise, as per the provisions of section 127 of the Act, ITO Nakodar himself had no jurisdiction to suo motu transfer the case to the DCIT (IE). Rather, the transfer of the case as per the provisions of section 127 (1) of the Act, can be ordered by the competent authority prescribed in the said provisions. In view of this, there is force in the Cross objections raised by the assessee on this issue and the same is accordingly allowed. Unexplained cash deposit in Bank of Baroda - CIT(A) deleted addition - HELD THAT:- CIT(A) has rightly held that the assessee had duly explained the source in his bank account. Similarly, in respect of deposit out of the sale proceeds of share of the assessee in the house, the assessee had duly placed on file the agreement to sell as well as the family partition deed and, therefore, assessee has duly explained the source of the aforesaid deposits. Assessee has also furnished the valuation report of the property. CIT(A) considering the said valuation report, the amount actually received by the assessee from the transfer of his share in the ancestral property in the name of his nephew, in our view, has rightly held that the assessee had duly explained the source of the said deposit and also that no capital gains had accrued to the assessee on the transfer of the said share in the ancestral house. Decided in favour of assessee. Issues Involved:1. Validity of reopening the assessment without proper notice under Section 148 of the Income Tax Act.2. Legitimacy of additions made to the assessee's income based on unexplained cash deposits.3. Jurisdictional authority of the Income Tax Officer (ITO) and the Deputy Commissioner of Income Tax (International Taxation) [DCIT(IE)].4. Classification of the sold property and its implications on capital gains tax.5. Ownership of the property as individual or Hindu Undivided Family (HUF) property.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment:The core issue was whether the reopening of the assessment was lawful, given that no notice under Section 148 of the Income Tax Act was served on the assessee at the correct address. The assessee, being a Non-Resident Indian (NRI) residing in the UK, did not receive notices sent to his previous address in Nakodar. The tribunal found that the ITO, Nakodar, lacked jurisdiction to initiate the reopening without serving notice at the assessee's UK address. The DCIT(IE), who had jurisdiction, did not issue a fresh notice under Section 148. Consequently, the reopening of the assessment was deemed 'bad in law,' rendering the subsequent assessment unsustainable.2. Legitimacy of Additions to Income:The Revenue challenged the deletion of additions made by the CIT(A) concerning unexplained cash deposits of Rs. 37 lakh and Rs. 29.43 lakh. The CIT(A) concluded that the assessee had adequately explained these deposits as proceeds from the sale of agricultural land and a residential property. The tribunal upheld this view, noting that the assessee provided sale deeds and a cash flow statement, substantiating the source of funds. The tribunal agreed that the agricultural land was outside municipal limits, exempting it from capital gains tax. Similarly, the tribunal found no merit in the Revenue's appeal regarding the residential property's proceeds, as the assessee had submitted relevant agreements and a family partition deed.3. Jurisdictional Authority:The tribunal scrutinized the jurisdictional authority exercised by the ITO, Nakodar, and the DCIT(IE). It was determined that the ITO, Nakodar, acted beyond his jurisdiction by reopening the assessment and subsequently transferring the case to the DCIT(IE) without proper authorization under Section 127 of the Act. The tribunal emphasized that the ITO could not unilaterally transfer the case, and any such transfer should be ordered by a competent authority. This procedural lapse further invalidated the assessment proceedings.4. Classification of Sold Property:The classification of the sold property as agricultural land was pivotal in determining the tax implications. The tribunal concurred with the CIT(A) that the land was agricultural and located outside municipal limits, thus not qualifying as a capital asset subject to capital gains tax. This classification was crucial in justifying the deletion of the addition related to the sale proceeds of Rs. 37 lakh.5. Ownership of Property:The assessee claimed that the properties were ancestral HUF properties, not owned in his individual capacity. However, the tribunal found no evidence supporting this claim, as the sale deeds were executed in the assessee's individual capacity. Consequently, the tribunal dismissed this objection, affirming that the properties were not part of the HUF.Conclusion:The tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the additions related to unexplained cash deposits. The tribunal also allowed the assessee's cross-objections concerning the invalidity of the reassessment due to jurisdictional errors and improper notice service. However, the claim regarding HUF ownership was rejected. The final order quashed the reassessment, treating the cross-objections as partly allowed.