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

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 Honble 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

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.

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 demat 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.

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.

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

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. Honble 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

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.

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

10

6, New Delhi. As regards former contention, the learned CIT(A) negated the
said submission by concluding as under:

15.5 The appellants 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 reexamination. 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 Honble 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 Honble
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

11

the Honble 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 Honble 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 Honble ITAT. In my
considered opinion, since both Addl. CIT Range-6 and DCIT Circle6(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.

12

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

13

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

14

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;

4.4

b)

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

c)

Microfin vs. CIT 94 TTJ 677 (Lucknow)

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
Deputy Commissioner

or Assistant Director

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

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

17

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

18

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

19

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

upon

him.

This

view

of

ours

functions/ powers

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.

21

5.5

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

ITO (supra) whereby it was held as under:

The Revenues 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 17-92001
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 Honble 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 Honble 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
Honble 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 Honble 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 Honble 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 assessees 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 assessees
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/( L. P. SAHU )
ACCOUNTANT MEMBER

Sd/( I.C. SUDHIR )

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

Draft dictated on computer

Draft placed before author
Draft proposed & placed before the second
member
Draft discussed/approved by Second Member.
Approved Draft comes to the Sr.PS/PS
Kept for pronouncement on
File sent to the Bench Clerk
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.

Date
22.09.2015
22.09.2015

22.09.2015
24.09.2015
22.09.2015
28.09.2015