IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH “E” NEW DELHI)

BEFORE SHRI I.C. SUDHIR AND SHRI L. P. SAHU

ITA No. 102/Del/2014

Assessment Year: 2006-07

Mega Corporation Ltd., vs. Additional CIT,

NSIC Complex, Maa Anandmayee Marg, Range-6,

Okhla Ind. Area, Phase-III, New Delhi.

New Delhi.

(PAN: AACCM9506E)

(Appellant) (Respondent)

Appellant by: S/Shri Salil Aggarwal & Salesh Gupta,

Adv.

Respondent by: Shri P. Dam Kanunjna, Sr. DR

Date of hearing : 17 .08.2015

Date of pronouncement: 22:09.2015

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER

1. This appeal preferred by the assessee is directed against the order of

learned CIT(A)-IX, New Delhi dated 29.11.2013 and relates to assessment

year 2006-07.

2. The assessee has impugned the First Appellate Order on the following

grounds of appeal:

“1 That the learned Commissioner of Income Tax (Appeals) has

erred both in law and on facts in upholding the order of assessment

under section 143(3) of the Act dated 29.12.2008 which was without

jurisdiction since the learned Additional Commissioner of Income-tax,

who framed the impugned assessment was not empowered or

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authorized or directed under the provisions of sec. 120(4)(b) read

with section 2(7A) of the Act to exercise the powers or perform the

functions of Assessing Officer and as such, the same was without

jurisdiction, invalid and deserve to be quashed as such.

1.1 That the learned Commissioner of Income Tax (Appeals)

having admitted that there is no order under section 120(4)(b) of the

Act as required under section 2(7A) of the Act was wholly incorrect in

law and on fact to uphold the assessment on the basis of an order

under section 120(2) passed by the CIT-II, Delhi based on

Notification No. 267 of the Board and principle of substance over

procedure.

1.2 That the finding of the learned Commissioner of Income Tax

(Appeals) that since the appellant had participated in the proceeding

before the Assessing Officer, therefore, the appellant has accepted the

jurisdiction of the Assessing Officer, is contrary to the well settled

position of law that the participation cannot be foundation for an

assessment without jurisdiction and in any case, the said finding is in

breach of the directions of the Hon’ble Tribunal in order dated

16.01.2013, which has acquired finality and has not been challenged

by the revenue.

2 That the learned Commissioner of Income Tax (Appeals) has

otherwise too failed to appreciate that the order of assessment was

without jurisdiction in absence of an order transferring jurisdiction

u/s 127 of the Act from the learned DCIT, Circle 6(1), New Delhi to

learned Additional Commissioner of Income-tax, Range-6, New Delhi.

3 That the learned Commissioner of Income Tax (Appeals) - IX

New Delhi has also grossly erred both in law and on facts in

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upholding the action of the learned Assessing Officer to treat the long

term capital gain on shares of Rs. 6,10,92,870/- as business income of

the appellant company and, disallowance of claim of exemption of Rs.

6,10,92,870/- u/s 10(38) of the Act.

3.1 That the learned Commissioner of Income Tax (Appeals) has

failed to appreciate that the sum of Rs. 6,10,92,870/- represented long

term capital gain accrued on disinvestment of shares and as such, the

finding that, such gain represents business income of the appellant

company is misconceived, misplaced and, wholly untenable.

3.2 That the learned Commissioner of Income Tax (Appeals) has

overlooked the fact that, once it is an undisputed and admitted fact

that, shares sold by the appellant in the instant assessment year were

held and, accepted as “investments” in the preceding assessment

year, there remained no basis much less any valid basis to regard the

gain accruing on sale of such investment as business income and, not

long-term capital gain on sale of shares and therefore, the conclusion

is erroneous and, contrary to facts on record.

3.3 That the learned Commissioner of Income Tax (Appeals) has

other-wise failed to appreciate that, once assessee was admittedly the

owner of equity shares which had been held by it for a period

exceeding 12 months and the same were sold resulting into a long

term capital gain of Rs. 6,10,92,870/- and as such since the gain had

accrued to the assessee on transfer of long term ‘capital asset’, the

same was not includible in the total income of the assessee and in any

case the tax levied @ 30% instead of prescribed rate of tax @ 20%

was beyond jurisdiction and, had erroneously been levied.

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3.4 That the learned Commissioner of Income Tax (Appeals), has

further failed to appreciate that such long term capital gain could not

held to be business income on the mere assumption that the shares

were not held by the appellant in its own de-mat account which de-

mat account/bank were admittedly on behalf of the assessee by the

broker of the appellant.

3.5 That the learned Commissioner of Income Tax (Appeals) has

erred both in law and on facts is concluding that the assessee has

failed to establish that, securities transaction tax which was leviable

on the transfer of such shares was not paid. The finding is factually

incorrect and, contrary to material on record.

3.6 That the learned Commissioner of Income Tax (Appeals) has

failed to appreciate that, mere alleged violation of the provisions of

SEBI could not be sufficient to disentitle the assessee, in treating the

asset held as equity shares as long term capital asset, particularly

when transactions of identical nature were accepted in the

immediately preceding assessment year and as such, finding recorded

are based on subjective, whimsical and, arbitrary considerations and,

therefore not sustainable.

3.7 That the finding of the learned Commissioner of Income Tax

(Appeals) in order dated 6.12.2010 that, no payment for purchase of

shares was made in the immediately preceding assessment year is

factually incorrect and, contrary to material on record. Infact, he has

overlooked the fact that, investment was made in the shares out of the

sale and was shown and accepted as short term capital gain on

purchase and, sale of shares in the immediately preceding assessment

year, which has been offered and, assessed to tax.

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3.8 That the learned Commissioner of Income Tax (Appeals) has

further erred in recording contradictory and vague findings in order

dated 6.12.2010. The findings recorded in the impugned order are

totally contrary to the material placed on record and is nothing but is

based on figment of an imagination including the finding that no STT

was paid on such transactions and is not established from the contract

notes issued by the broker, particularly when there is no material on

dispute the genuineness of the contract notes/bills issued by the

broker.

4 That the learned Commissioner of Income Tax (Appeals) has

grossly erred both in law and on facts in holding that, short term

capital gain of Rs. 2,98,49,797/- and, Rs. 1,20,513/- did not represent

short term capital gain but represents business income of the

appellant company.

4.1 That the learned Commissioner of Income Tax (Appeals) has

failed to appreciate that mere fact that securities were held by the

broker of the appellant could not be a basis much less a valid basis to

allege and, hold that, short-term capital gain arising on purchase

and, sale of shares was not taxable @ 10% u/s 111A of the Act but

@30% as business income of the appellant company.

4.2 That the learned Commissioner of Income Tax (Appeals) has

failed to appreciate that the finding of the learned AO that, the

“assessee has failed to produce evidence that these belong to

transactions of shares held by it” was based on misconceived facts

and factually incorrect, legally misconceived and, was contrary to

documentary evidence placed on record.

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5 That the learned Commissioner of Income Tax (Appeals) has

erred both in law and on facts in confirming the levy of interest u/s

234B of Rs. 98,80,958/- which is not leviable at all on the facts of the

instant case.”

3. The relevant facts leading to filing of the present appeal are that for

the assessment year, the assessee furnished return of income on 30.11.2006

declaring an income of Rs. 4,27,86,793/- which came to be assessed at an

income of Rs. 9,10,63,184/- in an order dated 29.12.2008 under section

143(3) of the Act. The appeal filed by appellant-assessee was dismissed vide

order dated 6.12.2010 by learned CIT(A). On further appeal before Tribunal,

the assessee raised following additional grounds of Appeal:

“1. That order of assessment u/s. 143(3) of the Act 29.12.2008 is

without jurisdiction since the learned Additional Commissioner of

Income-tax, who framed the impugned assessment was not

empowered or authorized or directed under the provisions of sec.

120(4)(b) read with section 2(7A) of the Act to exercise the powers or

perform the functions of Assessing Officer and as such, order of

assessment is illegal, invalid and, be quashed as such.

2. Without prejudice to the above, even if it is assumed (not

admitted) for the same of an argument that the learned Additional

Commissioner of Income-tax was empowered under section 124)4)(b)

read with section 2(7A) of the Act, then too, order of assessment is

without jurisdiction in absence of an order transferring jurisdiction

u/s. 127 of the Act from the learned DCIT, Circle 6(1), New Delhi to

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learned Additional Commissioner of Income-tax, Range-6, New

Delhi”.

3.1 The ITAT in an order dated 16.1.2013 admitted the additional grounds

and thereafter, set aside two issues raised in the additional ground to the file

of learned CIT(A) for adjudication on merits. It was held as under:

“7. We have duly considered the rival contentions and gone

through the record carefully. As far as the admission of additional

grounds of appeal are concerned, we are of the view that both these

grounds are directly challenging the validity of the assessment which

would ultimately effect the taxability of the assessee. If the assessment

order has been passed by an authority who has no jurisdiction over

the assessee in that case, the assessment order would not be

sustainable. Hon’ble Supreme Court in the case of NTPC has

observed that if a particular legal issue which effects the taxability of

the assessee then even at belated stage the assessee can be permitted

to raise legal issue. Therefore, we admit the additional grounds of

appeal raised by the assessee. As far as the merits of the grounds are

concerned, admittedly first notice under sec. 143(2) was issued by the

DCIT, Circle-6, New Delhi. Learned Additional Commissioner took

charge of the assessment proceedings from 25.8.2008. The material

placed on record in the shape of correspondence by the Learned DR

is not sufficient to clinch the issue. These are general information and

it is not discernible whether learned DCIT and Additional CIT were

having concurrent jurisdiction on the companies whose names start

with alphabet “M”. Similarly, it is not discernible whether the

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jurisdiction over the assessee was transferred under sec. 127 of the

Act or not. Faced with this situation, we have confronted the learned

representatives and put as to why a finding may not be called for from

the Learned First Appellate Authority on this issue who will be looked

into relevant record available with the department. Both the

representatives had expressed no objection over the suggestion.

Considering all these aspects, we deem it appropriate to set aside

these two issues to the file of the Learned CIT(Appeals) for

adjudicating them on merit. Learned CIT(Appeals) shall pass a

speaking order referring to all relevant material.

8. In case, the grounds are accepted and assessment order is

quashed then no proceeding would remain, however, in case Learned

CIT(Appeals) does not find any error in passing the assessment order

by the learned Additional CIT, then the assessee will be at liberty to

challenge the issues, whether long term capital gain and short term

capital gain earned by it, is to be assessed as a business income or

not? In other words, we are not adjudicating this controversy. The

assessee will take all the grounds of appeal taken before us in the

second round of litigation. Learned CIT(Appeals) need not to

comment on any other issue. It is needless to say that the observations

made by us will not impair or injure the case of the Assessing Officer

and will not cause any prejudice to the defence/explanation of the

assessee. Learned First Appellate Authority shall adjudicate the

alleged grounds of appeal.”

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3.2 The learned CIT(A) thereafter, called for the comments from the

Assessing Officer and dismissed the appeal of the assessee and as such, this

appeal has been preferred by the assessee.

4. Ground Nos. 1 and 2 raised by the assessee challenge the assumption

of jurisdiction by the Additional CIT to frame the impugned order of

assessment dated 29.12.2008 under section 143(3) of the Act. The relevant

facts are that appellant company furnished a return of income on 30.11.2006

which was accepted in an intimation dated 23.3.2008 under section 143(1) of

the Act. It is further not disputed that notice u/s 143(2) of the Act dated

15.10.2007 was issued by DCIT, Circle 6, New Delhi for framing

assessment under section 143(3) of the Act. Thereafter, on 25.8.2008, notice

was issued by Additional CIT, Range 6, New Delhi under section 142(1) of

the Act and pursuant thereto, assessment has been framed under section

143(3) of the Act on 29.12.2008 by the Additional CIT, Range 6, New

Delhi. The contention of the assessee is that the aforesaid assessment framed

by the Additional CIT Range-6, New Delhi is without jurisdiction as firstly,

he was not an Assessing Officer under section 120(4)(b) of the Act and

furthermore, there was no order under section 127(1) of the Act for transfer

of jurisdiction from DCIT, Circle 6(1), New Delhi to Additional CIT, Range

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6, New Delhi. As regards former contention, the learned CIT(A) negated the

said submission by concluding as under:

“15.5 The appellant’s main contention is that in the absence of order

u/s 120(4)(b),, as required by section 2(7A), the impugned assessment

order of Addl. CIT is without jurisdiction. It is a fact that there is no

order u/s 120(4)(b). But there is an order u/s 120(2) passed by the

CIT-II, Delhi, as pointed out by the Ld. AR of assessee, the issue

remains whether order u/s 120(2) can fulfill the requirement of order

u/s 120(4)(b). On the basis of principle laid down in the decision of

City Garden Vs. ITO (Supra) that such decision has to keep in mind

that defect of procedure should not invalidate the end action and

allocation of functions is matter of procedure and not substance, the

ambiguities in the order of CIT-II, Delhi u/s 120(2) can be ignored. In

the judicial citation given by the Ld. AR, there was no order u/s

120(2) and hence are distinguishable in this case. Applying the

principle of substance over procedure, the issue needs re-

examination. There is an alternative remedy available u/s 124 of the

Act. Against this, the Ld. AR argued that since based on the decision

in the case of NTPC Ltd. Vs. CIT (Supra), the Hon’ble ITAT accepted

the additional ground of jurisdiction, the issue of Section 124(2) & (3)

is not applicable. However, in view of the decision of the Hon’ble

High Courts in CIT Vs. British India Corporation Ltd. (Supra) and

Mukti Properties (P) Ltd. Vs. CIT (supra), which are directly on the

issue of jurisdiction raised by the appellant at a later stage and not at

the stage of assessment, the admission of such grounds of appeal by

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the Hon’ble ITAT may be re-examined. In view of this, the contention

of the appellant that the impugned order passed by the Addl. CIT is

without any jurisdiction is not accepted. As far as, specific directions

of the Hon’ble ITAT is concerned there is no procedural lapse

adversely affecting the appellant in the impugned order. Hence, I find

no error in passing the assessment order by the Ld. Addl. CIT. Hence,

this ground of appeal is dismissed.”

4.1 So far as the latter contention is concerned, the same too, was negated

by the Learned CIT(Appeals) by concluding as under:

“15.3 The appellant objected that even if concurrent jurisdiction is

given to the Addl. CIT, an order u/s 127 of the Act is required to be

passed to give Addl. CIT the power to complete a particular

assessment as it is done in the cases of transfer of cases to another AO

after issue of notice u/s 143(2) of the Act by another AO. On this

account, the issue raised is whether after notice u/s 143(2) is issued

by the DCIT, Circle-6(1), assessment order can be passed by the Addl.

CIT of Range-6 having concurrent jurisdiction. This issue involves the

interpretation of concurrent jurisdiction which is beyond the scope of

this appeal within the restricted direction of the Hon’ble ITAT. In my

considered opinion, since both Addl. CIT Range-6 and DCIT Circle-

6(1) works as subordinate officer to the same CIT, and the CIT having

entire territorial jurisdiction, the passing of assessment order by the

Addl. CIT after issue of notice u/s 143(2) by the DCIT Circle-6(1)

does not affect the taxability of the appellant or appellant is not

adversely affected by the order.”

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4.2 Apart from the above, another additional basis adopted by the learned

CIT(A) to reject the claim of the appellant is that the assessee has not

challenged the jurisdiction or authority of the Assessing Officer to make the

assessment itself at the stage of assessment and once the assessee had

subscribed to the jurisdiction and participated in the assessment proceedings,

the said contention is not tenable. He has held in this regard as under:

“14. In my considered opinion, the contentions raised by the

appellant are liable to be rejected as the appellant has never

challenged the jurisdiction or authority of the AO to make assessment

before the AO, itself. Even if it is assumed that AO had no authority or

was not the proper Assessing Officer, as per section 120 of the Act or

was not competent to pass an order as per Board Circular, yet the

assessee subscribed to his jurisdiction and participated in the

assessment proceedings unchallenged. This behavior of the assessee

goes against raising any contention at later stage. After silently

participating in the proceedings before the AO, the appellant has

accepted the jurisdiction of the AO. Had the appellant raised the issue

at the level of AO, the AO could have written to the Higher Authorities

for defining the jurisdiction. By not doing so the appellant

surrendered the right to object the jurisdiction of the AO which

cannot be revived at the later stage just to prolong the issue for

adjudication. Similar is the case with regard to the validity of notice

u/s 143(2) of the Act and assessee has nowhere challenged during the

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assessment proceedings that notice is bad or beyond statutory period

as prescribed u/s 143(2) of the Act.”

4.3 Before us, the learned counsel for the assessee Shri Salil Aggarwal,

submitted that it is an admitted position that there is no order under section

120(4)(b) of the Act so as to confer jurisdiction on the Additional CIT,

Range 6, New Delhi to frame the impugned assessment. It was submitted

that in absence of such an order under section 120(4)(b) read with section

2(7A) of the Act so as to vest the Additional CIT the power to exercise and

perform the functions of the Assessing Officer, the assessment framed is

legally unsustainable. He referred to the provisions contained in sections

120, 121 and also section 124 along with 2(7A) of the Act to support his

contention. It was contended that order dated 1.8.2007 in an order u/s

120(2) and not u/s 120(4)(b) of the Act. It was submitted that in any case,

even assuming that the said order is a valid order conferring jurisdiction on

Additional Commissioner of Income Tax then too impugned assessment is

invalid since notice u/s 143(2) was issued on 15.10.2007 by DCIT, who then

did not have jurisdiction to validly initiate proceedings for assessment u/s

143(3) of the Act. Thus in his submission, on either of the basis, the

assessment framed is an invalid assessment. It was also submitted that there

is no order under section 127 of the Act for transfer of jurisdiction from

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DCIT to Additional CIT. It has been contended that when a power is

conferred upon two authorities concurrently one of them can exercise that

power and once a decision is taken to exercise the power either by the two

authorities, that exercise must be terminated by the either authority. In

support of above, the learned counsel also relied upon the following

decisions:

a) M/s. Prachi Leathers Pvt. Ltd. vs. Additional CIT in 744

/Lucknow/04 dated 29.3.2010;

b) M/s. City Garden vs. ITO 21 taxmann.com 373 (Jodhpur)

c) Microfin vs. CIT 94 TTJ 677 (Lucknow)

4.4 The learned counsel further contended that mere acquiescence or

participation in assessment proceedings cannot confer jurisdiction to an

Assessing Officer who lacked jurisdiction. He relied on the cases reported in

Sewlal Daga vs. CIT 55 ITR 406 (Cal), M/s Tansukhrai Bodulal vs. ITO 46

ITR 325 (Assam), P.V.Doshi vs. CIT 113 ITR 22 (Guj), Valvoline Cummins

Ltd 307 ITR 103 (Del), Swaran Yash vs. CIT 138 ITR 734 (Del) and

Investors Industrial Corporation Ltd. s. CIT 194 ITR 548 (Bom).

4.5 The learned DR relied on the findings of the learned CIT(A) and

contended that the contention raised by the assessee are not maintainable

more particularly when the issue of jurisdiction was never raised during the

15

assessment proceedings and therefore, order of assessment was within the

jurisdiction framed by the Additional CIT, Range 6, New Delhi.

5. We have considered the arguments advanced by the parties and

perused the order of the learned CIT(A), comments of the Assessing Officer

and material placed on record. The controversy raised in this appeal relates

to the validity of order of assessment dated 29.12.2008 passed by Additional

CIT, Range 6, New Delhi. According to the appellant/assessee, it is

incumbent under the scheme of statute to vest the Additional CIT u/s

120(4)(b) of the Act to exercise or perform all or any of the powers and

functions of Assessing Officer under the Act.

5.1 To examine the above contention, we consider it appropriate to firstly

extract section 2(7A) of the Act which reads as under:

“2(7A) Assessing Officers

(7A) "Assessing Officer" means the Assistant Commissioner or 2

Deputy Commissioner 3 or Assistant Director 4 or Deputy

Director or the Income-tax Officer who is vested with the relevant

jurisdiction by virtue of directions or orders issued under sub-section

(1)or sub-section (2) of Section 120 or any other provision of this Act,

and the 6[Additional Commissioner or]6

7[Additional Director or]7 5

Joint Commissioner or Joint Director who is directed under clause

(b) of sub-section (4) of that section to exercise or perform all or any

16

of the powers and functions conferred on, or assigned to, an Assessing

Officer under this Act;”

5.2 A plain reading of the aforesaid provision would show that it is in two

parts. The first part provides that Assessing Officer means the “Assistant

Commissioner” or “Deputy Commissioner” or “Assistant Director” or

“Deputy Director” or “Income Tax Officer” who is vested with the relevant

jurisdiction by virtue of directions or orders issued under section 120(1) or

120(2) or any other provision of this Act. The second part provides that

Assessing Officer means the “Additional Commissioner” or “Additional

Director” or “Joint Commissioner” or “Joint Director” who is directed under

section 120(4)(b) of the Act to exercise or perform all or any of the powers

and functions conferred on or assigned to an Assessing Officer under this

Act. In other words, it is manifest that Assessing Officer inter-alia means

Additional Commissioner who is directed under section 120(4)(b) of the Act

to exercise or perform all or any of the powers and functions conferred on or

assigned to an Assessing Officer under the Act. In other words, an

Additional Commissioner can only be directed u/s 120(4)(b) of the Act to

“Assistant Commissioner” or “Deputy Commissioner” or “Assistant

Director” or “deputy Director” or Income Tax Officer” under the Act. This

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interpretation also derives strength from the provisions contained in section

120(4)(b) of the Act which reads as under:

“120. Jurisdiction of income-tax authorities

(4) Without prejudice to the provisions of sub-sections (1) and (2) ,

the Board may, by general or special order, and subject to such

conditions, restrictions or limitations as may be specified therein,-......

(b) empower the Director General or Chief Commissioner or

Commissioner to issue orders in writing that the powers and functions

conferred on, or as the case may be, assigned to, the Assessing Officer

by or under this Act in respect of any specified area or persons or

classes of persons or incomes or classes of income or cases or classes

of cases, shall be exercised or performed by 2[an Additional

Commissioner or]2 3[an Additional Director or]3 a Joint Commissioner [[ or a Joint Director, ]] and, where any order is made

under this clause, references in any other provision of this Act, or in

any rule made thereunder to the Assessing Officer shall be deemed to

be references to such 2[Additional Commissioner or]2

3[Additional

Director or]3 Joint Commissioner [[ or a Joint Director, ]] by whom

the powers and functions are to be exercised or performed under such

order, and any provision of this Act requiring approval or sanction of

the Joint Commissioner shall not apply.”

5.3 It will be seen that the said provision provides that Board may by

general or special order and subject to such conditions, restrictions or

limitations as may be specified therein empower the Director General or

Chief Commissioner or Commissioner to issue orders in writing that the

powers and functions conferred on or as the case may be, assigned to,

Assessing Officer by or under this Act in respect of any specified area or

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persons or classes of persons or incomes or classes of income or cases or

classes of cases shall be exercised or performed by an Additional

Commissioner or an Additional Director or a Joint Commissioner or a Joint

Director and where any order is made under this clause, reference in any

other provision of this Act or in any rule made thereunder to the Assessing

Officer shall be deemed to be references to such Additional Commissioner

or Additional Director or Joint Commissioner or a Joint Director by whom,

the powers and functions are to be exercised or performed under such order

and any provision of this Act requiring approval or sanction of the Joint

Commissioner shall not apply.

5.4 The position which emerges thus is that an Additional Commissioner

of Income Tax ipso facto cannot exercise the powers or perform the

functions of an Assessing Officer under the Act. He can perform the

functions and, exercise the powers of an Assessing Officer only if he is

specifically directed under section 120(4)(b) of the Act. In fact, the above

conclusion is also supported by the decision of the Tribunal in the case of

Prachi Leathers Pvt. Ltd. (supra) wherein it has been held in para 16.2 of the

decision as under:

“16.2 From the contents of the aforesaid provisions, it is quite clear

that so far as Addl. Commissioner is concerned, firstly he has been

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included in the definition of “Assessing Officer” given under section

2(7A) of the Act with effect from 1.6.1994 as a result of retrospective

amendment made by the Finance ACt, 2007 but at the same time, it is

also clear that the Addl. Commissioner will be Assessing Officer as

envisaged in section 2(7A) so amended only if he is directed under

clause (b)of sub-section (4) of section 120 to exercise or perform all

or any of the powers and functions concerned on or assigned to an

Assessing Officer; meaning thereby that the Addl. CIT can function or

can exercise the powers and perform the functions of an Assessing

Officer if he is empowered by the CBDT as required under clause (b)

of sub-section (4) of section 120.

……

18.1 So far as the issue before us in the present appeal is concerned,

it is now clear from the provisions as discussed hereinbefore that the

Additional CIT could act and exercise the powers of an AO only in

consequence upon delegation of such authority by the Board, Chief

Commissioner of Income-tax or Commissioner of Income-tax as

envisaged in the provisions of section 120(4)(b) of the Act. However,

the power given to the Chief Commissioner of Income-tax or

Commissioner of Income-tax being in consequence upon the

delegation of power duly authorized by the Legislature, the Chief

Commissioner of Income-tax or Commissioner of Income-tax were

duty bound, if at all they were to exercise such delegated power to act

according to the provisions of law; meaning thereby that it was

incumbent upon the Chief Commissioner of Income-tax or the

Commissioner of Income-tax, as the case maybe, if at all they wanted

to authorize the Additional CIT to act and perform the functions of

20

an AO, to pass a proper order delegating such functions/ powers

upon him. This view of ours is fully supported by the

decision of the Hon'ble Delhi High Court in the case of Dr. Nalini

Mahajan vs. DIT, 257 ITR 123, wherein the Hon'ble High Court,

while discussing the powers of Additional Director Investigation,

held as under:

"It is now well-settled that when a power is given to do a certain thing

in a certain manner, the same must be done in that manner or not at

all. A delegation of power is essentially a legislative function. Such a

power of delegation must be provided by the statute. The director

himself for certain matters is the delegating authority. He, unless the

statute expressly states, cannot sub-delegate his power to any other

authority. In any event, if an authority, which had no jurisdiction to

issue such an authorization, did so, the same would be liable to be

quashed as ultra vires. Thus, unless and until an amendment is

carried out, by reason of the redesignation itself, read with the

provisions of the General Clauses Act, the Addl. Director does not get

any statutory power to issue authorization to issue warrant.

Therefore, the Addl. Director (Investigation) cannot be said to have

any power to issue any authorization or warrant to Joint Director.

Consequently, notification dt. 6th Sep. 1989 is not valid in law to the

said extent. "

18.2 So far as the present case is concerned, though we are

concerned with the powers of Additional CIT but the proposition of

law laid down by the Hon'ble High Court which was, though in

relation to powers of Additional Director (Investigation), is fully

applicable to the present case.

18.3 In view of the aforesaid facts, circumstances and the discussion

and following the law laid down by the Hon'ble Delhi High Court in

the case of Dr.Nalini Mahajan (supra), first of all we are of the

opinion that the Addl.CIT, Range-6, Kanpur having not been

empowered to exercise or perform the powers or functions of an

Assessing Officer, the assessment framed by him was illegal and void

ab initio.”

……

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5.5 Similar view has also been expressed in the case of City Garden vs.

ITO (supra) whereby it was held as under:

“The Revenue’s which has also placed its written submissions on

record, stand that the Jt. CIT, Sri Ganganagar, had jurisdiction to

assess the assessee u/s 120 of the Act, thus, cannot be accepted i.e., in

the absence of a specific order issued in pursuance to section

120(4)(b) specifically authorizing him to exercise the powers and

perform the functions as conferred on or assigned to an AO by or

under the Act, or a notification u/s 120(6) of the Act.”

5.6 Applying the above statutory position to the facts of the case of the

appellant, it is an undisputed position and not challenged by the revenue in

the present appeal either by placing on record any order or any notification

supporting the position that an order was made under section 120(4)(b) of

the Act so as to confer jurisdiction of the Additional CIT to exercise the

powers or perform the functions of an Assessing Officer under section 2(7A)

of the Act read with section 120(4)(b) of the Act.

5.7 In view of the above factual and judicial position, we are of the view

that the order of assessment so framed is without jurisdiction in as much as

the Additional CIT did not have the requisite mandate power under the law

to frame the impugned assessment under section 143(3) of the Act.

22

6. The learned CIT(A) has however supported the validity of an order of

assessment on the basis of an order dated 1.8.2007 under section 120(2) of

the Act passed by the learned CIT-2, New Delhi. The said order as extracted

by the learned CIT(A) reads as under:

“In appreciation of Order No. CIT-II/2001-02/509 dated 01.08.2001

and CIT-II/u/s 122(2)/2001-02/992 and in exercise of the powers

conferred by sub-section (2) of Sec. 120 of the Income Tax Act, 1961

and in supersession of all earlier notification (s)/orders, except as

respects thing done or omitted to be done before such supersession. I,

the Commissioner of Income-tax, Delhi-II, New Delhi, in pursuance of

the notification issued by the Central Board of Direct Taxes vide

Notification No. 732(E) dated 31.07.2001 and Notification No. 267 of

2001 dated 17.09.2001 issued by Central Board of Direct Taxes, New

Delhi having been so authorized, hereby direct that the Additional

Joint Commissioner of Income-tax specified in column (3) of

Schedule-1, hereto annexed, shall exercise the powers and perform

the functions in respect of such cases or classes of cases specified in

the corresponding entries in column (6) of the such Schedule-I, in

respect of such persons or classes of persons specified in the

corresponding entries in column (5) of the such Schedule-I in such

territorial areas specified in the corresponding entries in column (4)

of the said Schedule-I.

This order shall take effect from 01.08.2007.”

23

6.1 It has been noted by learned CIT(A) that in Schedule I of the above

mentioned order, the jurisdiction of the Additional CIT, Range 6, New Delhi

is stated clearly as “in the case of companies registered under the Companies

Act, 1956 with the name beginning with the any of the expressions M dot,

MA to MN alphabets.” The perusal of the above order dated 1.8.2007 would

show that it refers to notification No. 267/2001 dated 17.9.2001 which reads

as under:

“Section 120 of the Income-tax Act, 1961 – Jurisdiction of Income-tax

authorities

Notification No. 267/2001 [F.No. 187/5/2001-ITAT-I] dated 17-9-

2001

In exercise of the powers conferred by clause (b) of sub-section (4) of

section 120 of the Income-tax Act, 1961 (43 of 1961), the Central

Board of Direct Taxes, hereby directs that the Joint Commissioners of

Income-tax or the Joint Directors of Income-tax, shall exercise the

powers and functions of the Assessing Officer, in respect of territorial

area or persons or classes of persons or incomes or classes of income

or cases, or classes of cases, in respect of which such Joint

Commissioner of Income-tax are authorised by the Commissioner of

Income-tax, vide Government of India, Central Board of Direct Taxes

notification number S.O. 732 (E) dated 31.07.2001, S.O. 880(E) dated

14.09.2001, S.O.881(E) dated 14.09.2001, S.O.882(E) dated

14.09.2001 and S.O.883(E) dated 14.09.2001 published in the Gazette

of India, Part II, Section 3, sub-section (ii), Extraordinary.”

6.2 Furthermore we notice the learned CIT(A) has also held that section

120(2) empowers the Board to direct any other Income Tax Authority to

issue orders to exercise the powers of any other Income Tax Authority and

24

order u/s 120(2) is required to be issued by learned CCIT/CIT under the

directions of the Board to give jurisdiction of Assessing Officer to Addl. CIT

and Joint Commissioner of Income Tax for a specified area of persons. It

has thus been concluded that section 120(2) is a larger and broader section

making any Income Tax Authority as AO and therefore, when a particular

Income Tax Authority is empowered as AO u/s 120(2) there may not be any

necessity to pass another order u/s 120(4)(b) of the Act. In other words he

has held that section 120(2) is a coterminous to section 120(4)(b) of the Act.

6.3 To appreciate the above, we seek to note the provisions contained in

section 120(1) to 120(3) which reads as under:

“120. (1) Income-tax authorities shall exercise all or any of the

powers and perform all or any of the functions conferred on, or, as

the case may be, assigned to such authorities by or under this Act in

accordance with such directions as the Board may issue for the

exercise of the powers and performance of the functions by all or any

of those authorities.

[Explanation.—For the removal of doubts, it is hereby declared that

any income-tax authority, being an authority higher in rank, may, if so

directed by the Board, exercise the powers and perform the functions

of the income-tax authority lower in rank and any such direction

issued by the Board shall be deemed to be a direction issued under

sub-section (1).]

(2) The directions of the Board under sub-section (1) may authorise

any other income-tax authority to issue orders in writing for the

exercise of the powers and performance of the functions by all or any

of the other income-tax authorities who are subordinate to it.

25

(3) In issuing the directions or orders referred to in sub-sections (1)

and (2), the Board or other income-tax authority authorised by it may

have regard to any one or more of the following criteria, namely :—

(a) territorial area;

(b) persons or classes of persons;

(c) incomes or classes of income; and

(d) cases or classes of cases.”

6.4 Section 120(1) provides that income tax authorities shall exercise all

or any of the powers and perform all or any of the functions conferred on, or,

as the case may be, assigned to such authorities by or under this Act in

accordance with such directions as the Board may issue for the exercise of

the powers and performance of the functions by all or any of those

authorities. Thus section 120(1) stipulates that powers and functions of an

income tax authority shall be confined and restricted to the powers and

functions conferred or assigned by Board under the Act. Further section

120(2) enables the Board u/s 120(1) to even authorize an income tax

authority to issue an order in writing for exercise of powers and function by

subordinate income tax authorities. In other words, section 120(2) does not

in any manner provide that CIT can authorize an Additional Commissioner

of Income Tax to perform the functions and, exercise the powers of an

Assessing Officer. On the contrary, we have already held above that

section 2(7A) is explicit in as much as that section 120(1)/120(2) apply to

26

Deputy Commissioner of Income, Assistant Commissioner of Income Tax,

Additional Commissioner of Income Tax or Deputy Director of Income Tax.

7. Having regard to statutory position the finding of the learned CIT(A)

is not in accordance with law. During the course of arguments the ld.

counsel for the assessee has contended that the order dated 1.8.2007 by CIT,

Delhi-II, New Delhi is not an order u/s 120(4)(b) of the Act and is an order

u/s 120(2) of the Act Moreover there are no direction in the said order so as

to confer and assign the Additional Commissioner with the powers of an

Assessing Officer and exercise the functions of an Assessing Officer.

7.1 On careful consideration we find merit in the said submission. This

order apparently is neither an order under section 120(4)(b) of the Act and

nor it otherwise directs the Additional Commissioner to exercise or perform

all or any of the powers and functions conferred on or assigned to an

Assessing Officer under the Act. As regards the notification no. 267/2001

dated 17.9.2001 we notice that such notification by CBDT u/s 120(4)(b) of

the Act directs that Joint Commissioner of Income Tax or Joint Director

shall exercise the power and function of an Assessing Officer in respect of

specified cases in respect of which such Joint Commissioner or authorized

by Commissioner of Income Tax vide CBDT notification dated 14.9.2001

27

and 31.7.2001. It is thus apparent that the said notification is applicable in

respect of Joint Commissioner authorized by Commissioner of Income Tax

under notification as specified therein and no more. In the instant case it is

admitted position that none of the notifications as specified therein confer

powers of an Assessing Officer to the Additional Commissioner of Income

Tax, Range 6, New Delhi.

7.2 We thus find merit in the claim of the appellant that in absence of an

order u/s 120(4)(b) of the Act the Addl. CIT Range-6, New Delhi lacks

jurisdiction to exercise the functions of the AO and therefore consequently

the order of assessment framed is without jurisdiction.

8. The learned CIT(A) has relied on the judgment in the case of CIT vs.

British India Corporation Ltd. 337 ITR 64 (All) to hold that question of

jurisdiction of the assessing authority cannot be disputed after the

completion of the assessment proceedings. The facts in the case were that

assessee filed its return of income for the assessment year 1974-75 which

was processed by the Assessing Officer, namely, Income Tax Officer,

Central Circle-I, Kanpur who completed the assessment under section

143(3)/144B of the Act on September 7, 1977 after making certain additions

and disallowances to the returned income. On appeal assessee contended

28

that the assessing authority had no jurisdiction to pass the assessment order

in as much as the assessment file stood transferred from Income Tax Officer,

Central Circle-I, Kanpur to the Inspecting Assistant Commissioner Range-D,

Kanpur by the order dated July 1, 1977 and thus the assessment order by the

Income Tax Officer was void-ab-initio. The Tribunal allowed the appeal on

the ground that the Income Tax Officer, Central Circle-I had no jurisdiction

in view of the transfer order dated July 1, 1977 transferring the case to the

Inspecting Assistant Commissioner. The Hon’ble High Court in light of the

above facts held as under:

“18. It is reasonable to deduce that the question of jurisdiction of the

assessing authority cannot be disputed after the completion of the

assessment proceedings. Alternatively, if such a question arises, the

said question can be addressed by the Commissioner or the Board, as

the case may be, in view of sub-section (4) of section 124 and this by

necessary corollary excludes the jurisdiction of the first appellate

authority or the court.”

8.1 It is apparent that the said judgment has no application to the facts of

the case as here is a case where the issue is about the lack of jurisdiction of

Additional Commissioner of Income Tax to exercise the powers and perform

the functions of an Assessing Officer under the Act. Once authority lacks

jurisdiction then it is well settled it cannot be conferred participation or even

elapse of time. Moreover even factually in the said case it was found that

29

assessee had not provided the date of communication of the order u/s 127 of

the Act and as such the Hon’ble Court held as under:

“23. It has not come on record, not disclosed by the assessee at

least, even before the first appellate authority in the additional memo

of appeal as to when he got the knowledge of the transfer order dated

July 1, 1977. The observation of the Tribunal that it is admitted that

the order of transfer order is effective from July 1, 1977 is therefore,

uncalled for. It has misdirected itself. The Tribunal has proceeded on

a wrong footing that in the absence of date of communication of the

order to the assessee, the assessee could raise the plea of jurisdiction

in appeal as it is the first opportunity. The burden was upon the

assessee to state specifically when the order of the transfer was

received by it, which it failed to discharge. The order of the Tribunal

is, therefore, also bad as it proceeds on assumptions and

presumptions. The date of actual communication of the transfer order

was within the special knowledge of the assessee and it was its duty to

disclose the same.”

8.2 In fact the Court finally concluded in the said judgment is as under:

“27. The case on hand stands still on a weak footing inasmuch as the

Income-tax Officer, CC-I had the jurisdiction when the assessment

proceedings commenced and a draft assessment order was submitted

to the Inspecting Assistant Commissioner. Subsequent change in the

jurisdiction if any unless brought to the notice of the authority

concerned, will not in any manner vitiate the assessment order in the

absence of any objection with regard to lack of jurisdiction by the

assessee. It is a case where both the Assessing Officer and the

assessee proceeded as if there is no transfer order transferring

jurisdiction.”

8.3 The above proposition if applied specifically support the plea of

assessee i.e. in absence of jurisdiction order made by Additional

Commissioner of Income Tax is a nullity.

30

8.4 The learned CIT(A) has also referred to the judgment in the case of

Mukti Properties (P) Ltd. vs. CIT 344 ITR 177 (Cal). In the said judgment

their Lordships have held once an issue has not been raised before the first

Appellate Authority then the appellant is stopped from raising the said issue

at the later stage. The said judgment is also not applicable as this issue from

raised by the appellant before the Tribunal and the Tribunal had then

directed the CIT(A) to adjudicate the said issue on merits. The said order of

Tribunal has became final and therefore having regard to the above the said

judgment does not support the case of the revenue.

8.5 Further more reliance on provisions contained in section 124 of the

Act is of no help to the revenue in as much as here is a case where the

Additional Commissioner of Income Tax lacks jurisdiction and is not a case

of either irregular exercise of jurisdiction or territorial jurisdiction. The

Hon’ble Delhi High Court in the case of Valvoline Cummins Ltd. vs. DCIT

307 ITR 103 has held as under:

“This is well settled, that mere acquiescence in the exercise of power

by a person who does not have jurisdiction to exercise of power by a

person who does not have jurisdiction to exercise that power, cannot

work as an estoppels against him.”

31

9. Another contention specifically raised is that there is no transfer order

u/s 127 of the Act from transferring the case from the DCIT to the Addl.

CIT, Range 6, New Delhi. The learned CIT(A) has held that in the cases of

transfer of cases to another AO after issue of notice u/s 143(2) of the Act by

another AO, the issue involves the interpretation of concurrent jurisdiction

which is beyond the scope of this appeal within the restricted directions of

the Hon’ble ITAT. He has held that, “in my considered opinion, since both

Addl. CIT Range-6 and DCIT Circle-6(1) works as subordinate officer to the

same CIT and the CIT having entire territorial jurisdiction, the passing of

assessment order by the Addl. CIT after issue of notice u/s 143(2) by the

DCIT Circle 6(1) does not affect the taxability of the appellant or appellant

is not adversely affected by the order.” The Hon’ble Delhi High Court in the

above context in the case of Valvoline Cummins Ltd. (supra) has held as

under:

“28. On the issue of ‘concurrent’ jurisdiction between the Additional

Commissioner and the Deputy Commissioner, learned counsel for the

assessee relied upon a decision of the Calcutta High Court in Berger

Paints India Ltd. v. Asstt. CIT [2000] 246 ITR 1331. The Calcutta

High Court had explained the meaning of the expression ‘concurrent’

to mean two authorities having equal powers to deal with a situation -

but the same work cannot be divided between them. This is what the

Calcutta High Court had to say :–

32

". . . Concurrent jurisdiction means a subordinate authority can deal

with the matter equally with any superior authority in its entirety so

that either one of such jurisdictions can be invoked. It cannot be

construed as concurrent jurisdiction when one part of the assessment

will be dealt with by one superior officer and the other part will be

dealt with by one subordinate officer. . . ." (p. 141)

29. It appears to us quite clearly that there is a distinction between

concurrent exercise of power and joint exercise of power. When

power has been conferred upon two authorities concurrently, either

one of them can exercise that power and once a decision is taken to

exercise the power by any one of those authorities, that exercise must

be terminated by that authority only. It is not that one authority can

start exercising a power and the other authority having concurrent

jurisdiction can conclude the exercise of that power. This perhaps

may be permissible in a situation where both the authorities jointly

exercise power but it certainly is not permissible where both the

authorities concurrently exercise power. One example that

immediately comes to the mind is that of grant of anticipatory bail.

Both the Sessions Judge and the High Court have concurrent power.

It is not as if a part of that power can be exercised by the High Court

and the balance power can be exercised by the Sessions Judge. If the

High Court is seized of an application for anticipatory bail it must

deal with it and similarly if the Sessions Judge is seized of an

anticipatory bail, he must deal with it. There can be no joint exercise

of power both by the High Court as well as by the Sessions Judge in

respect of the same application for anticipatory bail.

33

30. In the facts of the present case, since the Additional Commissioner

had exercised the power of an Assessing Officer, he was required to

continue to exercise that power till his jurisdiction in the matter was

over. His jurisdiction in the matter was not over merely on the passing

of the assessment order but it continued in terms of section 220(6) of

the Act in dealing with the petition for stay. What has happened in the

present case is that after having passed the assessment order, the

Additional Commis- sioner seems to have washed his hands of the

matter and left it to the Deputy Commissioner to decide the stay

petition filed under section 220(6) of the Act. We are of the opinion

that this was not permissible in law.”

9.1 We therefore hold that applying the above judicial position that

assessment has to be completed by the authority who has initiated the

proceedings for making assessment and any other authority can take over the

proceedings only after a proper order of transfer u/s 127(1) or 127(2) of the

proceedings. The revenue has not brought any order for transfer of the

proceedings from DCIT, Circle-6(1), New Delhi to the Additional CIT,

Range-6, New Delhi and therefore it is quite evident that the Additional CIT,

Range-6 took over the assessment proceedings without there being an order

u/s 127(1). In the case of Prachi Leathers Pvt. Ltd. (supra), it has been held

as under:

19. We are further of the opinion that the notice under section

143(2) of the Act having been issued by the Income-tax Officer,

34

Range 6(2), Kanpur on 16.8.2002, it was Income-tax Officer alone

who could frame the assessment subject however to the fact that that

the assessment could be framed by any other officer also provided

there was an order of transfer of jurisdiction over assessee’s case

from Income-tax Officer, Range-6(2), Kanpur to that officer under

section 127(4) of the Act, but so far as present case is concerned, the

Revenue has not brought to our notice any order under section 127

passed after 6.8.2002 transferring jurisdiction over the assessee’s

case from the Income-tax Officer, Range 6(2), Kanpur to the Addl.

CIT, Range-6,Kanpur and therefore, the assessment framed by the

Addl.CIT, Range-6,Kanpur irrespective of the fact as to whether he

was authorized to perform the functions of an AO or not, is illegal and

void ab initio for want of jurisdiction. Consequently, we are of the

opinion that the assessment order in the present case dated 31.3.2003

passed by the Addl.CIT, Range (6), Kanpur was illegal and void ab

initio for want of jurisdiction. Consequently, the assessment order is

quashed.”

9.2 Consequently on this count also, the assessment made on 29.12.2008

by the Additional Commissioner is illegal and bad in law for want of

jurisdiction.

10. For the reasons aforesaid we hold that the order of assessment dated

29.12.2008 was without jurisdiction and therefore is quashed as such. In

result, ground Nos. 1 and 2 are allowed.

35

11. Ground No(s) 3 and 4 of Grounds of Appeal are regarding treatment

of long-term capital gain and, short-term capital gain declared by the

appellant company as business income of the appellant company. However

since we have quashed the assessment order itself, the issues raised by the

assessee by way of other grounds of appeal do not survive, and, therefore, do

not require any adjudication. Ground No. 5 of Ground of Appeal is

regarding levy of interest which is consequential in nature.

12 In the result appeal is allowed.

Order pronounced in the open court on 22.09.2015

Sd/- Sd/-

( L. P. SAHU ) ( I.C. SUDHIR )

ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 22 /09/2015

Mohan Lal

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR

36

Date

Draft dictated on computer 22.09.2015

Draft placed before author 22.09.2015

Draft proposed & placed before the second

member

Draft discussed/approved by Second Member. 22.09.2015

Approved Draft comes to the Sr.PS/PS 24.09.2015

Kept for pronouncement on 22.09.2015

File sent to the Bench Clerk 28.09.2015

Date on which file goes to the AR

Date on which file goes to the Head Clerk.

Date of dispatch of Order.