INCOME TAX ACT, 1961

Section 127 Section 124(3) Section 243(3)

Assessment - Validity - Order passed by earlier AO after transfer of jurisdiction under section 127 to another ITO - Applicability of section 124(3)

In assessee's case, ITO, Ward-5(3) passed for assessment year 2008-09 reassessment order, dated 9-9-2010 under section 147/143(3). Thereafter, search was conducted in premises of assessee and CIT-II, Kolkata transferred assessee's case under section 127 to Dy.CIT/Asstt. CIT, CC-XVII from ITO, Ward-5(3) who assumed jurisdiction over assessee and issued notice under section 153A. Pr.CIT, Kol-II passed order under section 263 setting aside order of ITO, Ward-5(3), dated 29-9-2010 for de novo assessment on 25-3-2014, ITO Ward 5(3) framed reassessment order giving effect to the order of Pr.CIT under section 263. Question arose for consideration was whether the ITO, Ward-5(3) was empowered on 25-3-2014 to give effect to the order of Pr.CIT-II, passed under section 263 of the Act. Revenue's case was that since assessee did not question territorial jurisdiction of AO, i.e., ITO, Ward-5(3), Kolkata after it received statutory notice from him and therefore, assessee was estopped from doing so as stipulated by sub-section (3) of section 124. Held: Since jurisdiction was divested of earlier AO by virtue of transfer order under section 127, the earlier AO, which in assessee's case was ITO, Ward-5(3), Kolkata ceased to be AO after the date of transfer, i.e. 28-8-2012 and therefore, he (i.e. ITO, Ward-5(3), Kolkata) ought not to have issued statutory notices upon assessee unless he had been re-empowered or vested by a fresh transfer order under section 127 (i.e., from Dy. CIT, CC-XVII, Kolkata to ITO, Ward-5(3), Kolkata), which was not the case. Sub-section (3) of section 124 comes into play only when a question arises as to whether an AO has jurisdiction to assess any person under section 124 and when AO derives his powers from the direction or order issued by CBDT and/or athorities under sub-section (1) or (2) of section 120 respectively. Therefore, in assessee's case, section 124(3) did not come into play since case of assessee was legally transferred by the competent authority under section 127 as far back as in the year 2012. Accordingly, when ITO-5(3) Kolkata, did not enjoy jurisdiction over case of assessee on 25-3-2014, re-assessment order passed under section 263/143(3), dated 25-3-2014 was legally unsustainable.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09

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