2025 (9) TMI 369 - AT - Income Tax

Assessment under s.143(3) quashed as void ab initio for lack of authorization under s.120(4)(b) r/w s.2(7A)

Karan Motors Pvt. Ltd. Versus DCIT, Central Circle-27, New Delhi

Karan Motors Pvt. Ltd. Versus DCIT, Central Circle-27, New Delhi - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment framed under section 143(3) by an Additional Commissioner of Income-tax is valid where no order under section 120(2)/120(4)(b) (or other authorisation under section 120) assigning jurisdiction or empowering the Additional Commissioner to act as Assessing Officer has been placed on record. 2. Whether an assessee may raise an additional ground under Rule 11 after filing the grounds of appeal where that ground is a legal question going to the root of jurisdiction, and whether such additional ground should be admitted. 3. Whether the non-furnishing of records/authorisations by the revenue, despite repeated requests and RTI proceedings, permits a presumption that no valid authorisation exists and supports quashing the assessment for want of jurisdiction. 4. Interaction between section 124(3) (time-limits for challenging jurisdiction) and the requirement of producing the statutory authorisation - whether the limitation in section 124(3) precludes challenge to jurisdiction where the revenue fails to produce the empowerment. 5. Whether the findings and ratio of coordinate bench and the jurisdictional High Court in similar facts (where authorisation was not produced) are applicable and binding on the Tribunal in the present matter. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment where no section 120 authorisation is produced Legal framework: Sections 120(1)/(2)/(4)(b) empower the Board or authorised authorities to assign or authorise other Income-tax authorities to exercise the powers of an Assessing Officer; section 2(7A) defines 'Assessing Officer' and contemplates that an Additional Commissioner can function as AO when jurisdiction is validly assigned. Precedent treatment: The Tribunal relied on a coordinate-bench decision which held that in absence of any Order/Notification under sections 120(1)/(2)/(4) empowering the Additional CIT to act as AO, the assessment is vitiated. That decision was later approved by the jurisdictional High Court on the facts that the revenue failed to place the purported authorisation on record despite opportunity. Interpretation and reasoning: The Court emphasised that mere reference to a transfer/assignment in an assessment order is insufficient; the statutory authorisation (order/notification under section 120) must be produced. Where the revenue, having been afforded opportunities, fails to furnish the order under section 120(4)(b) or other empowering instrument, the Tribunal may infer absence of valid jurisdiction. The reasoning rests on the statutory scheme which conditions the Additional CIT's competence on a valid delegation/authorisation being in place and demonstrable. Ratio vs. Obiter: Ratio - an assessment framed by an Additional CIT without production of the statutory authorisation under section 120 is void ab initio for want of jurisdiction where the revenue fails to prove such authorisation. Obiter - factual observations on administrative practices and expectations for furnishing records in RTI/process may be ancillary. Conclusion: The assessment was quashed as void ab initio for want of jurisdiction because no order under section 120(4)(b)/120(2) or equivalent authorisation was placed on record by the revenue despite opportunities. Issue 2 - Admissibility of additional ground under Rule 11 Legal framework: Rule 11 permits amendment/addition of grounds in appeals; Supreme Court authority recognises admission of additional grounds raising legal points going to root of matter. Precedent treatment: The Tribunal admitted the additional ground relying on principles allowing belated legal grounds that affect jurisdiction or go to the root, following established Supreme Court dicta. Interpretation and reasoning: The additional ground challenged the very jurisdiction of the assessing authority - a fundamental legal question. The Court found it to be a legal issue of foundational importance, justifying admission under Rule 11 despite being raised after filing the appeal. Ratio vs. Obiter: Ratio - additional grounds that raise legal issues going to jurisdiction/root can be admitted under Rule 11; Obiter - procedural niceties regarding timing where prejudice is absent. Conclusion: The additional ground was admitted and taken up for adjudication as it raised a core jurisdictional/legal issue. Issue 3 - Effect of revenue's failure to furnish authorising documents and RTI responses Legal framework: Parties are entitled to seek details of authorisations; statutory power to assign jurisdiction must be demonstrable; RTI can be used to seek records held by public authorities. Precedent treatment: The Tribunal relied on the coordinate-bench decision and the High Court's approval where failure of the revenue to place the authorisation on record led to quashing of assessment. Interpretation and reasoning: The assessee repeatedly sought copies of (i) the section 127 order reassigning the case, and (ii) any section 120(2)/120(4)(b) authorisation. The revenue did not furnish these despite RTI proceedings and opportunities before the Tribunal; in one RTI reply the revenue admitted records were not available in the referenced office. Given the revenue's inability to produce the empowering order, the Tribunal drew a presumption favourable to the assessee that no valid authorisation exists. The Tribunal held that such failure substantively undermines the validity of the assumption of jurisdiction by the Additional CIT. Ratio vs. Obiter: Ratio - persistent non-production of authorising orders by revenue permits presumption of their non-existence and justifies quashing of the impugned assessment for want of jurisdiction; Obiter - observations on the procedural course of RTI appeals and administrative transfers. Conclusion: Non-furnishing of the authorising documents, including by responses under RTI and in appellate RTI proceedings, supported drawing a presumption against the revenue and warranted quashing of the assessment. Issue 4 - Interaction with section 124(3) limitation on challenging jurisdiction Legal framework: Section 124(3) bars calling in question the jurisdiction of an Assessing Officer after stipulated periods unless specific conditions are met; it concerns procedural limitation for raising jurisdictional objections before the AO. Precedent treatment: The jurisdictional High Court considered section 124(3) but affirmed the Tribunal where the appellant revenue failed to produce the authorisation; the Court observed that section 124(3) would have required further consideration only if the revenue had established that the Additional CIT was duly empowered. Interpretation and reasoning: The Tribunal concluded that section 124(3)'s limitations cannot operate to validate an assessment where the foundational authorisation enabling the AO to act was not produced at all. The statutory bar on late challenges presupposes that the challenged authority was properly vested; absent demonstrable vesting, the limitation provision does not cure the jurisdictional defect. Thus, the procedural bar cannot be invoked to preclude enquiry into the existence of the empowering order when revenue fails to prove it. Ratio vs. Obiter: Ratio - section 124(3) does not preclude examination of whether the AO had jurisdiction where the revenue cannot produce the statutory authorisation; absent proof of empowerment, the assessment is vulnerable despite limitation provisions; Obiter - discussion of interplay in different factual matrices. Conclusion: The limitation under section 124(3) did not prevent the Tribunal from holding the assessment void when the revenue failed to produce the authorising order; the Tribunal's approach was upheld as consistent with the High Court's reasoning. Issue 5 - Application of precedents and liberty to revenue to restore appeal if authorisation produced Legal framework: Binding effect of Tribunal/High Court decisions on similar factual matrices; ability to seek restoration/re-opening if new material emerges within statutory timelines. Precedent treatment: The Tribunal followed the ratio of the coordinate-bench decision and the High Court approval which found that absence of the authorisation vitiated the assessment. Interpretation and reasoning: The Tribunal found these precedents squarely applicable on facts where the revenue was given ample opportunity but did not produce the section 120 authorisation. Notwithstanding the quashing, the Tribunal granted liberty to the revenue to seek restoration if it can place on record within prescribed time any valid order under section 120(4)(b) conferring jurisdiction, thereby balancing finality with availability of recourse where genuine authorisation exists. Ratio vs. Obiter: Ratio - precedents establishing that assessments are void without demonstrable section 120 empowerment were followed; Obiter - procedural directions regarding restoration and timelines are discretionary adjuncts. Conclusion: Precedents were followed; assessment quashed, but revenue granted liberty to seek restoration if it subsequently proves valid authorisation within statutory limits. Final Disposition (Conclusive Headnote) The Tribunal admitted the additional Rule 11 ground challenging jurisdiction, found that the revenue failed to produce any statutory authorisation under section 120 (or related transfer orders) empowering the Additional Commissioner to act as Assessing Officer, held that section 124(3) does not save the assessment where empowerment is not demonstrated, followed controlling Tribunal and High Court decisions, and declared the assessment under section 143(3) void ab initio and quashed it; liberty was granted to the revenue to seek restoration if it can produce the requisite authorisation within the time permitted by law.