TaxTMI 
TaxTMI 
2023 (2) TMI 1348
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....gh the assessee has not preferred any appeal/cross-objection (CO) against the impugned orders of the Ld. CIT(A) but is supporting the action of the Ld. CIT(A) deleting the addition made by the AO by preferring an application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 (hereinafter "the Rules") wherein the assessee is challenging the jurisdiction of the AO to have re-opened the assessment. According to him, the AO who had initiated the reopening of the assessment itself was not competent to do so because as per the CBDT instruction No. 01/2011, the AO of the assessee ought to have been ITO, Ward -3(3) in respect of M/s. Watermark System India Pvt. Ltd. (hereinafter M/s. W. System) and not DCIT, Circle-3(3). And even for M/s. Watermark Financial Consultants Ltd. (hereinafter M/s. W. Financials) according to the Ld. AR, it should have been the ITO ward 3(3) and not DCIT, Circle-3(3) who had recorded the reasons for reopening the assessment and had issued the notice u/s 148 of the Income Tax Act, 1961 (hereinafter "the Act"). The aforesaid contention assailing the jurisdiction of AO, according to the Ld. AR flows from the CBDT instruction No. 1/2011, F. No 187/12/201....
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....Asst. Yr Date Original return filed Income declared Pecuniary jurisdiction as per CBDT Circular 1/2011 Date- Return filed u/s 148 Income declared AO recording reasons and issuing 148 notice AO completing assessment remarks 4830/M/16 2007-08 31.03.2007 24,31,830 ITO 09.12.2013 1,89,940 DCIT, Circle 3(3) DCIT, Circle 3(3) 4831/M/16 2008-09 28.09.2008 6,28,140 ITO 23.04.2012 4,78,300 DCIT, Circle 3(3) DCIT, Circle 3(3) 4832/M/16 2009-10 30.09.2009 -71,23,213 AC/DC 23.04.2012 1,84,580 DCIT, Circle 3(3) DCIT, Circle 3(3) Reasons recorded are vague and the Income escaping assessment has not been quantified 3. Drawing our attention to the chart No. 1, the Ld. AR pointed out that the income declared by the assessee M/s W. System for AY. 200607 was only to the tune of Rs. 1,89,940/-; and for AY. 2007-08 it was only to the tune of Rs. 4,78,300/-; and for AY. 2008-09 it was only 1,84,580/- and for AY. 2010-11, it was Rs. Nil. Likewise, he drew our attention to chart No. 2 in respect of M/s. Financial wherein AY. 200708, the income declared was only Rs. 24,31,830/-; income declared for AY. 2008-09 was only Rs. 6,28,140/-. Thus, according to ....
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....ed stage after the assessment has been framed and for that, she drew our attention to sub section (3) of section 124 of the Act and contended that assessee was prohibited from questioning the jurisdiction thereafter. So according to Ld. CIT DR, the issue of jurisdiction/competence of the AO cannot be raised at this belated stage (at the second appellate stage). Therefore, according to her, the Rule 27 application itself should not be admitted and for that she drew our attention to Rule 27 of the Rules which reads as under: "Respondent may support order on grounds decided against him. "The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him." 5. According to the Ld. CIT-DR, the Rules are very clear. According to her, the respondent/assessee in this case may support the action of the Ld. CIT(A) even if the assessee has not preferred any appeal on any of the grounds decided against it. So according to Ld. CIT DR, in this case, the assessee's Rule 27 application should not be admitted. 6. In the light of the aforesaid discussion, we need to first decide whether the respondent/assessee in this case can take....
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....owever, this contention of the assessee has been vehemently opposed by the Ld. CIT-DR who relied on the decision of Hon'ble Allahabad High Court order in Shiva Adityiya Jems & Jewellery Pvt. Ltd. Vs. ITO order dated July 14, 2022 wherein when jurisdictional issue came up before the Hon'ble Allahabad High Court, their Lordship's held in favour of the revenue and the issue of jurisdiction was not entertained by the Hon'ble High Court because it was not raised before the AO as per section 124(4) of the Act. According to Ld. CIT-DR the judicial-precedents cited by the Ld. AR of assessee to support the plea against jurisdiction of AO (be it pecuniary or territorial) if examined carefully will reveal that those assessee's have approached Hon'ble High Court at the first instance, after having objected to the jurisdiction of AO as per section 124 of the Act; and since the AO rejected their plea, has filed immediately writ before the respective High Courts; and then in such cases, the Hon'ble High Court including the jurisdictional High Court have held in favour of the assessee. Drawing our attention to both the orders of the Hon'ble Bombay High Court wherein those assessee's at the first i....
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....pplications for admission of the legal ground challenging the competence of AO to have initiated re-opening of assessment for assessment years (except AY 2009-10) and issued notice u/s 148 of the Act, through the Rule 27 application, wherein according to the assessee, the very initiation of reopening i.e. the jurisdiction to reopen the assessment for AY. 2006-7, AY. 2007-08, AY. 2008-09 And AY. 2010-11 [except AY. 2009-10] can be done only by the jurisdictional Assessing Officer i.e. who exercised both territorial as well as pecuniary jurisdiction (except jurisdiction vested by order u/s 127 of the Act); and in these cases jurisdiction of AO is vested as per the CBDT Instruction No. 01/2011, and by virtue of it for a corporate entity like assessee, if the income returned by assessee is less than Rs. thirty (30) Lakhs, the pecuniary jurisdiction lies with that of the ITO, Ward-3(3) (territorial jurisdiction ITO) and not with the DCIT, Circle-3(3). And since the returned income by assessee (corporate entities) were un-disputably less than Rs. 30 Lacs and the assessee being a corporate assessee, the pecuniary jurisdiction was only with the territorial ITO and not before the DCIT (if r....
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....le Bombay High Court in the case of Peter Vas Vs. CIT (2021) 128 taxmann.com 180 (Bom) which was passed on 05.04.2021 (which is found placed at page No. 453 of the PB). In this case, (Peter Vas) the Tribunal did not admit the Rule 27 application filed by the assessee before it. And in that case by filing Rule 27 application before the Tribunal, the assessee (Peter Vas) had raised a legal ground challenging the jurisdiction of the AO u/s 153C of the Act. The Tribunal's action for not admitting and considering the ibid Rule 27 application was not countenanced by the Hon'ble High Court and the matter was remitted back to the Tribunal to decide the legal ground u/s 153C of the Act raised by assessee by filling under Rule 27 application. Further, the Ld. AR of the assessee, drew our attention to the decision of the Hon'ble Gujarat High Court in the case of PCIT Vs. Sun Pharmaceuticals Industries Ltd. (2017) 86 taxmann.com 148 (placed at page 38 to 446 of PB wherein similar application under Rule 27 was filed by the assessee challenging the jurisdiction of AO which was admitted by the Tribunal and the revenue challenged it before the Hon'ble High Court of Gujarat High Court wherein their....
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....ceipt of a notice that an appeal against the order of the Commissioner (Appeals) has been preferred before the Tribunal may notwithstanding the fact that he may not have appealed against such order within thirty days of the receipt of the notice, file a memorandum of crossobjections against any part of the order of the Commissioner (Appeals) and such memorandum would be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section (3). In plain terms, sub-section (4) of section 253 gives the right to the Assessing Officer as well as to the assessee to challenge the order of the Commissioner (Appeals) or part thereof upon receipt of the notice issued by the Tribunal in an appeal filed by the other side, even though previously he may not have preferred any such appeal and if such cross-objection is filed within the time mentioned in subsection (4), the same would be treated as an appeal filed within the time prescribed under sub-section (3). 8. Rule 27 of the Rules reads as under: "Respondent may support order on grounds decided against him. 27. The respondent, though he may not have appealed, may support the order appealed aga....
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....nd such cross-objection would be dealt with by the Tribunal as if it were an appeal presented within the time specified. Two things thus become clear. A cross-objection under section (4) of Section 253 could be directed against any part of the order of the Appellate Commissioner and if so presented, it would be disposed of by the Tribunal in the manner an appeal would be decided. In other words, such cross-objection would have independent existence even if for some reason, the appeal of the opponent does not survive. The cross-objection could be filed only against any part of the order of the Appellate Commissioner and necessarily therefore, that part of the order of the Commissioner (Appeals) has to be adverse to the person raising the cross-objection. Rejection of a ground, an argument or a contention would not come within the expression "any part of the order of the Commissioner" in context of which, the said phrase has been used in sub-section (4) of section 253. 11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the ground....
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....challenging any of the findings that might have been rendered by the trial court against himself. For supporting the decree passed by the trial court, it is not necessary for a respondent in the appeal, to file a memorandum of cross-objections challenging a particular finding that is rendered by the trial court against him when the ultimate decree itself is in his favour. A memorandum of cross-objections is needed only if the respondent claims any relief which had been negatived to him by the trial court and in addition to what he has already been given by the decree under challenge. We have therefore no hesitation in accepting the submission of the learned counsel for the appellant that the High Court was in error in proceeding on the basis that the appellant not having filed a memorandum of cross-objections, was not entitled to canvass the correctness of the finding on the bar of Order II Rule 2 rendered by the trial court." 14. Similar issue came-up before Division Bench of this Court in case of Dahod Sahakari Kharid Vechan Sangh Ltd. v. CIT [2006] 282 ITR 321/[2005] 149 Taxman 456 (Guj.) in which the Court observed as under: "17. Taking up the second issue first, the Tribun....
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.... as a correct proposition, it would render Rule 27 of the Tribunal Rules redundant and nugatory. It is not possible to interpret the provision in such manner. Any interpretation placed on a provision has to be in harmony with the other provisions under the Act or the connected Rules and an interpretation which makes other connected provisions otiose has to be to avoided. Rule 27 of the Tribunal Rules is clear and unambiguous. The right granted to the respondent by the said Rule cannot be taken away by the Tribunal by referring to provisions of Section 253(4) of the Act. The Tribunal was, therefore, in error in holding that the finding recorded by the Commissioner (Appeals) remained unchallenged since the assessee had not filed cross objections." 15. The first question is, therefore, answered against the Revenue and in favour of the assessee. 12. It would be gainful to take guidance from the Hon'ble jurisdiction High court in the case of (i) Peter Vaz Vs. Commissioner of Income Tax (2021) 128 taxmann.com 180 (Bombay). In this case the Hon'ble Bombay High Court referred to the judgment in the case of B. R. Bamassi-Vs.- Commissioner of Income Tax Bombay (1972) 83 ITR 223 (Bom) and ....
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....tion of law is required to be answered in favor of the Appellants/assessees and against the Revenue. ----------- -------------------- ---------------- --------- ---------- 43. The ITAT in the present matters, has not referred to the above principles explained by the Hon'ble Supreme Court in considering applications for condonation of delay. This was a case where the final order made by CIT(appeals) was entirely in favor of the assesses. They had nothing to gain by delaying the filing of cross-objections. According to us, even without filing cross-objections, the assesses could have supported the order appealed by the revenue by urging an issue mainly of law that, at least prima facie went to the root of jurisdiction. All these aspects were not taken into account by the ITAT while refusing to condone the delay in filing the cross-objections." 14. And the Hon'ble High Court has dealt in the aforesaid case (peter vaz) with the objection raised in the present appeals by Ld. CITDR that since assessee has not raised objection against jurisdiction of AO at the first instance ....
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....up cases (sister concern) in the case of DCIT Vs. Satya Securities Ltd. (ITA. Nos. 6669 & 6673/Mum/2016 dated 04.11.2022) which is found at page No. 403 to 418 of PB wherein similar grounds were raised by the assessee in department appeals through Rule 27 of the Rule wherein the Tribunal admitted the assessee's Rule 27 application and similar/identical grounds of appeal (i.e. the issue of validity of reopening of the assessment) and thereafter, the Tribunal was pleased to find the legal issue in favour of the assessee. 16. Now, the question before us, is regarding admission of Rule 27 application filed by the assessee. After having gone through the decisions cited before us by both parties and after going through the order cited in favour of revenue as well as that of assessee, we find that the issue raised albeit through Rule 27 if found in favour of assessee goes to the root of the jurisdiction of the AO. Therefore, we are inclined to admit the grounds raised by the assessee through application dated 21st Dec 2021 under Rule 27 of the Rules which even though is a general ground challenging the validity of the re-opening of the assessment by issuance of notice u/s 148 of the Act,....
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.... Delhi, Kolkata, Hyderabad, Mumbai and Pune. The above instructions are issued in supersession of the earlier instructions and shall be applicable with effect from 1-4-2011. 18. From a perused of the aforesaid instruction of CBDT which is binding on Income Tax Authorities, it is clear that in respect of Corporate entities (Metro Cities), who are assessee's then if the returned income is less than Rs. 30 lacs, then the jurisdiction is vested with ITO's (Income Tax Officers), and if it is above Rs. 30 lacs then it is with the Deputy Commissioner/Additional Commissioner (DC/AC); Hence, in the present cases we note that except for AY 2009-10, the returned income of both assessee's were below Rs. 30 Lakhs, so the jurisdiction of assessment lies with I.T.O who had territorial jurisdiction u/s 124 of the Act i.e. ITO- Ward 3(3). Admittedly in all these cases, the reasons have been recorded (for re-opening) as envisaged u/s 147 of the Act has been recorded by Deputy Commissioner-3(3) and consequent to which had issued the notice of re-opening u/s 148 of the Act, which as seen (supra) he didn't had power to do so. Since, the authority to assess such corporate entities were with the ITO viz....
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.... issued validly and is issued without authority in law. 6. In the circumstances, we have no hesitation in setting aside the notice dated 30th March, 2019. 7. Consequently the order dated 18th November, 2019 rejecting Petitioner's objection is also quashed and set aside. 19. In the present captioned appeals, it is undispued that other than assessment for AY. 2009-10 (supra), in all other appeals, the assessee has filed return of income which is less than Rs. 30 Lacs. As per the CBDT instruction No. 01/2011, in case of an assessee which is a corporate assessee, the pecuniary jurisdiction if it is below Rs. 30 Lacs it lies before the Jurisdictional ITO; and if the return of income filed by a corporate assessee is above 30 Lacs it lies before the jurisdictional DCIT/ACIT. In these appeals for AY. 2006-07, AY, 2007-08 & AY 2008-09 and AY 2010-11 respectively for both assessee's (of the assessee's) admittedly the reasons have been recorded by the DCIT and not by ITO which is in direct contravention of the CBDT instruction No. 01/2011 conferring/allocating the pecuniary jurisdiction. It is settled position of law that the CBDT instruction is binding on all Income Tax Authorities.....
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....30.03.2012. For that let us having look at the reasons recorded by the AO to reopen the assessment in this case of M/s Watermark Capital Ltd (formerly M/s Watermark Financial Constitute Ltd) herein after M/s W Financials which is reproduced as under: - "The assessee filed its return of income for the A. Y. 2009-10 by way of 'e-filing' declaring current year's loss at Rs. 71,23,213-on 30-09-2009. The return of income was processed us. 143(1) of the Act on 29-09-2010, accepting the return of income. Further, scrutiny assessment u/s 143(3) of the Act was completed on 2403-2011 determining the total loss at Rs 43,70 4877-. 2. The assessee company is operating from 1010, Maker Chamber V, Nariman Point, Mumbai- 400 021. Further, Shri Arun Dalmia and Shri Harsh Dalmia are the directors of the assessee company. As per the records the assessee company engaged in the business of financial consulting, brokering for land deals and arranging for term loans and working capital loans. 3. Concrete information is received from a government investigation agency that the directors of the above said company namely Shri Arun Dalmia and Shri Harsh Dalmia, floated certain dummy concerns....
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.... been challenged by the assessee by raising the legal issue against the validity of the re-opening of assessment. Before we advert to the legal issue let us look at the settled position law regarding re-opening of the assessment. The concept of assessment is governed by the time-barring rule; and an assessee acquires a right as to the finality of proceedings. Quietus of the completed assessments can be disturbed only when there is information or evidence regarding undisclosed income or AO has information in his possession showing escapement of income as stipulated u/s 147 of the Act. As per Section 147 of the Act, if the AO intends to re-open the assessment, then AO has to record the reason to reopen the assessment, wherein he should record the "reason to believe, escapement of income". It is settled principle of law that "reason to believe" postulates a foundation based on information and belief based on reason. After a foundation based on information is there, still, there must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. In other words, before the AO issues notice u/s 148 of the Act, he must have recorded the r....
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....rutiny assessment u/s 143(3) on 24/3/2011 wherein the total loss was assessed at Rs. 43,70,487/-). And thereafter the assessee's address is given & that Shri Arun Dalmia & Shri Harish Dalmia are the directors of assessee and that they are engaged in business of financial consulting, brokering for land deals and arranging for term loans and working capital (loans). At paragraph 3, the AO is stating about information received from a government agency (no names given) that the aforesaid directors has floated dummy concerns including the assessee company which are providing accommodation entries. (allegation that assessee is an entryoperator but no more information as to whom the assessee is providing accommodation entry, nature, form of entry-operators viz sharecapital/premium/loan/bills etc is not mentioned). Then AO stated that investigation agency after examining the accounts of various concerns floated by the directors (Arun & Harish Dalmia) have concluded that they were into money-laundering. (Even though this serious allegation has been made no relevant facts on the basis of which such a conclusion has been made by investigation Agency is absent). Thereafter the AO, states in hi....
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....ssessee has not disclosed in the return of income. And therefore he proposed the re-opening of the assessment of M/s. W. Financial for AY. 2009-10. 24. Having analysed the reason recorded by AO for re-opening the assessment for AY 2009-10 in the case of M/s W. Financial Ltd, since assessee has challenged the legal issue in respect of other assessee (M/s W. System), let us look at the reasons recorded by AO for reopening the assessment of M/s W. System which is reproduced as under: - "The assessee filed its return of income for the AY 2009-10 by way of e-filing declaring current year's loss of Rs 45,52,893/- on 3009.2009. The return of income was processed u/s 143(1) of the Act on 06.01.2011 accepting the return of income Further, no scrutiny assessment u/s. 143(3) of the Act was made in this case. 2. The assessee company is operating from 1010, Maker Chamber V Nariman Point, Mumbai- 400 021. Further, Shri Arun Dalmia and Shri Harsh Dalmia are the directors of the assessee company The assessee company claimed to have been engaged in the business of trading in shares and other securities listed and nonlisted. 3. Concrete information was received from an investigation agenc....
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.... general allegation, no incriminating facts referred to base the allegation). According to the AO it is interesting to note that assessee has shown share trading loss besides claiming huge expenditures under various heads. Therefore, according to the AO, the assessee's books of account contain camouflage entries though the bank statement of the assessee company reveal high value transactions embedded with the element of taxable income which the assessee has not disclosed in the return of income (Vague allegation; without specifying what was the nature of un-disclosed income; bald allegation). Therefore, he has reasons to believe that income of the year under consideration (AY 2009-10) has escaped assessment (Non-application of mind writ large on the allegations without referring to any facts stated therein the reasons recorded) and therefore he issued notice u/s 148 of the Act proposing re-opening of assessment of M/s. W. System for AY. 2009-10. 26. Since, we have analysed the "reasons recorded" by the AO for both the assessee's for AY 2009-10, first all we take up the case of assessee M/s W Financials Ltd. We have noted the original assessment in this case was done u/s 143(3) of ....