2025 (6) TMI 2010 - HC - Income Tax

Transfer of assessment proceedings by incompetent authority becomes binding when assessee fails to challenge timely under Sultan Sadik principle

Chhattisgarh HC held that transfer of assessment proceedings between AOs by incompetent authority, though procedurally invalid, became binding when ... Transfer of case u/s 127(1) from one AO to other AO - transfer of assessment proceedings from one Assessing Officer (Income Tax Officer Ward No. 4(1) Raipur) to another Assessing Officer (Income Tax Officer Ward No. 3(1) Raipur) by in competant authority? - HELD THAT:- Though the order transferring the case from one AO to other AO was not passed by the Principal Commissioner of Income Tax/Competent Authority u/s 127 (1) however, the said order was also not challenged by the appellant/assessee right in time. When the assessee questioned the order u/s 263 passed by the PCIT before the ITAT, the said order was allowed to become final, as he failed to avail the opportunity to challenge the order branding the same to be void and without jurisdiction. Thus, the said order is binding on the appellant/assessee and he was required to challenge the order dated 08.08.2019 before the competent Authority which he has failed to do so. According to the principles laid down in Sultan Sadik [2004 (1) TMI 674 - SUPREME COURT] an invalid order necessarily need not be non est, in a given situation it has to be declared by the competent Court. As such, the appellant/assessee did not question the above order in accordance with law and allowed it to become final. Therefore, in the second round of litigation, the appellant cannot be allowed to contend that the order dated 08.08.2019 transferring the case from one Assessing Officer to the other Assessing Officer by the incompetent Authority is void non est, therefore, the entire proceeding would lapse. Substantial question of law No. 1 is answered against the Appellant/Assessee and in favour of the Respondent/Revenue. Taxability of Compensation against the acquisition of land by NHAI - ITAT has not considered the issue on merits and dismissed the appeal by observing that earlier the Tribunal has already dismissed the appeal of the appellant, while affirming the order of CIT (Appeals) under Section 263 of the Act of 1961. In our considered opinion, the order passed by the ITAT is contrary to the facts and law available on record. TAT by its earlier order dated 17.08.2023 has only affirmed the legality, validity and correctness of the order passed under Section 263 of the Act of 1961, consequent to which, the AO has passed a fresh order of assessment on 26.02.2024. Therefore, the ITAT was required to decide the issue as to whether addition received as compensation against the acquisition of land by NHAI is liable to tax or not, however, the ITAT has not considered the same and wrongly relied on the earlier decisions, which had no nexus with the issue involved in the appeal preferred before the Tribunal. Accordingly, the order passed by the ITAT is set-aside to the aforesaid extent. The matter is remitted to the ITAT to decide the issue as to whether addition received as compensation against the acquisition of land by NHAI is liable to tax, after affording an opportunity of hearing to both the sides. 1. ISSUES PRESENTED and CONSIDEREDThe Court considered two core legal questions arising from the appeal under Section 260A of the Income Tax Act, 1961:(i) Whether the transfer of assessment proceedings from one Assessing Officer (Income Tax Officer Ward No. 4(1) Raipur) to another Assessing Officer (Income Tax Officer Ward No. 3(1) Raipur) by an authority other than the Principal Commissioner of Income Tax under Section 127(1) of the Income Tax Act, 1961, renders the assessment order dated 10.10.2019 void and non-est in lawRs.(ii) Whether the Income Tax Appellate Tribunal (ITAT) was justified in dismissing the appellant's appeal without deciding the merits of the addition of Rs. 65,04,107/- (compensation received against land acquisition by NHAI) to taxable income, particularly when the dismissal was based on an earlier unrelated orderRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Transfer of Assessment Proceedings under Section 127(1)Relevant Legal Framework and Precedents:Section 127(1) of the Income Tax Act, 1961 empowers only the Principal Commissioner of Income Tax (PCIT) to transfer assessment proceedings from one Assessing Officer to another. The Supreme Court in Ajanta Industries Vs. CBDT held that transfer of cases without an order by the competent authority under Section 127(1) and without recording reasons is invalid.Further, the Supreme Court's rulings in State of Kerala Vs. M.K. Kunhikannan, Sultan Sadik Vs. Sanjay Raj Subba, and Krishnadevi Malchand Kamathia Vs. Bombay Environmental Action Group elucidate the principle that an order passed without jurisdiction may be void but requires a competent forum to declare it so. Parties cannot unilaterally treat an order as void; it must be challenged through proper legal channels to be set aside.Court's Interpretation and Reasoning:The Court noted that the transfer order dated 08.08.2019 was passed suo motu by the Income Tax Officer Ward No. 4(1), Raipur, without the authority of the PCIT, thus breaching Section 127(1). However, the appellant did not challenge this transfer order in a timely manner before the competent authority. Instead, the appellant allowed the order to attain finality by not raising the jurisdictional objection at the appropriate stage.The Court relied on the principle that even if an order is void for want of jurisdiction, it remains binding unless declared void by a competent court or authority. The appellant's failure to challenge the transfer order effectively waived the right to contest its validity later. The Court emphasized that the appellant cannot now contend that the entire assessment proceeding is void due to the transfer order's invalidity.Key Evidence and Findings:The assessment order dated 10.10.2019 was passed by the Income Tax Officer Ward No. 3(1), Raipur, after the transfer. This order was accepted initially but later set aside by the PCIT under Section 263. The appellant challenged the PCIT's order before the ITAT, which upheld the PCIT's directions. Subsequent assessment orders and appeals followed, all proceeding on the basis of the transferred case. The transfer order itself was never challenged.Application of Law to Facts:The Court applied the precedents to hold that the transfer order, though arguably invalid, was binding as it was not challenged by the appellant. The appellant's inaction amounted to waiver, and the doctrine of estoppel applied to preclude reopening the jurisdictional issue at this stage.Treatment of Competing Arguments:The appellant argued the transfer was void ab initio and thus all subsequent proceedings were null. The respondent contended the transfer order was final and unchallenged, making the assessment order valid. The Court sided with the respondent, emphasizing procedural propriety and the necessity of timely challenge to jurisdictional defects.Conclusion:The Court answered the first substantial question of law against the appellant, holding that the transfer order, though passed without jurisdiction, attained finality due to non-challenge and cannot invalidate the assessment proceedings.Issue 2: Whether ITAT erred in dismissing the appeal without deciding the addition of Rs. 65,04,107/- on meritsRelevant Legal Framework and Precedents:The assessment order dated 28.03.2023 added Rs. 65,04,107/- as income, rejecting the appellant's claim of exemption under Section 10(37) read with Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. The CIT (Appeals) and subsequently the ITAT affirmed this addition.However, the ITAT dismissed the appellant's appeal on 28.06.2024 without adjudicating the merits of the taxability of the compensation amount, relying on an earlier ITAT order dismissing an appeal under Section 263 which related to a different issue.Court's Interpretation and Reasoning:The Court found the ITAT's dismissal without merit-based consideration to be erroneous. The earlier ITAT order upheld the PCIT's exercise of power under Section 263 but did not address the taxability of the compensation amount added in the fresh assessment order. Thus, the ITAT's reliance on the earlier order to dismiss the present appeal was misplaced.Key Evidence and Findings:The appellant's claim of exemption on capital gains arising from land acquisition was rejected in the fresh assessment order. The appellant's appeal against this addition was dismissed summarily by the ITAT without hearing the merits. The Court noted that the issue of taxability of compensation was distinct and required fresh consideration.Application of Law to Facts:The Court held that the ITAT is duty-bound to consider the merits of the appeal concerning the addition of Rs. 65,04,107/-. The dismissal based on an unrelated prior order was legally incorrect and deprived the appellant of a fair hearing.Treatment of Competing Arguments:The appellant contended that the ITAT failed to decide the appeal on merits and wrongly dismissed it relying on unrelated earlier orders. The respondent argued that the ITAT's order was in accordance with law. The Court rejected the respondent's contention, emphasizing the necessity of adjudicating the present issue independently.Conclusion:The Court set aside the ITAT order dated 28.06.2024 to the extent of dismissal without merit-based consideration and remitted the matter to the ITAT for fresh adjudication after hearing both parties. The second substantial question of law was answered in favor of the appellant.3. SIGNIFICANT HOLDINGSOn the first issue, the Court held:'Even if the order dated 08.08.2019 transferring the case from one Assessing Officer to another was not passed by the competent authority under Section 127(1) of the Income Tax Act, 1961, the appellant/assessee's failure to challenge the said order in accordance with law and allowing it to become final renders the order binding upon the appellant. An invalid order necessarily need not be non est; it requires to be declared void by a competent court or authority.'On the second issue, the Court observed:'The ITAT was required to decide the issue as to whether addition of Rs. 65,04,107/- received as compensation against the acquisition of land by NHAI is liable to tax or not. The dismissal of the appeal without considering the issue on merits and relying on an earlier unrelated order is contrary to facts and law.'Core principles established include the necessity of timely challenge to jurisdictional defects to avoid waiver, and the obligation of appellate authorities to decide appeals on merits rather than dismissing them on procedural or unrelated grounds.Final determinations:(i) The transfer order dated 08.08.2019, though arguably invalid, is binding due to non-challenge and cannot invalidate subsequent proceedings.(ii) The ITAT's dismissal of the appeal without merit-based consideration of the taxability of compensation is set aside, and the matter is remitted for fresh adjudication.