Transfer of Assessment Proceedings Without Formal Section 127 Order Is Invalid, Hearing Must Be Given to Assessee

The ITAT Delhi held that the transfer of assessment proceedings between AOs without a formal order under section 127 was invalid. The AO who completed the assessment lacked jurisdiction as no proper transfer order was passed, and the assessee was not given an opportunity to be heard as required by section 127(1). Following the Delhi HC precedent, the tribunal quashed the order passed by the unauthorized AO and allowed the assessee's appeal.

---

---

ISSUES:

Whether the Assessing Officer (AO) had valid jurisdiction to pass the assessment order in the absence of a transfer order under Section 127 of the Income Tax Act, 1961.Whether the directions of the Dispute Resolution Panel (DRP) confirming the draft assessment order were sustainable in light of alleged errors in calculation of built-up space, sale consideration, and eligibility for exemptions under Sections 54F and 54EC.Whether the AO erred in denying exemptions claimed under Sections 54F and 54EC of the Act.Whether the AO and DRP correctly determined the indexed cost of acquisition and the year applicable for such calculation.Whether costs incurred for construction of servant quarters, compound walls, and interior works could be included for deduction under Section 54F.Whether the AO's assumption of jurisdiction over the assessee despite the assessee's address being in Hyderabad was correct.

RULINGS / HOLDINGS:

The jurisdiction assumed by the AO without a valid transfer order under Section 127 of the Act is invalid, and consequently, the assessment order passed without such jurisdiction is "without jurisdiction" and is quashed.The additional ground and Ground of Appeal No.9 challenging jurisdiction were admitted as they are legal questions requiring no factual verification and can be raised at any stage of proceedings.The directions of the DRP confirming the draft assessment order were not adjudicated because the jurisdictional issue was dispositive and allowed in favor of the assessee.It is mandatory under the law that "if case of an assessee is transferred to one Assessing Officer to another, then order u/s 127 has to be passed and without such order jurisdiction cannot be conferred on the transferee Assessing Officer."The Tribunal followed the precedent that "there is a distinction between lack of jurisdiction and irregular exercise of jurisdiction" and that proceedings are "void ab initio" if taken by an authority without power over the case.

RATIONALE:

The legal framework applied includes Sections 120, 124, and 127 of the Income Tax Act, 1961, which govern jurisdiction and transfer of cases among Assessing Officers.Section 127 mandates that transfer of cases between Assessing Officers who do not share jurisdictional authority requires a formal transfer order, providing the assessee reasonable opportunity to be heard and recording reasons for transfer.The Tribunal relied on binding precedent from a Coordinate Bench and the Hon'ble Delhi High Court, which held that absence of a transfer order under Section 127 renders subsequent proceedings and assessment orders invalid for lack of jurisdiction.The Tribunal distinguished between territorial jurisdiction under Section 124 and transfer of cases under Section 127, emphasizing that Section 127 applies where jurisdiction is transferred to an AO otherwise lacking jurisdiction as per directions under Sections 120 and 124.The Tribunal noted the established principle that legal grounds relating to jurisdiction can be raised at any stage, referencing Supreme Court authority.The Tribunal remanded the matter for verification of any purported transfer order under Section 127, highlighting the requirement for clear and specific orders to confer jurisdiction.The Tribunal declined to adjudicate other grounds of appeal as the jurisdictional defect was dispositive.

---