ORDER
Keshaw Prasad, A.M.
1. The assessee, which is a private limited company, has come up in appeal before us against the order dt. 9th April, 2004, passed by the learned CIT(A)-II, Kanpur for the asst. yr. 2000-01, on a number of grounds which fall in two categories, one relating to the very validity of the assessment on the ground of jurisdiction of the Addl. CIT to act as ‘AO’ and pass the assessment order dt. 10th Feb., 2003, and the other relating to the merits of additions/variations as stand comprised in the said assessment order. As the legal grounds go to the very root of the assessment, we take up first of all the same for our adjudication; such grounds are reproduced hereunder :
“1.1 Because the learned CIT(A) has erred in holding that–
(a) “there is no irregularity if the Addl. CIT becomes the AO”;
(b) the Addl. CIT, along with the Dy, CITs/ACITs and ITOs stood vested with the concurrent jurisdiction over the assessee, in terms of the order No. Chief CIT/KNP/S&P/32/2110-02 dt. 31st July, 2001, as passed by the Hon’ble Chief CIT Kanpur;
(c) in the present case the Addl. CIT vide his order sheet entries dt. 22nd Jan., 2003, had specifically conveyed his intention to act as an AO and, therefore, the Addl. CIT had rightly acted as an AO and had validly passed the assessment order dt. 10th Feb., 2003, even after a petition under Section 144A (as moved by the appellant) had been entertained by him;
and in upholding the validity of the above mentioned assessment order as had been passed by the learned Addl. CIT, Range VI, Kanpur.
1.2 Because the learned CIT(A) has omitted to consider and failed to appreciate that–
(a) the regular assessment proceedings in the case of the appellant had been initiated by the ACIT, Range-VI, Kanpur by issuing notice under Section 143(2).
(b) the ACIT, Range VI, Kanpur had even served the appellant with a final show-cause notice in the form of draft assessment order that he proposed to pass in the present case;
(c) on receipt of such a show-cause notice (in the form of assessment order) the appellant had duly moved a petition under Section 144A and after having entertained the said petition, the learned Addl. CIT had been placed in the role of a ‘judge’ enjoined with the statutory duty to decide the dispute that had arisen between the ACIT, Range VI, Kanpur, on one hand and the appellant on the other hand;
(d) after having placed (by statute itself) in the role of “judge” the Addl. CIT could not have himself become the adjudicator;
(e) the order No. CCI/KNP/S&P/32/2001-02 dt. 31st July, 2001, as passed by the Chief CIT, Kanpur, did not have the effect of conferring upon him (the Addl. CIT) the jurisdiction of an AO, the concurrent jurisdiction as has been stated to have been conferred upon him, was strictly for performing numerous other duties;
(f) in any case, in view of a specific prohibition having been placed by the CBDT, New Delhi, as per notification/instruction dt. 20th Sept., 2001, the Addl. CIT did not have the jurisdiction to “make an assessment order”.
and the view taken by the learned CIT(A) is wholly erroneous as being inconsistent with the express provisions of law as also the peculiar facts and circumstances of the case as narrated above.
1.3 Because various case laws/decisions as have been referred to and relied upon by the learned CIT(A), while upholding the validity of the assessment order dt. 10th Feb., 2003, are distinguishable on facts and on a due consideration of the distinguishing features, the learned CIT(A) should have quashed the assessment order dt. 10th Feb., 2003, as being wholly unauthorized and without jurisdiction.
1.4 Because in any case after having entertained the appellant’s petition under Section 144A, the learned Addl. CIT was under a statutory obligation to issue direction under Section 144A and such a direction having not been issued (undisputedly) the income shown by the appellant and the manner in which such income had been shown, was deemed to have been accepted and the entire variation between the returned income and the assessed income is wholly illegal.”
2. The facts, in brief, are that the appellant-company came into existence on 6th April, 1992 and was being regularly assessed to tax since then. So far as the year under appeal is concerned, it had filed a return under Section 139(1) showing business income at NIL and capital gain at Rs, 1,44,00,569. In response to the query made by the AO, it was stated that capital gain had arisen on transfer of shares which was held as “Investment”. Prior to 1st April, 1998, it had been maintaining a consolidated account of all its share holdings. On 1st April, 1998, it had segregated its share holdings into “investment” and “stock-in-trade” separately at Rs. 6,97,966 and Rs. 5,79,485 respectively. Thereafter, in the preceding year itself, the assessee-company made further acquisition of shares under the head “Investment” and at the end of the relevant financial year, i.e., 31st March, 1999, the position of this account was as under :
(Rs.)
(a) Share as brought forward from earlier year 69,79,666
(as converted into investment as on 1.4.1998)
(b) Purchase during the financial year 1998-99 11,52,136
Balance as on 31.3.1999 81,31,803
During the year under consideration, it sold some shares and “surplus” arising on such a “transfer of shares” was shown as assessable under the head ‘Capital gain’. The Asstt. CIT, Range 6, Kanpur, holding jurisdiction over the assessee did not accept the assessee’s contention of assessability of “surplus” (on transfer of shares) under the head ‘Capital gain’. Instead, he proposed that such “surplus” should be assessed as business income and through a ‘draft’ assessment order, duly forwarded to the assessee along with a show-cause notice dt. 3rd Jan. 2004, called for assessee’s objection/explanation. In the said “draft”, another variation was on account of increase in the valuation of closing stock of shares. According to ACIT (forwarding the ‘draft’ assessment order) there was change in the method of valuation of stock-in-trade in violation of the provisions of Section 145A of the Act, which warranted enhancement in valuation of shares and, thereby an addition of Rs. 27,97,556 to the business income of the assessee.
3. The assessee objected to the said ‘draft’ and for this purpose, it chose to avail the forum of the Addl. CIT, who was in charge of Range 6, Kanpur, by filing a petition under Section 144A. The petition filed by the assessee was duly entertained by the Addl. CIT and the assessee was granted hearing also. However, he did not issue any directions under Section 144A and instead he himself acted as “AO” and finalized the assessment, by passing assessment order dt. 10th Feb., 2003 under Section 143(3) under his own signatures.
4. The assessment order so passed by the Addl. CIT was disputed in the first appeal, besides others, on the ground of jurisdiction. The assessee’s contention before the learned CIT(A) was that the Addl. CIT himself did not have the “authority” to act as AO and pass the assessment order under Section 143(3) of the Act under his own signatures. This was more so in the present case where he had already been placed in the role of an “adjudicator” of the controversy by virtue of the provisions of Section 144A. The plea was rejected by the learned CIT(A) vide his order dt. 9th April, 2004 and the assessee is in appeal before us against the said order, on the grounds as have been reproduced by us in para 1 above. It is also worthy of mention here that after receipt of the said order, the assessee brought to the notice of the first appellate authority through a petition dt. 21st May, 2004 that some of its arguments had not been considered. The said petition too was disposed off by the learned CIT(A) vide his separate order dt. 27th July, 2004.
5. The learned counsel for the appellant referred to the definition of “AO” as contained in Section 2(7A) and also to various other related provisions of the Act and contended that only such an “income-tax authority” can perform the functions and exercise the powers of an “AO” who has been conferred with such an “authority” as per the provisions contained in Sub-sections (1), (2) and 4(b) of Section 120 of the IT Act, 1961. In support of this contention, he extensively referred to the passages of the “synopsis” filed by him which are reproduced hereunder :
“Validity of assessment order
6.1 Vide grounds Nos. 1.1, 1.2, 1.3 and 1.4 the appellant has disputed the jurisdiction of the learned Addl. CIT to pass the regular assessment order dt. 10th Feb., 2003. The appellant’s contention, in short, has been that–
(a) the ACIT, Range-6, Kanpur who had even issued the “draft” assessment order, alone had the jurisdiction to act as an “AO” in this case; and
(b) the Addl. CIT, Range-6, Kanpur, himself could not have finalized and pass the assessment order in this case, at least for the following reasons:
(i) Firstly : In the present case he (Addl. CIT) was the ‘adjudicating
authority’ as, on receipt of the draft assessment order issued
by the ACIT, Range-6, Kanpur (AO), the appellant had filed a
petition under Section 144A (copy appearing at pp. 26 to 33 of the
compilation).
(ii) Secondly The learned Addl. CIT had duly entertained the said petition
under Section 144A and had even called for further clarifications.
(iii) Thirdly In response to the requisition made by the learned Addl. CIT,
Range-6, Kanpur during the course of proceedings under Section
144A, further clarifications was submitted (copy appearing at
pp. 34 to 38 of the compilation).
(iv) Fourthly After acting as an “adjudicating authority” as envisaged
under Section 144A, the Addl CIT, Range-6, Kanpur could not
have acted as “AO” so as to have the jurisdiction to finalize
the assessment order and issue the same under his
signature.
(v) Fifthly In any case the learned Addl CIT, Range-6, Kanpur did not
have at all the jurisdiction under Section 120(2)/120(4)(a)
of the Act and statutorily, he was debarred from passing the
impugned assessment order.
6.2 In support of the contention mentioned under the head ‘fifthly’. I beg to submit hereunder the particulars of various instructions/notifications, etc., as are relevant for the purpose, in a chronological manner :
Sl. No. Date Particulars
(i) 31.07.2001 Notification No. G-09/2001-02 issued by the Chief CIT,
Kanpur (typed copy appearing at pp. 56 to 59 of the
paper book) under Sub-section (20) of section 120 of
the IT Act, 1961 whereby he merely allocated terri-
torial jurisdiction amongst various Ranges, starting
from Range 1 to Range 6 with a note reading as under:
"The Dy. CITs/ACITs and ITOs posted in ranges as
above, will exercise concurrent jurisdiction other than
the assessees'/persons' falling under the jurisdiction of
respective Addl. CIT/Jt. CIT."
(ii) 17.09.2001 Notification issued by Central Board of Direct Taxes
(CBDT) under Clause (b) of Sub-section (4) of Section 120
whereby it had merely ratified earlier notifications
(copy enclosed).
(iii) 20.9.2001 Instruction No. 5/2001 issued by CBDT specifying that
"except for search cases, all the officers of range
including the Addl. CIT/Jt. CIT, Dy. CIT/ACIT and ITO
will have concurrent jurisdiction of all the cases falling
in that range. However, Addl. CIT/Jt. CIT will himself
not make assessments but will closely monitor and
supervise the same" (copy appearing at pp. 65 to 68 of
the compilation).
(iv)21.1.2002 Instructions issued by CBDT as have been referred to by
the learned CIT(A) in his order dt. 27th July, 2004
passed under Section 154 of the IT Act, 1961 (copy
appearing at pp. 127 and 128 of the compilation) being
Instruction No. 1 of 2002, reads as under :
"However, the Board has subsequently issued another
Instruction No. 1/2002, dt. 21st Jan., 2002. Following
extract from the said instruction will clarify the issue :
"It has also been brought to the notice of the Board that
AC/DC in some of the Ranges finding it difficult to cope
up either with the number of cases with them or the
type and nature of cases required to be handled. It has
accordingly been decided that cases may be allocated
to Addl. CIT/Jt. CIT range or to ITO depending on the
nature and type of cases, with the approval of Chief
CIT. (Extracted from p. 127 of the compilation)
(v) 7.02.2002 Notification issued by CBDT, captioned as "Power of
assessment to Jt. CIT/Jt. Director of IT". Para 4 of the
said instructions (copy of which was made available to
the undersigned counsel by the learned senior
Departmental Representative during the course of
hearing of stay petition) reads as under :
"4. It is hereby clarified that Board's Notification S.O.
No. 889(E), dt. 17th Sept., 2001, will supersede the
scrutiny guidelines issued vide Board's Instruction No.
5/2001, dt. 20th Sept., 2001 on the issue of the power
of assessment to be exercised by the Jt. CIT/Jt.
Director of IT, i.e., the Jt. CITs/Jt. Directors of IT shall
exercise the powers and functions of the AOs and they
will have the power to finalize the assessments under
their signature".
6.3 It is contended that even in terms of the said instructions dt. 7th Feb., 2002, mentioned at Sl. No. (v) above, the Addl. CIT was not given the ‘authority’ to make ‘assessment’. It has been merely clarified that the Board’s Notification dt. 17th Sept., 2001, will prevail over scrutiny guidelines issued by the Board vide Instruction dt. 20th Sept., 2001. However, even in terms of the said Instruction dt. 7th Feb., 2002, the Instruction dt. 20th Sept., 2001, remained in tact, undiluted/unaltered.
6.4 On the basis of “chronology” of various notifications/instructions, etc., as has been referred to above, at best it can be said that the cases may be allocated to Addl. CIT/Jt. CIT, Range or to ITO with the approval of Chief CIT. However, the Addl. CIT has not been given the jurisdiction to make an assessment. In any case, if the said instruction is read to mean that the Addl. CIT can make an assessment, in supersession of the earlier instruction dt. 20th Sept., 2001, then it needed specific approval of the Chief CIT. In the present case, no such approval has been given in favour of the Addl. CIT, Range-6, Kanpur, to make the assessment order, at least nothing has been brought on record to this effect.
7. Based on the “chronology” of various instructions/notifications and circulars etc. as have been listed in para 6.2 above, the appellant’s contention is that the learned Addl. CIT, Range-6, Kanpur, was never conferred with the jurisdiction to act as an “AO”. In the present case, in fact, no such conferment was statutorily possible in view of the embargo placed on his power to make an assessment as per Instruction No. 5/2001, dt. 20th Sept., 2001 listed at Sl. No. (iii) of para 6.2 above and consequently the assessment order is bad in law as being without jurisdiction. Reliance in this regard is placed on the decision of Allahabad Bench of the Hon’ble Tribunal in the case of An India Children Care & Educational Development Society v. Jt. CIT (2003) 81 TTJ (All) 598 : (2003) 87 ITD 209 (All).”
6. Elaborating his arguments, the learned counsel for the appellant further submitted that, in addition to ITO/ACIT and Dy. CIT, the jurisdiction of the AO can be exercised only by such “Jt. CIT” or “Jt. Director” who is specifically directed under Clause (b) of Sub-section (4) of Section 120 to exercise and perform all or any of the powers and functions conferred on or assigned to an AO under this Act. In the present case, firstly, there is no ‘authority’ given to Jt. CIT to act as an AO in the case of the appellant and in any case the Addl. CIT who is a separate “authority” under Section 116(cc) of the Act has absolutely no power to act as an “AO” and to pass an assessment order, as he does not even fall within the definition of an “AO” under Section 2(7A) of the Act.
7. It was further contended by the learned counsel for the appellant that in this particular case, where the assesses had moved a petition under Section 144A so as to implore the Addl. CIT to “issue such direction as he thinks fit for the guidance of the AO to enable him to complete the assessment”, the Addl. CIT himself could not have acted as an AO, entrusted with an authority to make an assessment. An analysis of Section 144A clearly goes to show that in all such cases where the Addl. CIT either at his own motion or on a reference being made by the AO or on an application made by the assesses, gets seized with the task of supervising the process of assessment, his role gets confined only to issuance of directions for the guidance of the “AO”. This postulates that an “AO” has to be necessarily a different “authority” than the Jt. CIT (or even the Addl. CIT if such an authority is treated to be covered by the inclusive definition of “Jt. CIT”). In case, the, Addl. CIT himself chooses to make an assessment, during the pendency of proceedings under Section 144A before him, the assessee’s petition will become meaningless as the Addl. CIT will not be left in a position where he can give direction to the “AO” to complete the assessment. This shows that there is a clear segregation of functions and duties at least between such an Addl. CIT (if he is held to be covered by the inclusive definition of Jt. CIT) who is seized with the proceedings under Section 144A, and the “AO”. There has to be two different “IT authorities” as and when the proceedings are initiated under Section 144A, one who will issue directions and the other who will receive and follow the directions and complete the assessment accordingly. A single ‘authority’ cannot discharge both the functions and if the Addl. CIT or even the Jt. CIT, who is in charge of an “AO” chooses to make an assessment by himself, after he got seized with the matter under Section 144A, it will have the effect of rendering the provisions of Section 144A nugatory.
8. He further argued that a close analysis of Section 2(7A) also goes to show that an Addl. CIT (in case the said “authority” is held to be covered by the definition of “Jt. CIT”) cannot by himself assume the powers and perform the functions of an “AO”, unless there is an authorization in his favour in the manner laid down in Section 120(4)(b) of the Act. Self assumption of the “authority” to make an assessment as is the case here, not only violates the provisions of Section 2(7A) but also the scheme as envisaged in Section 144A. This analysis also goes to strengthen the appellant’s plea that the regular assessment order as passed by the Addl. CIT under his own signature, was wholly without jurisdiction.
9. On the other hand, the learned CIT/senior Departmental Representative vehemently opposed the contention put forth by the learned counsel for the appellant. He specifically referred to Section 2(7A) and submitted that on a conjoint reading of Sub-sections (1), (2) and (4) of Section 120 of the Act, the Asstt. CIT, Asstt. Director, Dy. CIT, Dy. Director, as also the Jt. CIT and Jt. Director can exercise and perform all the powers and functions of an “AO” side by side. He further submitted that as per the notification dt. 31st July, 2001, issued by the Chief CIT (hereinafter referred to as “Chief CIT”), Kanpur under Sub-section (2) of Section 120 copy appearing at pp. 56 to 59 of the assessee’s paper book), the “Dy. CITs/”ACITs” and “ITOs” were given concurrent jurisdiction over the “territories”/”persons” falling in the specified categories, along with Jt. CIT of each Range. By virtue of inclusive definition of the term “Jt. CIT” the Addl. CIT, Range 6, Kanpur, who was undisputedly the in charge of this Range, became ipso facto the “AO” in this Range concurrently with the ACIT. It signifies that there is no segregation of duties and functions of all these authorities, as far as their respective Ranges are concerned. According to him, in a nut shell, in a particular assessment range, the functions and duties of an “AO” can be performed by any of these authorities, namely Dy. CITs, ACITs and ITOs, concurrently with the Addl. CITs, Jt. CITs also, with equal competence. In any case, in ‘restructuring’ that took place in the IT Department, the Jt. CITs/Jt. Directors themselves have been upgraded as Addl. CITs/Addl. Directors. That is why, there is no independent definition of the “authority” designated as Addl. CIT. It is included in the definition of “Jt. CIT” himself as has been given in Section 2(28C) of the Act.
10. It was further submitted that the emphasis on Instruction No. 5/2001, dt. 20th Sept., 2001, as issued by the CBDT (as has been referred to and relied upon by the learned counsel for the assessee) is wholly misplaced. The said instructions relate to the norms for scrutiny assessments and Clause (ii) thereof could not be read to mean any, prohibition for the Addl. CIT/Jt. CIT to perform the functions and exercise the power of an “AO”. In any case, such instructions should be treated to have been superseded by the instructions dt. 17th Sept., 2001, as per the clarification dt. 7th Feb., 2002 issued by the CBDT itself, as have been reproduced by the learned CIT(A) also, in his subsequent order dt. 27th July, 2004 passed on a petition moved by the assessee under Section 154 (copies appearing at pp. 125-126 and 127 to 128) and with such a supersession, the appellant could not have pleaded that there was an embargo placed on the powers of Addl. CIT to act as an “AO” and the same was in force. Our attention was specifically drawn to the following passage as appearing in the said order dt. 27th July, 2004 :
“The appellate order in this case was passed on 9th April, 2004, bearing appeal No. CIT(A)-II/7266/Addl. CIT. R-W2002-G3-04/30. The appellant has filed a letter dt. 21st May, 2004, requesting that the said order may be rectified. The ground taken by the appellant is that the issue relating to the jurisdiction of Addl. CIT, Range VI, has not been decided properly. The contention of the appellant is patently wrong as the issue has been decided and discussed in detail in the appellate order. The appellant has tried to raise a new ground by mentioning Instruction No. 5 of 2001, dt. 20th Sept., 2001. He has quoted from this instruction as follows .
‘However, Addl. CIT/Jt. CIT will himself not make assessment but will closely monitor and supervise the same.”
However, the Board has subsequently issued another Instruction No. 1/2002, dt. 21st Jan., 2002. Following extract from the said instruction will clarify the issue :
“It has also been brought to the notice of the Board that AC/DC in some of the Ranges finding it difficult to cope up either with the number of cases with them or the type and nature of cases required to be handled. It has accordingly been decided that cases may be allocated to Addl. CIT/Jt. CIT range or to ITO depending on the nature and type of cases, with the approval of Chief CIT.”
11. The learned CIT/senior Departmental Representative further submitted that the CBDT (hereinafter referred to as “Board”) itself is the “authority” to issue directions conferring jurisdiction on the IT authorities subordinate to it and in terms of the instruction dt. 21st Jan.. 2002, it has specifically directed that Addl. CIT of a Range can also act as an “AO”.
12. At this stage and after a perusal of the above referred passage of the later order dt. 27th July, 2004 of learned CIT(A), we enquired from the learned, CIT senior Departmental Representative as to whether, subsequent to instruction dt. 17th Sept., 2001, issued by the Board under Section 120(4)(b) of the Act, the Chief CIT or CIT Kanpur had passed any order assigning the jurisdiction of the “AO” on “Addl. CIT/Jt. CIT” either in this case specifically or in general. In reply, learned CIT/senior Departmental Representative stated that off hand, he would not be able to give any reply to the query and sought for adjournment, in order to enable himself to collect the requisite information from the office of the Chief CIT, Kanpur. Accordingly, the case was adjourned.
13. On the next date of hearing, the learned CIT/senior Departmental Representative placed before us a copy of notification dt. 7th Feb., 2002, as issued by the “Board” along with a copy of notification dt. 31st July, 2001, issued by Chief CIT Kanpur (copy of which already appeared in the assessee’s paper book at pp. 56 to 64). With reference to the said notification, it was again contended by the learned CIT/senior Departmental Representative that “Board” itself is an “authority’, empowered to issue such instructions and directions to other IT authorities as it may deem fit for proper administration of this Act under Section 119 of the IT Act. In the matter of assigning the jurisdiction of “AO”, it possesses the exclusive authority either to pass the requisite order by itself or delegate this task to Chief CIT and other “Authorities”, as per the provisions contained in Sub-sections (1), (2) and (4) of Section 120 of the Act. The notification dt. 7th Feb., 2002, issued by the “Board” specifically empowers the Jt. CIT/Jt, Director to perform the functions of an AO in their respective territorial jurisdiction. Our attention was specifically drawn to para 4 of the notification dt. 7th Feb., 2002 which reads as under :
“It is hereby clarified that Board’s Notification S.O. No. 889(E), dt. 17th Sept., 2001, will supersede the scrutiny guidelines issued vide Board’s Instruction No. 5/2001, dt. 20th Sept., 2001 on the issue of the power of assessment to be exercised by the Jt. CIT/Jt. Director of IT, i.e., the Jt. CITs/Jt. Directors of IT shall exercise the powers and functions of the AOs and they will have the power to finalize the assessment under their signature.”
On that basis, it was submitted that after the Jt. CIT has been so empowered by the “Board” to exercise the powers and functions of the AO, no further notification was required to be issued by the Chief CIT or CIT, Kanpur, so as to authorize the Jt. CIT to exercise the powers and functions of “AO”.
14. Proceeding further, he submitted that in view of the said notification the earlier notification dt. 20th Sept., 2001, has become non-existent and the issue deserved to be decided on a harmonious interpretation of all the relevant notifications dt. 31st July, 2001, issued by Chief CIT, Kanpur, Notification dt. 17th Sept., 2001, issued by the “Board” under Section 120(4)(b), Instruction No. 1/2002, dt. 21st Jan., 2002, and finally the Notification dt. 7th Feb., 2002, issued by the “Board”. The later three instructions/notifications themselves go to supplement the notification dt. 31st July, 2001, issued by the Chief CIT, Kanpur (copy appearing at pp. 56 to 59 of the assessee’s paper book) and it was wholly unnecessary for the Chief CIT, Kanpur to pass any further order/notification conferring jurisdiction on the Jt. CIT Range 6, Kanpur to act as an AO in this case and pass the assessment order in that capacity. It is not in dispute that the assessee’s case fell in Range 6 which is headed by “Addl. CIT” who has been defined in the inclusive definition of “Jt. CIT” as given in Section 2(28C) of the Act, Consequently, the assessment order dt. 10th Feb., 2003, passed by the “Addl. CIT, Range 6 Kanpur” as “AO” was well within his jurisdiction as “AO” and the said assessment order cannot be assailed on the ground of lack of jurisdiction.
15. As regards the appellant’s contention that self-assumption of the role of an AO, by the Addl. CIT, and that too during the pendency of proceedings under Section 144A of the Act, was illegal, the learned CIT/senior Departmental Representative submitted that by virtue of the notifications dt. 21st Jan., 2002 (as had been referred to by him earlier), the Addl. CIT already possessed an “authority” to exercise the powers and perform the functions of an AO. There was nothing wrong if he conveyed his intention to make an assessment, during the proceedings under Section 144A and eventually passed the assessment order. In any case, the assessment order is not vitiated by the reason that he has not given any direction under Section 144A, as it was not obligatory for him to do so, as could be seen from a plain reading of Section 144A itself.
16. In rejoinder, the learned counsel for the appellant submitted that as per the earlier Notification dt. 17th Sept., 2001, issued by CBDT under Section 120(4)(b), all the Jt. CITs did not become ipso facto empowered to exercise the powers and functions of AO. The said notification, puts a rider to the effect that only such Jt. CIT/Jt. Director can exercise the powers and functions of “AO” who have been authorized by the CIT for this purpose. Undisputedly, the Jt. CIT does not derive any such “authority” from the notification dt. 31st July, 2001, issued by the Chief CIT, Kanpur. Only the Dy. CITs/ACITs and ITOs posted in their respective ranges could have exercised the power and perform the functions of an AO. Even if the notification dt. 20th Sept., 2001 (whereby an embargo had been placed on the Addl. CIT/Jt. CIT, to act as AO) can be said to have been superseded, then also the powers of an “AO” could be exercised only by such Jt. CIT/Jt. Director who has been specifically authorized to do so, as per the provisions contained in Clause (b) of Sub-section (4) of Section 120 of the Act. This position stands clarified not only by Section 2(7A) itself but also by the notification dt. 17th Sept., 2001, and instruction dt. 21st Jan., 2002 (as has been referred to by the learned CIT(A) also, in his subsequent order dt. 27th July, 2004, passed under Section 154 of the Act (placed at pp. 127 and 128 of the paper book).
17. As regards inclusive definition of “Jt. CIT” as contained in Section 2(28C), as has been very heavily relied upon by the learned CIT/senior Departmental Representative, the learned counsel for the appellant submitted that such an inclusive definition was not of any avail to the Revenue, Similar inclusive definition has been assigned to the authorities designated as “Director General or Director”. As per Sub-section (21) of Section 2 of the Act, such authorities include an Addl. Director, Jt., Director. Dy, Director and Asstt. Director also. But it does not mean that such authorities in general can assume the authority of Director General or Director, for all purposes, say for the purposes of issuing warrant of authorization to conduct search under Section 132(1) or to make requisition under Section 132A of the Act. Such an inclusive definition is only meant to serve a specific purpose and it cannot be stretched to mean and confer jurisdiction of the Director General or Director, on other authorities as are found mentioned in the definition given in s. 2(21} of the Act. In support of this contention, he referred to and relied upon the decision of the Hon’ble Delhi High Court in the case of Dr. Nalini Mahajan v. Director of IT (Inv) and Ors. (2002) 257 ITR 123 (Del), wherein it has been held that search and seizure action as authorised by the Addl. Director of IT was not valid. The same analogy is applicable here also. Even if the inclusive definition of “Jt. CIT” includes “Addl. CIT” also, it will not mean that the “Addl. CIT” has become vested with the ‘Authority’ to pass an assessment order also. In any case, no “Jt. CIT” having been vested with the authority to make an assessment in the present case, as per the provisions contained in Clause (b) of Sub-section (4) of Section 120 of the Act, and in the manner laid down in the notification dt. 17th Sept., 2001 (issued by “Board”), the Addl. CIT of this range cannot be said to be having the requisite authority, so as to pass an assessment order. Even the notification dt. 21st Jan., 2002, is of no help to the Revenue as the Addl. CIT or Jt. CIT who have been allocated specific case, can act as “AO”. The learned counsel for the appellant also reiterated his contention that after a petition had been moved before the Addl. CIT, under Section 144A, such an “authority” could not by himself have acted as an AO, even if the “Addl. CIT” is held to be covered by the inclusive definition of “Jt. CIT”. At least it is not so envisaged in the relevant provisions of the Act.
18. The learned Counsel for the appellant also made submissions on merits of the case. As regards assessability of surplus arising on sale of transfer of shares, he submitted that the entire controversy was redundant. It was in the preceding year, precisely on 1st April, 1998, that the appellant-company had segregated its share holding into ‘investment’ and ‘stock-in-trade’. After such segregation, further acquisitions were made under the head ‘Investment’ and such consolidated figure was brought forward this year. It is out of the shares held as ‘investment’ that transaction of sales took place. Therefore, it was merely a realization of an ‘investment’ and surplus arising out of such realisation had rightly been shown by the appellant, as assessable under the head ‘Capital gain’. So far as increase in the valuation of shares is concerned, the learned counsel for the appellant submitted that there was no change in the method of accounting and the assessee continued to value its share holding under the head “Stock-in-trade”, at cost. Such cost was however, adjusted by anticipated loss occasioned by fall in market price, below the cost. Such fall in price, as is commercially termed as “loss” or even ‘anticipated loss’ can always be taken into account even while valuing the stock-in-trade at cost, and such a practice has received judicial recognition also as per the decision of the apex Court in the case” of Chainup Sampatram v. CIT (1953) 24 ITR 481 (SC). However, the argument did not proceed further as we had observed in the open Court that first of all legal controversy shall be decided.
19. We have carefully considered the rival submissions as also the material on record as has been placed before us in the form of paper book and synopsis (filed on behalf of the assessee) copies of notifications submitted by the learned CIT/senior Departmental Representative. Before proceeding further, we would like to mention that on the last date of hearing, the learned CIT/senior Departmental Representative had placed before us copies of notification dt. 17th Sept., 2001, notification dt. 7th Feb., 2002, issued by CBDT and also the order issued by the Chief CIT, Kanpur, dt. 31st July, 2001, allocating the jurisdiction to the IT authorities of Ranges 1 to 6 as were situated within the administrative control of CIT-I and II, Kanpur. No other circular/notification issued by Chief CIT/CIT, Kanpur after 21st Jan., 2002 or 7th Feb., 2002, was placed before us. At the close of the hearing, we had permitted him to file subsequent instruction, notification, communication, if any, issued by CBDT/Chief CIT Kanpur after 21st Jan., 2002 or 7th Feb., 2002, conferring jurisdiction on Jt. CIT/Addl. CIT to perform and exercise the functions of an AO, on which he might like to place reliance. However, till the date of writing of this order, no such information could be made available by him and his emphasis continued to be on the instructions dt. 31st July, 2001, issued by Chief CIT, Kanpur, the Instruction No. 1/2002, dt. 21st Jan., 2002 and notification dt. 7th Feb., 2002, issued by CBDT. Therefore, this legal issue, with regard to the jurisdiction of the “AO” in this case, is being decided by us, on the basis of above referred material and information and the pleas made by both the sides on various dates of hearings.
20. First of all, it is necessary to analyse the sections which govern jurisdiction of the AO in the matter of making an assessment. Section 16 of the IT Act contains a list of IT authorities, right from CBDT, to downward. The list of authorities got enlarged with the introduction of “Addl. Director of IT” and “Addl. CIT” for which Sub-section (cc) was inserted w.e.f. 1st June, 1994, and then “Jt. Director of IT” and “Jt. CIT” which were introduced with insertion of another Sub-clause (cca) w.e.f. 1st Oct., 1998. As per this section, the CBDT is the Apex Body in the hierarchy of the IT authorities and as per Section 119 it has been specifically empowered to issue instructions to “other IT authorities” under Sub-section (1) thereof. Such instructions are binding on the IT authorities. The legal position in this regard as has emerged from a large number of judicial pronouncements, as are available on this subject, is that all such circulars/instructions as are issued by the CBDT for proper administration of the Act are binding on all the authorities subordinate to it with the exception of appellate authorities. Further, even before the appellate authority, an assessee can plead for enforcement of such instructions and also compliance thereof by the AO. The pronouncements of apex Court in the case of Union of India v. Azadi Bachao Andolan & Anr. (2003) 263 ITR 706 (SC), is a landmark in this respect. Therefore, we have no hesitation in accepting the contention of the learned CIT/senior Departmental Representative that the CBDT itself has the authority” and. ‘power’ to issue such directions as it deems fit in the matter of allocation of jurisdiction of “AO” and once it has issued any such direction, then it was not necessary for the CIT or Chief CIT, Kanpur to issue any notification/direction conferring jurisdiction on the “Jt. CIT” to exercise the powers and perform the functions of an “AO” But the questions that remain to be considered are :
(i) whether there exists any such direction/notification issued by the “Board” which can be said to be giving the Jt. CIT, Range 6, Kanpur, the jurisdiction and the ‘authority’ to act as AO and pass assessment order in his ‘Range’ in general or in the case of the present assessee in particular?; and
(ii) if the answer is in affirmative, whether the Addl. CIT can be said to be covered by the inclusive definition of “Jt. CIT” as contained in Section 2(28C) of the Act?
21. Under the heading jurisdiction of the IT authorities, it has been provided by Sub-section (1) of Section 120 that all the IT authorities shall perform all or any of the functions conferred on or assigned to such authorities under this Act, in accordance with the directions that may be given by the CBDT As per Sub-section (2) of section 120, the CBDT can delegate its authority in this respect, to any other IT authority(ies). As per Clause (b) of Sub-section (4) of section 120, the CBDT may further empower the Director General or Chief CIT or CIT to issue orders in writing that powers and functions conferred on an “AO” in a particular case, shall be exercised or performed by a Jt. CIT or Jt. Director. This clause has got great significance in the matter of deciding the controversy before us as it has been referred to in section 2(7A) also, which gives the definition of an AO. The said clause as well as section 2(7A) are reproduced hereunder :
Section 120(4)(b)
“empower the Director General or Chief CIT or CIT to issue orders in writing that the powers and functions conferred on, or as the case may be, assigned to, the AO 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 a Jt. CIT or a Jt. 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 AO shall be deemed to be references to such Jt. CIT or Jt. 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 Jt. CIT shall not apply.”
(Emphasis, italicised in print, provided by us)
Section 2(7A)
“AO” means the Asstt. CIT or Dy. CIT or Asstt. Director or Dy. Director or the ITO 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 Jt. CIT or Jt. Director who is directed under Clause (b) of Sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an AO under this Act.”
(Emphasis, italicised in print, added)
22. There is also an enabling provision as contained in Section 124 of the Act which says that where the AO has been vested with the jurisdiction over any area, he shall exercise such jurisdiction in respect of any person carrying on a business or profession from that area and also in the cases of such persons who are residing within that area. This section specifically refers to the jurisdiction conferred on an AO either directly by the CBDT under Sub-section (1) of Section 120 or by any other “authority”, which has been delegated (by the “Board”) to do so under Sub-section (2) of Section 124. Once jurisdiction of an AO has been conferred, then change is permissible only as per the provisions contained in Section 127 of the Act. However, we do not propose to deal with this aspect of the matter, as the same is not relevant here.
23. In the present case, the Chief CIT, Kanpur issued an order dt. 31st July, 2001 by exercising the powers conferred on him under Sub-section (2) of Section 120, whereby jurisdiction of the six ranges at Kanpur (which were situated within the administrative control of CIT-I and CIT-II), was allocated. In terms of the said order, the jurisdiction of an “AO” falling within the territorial limits of Range-6 was conferred only on “Dy. CITs/ACITs and ITOs”. It has been further laid down in the said order, that these very authorities, namely Dy. CITs/ACITs and ITOs shall be having concurrent (jurisdiction over the assessees/persons falling in the overall jurisdiction of the Addl. CIT, Range-6, Kanpur, It is very significant to mention here that in terms of the said notification dt. 31st July, 2000, the “Jt. CIT” was not given the authority to exercise the powers and perform the functions of the AO. After issuing this order dt. 31st July, 2001, undisputedly the learned Chief CIT, Kanpur or even CIT Kanpur did not issue any further order in the matter of allocation of the jurisdiction of “AO”, in any of the six assessment ranges (as are situated within the administrative control of CIT-I and II, Kanpur, The undisputed fact is that so far as the issue related to allocation of the jurisdiction of AO in all the six Ranges at Kanpur is concerned, the only notification that operates and hold the field even today is the above referred notification dt. 31st July, 2001 issued by the Chief CIT, Kanpur in exercise of powers conferred on him under Section 120 of the Act.
24. However, CBDT issued various instructions and notifications from time-to-time thereafter, particulars of such instructions/notification being as under:
(a) Notification dt. 17th Sept., 2001 issued under Clause (b) of Sub-section (4) of Section 120, which reads as under :
“Ministry of Finance
(Department of Revenue)
CBDT Notification
New Delhi, the 17th September, 2001
(Income-tax)
S.O. No. 889(E).–In exercise of the powers conferred by Clause (b) of Sub-section (4) of Section 120 of the IT Act, 1961 (43 of 1961), the CBDT, hereby directs that the Jt. CITs or the Jt. Directors of IT, shall exercise the powers and functions of the AOs, 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 Jt. CITs are authorised by the CIT, vide Government of India, CBDT notification number S.O. 732(E), dt. 31st July, 2001, S.O. 880(E), dt. 14th Sept., 2001, S.O. No. 881(E), dt. 14th Sept., 2001, S.O. 882(E), dt. 14th Sept., 2001 and S.O. 883(E), dt. 14th Sept., 2001 published in the Gazette of India, Part II, Section 3, Sub-section (ii), Extraordinary.
2. This notification shall come into force with effect from the date of publication in the Official Gazette.
(Notification No. 267/2001/F.No. 187/5/2001-ITA.I)
Promila Bhardwaj, Secy.”
(b) Instruction No. 5/2001, dt. 20th Sept., 2001 issued by CBDT
The said instructions were issued in relation to the scrutiny cases and in supersession of all earlier instructions. Clause (ii), full text available on pp. 65 to 69 of the assessee’s paper book, lays down “Except for search cases, all the officers of range including the Addl. CIT/Jt. CIT, Dy. CIT/ACIT and ITO will have concurrent jurisdiction of all the cases falling in that range. However, Addl. CIT/Jt. CIT’ will himself not make assessments but will closely monitor and supervise the same.”
(Emphasis, italicised in print, added)
(c) Instruction No. 1/2002, dt. 21st Jan., 2002 issued by the CBDT, which has been referred to by the CIT(A) also in his order dt. 27th July, 2004 (on a petition moved by the assessee under Section 154). The said instruction reads “It has also been brought to the notice of the Board that AC/DC in some of the Ranges are finding it difficult to cope up either with the number of cases with them or the type and nature of cases required to be handled. It has accordingly been decided that cases may be allocated to Addl. CIT/Jt CIT range or to ITO depending on the nature and type of cases, with the approval of Chief CIT”
(Emphasis, italicised in print, added)
(d) Instruction dt. 7th Feb., 2002 issued by the CBDT wherein after referring to their earlier instruction dt. 20th Sept., 2001; it laid down that the same be treated to have been superseded by the notification dt. 17th Sept., 2001 (that has been reproduced by us at serial No. (a) above), relevant portion of which reads as follows :
“4. It is hereby clarified that Board’s Notification S.O. No. 889(E), dt. 17th Sept., 2001, will supersede the scrutiny guidelines issued vide Board’s Instruction No. 5/2001, dt. 20th Sept., 2001 on the issue of the power of assessment to be exercised by the Jt. CIT/Jt. Director of IT, i.e., the Jt. CITs of IT/ Jt. Directors of IT shall exercise the powers and functions of the AOs and they will have the power to finalize the assessments under their signature.”
25. After having noted all the relevant circulars/instructions as issued by the CBDT from time-to-time and as has been brought to our notice by the rival parties, we proceed to work out a ‘synergy’ of such notifications including one dt. 31st July, 2001, as had been issued by the Chief CIT, Kanpur, on which will depend the answer to the issue involved in appeal. Undisputedly, the assessee’s case by virtue of its territorial situs, fall in range-6 as per the notification dt. 31st July, 2001 issued by Chief CIT Kanpur. Subsequently, the CBDT issued notification dt. 17th Sept., 2001, as has been reproduced at Sl. No. (a) in para 24 above. As per the said notification–
“Jt. CITs/Jt. Directors shall exercise the powers and functions of an AO, in respect of territorial area or persons or classes of persons or incomes or classes of incomes or eases or classes of cases, in respect of which such Jt. CITs are authorized by the CIT”.
26. In terms of above circular, the CIT should have authorized the Jt. CIT to exercise the powers of the AO of a particular area or class of assessees. In the present case as per the “authority” given by CBDT under Section 120(4)(b) no Jt. CIT/Jt. Director was authorised by CIT to exercise the powers and functions of an AO in any of the six assessment ranges at Kanpur. It may be mentioned again that as per notification dt. 31st July, 2001, issued by Chief CIT, Kanpur, only Dy. CITs, ACITs and ITOs had been given the jurisdiction to exercise the powers and perform the functions of AO in their respective ranges. The ‘Jt. CIT’ is not included in the list of AO. Even the CIT, Kanpur did not issue any such or further notification. It follows that “Jt. CIT”, Range-6, Kanpur had never been vested with the jurisdiction to exercise the powers and perform the function of an AO. There is no force in the contention put forth by the learned CIT-Departmental Representative that by virtue of the notification dt. 31st July, 2001, issued by Chief CIT, Kanpur, the Jt. CITs in all the six Ranges could have exercised the powers and perform the functions of AOs in their respective ranges along with Dy. CITs, ACITs and ITOs. As has been noted by us earlier, only such Jt. CIT could have exercised the powers and perform the function of an AO, who has been specifically authorised to do so through a notification issued under Section 120(4)(b) of the Act. The notification dt. 17th Sept., 2001, issued by CBDT under Section 120(4)(b), (as has been reproduced by us at Sl. No. (a) of para 24 above) is of no avail to the Revenue to support its contention that, by virtue of the said notification alone, the “Jt. CIT” stood authorized to exercise the powers and perform the functions of an “AO”, A plain reading of the said notification, goes to show that, only such Jt. CIT can act as an AO who have been authorised to do so by the CIT. It means that in the absence of a specific authorization having been issued by the CIT in favour of a “Jt. CIT” he cannot act as “AO” and pass assessment order under his signatures. Neither before this notification dt. 17th Sept., 2001, (issued by CBDT) nor afterwards, any notification was issued by CIT (or even by Chief CIT) authorizing the Jt. CIT to exercise the powers and perform the function of “AO” in any of the six ranges at Kanpur. This is the position fairly admitted by the learned CIT/senior Departmental Representative, although he had vehemently contended that, it was not necessary in view of various notifications/instructions issued by CBDT viz., 17th Sept., 2001, 21st Jan., 2002 and 7th Feb., 2002.
27. The Board again issued an instruction on 20th Sept., 2001, numbered as Instruction No. 5/2001. The crux of this instruction is given in para 24(b) on p. 23 of our order. As per this instruction of the Board, except for search cases, all the officers of range including Addl. CIT/Jt. CIT/Dy. CIT/Asstt. CIT and ITO will have concurring jurisdiction of all the cases falling in that range. However, the Board instructed that the Addl. CIT/Jt. CIT will himself not make assessment but will closely monitor and supervise the same. As per this instruction also, the Addl. CIT himself could not pass the assessment order. However, this instruction was nullified by the Board vide instruction dt. 7th Feb., 2002.
28. The Board also issued another instruction on 21st Jan., 2002 numbered as Instruction No. 1/2002 according to which the CITs were instructed to allocate the cases to Addl. CIT/Jt. CIT range or to the ITO depending on the nature and type of cases with the approval of the Chief CIT. Nothing has been brought on record by the Revenue suggesting that this case was allocated to the Addl. CIT with the approval of the Chief CIT.
29. Thus, reliance on the Instruction No. 1/2002, dt. 21st Jan., 2002, issued by CBDT, (relevant portion reproduced in para 24(c) above) also does not help the Revenue as in terms of these instructions also, approval of the Chief CIT was needed, to allocate jurisdiction of AO to the Addl. CIT/Jt. CIT of a range. Undisputedly after 21st Jan., 2002, also, no such “approval” has been given by the Chief CIT.
30. As far as the instruction dt. 7th Feb., 2002, issued by CBDT is concerned, no doubt the Jt. CIT/Jt. Director of IT could exercise the powers and functions of the AO, who has been authorised to do so through a notification issued under Section 120(4)(b) of the Act. Therefore, even in terms of the said instruction dt. 7th Feb., 2002, the Jt. CIT of a range does not get the authority to act us an AO. Further, if the said instruction dt. 7th Feb., 2002 is taken to be conferring such an authority on the Jt. CIT, then it will directly be in the conflict of earlier notification dt. 17th Sept., 2001, as has been specifically issued under Section 120(4)(b) of the Act. The said notification dt. 17th Sept., 2001, clearly lays down that only such Jt. CIT, who has been authorised by the CIT vide notification dt. 31st July, 2001, can act as an AO. Thus the Revenue cannot derive any support even from the said instruction dt. 7th Feb., 2002.
31. There is one more feature also of the instruction dt. 7th Feb., 2002. It should be read as an amendment to the instruction dt. 20th Sept., 2001 [reproduced in para 24(b)] to the effect that the embargo placed on the powers of Jt. CIT to make an assessment has been lifted, However, it cannot be meant to read that Addl. CIT too had become eligible to act as an “AO. In fact as per the letter of law, the Addl. CIT has not been given the jurisdiction of the AO at all and accordingly the embargo placed on the power of Addl. CIT, to perform the function of an AO, is in furtherance of Section 2(7A) itself. Therefore, the said restriction continues to be operative.
32. We may mention that Section 116 gives details of the IT authorities. Clause (cc) of this section includes Addl. CITs. This clause was inserted w.e.f. 1st June, 1994. Section 2(7A) of the Act defines the word “AO”. As per this definition, the ‘ “AO” includes Jt. CIT. But again, “Addl. CIT” was not included in the definition of “AO” though the post of Addl. CIT existed in the Department. Again, the perusal of Section 2(28C) will indicate that the authority “Jt. CIT” includes “Addl. CIT”. But again the Addl. CITs were not included in the definition of the word “AO”. By not including the Addl. CITs in the definition of “AO” the intention was made very clear that “Addl. CIT” could not make the assessment order himself.
33. In a nutshell, the final position is as under :
(a) There is only one notification dt. 17th Sept., 2001 as has been issued under Clause (b) of Sub-section (4) of Section 120 of the Act, which refers to the “authority” of Jt, CIT to exercise the powers and perform the functions of an AO, but such an ‘authority’ is subject to the approval of the CIT;
(b) The effect of instruction dt. 7th Feb., 2002 issued by CBDT is merely clarificatory in nature, which provides that the embargo placed on the powers of Jt. CIT, (as had been imposed by earlier instruction dt. 20th Sept., 2001) stands lifted; however, the Addl. CIT continues to remain prohibited from performing the functions of an AO and make an assessment;
(c) In consequence of Clause (b) as aforesaid, Jt. CIT/Jt. Director can exercise the powers and perform the functions of an AO, but, it does not in any way overrule the notification dt. 17th Sept., 2001 (supra) which has been specifically issued under Section 120(4)(b) and which provides for the approval of CIT;
(d) Thus, even for a Jt. CIT to perform the function of AO, approval of CIT is needed, both as per the notification dt. 17th Sept., 2001 and 20th Sept., 2001;
(e) Rather the notification dt. 7th Feb., 2002, reaffirms the notification dt. 17th Sept., 2001 (which has been specifically issued under Clause (b) of Sub-section(4) of section 120);
(f) The Instruction No. 1/2002, dt. 21st Jan., 2002, even if interpreted to have been issued by the Board under Section 120(4)(b) of the Act, then also Jt. CIT of a range can act as an AO, only with the approval of the Chief CIT and in the absence of any approval given by the Chief CIT, as is the case here, Revenue cannot derive any support for its plea that the Addl. CIT passing the assessment order in question, had the requisite authority, by virtue of inclusive definition of the term “Jt. CIT”.
34. Thus, in the ultimate analysis, we reach the conclusion that question No. (i), that has been framed by us in para 20 above, is to be decided in negative. The Notification dt. 17th Sept., 2001, issued by the CBDT, Continues to be operative for the purposes of section 2(7A) as the same had been issued by the CBDT, under Section 120(4)(b) of the Act. As per this instruction, authorization by the CIT is needed. Admittedly, even as per the learned CIT/senior Departmental Representative that no such authorisation has been issued in favour of Jt. CIT. As per Instruction No. 1/2002, dt 21st Jan., 2002, no doubt, the Addl. CIT/Jt. CIT can work as AO, but there too, the cases are to be allocated to them, obviously by higher ones in hierarchy. Here again there is a striking failure at the part of the Chief CIT or CIT to allocate the case of the present assessee to Jt. CIT or Addl. CIT.
35. Coming to the question No. (ii) as appearing in para 20 above, we hold that Addl. CIT as has been referred to in Instruction No. 1/2002, dt. 21st Jan., 2002 (supra) is not an authority who can act as an AO within the meaning of section 2(7A) of the Act. Had the intention of the legislature been to cover Addl. CIT/Director in the inclusive definition of “Jt. CIT”, for the purposes of section 2(7A) of the Act, nothing prevented it (the legislature) to do so by making suitable insertion. To the contrary, the “Board” has specifically laid down vide Instruction No. 5/2001, dt. 20th Sept., 2001 that Addl. CIT will himself not make assessment. The said directions have been amended by the Instruction dt. 7th Feb., 2002, again issued by the CBDT. As has been noted by us earlier, even after such an amendment, restriction on Addl. CIT to make assessment (as per Instruction dt. 20th Sept., 2001) continues. In any case, as per Instruction No. 1/2002, dt. 21st Jan., 2002, only such Addl. CIT can act as an AO to whom cases have been allocated. In the present case no allocation has been done, Thus, the cumulative effect of all the notifications and instructions as have been listed by us in para 24 above, is that in the absence of any allocation being made in favour of Addl. CIT to make an assessment, he cannot assume for himself such an authority, so as to pass an assessment order. In the end, we hold that the Addl. CIT never had the jurisdiction to act as an AO and his act of passing the assessment order dt. 10th Feb., 2003, is clearly in excess of his authority. The assessment order dt. 10th Feb., 2003, was, therefore, to be held as an order passed without jurisdiction.
36. The appellant’s case that the regular assessment order dt. 10th Feb., 2003, as passed by the Addl. CIT, Range 6, Kanpur is without jurisdiction also gets full support from the scheme as envisaged in section 144A, which had been specifically invoked by it (the appellant) to seek instructions for the ACIT, Range 6, Kanpur who had been conducting the assessment proceedings in this case although and who had even issued a ‘draft’ assessment order. For the sake of ready reference, the said section is reproduced hereunder :
“144A. A Jt. CIT may, on his own motion or on a reference being made to him by the AO or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the AO to enable him to complete the assessment and such directions shall be binding on the AO :
Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.
Explanation.–For the purposes of this section no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.”
It is evident from the said section that after the machinery of section 144A is placed in motion, either at the initiative of the Jt. CIT or on a reference being made by the AO or on an application made by the assessee, such Addl. CIT/Jt. CIT has been left only with two options, either he may take a view that no instructions need be given for the guidance of the AO, or instructions need be given. In the later case, if he is of the opinion that instruction adverse to the assessee need be given then be again owes a statutory duly to give the assessee an opportunity of being heard. Nowhere it is envisaged, even by implication, that the Jt. CIT can adopt a third course and intimate the assessee that he himself would be stepping into the ‘authority’ of the “AO” and finalize the ‘regular assessment order’ under his own signatures, as has been done here. This will be an act of “transgression of authority” which cannot be permitted. Therefore, we hold that after the proceedings under Section 144A get initiated under any of the three situations as discussed above, the Jt. CIT himself cannot act as AO and pass an assessment order under his own signatures. Naturally, such a situation, presupposes existence of two separate and distinct “authorities” one who gives instructions and two, who receives the directions and implements the same strictly as such directions are of binding nature.
37. Interestingly enough, section 144A as has been reproduced by us above, gives an example, where the term “Jt. CIT” shall include “Addl. CIT” also. As it is, the “authority” designated for the purposes of proceedings under Section 144A is “Jt. CIT” which has been designated as an “IT authority’ by virtue of insertion of Clause (cca) in Section 116 of the Act w.e.f. 1st Oct., 1998, only. Can it mean that after the date, recourse to section 144A will not be permissible in such “ranges” where the same are in the charge of the authority designated as “Addl. CIT”. The answer would be in the negation as no such discrimination has been made in the statute. Therefore, to make the provisions of section 144A effective and workable one can fall back to the interpretation clause of section 2(28C) where it has been mentioned that “Jt. CIT” includes “Addl. CIT” also. We hasten to add that such an interpretation clause shall not be applicable, in the context of section 2(7A) where the term is qualified as “such Jt. CIT ……..” This is an additional reason which is available in support of our conclusion that the ‘Addl. CIT, Range 6, Kanpur’ did not have the ‘authority’ to exercise the powers and perform the functions of an ‘AO’ and the assessment order dt. 10th Feb., 2003, as passed by him in this case, is bad-in-law.
38. Accordingly, we hold that the assessment order dt. 10th Feb., 2003, passed by the Addl. CIT Range-6, Kanpur in the present case is wholly without jurisdiction and consequently such assessment order is not enforceable in law. The assessment order is, therefore, quashed, as being without jurisdiction.
39. Since the primary issue about the very validity of the assessment order has been decided in favour of the assessee, we do not consider it necessary to deal with other issues which relate to the merits of the addition made in the assessment.
40. In the result, the appeal directed by the assessee is allowed.