Facts of the Case

  • On September 20, 2009, a search operation was conducted at the premises of Sh. Sumer Chand Jain, the father of the assessee (Kapil Jain).
  • Based on documents seized during this search, a notice dated April 19, 2004, under Section 158BD read with Section 158BC of the Income Tax Act, 1961, was served upon the assessee.
  • At the time the notice was issued, the jurisdiction over the assessee vested with the ITO, Ward 29(1), whereas the notice was issued by the ACIT, Circle 36(1), New Delhi (the officer possessing jurisdiction over the assessee’s father).
  • Two days later, on April 21, 2004, an official transfer order was passed by the Commissioner of Income Tax (CIT), shifting the assessee's case to Circle 36(1).
  • The assessee sought an extension and eventually filed a 'Nil' income return for the block period (Assessment Years 1997-98 to 2003-04) on May 24, 2004. The Assessing Officer (AO) computed the block assessment at Rs. 25,61,147/-.
  • The assessee preferred an appeal before the CIT(A), raising an objection against the jurisdiction of the AO. The CIT(A) rejected the jurisdictional objection but partly deleted the additions on merits.
  • Upon further appeal, the Income Tax Appellate Tribunal (ITAT) accepted the assessee's objection regarding the lack of jurisdiction and set aside the entire assessment order solely on this ground without adjudicating the merits of the case.

Issues Involved

  1. Whether the Income Tax Appellate Tribunal (ITAT) was legally correct in holding that the assessment order passed by the Assessing Officer was void for want of jurisdiction when notice was issued by an officer prior to the formal transfer of the case.
  2. Whether the restriction and limitation period of one month prescribed under Section 124(3) of the Income Tax Act, 1961, applies to block assessment proceedings initiated under Chapter XIV-B (Section 158BC / 158BD).

Petitioner’s (Revenue's) Arguments

  • The Revenue argued that even though the notice was originally issued by an officer who did not have immediate jurisdiction over the assessee on that exact date, the assessee failed to raise any jurisdictional objection within the mandatory statutory timeline.
  • Relying heavily on Section 124(3) of the Income Tax Act, 1961, the Revenue submitted that an assessee is statutorily barred from questioning the jurisdiction of an AO after the expiry of one month from the service of notice or completion of assessment, whichever is earlier.
  • It was further contended that because the provisions of Section 142(1) and Section 143(2) are directly incorporated into and applicable to block assessment procedures under Section 158BC, the embargo under Section 124(3) applies to these proceedings.

Respondent’s (Assessee's) Arguments

  • The assessee contended that as of April 19, 2004 (the date the notice under Section 158BD read with Section 158BC was issued), the jurisdiction strictly vested with the ITO, Ward 29(1), and not with the ACIT, Circle 36(1), New Delhi.
  • Since the formal transfer order by the CIT was executed only on April 21, 2004, the notice issued on April 19, 2004, by the ACIT was fundamentally without jurisdiction, making the subsequent assessment proceedings invalid from inception.

Court Order / Findings

  • The High Court agreed with the Revenue's contentions, noting that Chapter XIV-B provides a special procedure for block assessments, but the subsequent mechanism is carried out in the manner provided under Section 143 of the Act.
  • The Court highlighted that a detailed questionnaire and notice under Section 143(2) were duly served upon the assessee on April 21, 2006, by which date the jurisdiction had already been legally transferred to the Deputy Commissioner of Income Tax, Circle 36(1).
  • The Court ruled that Section 124(3) places a strict one-month limitation from the service of such notice to challenge an AO's jurisdiction. Since the assessee admittedly did not raise the objection within this one-month window, they lost the right to challenge it later.
  • Consequently, the High Court held that the Tribunal erred in setting aside the block assessment for want of jurisdiction. The question of law was decided in favor of the Revenue, the ITAT's order was set aside, and the matter was remanded back to the Tribunal to be decided on its merits.

Important Clarification

The Delhi High Court clarified that the statutory bar under Section 124(3) of the Income Tax Act, 1961, is absolute. Even if an assessment notice under Chapter XIV-B (Section 158BD/158BC) is initially issued by an officer lacking jurisdiction, the assessee cannot challenge the validity of the proceedings on jurisdictional grounds later if they fail to raise a formal objection within one month from the date of service of the notice.

Sections Involved

  • Section 124(3) of the Income Tax Act, 1961 (Limitation on questioning the jurisdiction of an Assessing Officer)
  • Section 158BC of the Income Tax Act, 1961 (Procedure for block assessment)
  • Section 158BD of the Income Tax Act, 1961 (Undisclosed income of any other person)
  • Section 143(2) of the Income Tax Act, 1961 (Assessment notice/procedure)
  • Section 142(1) of the Income Tax Act, 1961 (Inquiry before assessment)

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:3847-DB/AKS05082010ITA6132009.pdf

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