2025 (10) TMI 530 - AT - Income Tax

Jurisdiction shift under s.127 effective despite ITBA migration delay; s.143(2) notice void, additions under s.68 r.w.s.115BBE deleted

ITAT CHENNAI held that jurisdiction over the assessee shifted by PCIT order u/s.127 to Central Circle-2, Madurai with effect from 09.12.2020, and ... Assessment order passed pursuant to a notice u/s. 143(2) by non jurisdictional office - Exclusive and absolute jurisdiction over assessee - Validity of Income Tax Officer, Ward-4, Tirunelveli exercise of jurisdiction over the assessee - HELD THAT:- In view of the foregoing order, it stands conclusively established that the Income Tax Officer, Ward-4, Tirunelveli, ceased to exercise jurisdiction over the assessee with effect from 09.12.2020. Consequent thereto, the exclusive and absolute jurisdiction in respect of all matters pertaining to the assessment, reassessment, collection, recovery, enforcement, and all other proceedings under the provisions of the Act in the case of the assessee, vests with and shall be exercised by the office of the Deputy/Assistant Commissioner of Income Tax, Central Circle–2, Madurai, from the aforesaid date. Whether relevant date for invoking jurisdiction should be reckoned from the date of actual migration of the PAN in the ITBA porta? - We are unable to concur with the submission of the ld.DR, it is well settled that once an order is passed u/s. 127 of the Act, the same operates as binding on all subordinate authorities, and the transfer of jurisdiction takes effect immediately upon the issuance of such order. The mere administrative delay in system migration cannot and does not operate to defer or dilute the legal effect of a duly passed statutory order. Administrative inconvenience cannot override or nullify the operative effect of an order passed by the PCIT u/s. 127 of the Act. Order passed by the PCIT u/s. 127 of the Act, has not been withdrawn, modified, or stayed at any point in time. In light of the foregoing, it is evident that as of the date of issuance of the notice u/s. 143(2) of the Act, namely, 29.06.2021, the jurisdiction in respect of the assessee’s case vested unequivocally with Central Circle-2, Madurai, and not with the Income Tax Officer, Ward-4, Tirunelveli. Consequently, the notice u/s. 143(2) of the Act, issued by the ITO, Ward-4, Tirunelveli, is without jurisdiction and, therefore, invalid and liable to be quashed. It is a well-settled legal proposition that an assessment order passed by an AO pursuant to a notice u/s. 143(2) of the Act issued by an officer lacking jurisdiction is null and void ab initio. Addition towards undisclosed business income - We observe that the said addition was made solely on the basis of statements recorded during the course of the survey, without any corroborative evidence to substantiate that the noting in the impounded material genuinely represented the actual sales of the assessee. It is a settled position in law that where the AO has already accepted the books of account, he cannot arbitrarily estimate income solely on the basis of noting found during a survey. AO ought to have relied on cogent and verifiable material demonstrating that the noting indeed represented the actual turnover of the assessee on the date of the survey. In the absence of such material, we are of the considered view that there is no infirmity in the findings of the CIT(A) in deleting the addition made by the AO. Addition u/s. 68 r.w.s 115BBE - It is undisputed that the said amount represented opening balances of unsecured loans and did not arise from fresh credits during the relevant assessment year. It is a well-established principle that the provisions of Section 68 are triggered only with respect to credits received during the year and do not apply to opening balances. In the facts and circumstances of the present case, we find that no addition u/s. 68 of the Act is warranted, and the ld.CIT(A) has rightly deleted the addition, which requires no interference. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice issued under section 143(2) by an Assessing Officer who lacked jurisdiction (after an order under section 127 transferring jurisdiction) vitiates the consequent assessment under section 143(3). 2. Whether a tribunal may admit and adjudicate a pure question of jurisdiction raised for the first time before it by invoking Rule 27 of the ITAT Rules. 3. Whether estimation of business income based on survey notings and a customer's statement can sustain an addition where books of account, GST returns and audited financials accepted by the Assessing Officer are relied upon by the assessee. 4. Whether unsecured loans reflected as opening balances can be treated as unexplained cash credits under section 68 read with section 115BBE when the credits were not fresh receipts in the year under assessment and documentary/banking evidence and corroborative statements are produced. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment when notice under section 143(2) is issued by a non-jurisdictional officer Legal framework: Section 127 confers power on the Principal Commissioner to transfer jurisdiction; section 143(2) prescribes mandatory issuance of notice before scrutiny assessment under section 143(3); principle that jurisdictional parameters cannot be dispensed with. Precedent Treatment: Reliance on decisions holding non-issuance or issuance by non-jurisdictional officer of notice under section 143(2) renders assessment null and void (authorities cited by the Court, e.g., Hotel Blue Moon principle and supportive High Court decisions). Interpretation and reasoning: The order under section 127 dated 09.12.2020 transferred exclusive jurisdiction to the Central Circle with immediate effect; administrative delay in ITBA migration does not affect the legal efficacy of the statutory transfer. Consequently, a notice dated 29.06.2021 issued by the erstwhile officer who ceased to have jurisdiction is legally ineffective. Ratio vs. Obiter: Ratio - An assessment founded on a notice under section 143(2) issued by a non-jurisdictional officer (post-transfer under section 127) is void ab initio; administrative system delays cannot validate such notice. Conclusions: The notice under section 143(2) issued by the non-jurisdictional officer was invalid and the assessment passed under section 143(3) pursuant thereto stood quashed. Issue 2 - Admissibility of a pure jurisdictional plea raised first before the Tribunal under Rule 27 of the ITAT Rules Legal framework: Rule 27 of the ITAT Rules permits the Tribunal to admit additional grounds, and section 260A(7)/CPC principles on substantial questions of law and procedural raising of jurisdictional issues; jurisprudence permits raising pure questions of jurisdiction before the Tribunal even if not urged below. Precedent Treatment: Followed precedent holding that an assessee may raise a jurisdictional issue before the Tribunal under Rule 27 without having filed cross-objections or having raised it below (Bombay High Court authority as applied by the Court). Interpretation and reasoning: A jurisdictional ground goes to the root of assessment and is purely legal; barring its admission would defeat fundamental legal principle. The Tribunal has power to admit such a ground and adjudicate it preliminarily. Ratio vs. Obiter: Ratio - Rule 27 can be invoked to raise a pure question of jurisdiction for the first time before the Tribunal; such issues must be entertained and decided even if not taken below. Conclusions: The jurisdictional ground was properly admitted under Rule 27 and decided as a preliminary issue. Issue 3 - Legitimacy of estimating business income from survey notings and third-party statements when books, GST returns and audited accounts are accepted Legal framework: Survey under section 133A may yield material, but additions must be based on cogent, corroborative evidence; where books of account are accepted (for e.g., under section 44AB audit acceptance), Assessing Officer cannot arbitrarily estimate income without credible material linking impounded notings to actual suppressed turnover. Precedent Treatment: The Court applied settled law that estimates must rest on demonstrable evidence and cannot be speculative; presumption under provisions like section 132(4A)/292C not regarded applicable without appropriate facts. Interpretation and reasoning: The AO relied principally on (i) a customer's statement alleging under-invoicing and (ii) survey notings of turnover prepared in the assessee's presence. However, no impounded documents were used or relied upon to corroborate that the notings represented actual sales; GST returns, audited financials and accepted books disclosed a lower turnover. Isolated customer statement and uncorroborated notings cannot be extrapolated to the entire year to estimate undisclosed income. Ratio vs. Obiter: Ratio - Estimation of turnover/income post-survey requires cogent and corroborative material; acceptance of books/accounts and GST returns rebuts speculative estimation based solely on survey notings or isolated statements. Conclusions: The CIT(A)'s deletion of the addition of Rs. 32,53,990 as undisclosed business income was appropriate and the AO's estimation was speculative and unsustainable. Issue 4 - Treatment of unsecured loans/opening balances as unexplained cash credits under section 68 read with section 115BBE Legal framework: Section 68 applies to credits 'in the books of an assessee' which are required to be explained as to the nature and source when reflected in the year of credit; settled principle that section 68 is attracted to fresh credits received during the year and does not ordinarily apply to opening balances that represent earlier years' transactions unless the creditworthiness/source is not established in the year when the balances first arose. Precedent Treatment: The Court applied the principle that opening balances ordinarily cannot be subjected to addition under section 68 in the assessment year where no fresh receipt occurred; corroborative bank records, ledger extracts and corroborative statements of creditors/transferors are material to substantiate genuineness. Interpretation and reasoning: The impugned amounts largely represented transfers made in earlier financial years (2012-13; 2017-18; 2018-19) and were evidenced by bank statements, ledger entries and corroborative statements of the persons who advanced funds. The AO had disbelieved parts of the explanation but the appellate forum found the transactions routed through banking channels, reflected in the transferors' books, and not adversely treated in transferors' assessments; some amounts were accepted on verification. Given this, treating those sums as unexplained cash credits in the assessment year under consideration was unwarranted. Ratio vs. Obiter: Ratio - Section 68 additions cannot be sustained in relation to opening balances/earlier year transfers where credible documentary and ledger evidence establishes source and genuineness; section 115BBE applicability to deemed unexplained credits is inappropriate where funds are explained as earlier year legitimate loans. Conclusions: The deletion by CIT(A) of the addition of Rs. 72,20,000 under section 68 read with section 115BBE was justified; no interference with that conclusion is warranted. Cross-references and final stance 1. Issue 2 (admissibility under Rule 27) is a threshold matter that determined the Court's power to address Issue 1; admission was upheld, enabling quashing of assessment on jurisdictional grounds (Issue 1). 2. Even if the Court had proceeded to merits (Issues 3 and 4), the Tribunal found the deletions by the CIT(A) on both undisclosed turnover and unsecured loans to be correct for the reasons summarized above. Overall conclusion: The assessment formed on the basis of a notice issued by a non-jurisdictional officer is void; discretionary additions founded solely on uncorroborated survey notings or on opening balances without considering documentary banking/ledger evidence are unsustainable. The appellate deletions were upheld.