AO Can't Proceed With Assessment In Absence Of Section 127 Transfer Order: Delhi High Court

The Delhi High Court has held that the Assessing Officer cannot proceed with assessment in the absence of a transfer order under Section 127 of the Income Tax Act.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that once the case of the assessee is centralized, then the transfer of the case of the assessee to another AO would not be permissible without a decentralization order or transfer order under Section 127 of the Income Tax Act, as contrary to such a position outside the underlying objective that the Act seeks to achieve by virtue of powers enshrined under Section 127.

The appellant/assessee is a private limited company, and pursuant to an order of centralization dated July 16, 2008, the office of Central Circle-16, New Delhi (which is now Central Circle-20, New Delhi since AY 2014-15) had jurisdiction over the case of the assessee. For the AY 2015-16, the assessee filed its Income Tax Return (ITR) before Central Circle-20, New Delhi, declaring a total income of INR 7,920. The assessee's case was picked up for scrutiny.

However, on March 21, 2016, a notice under Section 143(2) was issued to the assessee by the office of the Income Tax Officer, pursuant to which the assessee participated in the assessment proceedings, assuming that a valid transfer order was passed in its case.

On December 31, 2017, an assessment order was passed by the ITO in which an addition amounting to Rs. 1,35,11,59,300 was made under Section 56(2)(viia) of the Income Tax Act to the total income of the assessee.

The assessee preferred an appeal before the Commissioner of Income Tax (Appeals), raising the ground of lack of jurisdiction, and CIT (A) rejected the appeal. The assessee preferred an appeal before the ITAT, and the ITAT has partly allowed the appeal by remanding the matter back to the AO to ascertain whether any transfer order under Section 127 was passed. If that were so, further directions were issued to proceed with the assessment, bearing in mind certain aspects.

The assessee filed an application under Section 144A before the ACIT inquired about the transfer order under Section 127. On September 27, 2021, an order under Section 144A was passed holding that a transfer order under Section 127 was passed via transfer order, which was stated to have been issued by the PCIT, and also directed the AO to continue with the assessment proceedings in accordance with the directions passed in the ITAT order.

An assessment order was passed by the ITO, and after following the directions as per the ITAT order, the addition of Rs. 55,55,67,090 under Section 56(2)(viia) was made.

The assessee contended that the orders are liable to be set aside as they suffer from jurisdictional error. Since AY 2008-09, the assessee had been regularly assessed by the Central Circle-16/20, New Delhi, and therefore, without any decentralization order or any transfer order made under Section 127, the case of the assessee could not have been transferred from the Central Circle-20, New Delhi, to ITO Ward 21(1), New Delhi. The legislative mandate of Section 127 clearly elucidates that the transfer of the case of the assessee can only be done through an order passed under Section 127.

The department contended that the transfer order had duly been passed, which was also reflected on the ITBA portal. They further argued that the ITO Ward 21(1), New Delhi, has inherent jurisdiction as per the CBDT circular dated November 15, 2014, and therefore, the assessment orders do not suffer from any infirmity of jurisdictional error.

The court, while rejecting the contention of the department, stated that, by virtue of an order passed under Section 120 under the pen of ACIT read with CBDT notification dated October 22, 2014, the office of ITO Ward 21(1), New Delhi, has inherent jurisdiction over the assessee. Such a position, if accepted, would lead to confusion and chaos, as it would lead to a position where, at one point, one or more assessing officers would not only have jurisdiction over the assessee but could also proceed with the assessment proceedings simultaneously. Such a situation cannot be countenanced under the law.

The court allowed the writ petition.

Counsel For Appellant: N. P. Sahni, Deepanshu Mehta

Counsel For Respondent: Sanjay Kumar, Easha, Hemlata Rawat

Case Title: Rajsheela Growth Fund (P) Ltd. Versus ITO

Citation: 2024 LiveLaw (Del) 584

Case No.: ITA 124/2020

Click Here To Read The Order