“Error of Jurisdiction” or “Lack of Jurisdiction” (Excessive Jurisdiction)

Exercise of power which the authority does not have or which is in excess of what he is empowered is subject to judicial review. Exercise of power will be set aside if there is manifest error in the exercise of such power or the exercise is manifestly arbitrary. He must remain confined within the defined limits of his jurisdiction. The authority lacks jurisdiction when the subject-matter or the parties are such over which he has no authority to enquire or there is want of essential preliminaries prescribed by law for the commencement of the enquiry. He loses it if during the course of enquiries there is a breach of natural justice. Any act of an authority in excess or abuse or misuse of power is capable of interference and rectification by the court

Thus, an order passed by a judicial or quasi-judicial authority in respect of a person or matter over which it has no jurisdiction is null and void and so also the one passed without following the principles of natural justice, even though it has been done within jurisdiction. Breach of natural justice is placed at par with total lack of jurisdiction. When an order is passed without notice to the parties, it is nothing but a nullity in law as an action without jurisdiction.

Nullity when occurs

Nullity occurs when the authority acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court’s sense of fair play. Flagrant violation of natural justice also results in nullity. Order made without observing mandatory conditions (such as issue of notice) is a nullity. Thus, an order passed by a judicial or quasi-judicial authority in respect of a person or matter over which it has no jurisdiction is null and void and so also the one passed without following the principles of natural justice, even though it has been done within jurisdiction.

In the absence of the existence of jurisdictional facts or of those facts which are conditions precedent for the exercise of the power, the order is vitiated and also the proceedings.

Jurisdictional error

Jurisdictional error is a concept in administrative law, particularly in the UK and Australia. Jurisdiction is the “authority to decide”, and a jurisdictional error occurs when the extent of that authority is misconceived. Decisions affected by jurisdictional error can be quashed by judicial review. Examples of jurisdictional errors include asking a wrong question, ignoring relevant material, relying on irrelevant material, and breaching natural justice

Jurisdiction is the “authority to decide”. A jurisdictional error arises when a decision-maker exceeds the authority or power conferred upon them. It means the decision-maker has failed to comply with an essential condition to or limit on the valid exercise of power, and this renders their decision invalid.

Few Instances:  Jurisdictional Error

There is no exhaustive list of jurisdictional errors, but case law has identified such an error exists when a decision-maker has:

• identified a wrong issue;
• asked a wrong question;
• ignored relevant material;
• relied on irrelevant material;
• failed to observe a requirement of procedural fairness;
• made a decision involving fraud;
• made a decision in bad faith;
• made a decision without evidence;
• applied a policy inflexibly.

By a series of decisions, culminating in Kirk v Industrial Court of New South Wales (2010) HCA 1; (2010) 239 CLR 531, the limits of the inviolable constitutional minimum sphere of judicial review are now defined by the concept of jurisdictional error. The corollaries of this are that:

 

(1) not all errors of law invalidate a decision, be it of the executive, a tribunal, or an inferior court – only jurisdictional errors of sufficient materiality invalidate a decision; and

 

(2) the capacity of parliaments to oust judicial review by privative clauses does not extend to jurisdictional errors.

Lack of Jurisdiction (Excessive Jurisdiction)

Lack of jurisdiction of a Court or Tribunal to decide a particular matter may be of many varieties. Lack of jurisdiction may be due to want of jurisdiction over the place, which may be due to want of jurisdiction in respect of the person; it may be due to want of proper constitution of the Tribunal or Court. It may also be due to lack of authority under the law under which the Court or the Tribunal proceeds to decide a particular matter or when there is a statutory bar. Therefore, while dealing with a case where the question of jurisdiction is raised, the distinction between want of inherent jurisdiction and irregular exercise and assumption of jurisdiction should be borne in mind.

Excess of Jurisdiction

This covers a situation wherein though authority initially had the jurisdiction but exceeded it and hence its actions become illegal. This may happen under following situations:

 (i)      Continue to exercise jurisdiction despite occurrence of an event ousting jurisdiction.

 

(ii)     Entertaining matters outside its jurisdiction.

Few Instances: Lack of jurisdiction (excessive jurisdiction) 

• Proceedings initiated after the time limit fixed under the Act expired;
• Re-opening of completed assessments without proper basis;
• Not complying with procedural aspects prescribed under the Act;
• Revising orders passed by lower authorities without properly adhering to the provisions;
• Issuing notice to persons who are already assessed by a different Assessing Officer;
• Justifying the action by arguments based on inherent powers;
• Applying the newly inserted legal provisions with retrospective effect to overcome difficulties;
• Circulars issued by the Board which are beyond their powers;
• Referring to the valuation officer in exercise of powers exercised under sections 131(1) and 133(6) – not permitted under the provisions
• Impounding of passport of the assessee;
• Assessment order passed in the name of an amalgamating company after it ceases to exist;
• Tribunal cannot adjudicate on vires of a provision – its constitutional validity; 
• That the authority has wrongly decided a jurisdictional fact and thereby assumed jurisdiction which did not belong to it.

It is well settled that the writ petition challenging the show cause notice is not to be entertained in taxation matters, but in exceptional cases, where the authority goes beyond the statutory power or acts in excess of its jurisdiction, in those facts and circumstances, the writ petition can be entertained.

Writ petition against validity of assessment order dismissed due to availability of alternate statutory remedy

Assessee filed its return of income. Revenue issued a show cause notice against assessee proposing certain variations to returned income of assessee. It further passed an assessment order making such variations to income of assessee. Assessee filed an instant writ petition against said assessment order. Since none of exceptions to alternate remedy rule (i.e. breach of fundamental rights, violation of principles of natural justice, an excess of jurisdiction or a challenge to vires of statute or delegated legislation) were attracted in instant case, assessee was to be relegated to alternate remedy of statutory appeal under section 246A. [In favour of revenue] (Related Assessment year : 2018-19) – [British Agro Products (India) (P) Ltd. v. ACIT National Faceless Assessment Centre, Delhi (2022) 285 Taxman 141 : 134 taxmann.com 214 (Mad. )]

Show cause notice & Assessment Order cannot be challenged for lack of jurisdiction if assessee participated in proceedings

The petitioner for the tax period 2017-18 was assigned to the Officer of Central Tax but the show cause notice (SCN) for assessment under section 73 UPGST Act was issued by the Officer of the State Tax (SGST Officer). It filed writ petition praying to quash the SCN in Form DRC-01 issued by the State Officer. The Honorable High Court observed that the petitioner had submitted replies to jurisdiction of SGST Officer and participated in assessment proceeding without raising any objection as to jurisdiction. For administrative convenience, petitioner was assigned to a central officer but it is not a case that state officer lacks inherent jurisdiction. In the instant case, the jurisdiction had been exercised by SGST officer in absence of any objection or pointing out by petitioner that the case should been assigned to a central officer. If petitioner objected it at the initial stage or during the course of assessment proceedings, the position could have been rectified by SGST Officer by informing the central officer to complete the assessment proceedings. Considering the facts and circumstances and discussions made above, we find that the impugned show cause notice and the impugned assessment order do not suffer from any inherent lack of jurisdiction and instead it is the result of contributory error of jurisdiction by the respondent no. 4. (State Officer i.e. the respondent no. 4), in the circumstances that the petitioner submitted to the jurisdiction of the respondent no. 4 without informing or without raising objection as to the assignment of the case to the central officer and after well participating in the assessment proceedings allowed the assessment order to be passed by the respondent no. 4. Had the petitioner objected to it at the initial stage or during the course of assessment proceedings, the position could have been rectified by the respondent no. 4 by informing the central officer to complete the assessment proceedings. For all the reasons aforestated, the writ petition is dismissed leaving it open for the assessee-petitioner to challenge the impugned assessment order in appeal under section 107 of the CGST/UPGST Act. Therefore, the writ petition was liable to be dismissed. – [Ajay Verma v. Union of India (2022) 137 taxmann.com 112 (All.)]

An error of jurisdictional fact is a point on which an action for judicial review could be maintained without relegating noticee to notice issuing authority; after submitting to Assessing Officer’s jurisdiction under section 148, assessee cannot pursue writ remedy

An error of jurisdictional fact is a point on which an action for judicial review could be maintained without relegating noticee to notice issuing authority. Notice under section 148 was issued to assessee seeking to reopen assessment. After receipt of impugned notice assessee sought for reasons for issuance thereof which were supplied to it by Assessing Officer. However, on same day assessee filed writ petition before instant Court. Attempt of assessee to have notice under section 148 interdicted by presenting instant writ petition on same day of lodging of objection to notice by submitting a detailed reply was not justified as assessee appeared to have pursued writ remedy as a parallel remedy, which is impermissible in law. If assessee perceived that there was no justification for Assessing Officer to issue impugned notice since jurisdictional fact was absent, assessee could have raised said point at first instance before the Court prior to submitting to jurisdiction of Assessing Officer. However assessee having submitted to jurisdiction of Assessing Officer and therefore, there being no error of jurisdictional fact, assessee was to be relegated to forum before Assessing Officer and impugned notice shall be taken to its logical conclusion in accordance with law. If any adverse finding is rendered against the petitioner, obviously the same must have the support of reasons. Thereafter, the petitioner shall be at liberty to explore his remedy in accordance with law. All contentions on the notice as well as the proceedings are left open. We make it clear that the observations made by us are only for the purpose of deciding this writ petition. [Matter remanded] (Related Assessment year : 2016-17) – [John Sebastian Zezito Lobo v. ACIT, Panaji (2021) 439 ITR 537 : 283 Taxman 229 : 131 taxmann.com 79 (Bom.)]

Reference to dispute resolution panel - Order passed without following the procedure prescribed under section 144C(1) - Not merely procedural error or a mere irregularity - Not a curable defects - Final order passed without the draft assessment order was not valid; calls it jurisdictional error

Court held that the requirement under section 144C(1) to first pass a draft assessment order and to provide a copy thereof to the assessee is a mandatory requirement which gives a substantive right to the assessee to object to any variation, that is prejudicial to it. The procedure prescribed under section 144C of the Act is a mandatory procedure and not directory. Failure to follow the procedure under section 144C(1) would be a jurisdictional error and not merely procedural error or irregularity but a breach of a mandatory provision. Therefore, section 292B of the Income-tax Act cannot save an order passed in breach of the provisions of section 144C(1), the same being an incurable illegality. Accordingly the  final assessment order had been passed without the draft assessment order as contemplated under section 144C(1). The order was not valid. (Related Assessment year : 2017-18) - [SHL (India) Pvt. Ltd. v. DCIT (2021) 438 ITR 317 : 321 CTR 655 : 282 Taxman 334 : 204 DTR 233 (Bom.)]

Where assessee had revised its offer before Settlement Commission by declaring additional undisclosed income and Settlement Commission had considered said revised offer and passed settlement order, since assessee had not disclosed true and full income, subsequent additional statements could not be relied upon in order to satisfy requirements of provisions under section 245C and Settlement Commission exceeded its jurisdiction by settling said issue and regular assessment was to be made

Parties approaching Settlement Commission by way of application, must disclose full and true income and in event of any difference or confrontation in this regard, such an application for settlement cannot be entertained. When there are discrepancies and doubt arises with regard to true and full disclosure of income, then natural course of action would be that Assessing Officer must be permitted to make a regular assessment under section 153A. In absence of any true and full disclosure, Settlement Commission cannot go beyond scope of section 245C and consider additional income, which is admittedly not disclosed in application filed at first instance by assessee. Scope of section 245C cannot be compared with regular assessments to be made in accordance with procedures contemplated under Act nor section 245C can be tagged along with regular provisions for purpose of settling disputes between assessee and department. It is a pre-condition to entertain an application that assessee must disclose full and true facts and evidence.

The question of exercise of excessive powers or jurisdiction would arise, if the authority made an attempt to travel beyond the scope of the provision under which, such powers are conferred to a particular authority. In the instant case, the power of the Settlement Commission is well enumerated under sections 245C and 245D. The manner in which settlement is to be arrived is also contemplated under the Act. Certain pre-conditions are also stipulated. Thus, the Settlement Commission cannot enter into the venture of assessment, which is the power of an Assessing Officer under section 153A. Therefore, in the absence of any true and full disclosure, the Settlement Commission cannot go beyond the scope of section 245C and adjudicate the additional income found by the department during seizure, which is admittedly not disclosed in the application filed at the first instance by the assessee. [In favour of revenue] – [CIT v. Income-tax Settlement Commission (2021) 127 taxmann.com 367 (Mad.)]

In the case of Nusli Neville Wadia v. Ivory Properties and others (paras 20, 21 and 22) Hon’ble Supreme Court has explained the meaning of the word “jurisdiction” and distinction between jurisdiction to entertain and error of exercise of jurisdiction or excess jurisdiction and held as under :

“20. Jurisdiction is the power to decide and not merely the power to decide correctly. Jurisdiction is the authority of law to act officially. It is an authority of law to act officially in a particular matter in hand. It is the power to take cognizance and decide the cases. It is the power to decide rightly or wrongly. It is the power to hear and determine. Same is the foundation of judicial proceedings. It does not depend upon the correctness of the decision made. It is the power to decide justiciable controversy and includes questions of law as well as facts on merits. Jurisdiction is the right to hear and determine. It does not depend upon whether a decision is right or wrong. Jurisdiction means power to entertain a suit, consider merits, and render binding decisions, and “merits” means the various elements which enter into or qualify plaintiff’s right to the relief sought. If the law confers a power to render a judgment or decree, then the court has jurisdiction. The court must have control over the subject matter, which comes within classification limits of law under which Court is established and functions.

21. The word “jurisdiction” is derived from Latin words “Juris” and “dico,” meaning “speak by the law” and does not relate to rights of parties as between each other but to the power of the court. Jurisdiction relates to a class of cases to which a particular case belongs. Jurisdiction is the authority by which a judicial officer takes cognizance and decides the cases. It only presupposes the existence of a duly constituted court having control over subject-matter which comes within classification limits of the law under which court has been established. It should have control over the parties litigant, control over the parties’ territory, it may also relate to pecuniary as well as the nature of the class of cases. Jurisdiction is generally understood as the authority to decide, render a judgment, inquire into the facts, to apply the law, and to pronounce a judgment. When there is the want of general power to act, the court has no jurisdiction. When the court has the power to inquire into the facts, apply the law, render binding judgment, and enforce it, the court has jurisdiction. Judgment within a jurisdiction has to be immune from collateral attack on the ground of nullity. It has co-relation with the constitutional and statutory power of tribunal or court to hear and determine. It means the power or capacity fundamentally to entertain, hear, and

22. Jurisdiction to entertain is distinguished from merits, error in the exercise of jurisdiction or excess of jurisdiction.” – [Nusli Neville Wadia v. Ivory Properties and others (2020) 6 SCC 557 (SC)]

Where there is no jurisdictional error, or lack of jurisdiction and against re-opening of assessment, a statutory efficacious remedies under act are available to assessee, those cannot be allowed to be sidelined, and exercise of jurisdiction under article 226 of Constitution in background of factual disputes is not warranted and thus, writ cannot be entertained against section 148 notice

Dismissing the petition the Court held that, the conditions to be satisfied for reopening assessment for the assessment year 2009-10, in terms of section 147, i.e., reason to believe that the income chargeable to tax had escaped assessment, non-disclosure of material facts fully and truly by the assessee were apparent. The assertion and denial by the parties in this behalf gave rise to disputed questions of fact. Notice under section 148 of the Act had been issued after sanction under Section  151 of the Act. At this stage there was no breach or non-compliance with sections 147, 148 and 151. It gave rise to a factual dispute. There was no jurisdictional error, or lack of jurisdiction forthcoming at this stage. Against reopening of assessment for the assessment year 2009-10, statutory efficacious remedies under the Act were available which could not be allowed to be side-lined, and hence exercise of jurisdiction under article 226 of the Constitution in the background of the factual disputes was not warranted so as to interfere with the proceedings initiated. In the background of the facts and circumstances the writ petition is held to be not maintainable. Assessee have efficacious remedies available under the “Act” which they have every right to exhaust. The disposal of this writ petition, shall be without prejudice to the rights of the petitioners in contesting the matter before available forum including Appellate forum. [In favour of revenue] (Related Assessment year : 2009-10) - [North Eastern Electric Power Corporation Ltd. v. CIT (2019) 416 ITR 205 : 310 CTR 856 : 182 DTR 233 : (2018) 100 taxmann.com 226 (Meghalaya)]

In terms of section 124(3)(b) jurisdiction of an Assessing Officer cannot be called in question by an assessee after expiry of one month from date on which he was served with a notice for reopening assessment under section 148

Based on ‘Annual Information Return’ filed by a bank, located in Noida, information was forwarded to Income-tax Officer, Noida regarding cash deposits of certain amount in account of assessee in said bank. On basis of said information, Income-tax Officer, Noida issued notice under section 148 against assessee. After three months, assessee raised an objection stating that assessee was regularly filing returns with Income-tax Officer, Delhi and, accordingly, notice under section 148 issued by Income-tax Officer, Noida was illegal and without territorial jurisdicition. In terms of section 124(3)(b) assessee could not call in question jurisdiction of an Assessing Officer after expiry of one month from date of a service of reassessment notice upon him. Thus, Income Tax Officer, Noida would not per se lack jurisdiction and reopening notice issued by him against assessee was justified. [In favour of revenue] (Related Assessment year : 2009-10) – [Abhishek Jain v. ITO, Delhi (2018) 405 ITR 1 : 94 taxmann.com 355 (Del.)]

Re-assessment notice issued in name of erstwhile company despite company ceasing to exist as it had been converted into LLP would not invalidate re-assessment proceedings as wrong name mentioned in said notice was merely a clerical error which could be corrected under section 292B

Petitioner had taken over and acquired rights and liabilities of company upon conversion under the Limited Liability Partnership Act, 2008. Petitioner challenged re-assessment notice on ground that same was issued in name of erstwhile company despite company ceasing to exist as it had been converted into LLP. High Court by impugned order held that said error would not invalidate re-assessment proceedings as same was not a jurisdictional error, but an irregularity and procedural/technical lapse which could be cured under section 292B. Since wrong name given in said notice was merely a clerical error which could be corrected under section 292B, Special Leave Petition filed against impugned order was to be dismissed. [In favour of revenue] – [Sky Light Hospitality LLP v. ACIT (2018) 303 CTR 130 : 254 Taxman 390 : 92 taxmann.com 93 (SC)]

Section 292BB cannot cure jurisdictional error; Time-barred Notice cannot be deemed as valid

To complete the assessment under section 143(3), the Assessing Officer has to issue notice under section 143(2) to get the jurisdiction to complete the assessment under section 143(3). As per the provisions of section 143(2), Assessing Officer has to issue the notice under section 143(2) within 6 months from the end of the financial year in which the return is furnished. In the given case, Assessing Officer must issue notice on or before 30.09.2009. But the notice was issued on 20.10.2009.

Held by ITAT : Section 292BB cannot be applied in the given case because the issue is not serving of notice but issue of notice to acquire the jurisdiction to complete the assessment under section 143(3). Therefore, in the given case, issue is not serving of notice but issue of notice within the period of limitation prescribed in proviso to section 143(2) to complete the assessment under section 143(3). It is clear from the record that Assessing Officer has issued the notice under section 143(2) only on 20.10.2009 instead of issuing the notice on or before 30.09.2009. It clearly shows that the Assessing Officer has no jurisdiction to complete the assessment under section 143(3). Hence, the assessment completed under section 143(3) cannot be passed without compliance with the mandatory requirement of notice being issued under section 143(2), therefore, the assessment order in question is legally unsustainable and the same is hereby quashed. (Related Assessment Year : 2008- 09) – [Dr. N. Madhava Reddy v. ACIT - Date of Judgement  : 10.11.2017 (ITAT Hyderabad)]

A reassessment order cannot be passed without compliance with the mandatory requirement of notice under section 143(2) being issued as the requirement of issuance of such notice is a jurisdictional one and section 292BB cannot cure jurisdictional error

Section 292BB would apply with regard to failure of ‘service’ of notice and not with regard to failure to issue notice and, therefore, failure of Assessing Officer in reassessment proceedings to issue notice under section 143(2) prior to finalizing reassessment order cannot be condoned by referring to section 292BB. Merely because assessee participated in proceedings pursuant to notice issued under section 148, it does not obviate mandatory requirement of Assessing Officer to issue assessee a notice under section 143(2) before finalizing order of reassessment. In any event as far as assessment years 2005-06 to 2007-08 are concerned, section 292BB would not apply since it is prospective in its application, i.e., applicable from assessment year 2008-09 onwards. With the legal position being abundantly clear that a re-assessment order cannot be passed without compliance with the mandatory requirement of notice being issued by the Assessing Officer to the assessee under section 143(2), the Tribunal was right in concluding that the re-assessment orders in question were legally unsustainable. [In favour of assessee] (Related Assessment years : 2005-06 to 2007-08 - [PCIT v. Silver Line (2016) 383 ITR 455 : 283 CTR 148 : 65 taxmann.com 137 (Del.)]

An assessment order passed without making reference to Commissioner under section 124 is not a nullity for want of jurisdiction but it results in an irregularity which can be rectified by order of remit

The respondent assessee is an IAS Officer of Nagaland cadre, who was compulsorily retired in January, 1993. During the period 1971-72 to 1978-79, the respondent had filed income tax returns at Dimapur, Nagaland as he was posted and working there. In July 1978, he was posted to Delhi on deputation in the Ministry of Home Affairs, a position which he continued to hold till 1984. Income tax returns for the assessment years 1980-81 to 1983-84 were filed at Delhi with the ITO, Salary Circle.

Provisions of section 124 ensure and prevent two assessments by different assessing officers, having or enforcing concurrent jurisdiction. There cannot be and the Act does not envisage two assessments for the same year by different officers. (Reassessment order can be by a different officer). The question of jurisdiction or the place of filing has to be examined each year with reference to provisions of section 124. Section 124 provides flexibility and postulates multiple and concurrent jurisdiction including filing of return and where the assessee has permanent or current residence or where he has sole/only source of income.

An assessment order passed without making reference to Commissioner/Commissioners under section 124 is not a nullity for want of jurisdiction but it results in irregularity which can be rectified by order of remit and directing the Assessing Officer to continue with the proceedings from the stage where the error had occurred. In light of the aforesaid discussion and the position of law, the substantial question of law raised in the present wealth tax appeals are answered in favour of the appellant-Revenue and against the respondent-assessee. It is apparent that the respondent assessee did not challenge and object to the jurisdiction of the Assessing Officer at any stage. Reference to the Commissioner/Commissioners was not required as per the Section 124 of the Act. There was waiver and respondent/assessee had accepted jurisdiction of the Assessing Officer, Delhi. Tribunal could not have, therefore, held to the contrary. The tribunal will now decide the appeals of the assessee/Revenue pending before them on merits and not on the question of jurisdiction of the Assessing Officer. To cut short delay, parties are directed to appear before the tribunal on 15th April, 2014, when a date of hearing will be fixed. [In favour of revenue] – [CIT v. S. S. Ahluwalia (2014) 267 CTR 185 : 225 Taxman 131 (2014) 46 taxmann.com 169 (Del.)]

Where appeals were not pending before Commissioner (Appeals) or same did not stand disposed, he could not invoke power under section 251 to reopen assessment of relevant years

Power of Commissioner under section 251, can be invoked/exercised only in respect of appeals pending before Commissioner (Appeals) or appeals stand disposed. Commissioner (Appeals) doubted status of petitioner, a public company, and issued show-cause notices to re-open assessment for all relevant years. Commissioner (Appeals) had not only stated to have reopened assessment in which appeals were pending but also for assessment in respect of which neither appeal was pending nor stood disposed. Impugned show-cause notices were in excess of jurisdiction of Commissioner (Appeals) and hence, liable to be quashed. [In favour of assessee] (Related Assessment years : 2002-03 to 2009-10) – [Central Coalfields Ltd. v. Commissioner of Income-tax (Appeals), Ranchi (2014) 42 taxmann.com 183 (Jharkhand)]

Order passed by Tribunal suffered from an error of jurisdiction, as it had reversed a pure finding of fact without reversing reasons assigned by Assessing Officer for rejecting assessee’s claim

Appellate Tribunal - Power to revers Assessing Officer’s order - Cash payment was made to a company for purchase of marble chips and aluminium products. Assessee submitted that due to emergent situation, said purchases were made. Said explanation was rejected by Assessing Officer by holding that such purchases could not be held to be emergency purchases and cash payment was disallowed. However, said disallowance was deleted by Tribunal by reversing finding recorded by Assessing Officer. Order passed by Tribunal suffered from an error of jurisdiction, as it had reversed a pure finding of fact without reversing reasons assigned by Assessing Officer for rejecting assessee’s explanation. [In favour of revenue] – [CIT (Central), Ludhiana v. S.A. Builders Ltd. (2013) 38 taxmann.com 255 (P&H)]

Where deduction for same payment of bonus was allowed twice in two assessment years, revisional order passed by Commissioner directing Assessing Officer for recomputation, needed no interference

Assessee claimed deduction on account of payment of bonus for assessment year 1995-96. Same was allowed under section 43B. Said claim had also been allowed in preceding assessment year 1994-95. Rectification proceedings were initiated but subsequently dropped Commissioner invoked section 263 and directed Assessing Officer for recomputation. Assessee filed writ petition alleging that there was jurisdictional error in invoking section 263.

Single Judge held that order passed by Commissioner was without jurisdiction. Single Judge was not justified in interfering with the order of the Commissioner passed under section 263. Even if the objection of alternative remedy of appeal available to the assessee under section 253(1)(c) was to be ignored, the fact remained that an error was noticed by the Commissioner in the order of the Assessing Officer that the assessee had made claim for the same deduction twice and after noticing the error, same was corrected. In these circumstances, it could not be held that such an order was beyond the revisional jurisdiction of the Commissioner. Similar objection of the audit party did not in any manner affect the revisional jurisdiction, nor the fact that the error could be rectified by the Assessing Officer or the Assessing Officer could have taken resort to reassessment, could be a bar to exercise of revisional jurisdiction. It was also not a case of substitution of opinion of revisional authority for the opinion of the Assessing Officer. Therefore, writ petition ought not to be entertained and Single Judge was not justified in interfering with revisional order of the Commissioner under section 263.  - [In favour of revenue] (Related Assessment years : 1994-95 and 1995-96) - [CIT, Guwahati v. B & A Plantation and Industries Ltd. (2012) 346 ITR 43 : 248 CTR 187 : 21 taxmann.com 18 : (2013) 212 Taxman 137 (Gauhati)]

For assessment year 1995-96, Assessing Officer granted deduction under section 80HHC without adjusting loss from export of trading goods - Subsequently, Assessing Officer rectified said order under section 154 on basis of assessment order for subsequent year and adjusted loss suffered from export of trading goods against deduction admissible under section 80HHC - On facts, there was no error in jurisdiction exercised by Assessing Officer under section 154

If mistake is apparent from the record, the same can be corrected subject to other requirements such as limitation, etc. In the instant case, as was evident from the record, the Assessing Officer noticed the mistake apparent from the record on the basis of the assessment order for the subsequent year. Even the case of the assessee in the reply to notice under section 154 was not that the issue sought to be raised was debatable and there was divergence of judicial opinion on the same expressed by different High Courts. There was no error in jurisdiction exercised by the authority under section 154 in the facts and circumstances of instant case. The Assessing Officer has jurisdiction to correct the error, which could well be termed as “mistake apparent from the record”. Therefore, the Assessing Officer was justified in exercising the power under section 154 adjusting loss suffered from export of trading goods against deduction admissible under section 80HHC. [In favour of the revenue] (Related Assessment year : 1995-96) – [CIT v. Roxy Industrial Corporation (2008) 298 ITR 318 : (2006) 203 CTR 105 : 154 Taxman 248 (P&H)]

Difference between inherent lack of jurisdiction and error of jurisdiction

24. In the case of V. Nirmala v. Karnataka State Financial Corporation and others (paras 13 and 14), Hon’ble Supreme Court has held as under:

“13. …. An authority may lack inherent jurisdiction in which case the order passed would be a nullity but it may commit a jurisdictional error while exercising jurisdiction. ………………………

14. ……A jurisdictional issue should be raised at the earliest possible opportunity. A disciplinary proceedings is not a judicial proceeding. It is a domestic tribunal. There exists a distinction between a domestic tribunal and a court. The appellant does not contend that any procedure in holding the enquiry has been violated or that there was no compliance with principles of natural justice.” – [V. Nirmala v. Karnataka State Financial Corporation and others (2008) 7 SCC 639 (SC)]

While completing assessment, ITO disallowed assessee-company's claim for deduction of gratuity and completed assessment on 24.09.1979 - Commissioner (Appeals) allowed assessee’s claim for deduction of gratuity and income was redetermined - Tribunal, however, upheld disallowance of gratuity - Pursuant to Tribunal’s order, total income of assessee was re-computed on 03.05.1986 - ITO issued notice under section 154 charging interest under section 220(2) from 24.09.1979 - On facts, it could not be said that there was an obvious and patent liability on assessee to pay interest under section 220(2) - Therefore, impugned notice was in excess of jurisdiction under section 154 and was liable to be declared invalid

Both under sections 220(1) and 220(2), what is important and relevant is the 'amount specified in the notice of demand'. An assessee is liable to pay interest under section 220(2) if the amount specified in the notice of demand is not paid within the period specified in section 220(1).

The liability to pay interest under section 220(2) is a statutory liability. It is not based on equity. The provisions of section 220(2) which impose a fiscal burden have to be strictly constructed. Whether, on the facts of a particular case, the assessee is liable to pay interest under section 220(2) is a question of law which calls for interpretation of the provision of section 220(2).

It was to be remembered here that, in the instant case, the Department was proceeding under section 154. In order that section 154 may be invoked, there must exist a 'mistake apparent from records' which can be rectified.

In the instant case, it could not be said that there was an obvious and patent liability on the petitioner to pay interest under section 220(2). The alleged mistake, if any, in not charging interest, was not a mistake apparent from the records. The alleged liability to pay interest under section 220(2) could be established, if it be so possible, only by a longdrawn process of reasoning on points where there may conceivably be two opinions. It would not be said that there could be no two opinions. In rectification proceedings, it is not open to the ITO to go into the true scope of the provisions of the Act. That being so, the impugned notice was in excess of jurisdiction under section 154 and, therefore, was liable to be declared invalid. (Related Assessment year : 1973-74) – [Birla Cotton Spg. and Wvg. Mills Ltd. v. ITO (1995) 211 ITR 610 : 125 CTR 30 (Cal.)]

Assessee was partner in a firm which was carrying on business as liquor contractor at Guna - He filed voluntary returns before ITO, Guna - But, Commissioner, for administrative convenience and to centralise all cases of liquor contractors, passed an order to transfer cases of liquor contractors to ITO, Bhopal - However, ITO, Guna accepted return as filed and completed assessment under section 143(1) - AAC cancelled assessment, being made beyond jurisdiction - Tribunal did not declare order of ITO, Guna, as nullity but set aside order of AAC and directed ITO of competent jurisdiction to proceed afresh with assessment - After date of Commissioner’s order, exercise of jurisdiction by ITO, Guna, amounted to illegal assumption of jurisdiction in proceeding with the case - Tribunal was justified in setting aside the order of AAC and directing competent ITO to proceed with assessment afresh 

The instant case was not a case of inherent lack of jurisdiction of the ITO who had to deal with the case within the limits of the area assigned to him, but it was a case of transfer of particular class of cases, to be dealt with by a particular ITO and that power of allocation of work and transfer of cases vests with the Commissioner under section 124(1). After the order of transfer of cases of liquor contractors to ITO, Bhopal, ITO, Guna, lacked in competency to proceed further as from the stage of transfer, it was ITO, Bhopal, who was to exercise the jurisdiction. Such exercise of jurisdiction by ITO, Guna, would amount to illegal assumption of jurisdiction in proceeding with the, case. It is well-settled that such jurisdictional defect or a procedural irregularity is open to correction by an appellate Court where it occasions in failure of justice or results in prejudice. Though, the assessee had not shown any prejudice or failure of justice and his return was accepted as filed, however, in directing the competent ITO to proceed with the assessment afresh, the Tribunal, considering it to be a case of a denial of the liability, to be assessed, in view of the order of transfer of cases and legal competence of the ITO, Guna, to proceed with the assessment under the provisions of the Act, it relied on the decision of the Supreme Court in the case of Guduthur Bros. v. ITO AIR 1960 SC 1326 wherein it has been held that during the course of assessment, if an ITO has committed an illegality, who has the jurisdiction to continue the proceedings which are lawfully initiated, the illegality can be cured by relating it back from the stage when illegality is detected or occasioned. Therefore, the Tribunal had not committed any error in setting aside the order of the AAC and directing the competent ITO to proceed with the assessment afresh. [In favour of the revenue] (Related Assessment year : 1976-77) – [Sitaram Rathore v. CIT (1994) 77 Taxman 265 (MP)]