Delhi High Court Nullifies Tax Assessments Due to Lack of Valid Transfer Order Citing Procedural Deficiencies: Emphasizes Importance of Proper Transfer Orders
Case Title – Raj Sheela Growth Fund (P) LTD. Vs. Income Tax Officer, Ward-21(1), Delhi
Case Number – W.P. (C) 3777/2022 & CM APPL. 11224/2022
Dated on – 8th May, 2024
Quorum – Justice Yashwant Varma & Justice Purushaindra Kumar Kaurav
FACTS OF THE CASE
The case of Raj Sheela Growth Fund (P) LTD. Vs. Income Tax Officer, Ward-21(1), Delhi, revolves around the taxation matters concerning Raj Sheela Growth Fund (P) LTD., a private limited company which falls under the jurisdiction of the Income Tax Department. The office of the Central Circle-16, New Delhi, later renamed Central Circle-20, New Delhi, pursuant to an order of centralization dated 16th of July, 2008, had the jurisdiction over the case of the Appellant. For the Assessment Year (AY) 2015-2016, Raj Sheela Growth Fund, declaring a total amount of INR 7,920, filed its Income Tax Return (ITR). The case of the Appellant was picked up for inspection, and thereafter, a notice under Section 143(2) of the Income Tax Act, 1961, was issued by the office of the Income Tax Officer (ITO) Ward 21(1), New Delhi, on 21st of March, 2016. Furthermore, an assessment order was passed on the dated 31st of December, 2017, adding an amount of INR 1,35,11,59,300 to the total income of the Appellant under the Section 56(2) (viia) of the Income Tax Act, 1961. Being aggrieved by the assessment order, the Appellant instituted an appeal before the Commissioner of the Income Tax (Appeals)(CIT(A)), which was duly rejected. Subsequently, the Appellant appealed to the Income Tax Appellate Tribunal (ITAT), which partially allowed the appeal on the 9th of August, 2019 and handed over the matter back to the Assessing Officer (AO) to ascertain whether the transfer order under Section 127 of the Income Tax Act, 1961 was passed. On the dated 22nd of September, 2021, the Appellant instituted an application under Section 144A of the Income Tax Act, 1961, before the Assistant Commissioner of Income Tax (ACIT) inquiring regarding the transfer of the order under Section 127. Pursuant to this, an order was passed on dated 27th of September, 2021, confirming the transfer order and directing the AO to continue with the proceedings of the assessment. Thus, on the 30th of the September,2021, an assessment order was passed by the ITO Ward 21(1), New Delhi, making an addition under Section 56(2)(viia) of the Income Tax Act, 1961. The Appellant challenged the orders dated 31st of December,2017 and 30th of the September,2021, asserting lack of jurisdiction due to the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961. The matter was brought before the Delhi High Court for the purpose of resolution.
ISSUES
The main issue of the case whirled around whether the assessment order passed by the ITO Ward 21(1), New Delhi, for the AY2015-2016 is valid?
Whether the AO lacked jurisdiction to assess the income of the Appellant due to the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961?
Whether the Ao followed proper procedural requirements in issuing the assessment orders?
Whether all the relevant legal provisions were adhered to throughout the process of assessment?
LEGAL PROVISIONS
Section 64 of the Income Tax Act, 1961 prescribes the Income of individual to include income of spouse, minor child etc
Section 120 of the Income Tax Act, 1961 prescribes the Jurisdiction of income-tax authorities
Section 124 of the Income Tax Act, 1961 prescribes the Jurisdiction of assessing officer
Section 127 of the Income Tax Act, 1961 prescribes the Power to transfer cases
Section 143(2) of the Income Tax Act, 1961 prescribes that An incorrect claim, if such incorrect claim is apparent from any information in the return
Section 144A of the Income Tax Act, 1961 prescribes the Power of Joint Commissioner to issue directions in certain cases
CONTENTIONS OF THE APPELLANTS
The Appellants, through their counsel, in the said case contented that the AO lacked jurisdiction to assess their income for the AY2015-2016 due to the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961 and that the AO did not have the authority to assess their income, as the case was not properly transferred to them.
The Appellants, through their counsel, in the said case contented regarding the validity of the assessment orders dated 31st of December,2017 as well as dated 30th of September,2021 that these orders are void ab initio since they were issued without jurisdiction and that any assessment made without proper jurisdiction is null and void in the eyes of law.
The Appellants, through their counsel, in the said case contented that it was a failure on the part of the assessing authority to follow the proper procedural requirements in issuing the assessment orders and that the AO did not adhere to the requisite legal provisions and failed to provide them with adequate opportunities to present their case or challenge the assessment.
CONTENTIONS OF THE RESPONDENTS
The Respondents, through their counsel, in the said case contented that AO had the proper jurisdiction to assess the income of the Appellant for the AY2015-2016.
The Respondents, through their counsel, in the said case contented that the assessment orders dated 31st of December,2017 as well as dated 30th of September,2021 were issued according to the provisions of the Income Tax Act, 1961 after due consideration of the relevant facts and evidences.
The Respondents, through their counsel, in the said case contented that the Ao followed all the requisite procedural requirements in issuing the assessment orders.
COURT ANALYSIS AND JUDGMENT
The court in the case of Raj Sheela Growth Fund (P) LTD. Vs. Income Tax Officer, Ward-21(1), Delhi, scrupulously reviewed the legislative framework laid down in Section 127 of the Income Tax Act, 1961, which governs the transfer of the cases between the Aos. The court stated the underlying principles of public interest and administrative convenience that guide such transfers. Stressing on these principles, the court illuminated the significance of ensuring that the transfer under Section 127 of the Income Tax Act, 1961, are executed in accordance with the law. The court considered various judicial precedents and stressed on the importance of the Section 127 of the Income Tax Act, 1961, in the context of the administrative efficiency and taxpayers’ rights. The court focused on the absence of a valid transfer order under Section 127 of the Income Tax Act, 1961 in the present case. The court observed that the case of the Appellants had been purportedly transferred to the ITO Ward 21(1), New Delhi, without the required transfer order mandated by the Income Tax Act, 1961. The court stated that such a transfer order is a prerequisite for any legal transfer under Section 127 of the Income Tax Act, 1961. The court, in this case, held that the impugned orders dated 31st of December,2017 as well as dated 30th of September,2021, which were issued without a valid transfer order under Section 127 of the Income Tax Act, 1961, were legally flawed and therefore set them aside. The court in the said case, allowed the petition of the Appellant.
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Judgement Reviewed by – Sruti Sikha Maharana
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