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 JCIT (OSD), International Taxation, Chandigarh Versus Sh. Balwant Singh Jutla

The JCIT (OSD), International Taxation, Chandigarh Versus Sh. Balwant Singh Jutla - TMI 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.