2025 (9) TMI 26 - AT - Income Tax

Assessment u/s 143(3) quashed for lack of mandatory transfer order u/s 127 and absence of notice u/s 143(2)

Shri Gunjan Kumar Bihani Versus The Income Tax Officer, Ward-3 (4), Raipur

Assessment framed u/s 143(3) by ITO-3(4) was quashed for want of a mandatory transfer order u/s 127 and absence of notice u/s 143(2), rendering the ... Notice u/s.143(2) been issued by the ITO-1(1), Raipur, whereas, the assessment has been framed u/s.143(3) by the ITO-3(4), Raipur with no order of transfer u/s. 127 - As per JM order - HELD THAT:- There is no valid order of transfer u/s.127 of the Act which is mandatory for transferring a case from one A.O to another A.O. In so far the legal ground which goes to the root of the matter is concerned, the decision of National Thermal Power Company Ltd. Ltd. [1996 (12) TMI 7 - SUPREME COURT (LB)] provides that any legal issue which goes to the root of the matter can be assailed at any point of time before the appellate forum and such right as contemplated in the said decision is still prevalent and valid and has not been invalidated by the referred decision of Kalinga Institute of Industrial Technology [2023 (6) TMI 1076 - SC ORDER] As already examined since in the present case order of transfer u/s. 127 of the Act is not there, therefore, this legal issue was allowed to be raised by the assessee following the decision of National Thermal Power Company Ltd. Ltd. (supra). Further, we find that similar issue has been adjudicated in the case of Khemraj Sinha [2025 (7) TMI 1293 - ITAT RAIPUR] wherein the Tribunal after relying the decision in the case of Rahul Tyagi [2025 (3) TMI 1156 - ITAT RAIPUR] has quashed the assessment in absence of order of transfer u/s.127 Thus, we hold that the assessment framed by ITO-3(4), Raipur vide his order passed u/s.143(3) of the Act, dated 23.11.2017 in absence of an order of transfer u/s. 127 of the Act and without any issuance of notice by him u/s.143(2) of the Act to the assessee, is held to be without valid jurisdiction, bad in law hence quashed. Assessee appeal allowed. As per AM order - As in the case of M/s. Bhagyaarna Gems & Jewellery Pvt. Ltd. [2025 (3) TMI 287 - ITAT RAIPUR] it is of the firm conviction that in absence of any order of transfer passed by the Pr. CIT, Raipur u/s. 127(2) of the Act, which was the very foundation for transferring the case of the assessee from ITO-1(1), Raipur to ITO- 3(4), Raipur, who finally had framed the assessment vide his order u/s.143(3) of the Act, dated 23.11.2017, consequently, the impugned assessment framed, dehors an order of transfer u/s. 127 of the Act is liable to be quashed. Impugned assessment passed u/s 143(3) is quashed, dehors of mandatory order of transfer u/s. 127 of the Act. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment framed under section 143(3) by an Assessing Officer different from the officer who issued notice under section 143(2) is valid where no transfer order under section 127 has been recorded. 2. Whether an assessee who raises for the first time before the Tribunal the absence of a mandatory transfer order under section 127 can be precluded from doing so by operation of section 124(3) (i.e., failure to object within the time permitted after service of notice under section 142(1)). 3. The applicability and interplay of Supreme Court precedents addressing (a) the Tribunal's competence to entertain new points of law arising from facts on record and (b) the preclusive effect of section 124(3) when the assessee has participated in proceedings (the broader question whether a general precedent can be used to limit a specific statutory protection or vice versa). 4. Consequence of quashing an assessment for lack of jurisdiction on subsequent proceedings arising from that assessment. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment framed by a different AO in absence of transfer order under section 127 Legal framework: Section 127 prescribes procedure for transfer of cases between Assessing Officers; section 143(2) authorises issuance of notice initiating scrutiny; section 143(3) authorises framing of assessment. A transfer under section 127 is a statutory precondition where jurisdiction is shifted between officers not otherwise empowered to act. Precedent treatment: The Tribunal relied on a line of authorities emphasising that an order passed without jurisdiction is a nullity and that statutory powers must be exercised in the prescribed manner (including recent Supreme Court observations that non-compliance with statutory prerequisites that go to the root of jurisdiction cannot be waived). The Tribunal also cited Division-Bench and Single-Member precedents of the Tribunal holding assessments void where transfer orders under section 127 were absent. Interpretation and reasoning: The Court examined record evidence and the report from the Assessing Officer which showed no order under section 127 effecting transfer from the officer who issued the section 143(2) notice to the officer who ultimately framed the assessment. The Court reasoned that issuance of notice and subsequent framing of assessment by different officers without the mandatory transfer order creates ambiguity as to which authority legitimately had jurisdiction, undermines the adequacy of notice (a foundational element of fair hearing), and vitiates the jurisdictional basis of the assessment. Reliance was placed on the principle that a statutory power must be exercised by the authority designated by statute and in the manner prescribed; failure to satisfy such preliminary statutory conditions renders subsequent orders void ab initio. Ratio vs. Obiter: Ratio - where no section 127 transfer order exists on the record, an assessment passed by an officer other than the one who issued the section 143(2) notice is without jurisdiction and liable to be quashed. Obiter - general observations on the policy implications of ambiguous notices and on the necessity for taxpayers to have certainty to prepare defence. Conclusion: The assessment framed under section 143(3) by an officer different from the issuer of the section 143(2) notice, in absence of any recorded transfer under section 127, is invalid and quashed. All consequential proceedings arising from that assessment are rendered non-est in law. Issue 2 - Whether section 124(3) precludes the assessee from challenging jurisdiction before the Tribunal where no section 127 transfer order exists Legal framework: Section 124(3) precludes a person from calling in question the jurisdiction of an Assessing Officer in specified circumstances, including failure to raise objection within the time allowed by a notice under section 142(1) (commonly understood as a 30-day window after service of the notice). Precedent treatment: The revenue relied on a Supreme Court decision holding that where an assessee participates in proceedings pursuant to a section 142(1) notice and does not object within the statutory period, section 124(3)(a) precludes subsequent challenge to jurisdiction. The assessee relied on earlier Supreme Court authority that the Tribunal may entertain questions of law arising from facts on record (permitting fresh legal grounds before the Tribunal) and on Tribunal precedents distinguishing the later authority where the challenge attacked the absence of a statutory transfer order rather than the statutory vesting of jurisdiction in a particular officer. Interpretation and reasoning: The Court analysed the distinction between challenging (a) the statutory vesting of jurisdiction (territory/persons/income/cases) and (b) the procedural/statutory compliance required to effect a transfer of a file (section 127). The Court held that the absence of a transfer order under section 127 is a defect going to the root of jurisdiction and is not simply a matter of procedural non-compliance that can be cured by participation. Given that no transfer order was found on record and that the statutory precondition to confer jurisdiction on a different AO was not satisfied, the Tribunal was entitled to entertain and decide the legal issue even if raised for the first time before it. The Court further observed that the later Supreme Court decision relied upon by the revenue (interpreting section 124(3)) is focused on compliance where the assessee, by participation, had an opportunity to and did in fact respond to notices; where the question is the existence of a transfer order that is entirely absent on record and central to jurisdiction, the bar under section 124(3) does not operate to validate an otherwise void assumption of jurisdiction. Ratio vs. Obiter: Ratio - absence of a section 127 transfer order is a jurisdictional defect that can be raised before the Tribunal even if not raised earlier; section 124(3) does not validate an assessment where the statutory precondition for transfer is wholly lacking. Obiter - commentary distinguishing factual patterns where section 124(3) would apply (i.e., where the assessee has had clear opportunity to object and the statutory threshold for preclusion is met). Conclusion: Section 124(3) did not preclude the Tribunal from adjudicating the challenge to jurisdiction based on the absence of a section 127 transfer order; the plea could be raised and answered in favour of the assessee. Issue 3 - Interplay of precedents: general (Tribunal's jurisdiction to entertain new questions of law) vs specific (preclusive effect of section 124(3)) Legal framework: Principles of precedent, including that specific holdings on a statutory provision govern its application where facts fall within the scope of that provision; and the Tribunal's authority to decide questions of law arising from facts on record. Precedent treatment: The judgment considered (i) a Supreme Court decision limiting post-participation challenges under section 124(3) and (ii) an earlier Supreme Court decision affirming the Tribunal's power to consider new questions of law arising from the record. The Tribunal also relied on Division Bench precedents of the Tribunal distinguishing the former on facts where lack of a transfer order was the core grievance. Interpretation and reasoning: The Court explained that the specific statutory interpretation of section 124(3) (as applied in the Supreme Court decision) must be applied where the facts squarely fall within that provision (i.e., the assessee participated and failed to object within the statutory period). However, where the challenge concerns non-existence of a mandatory transfer order that goes to the root of jurisdiction, such a defect is distinguishable and the Tribunal may entertain the question of law afresh pursuant to its power to decide legal questions arising on the record. The concurring member, while agreeing with the ultimate result, recorded that the specific Supreme Court ruling on section 124(3) cannot be ignored and must be applied where facts match that ruling - but nonetheless concurred that in the present facts the absence of any transfer order placed the matter outside the restrictive ambit of that ruling. Ratio vs. Obiter: Ratio - specific statutory rulings operate where their factual predicates are satisfied; where they are not, general principles permitting the Tribunal to consider questions of law apply. Obiter - extended commentary on the hierarchy of specific versus general precedent and the necessity of fact-sensitive application. Conclusion: The Court applied the specific statutory rationale to the facts and found the present case distinguishable from decisions that would preclude a challenge under section 124(3); accordingly, Tribunal jurisdiction to decide the legal issue was upheld and the assessment quashed. Issue 4 - Consequence of quashing assessment for lack of jurisdiction Legal framework: An order passed without jurisdiction is a nullity and consequential proceedings based on such void order cannot subsist. Precedent treatment: The Court relied on authorities that treat orders passed without jurisdiction as void ab initio and hold that consequential actions are also invalid. Interpretation and reasoning: Having quashed the assessment for want of valid assumption of jurisdiction, the Court held that all subsequent proceedings flowing from that assessment become non-est in law and that the grounds on merits therefore become academic. Ratio vs. Obiter: Ratio - quashing of jurisdictionally void assessment nullifies subsequent proceedings; Obiter - none material beyond ordinary application of the principle. Conclusion: The assessment was quashed and all later proceedings arising from it were rendered non-est in law; appellate grounds on merits were adjudged academic. Concurrence The Tribunal issued a concurring opinion which agreed with the final outcome (quashing the assessment) but recorded different emphases on precedent application: the concurring Member stressed the binding effect of the specific Supreme Court ruling interpreting section 124(3) where its factual test is satisfied, and explained that the present case was distinguishable because it challenged the absence of a mandatory transfer order (section 127) rather than a mere failure to object after participation. The concurrence therefore reached the same result on somewhat different analytical grounds.