DNH SPINNERS PRIVATE LIMITED,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2), MUMBAI

ITA 2624/MUM/2025

AI Insights

The case involves DNH Spinners Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals), Mumbai, concerning an assessment order passed under sections 144 and 147 of the Income-tax Act, 1961. The original assessment was contested due to jurisdictional issues and the validity of the reassessment order, which was claimed to be passed in the name of a non-existent entity following the conversion of the firm into a private limited company. The Tribunal's decision focused on the procedural aspects of the assessment and the proper application of jurisdictional authority, ultimately supporting the CIT(A)'s decision to remand the case for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668723 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Other Referred Cases: Kashiram Aggarwalla Vs. Union of India & Ors., CIT vs. S.S. Ahuluwalia, Wallace Brothers & Co. Ltd. v. CIT, Rai Bahadur Seth Teomalv. CIT, Kanji Mal & Sons v. CIT, Thermax Ltd vs NFAC, City corporation Ltd vs CIT, PCIT vs Maruti Suzuki Ltd, The Principal Officer, M/s. Vedanta Limited v. Deputy Commissioner of Income-Tax
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANNAVARAMKOSURI
• Assessee Lawyers: RUSHABH MEHTA
• Keywords: Set aside; Speculation loss; Reassessment proceedings; Question of law; Period of limitation; Principle of natural justice; Audit objection; Assessment record; Time period of passing order; Non compliance
• Section: 147; 148; 144; 143(3); 142(1); 80IB

Judgement Text

"IN THE INCOME-TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No. 2624/MUM/2025 (A.Y. 2008-09) DNH Spinners Private Limited, Unit No. 1701, 17th Floor, Supreme Headquarters, Junction of 14th and 33rd Road, Bandra West, Mumbai 400 050, Maharashtra v/s. बनाम Assistant Commissioner of Income Tax, Central Circle – 1(2), 9th Floor, Pratishtha Bhavan, Mumbai – 400020, Maharashtra स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AADCD5709P Appellant/अपीलार्थी .. Respondent/प्रतिवादी Appellant by : Shri Rushabh Mehta, CA Respondent by : Shri Annavaram Kosuri, (Sr. AR) Date of Hearing 17.06.2025 Date of Pronouncement 24 .06.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal arising from the appellate order dated 18.02.2025 is filed by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal/CIT(A), Mumbai [hereinafter referred to as “CIT(A)”] pertaining to the assessment order passed u/s. 144 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 30.03.2016 for the Assessment Year [A.Y.] 2008-09. P a g e | 2 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai 2. The grounds of appeal are as under: (a) The assessment order passed u/s 144 r.w.s. 147 of the Act is invalid, without jurisdiction, bad in law and grossly in violation of principles of natural justice. (b) The Ld.Commissioner of Income Tax (Appeals) -47, Mumbai erred in law and facts in holding that the conversion of the erstwhile firm into a private limited company was not communicated to the Ld.Assessing Officer ignoring the documentary evidences placed on record. (c) The Ld.Commissioner of Income Tax (Appeals) -47, Mumbai erred in law in not applying the provisions of section 170(2) of the Act and quashing the reassessment order. 3. Brief facts of the case are that the assessee firm is a domestic private limited company engaged in the business of manufacturing of yarn. It filed return of income on 18.09.2008 declaring total income of Rs.45,44,890/-. Subsequently, scrutiny assessment u/s. 143(3) of the Act was completed on 02.12.2010 determining total income at Rs 48,22,502/-. Later on assessment was reopened leading to completion of assessment u/s 144 of the Act on total income of Rs.1,26,69,610/- after making additions i.e. (i) Speculation loss Rs.75,27,882/- (ii) Excessive deduction u/s. 80IB 3,19,226/-.Being aggrieved by the additions, the assessee filed appeal before the ld.CIT(A) who after taking into account all the grounds which pertain to validity of the reassessment order, jurisdictional issue and also the provisions of section 170(2) of the Act vide impugned order dated 18.02.2025,set aside the entire case to the AO for framing assessment order afresh. P a g e | 3 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai 4. Before us, the ld.AR has in support of the grounds of appeal relating to validity, jurisdiction and merits made a detailed oral and written submission. In nutshell, it is claimed that the assessment order was made by the AO without jurisdiction and is liable to be quashed. It is contented that there are two orders for the same A.Y. 2008-09 were passed in March 2016, one by ACIT, Circle 18(1)(4), Mumbai and another by ACIT, Circle 30(1), Mumbai. It is submitted that all the due compliances were made before ACIT, Circle 18(1)(4), Mumbai till 08.03.2016, however, the assessee was not aware that after this date the jurisdictional officer was changed to ACIT, Circle 30(1), Mumbai for another ongoing assessment for A.Y. 2008-09. Accordingly, no compliance could be made before the said AO. Attention is drawn to the letter filed on 24.11.2015 before ACIT, Circle 18(1)(4), Mumbai duly intimating about the change in status of the assessee firm being converted into a private limited company on 15.09.2010 in accordance with provisions of Part IX of the Companies Act, 1956. It is claimed that the assessment order passed on 30.03.2016 by ACIT, Circle 30(1), Mumbai in the name of non-existent appellant firm despite being duly intimated about the conversion of the assessee firm into company. In the present case, in light of these facts, since the Ld.AO has passed order in the name of non-existent entity, the impugned order is invalid and bad P a g e | 4 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai in law. It is claimed further that the Ld. CIT(A) has erred in holding that the intimation of conversion of assessee firm into private limited company was not informed to ACIT, Circle 30(1), Mumbai whereas the concerned jurisdictional assessing officer was already informed before the impugned assessment order was passed. Furthermore, the Ld.CIT(A) has also erred in stating that there is a bar on the assessee in raising jurisdictional issue beyond one month as per the provisions of section 124(3) of the Act. 5. Before we go into the grounds of appeal, it is worthwhile to mention that the ld.AR during hearing, has not uttered a word on the final conclusion drawn by the ld.CIT(A) that the assessment order was set aside to the AO for consideration of all the issues involved. We find that the appeal has been filed against the impugned order dated 18.02.2025 wherein the ld.CIT(A) has narrated the submissions made before him vis-a-vis facts of the case on all the issues involving validity, jurisdiction and merits. But he has not given his categorical decision at all on any of these issues. For ready reference ,relevant operative part of his order are extracted below for ready reference: “Decision on Ground no. 1, 2 and 3: “In these grounds the appellant has contended that the AO erred in passing the ex-parte order u/s. 144 of the Act without the having proper jurisdiction and that reopening the case P a g e | 5 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai u/s. 147 of the Act and subsequent order u/s 144 passed in the name of the firm, which had been converted into a private limited company was incorrect as it was not in existence at that time. 6.2 I have gone through the submissions of the appellant, the assessment order, relevant records and the facts of the case. It is noted that notice u/s 148 of the Act was issued to DNH Spinners (Firm) on 11.07.2014 by ACIT, Circle 30 (1), Mumbai. In its response to ACIT, Circle 30 (1), the appellant filed submitted that the original return dated 18.09.2008 may be treated as return filed against 148 notice. The appellant neither filed any fresh return nor were any objections were filed regarding issuance of notice u/s 148 of the Act. Notably the jurisdiction was also not challenged by the appellant. Again notices u/s 143(2) & 142(1) of the Act dated 25.02.2015 were issued by Circle 30(1). However there was no response from the appellant. Another notice u/s 142(1) dated 08.03.2016 along with questionnaire was issued by Circle 30(1), however again there was no response from the appellant. Finally assessment order was also passed u/s 144 of the Act in the name of the firm on 30.03.2016. 6.3 Before me the appellant has submitted that the notice u/s 148 was incorrect as the AO did not have jurisdiction to assess it as the registered office of the appellant is 601-603, Business classic, Chincholi Bunder Road, Near SV Road, Malad (west), Mumbai 400064. This falls under the jurisdiction of circle 18(1), Mumbai while assessment has been done by ACIT (30(1) Mumbai. 6.4 It is noted that the IT department underwent a cadre restructuring in 2013-14 and there was change in jurisdiction of AOs. As per records, the PAN jurisdiction was with ACIT Circle 30(1), Mumbai. It is important to note that the appellant was very well aware that a proceeding was going on with ACIT Circle 30(1), Mumbai even then it never objected to the jurisdiction. 6.5 The Hon'ble Supreme Court of India in the case of Kashiram Aggarwalla Vs. Union of India & Ors. Has given findings as under:- “Where, as in the present proceedings, assessment cases pending against the appellant before an office in one word are transferred to an officer in another ward in the same place, there is hardly any occasion for mentioning any reasons as such, because such transfers are invariably made on grounds of administrative conveniences, and that shows that on principle in such cases neither can the notice be said to be necessary, nor would it be necessary to record any reasons for the transfer.” The Hon'ble High Court and Supreme Court have given clear findings that the jurisdiction issue is an administrative decision of the department. No prejudice is caused to the assessee depending upon which authority of the department passes an assessment order. P a g e | 6 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai 6.6 Hon'ble Delhi High Court in the decision of CIT vs. S.S. Ahuluwalia(2014) 47 taxman.com 169 (Del)has held as under :- \"It is also clear that question of jurisdiction cannot be made subject matter of appeal, as the issue has to be decided on the administrative side by the Commissioner/Commissioners/ Board. Appeal can, however, be filed questioning the action of the Assessing Officer in not following the procedure mentioned/stipulated in Section 124. In Wallace Brothers & Co. Ltd. v. CIT [1945] 13 ITR 39, Federal Court had held that the objection to place of assessment could not be raised in an appeal against the assessment under the Income Tax Act, 1922. This view was affirmed by the Supreme Court in Rai Bahadur Seth Teomalv. CIT [1959] 36 ITR 9 holding that the objection as to the place of objection under the 1922 Act could not be made a subject or issue before the appellate forums including the Tribunal and reference to the High Court. Thus, the question of place or authority of the particular Assessing Officer was the matter of administrative convenience and not strictly a matter of subject matter jurisdiction and where there was an error or erroneous exercise by the Assessing Officer/Commissioner notwithstanding the challenge within stipulated time, it could be corrected by way of writ jurisdiction. The position is no different under the Act i.e. Income Tax Act 1961, as was elucidated by a Division Bench of this Court in Kanji Mal & Sons v. CIT [1982] 138 ITR 391/[1983] 12 Taxman 34 (Delhi), wherein reference to said two decisions was made and it was observed that if the assessee fails to raise objection before the Income Tax Officer within the time, he will be shut out from raising the question altogether. Further, if the issue was raised and decided by the Commissioner, the decision would be final and cannot be questioned in the appellate forums but where the Income Tax Officer does not refer the question to the Commissioner\" The aforesaid aspect has also been reiterated in para 35 in following words:- \"35.......Sub-section (4) and (6) of Section 124 and for that matter subsection (2) and (4) of Section 124 after amendment w.e.f. 1st April, 1988 are procedural sections. They relate to administration and exercise of powers/authority by the Assessing Officers/Income Tax Officers and are not part of the substantive law. That the Act i.e. Income Tax Act 1961 being complete code deals with substantive and procedural aspects. Section 120/124/127 govern the process of procedure for assessment and not the subject matter or its purpose. They relate to conduct of the Assessing Officer/Income Tax Officers and the assessees in respect of the assessment proceedings. It is a matter of merely a process. A irregularity in procedure need not result in annulment unless the statute specifically stipulates to the contrary. The appellate authorities have right to put a clock back and direct the Income Tax Officer/Assessing Officer to follow the procedure notwithstanding the difference P a g e | 7 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai between mandatory and directory procedural norms. In Grindlays Bank Ltd. v. ITO [1980] 122 ITR 55/3 Taxman 38 (SC), the Supreme Court quashed the assessment order but then issued directions to make fresh assessment in the circumstances of the case. The said principle has been followed in cases of violation of principles of natural justice wherein an order of remit/remand when justified are passed. The courts have taken recourse of pragmatism and exigencies of the situation rather thancourts have taken recourse of pragmatism and exigencies of the situation rather than legalistic approach of void and voidable (see Principle of Administrative Law, M.P. Jain and S.N. Jain, Fifth Edition, 2007 at pages 592- 95).\" 6.7 The Hon’ble Punjab and Haryana High Court in the case of Subhash Chander(218 CPR 191) held that the question with regard to jurisdiction should have been determined by the Director General or the Chief Commissioner or the Commissioner and not by the Tribunal or the Commissioner (Appeals) in terms of Section 124(3)(b). 6.8 Further as per the provisions of Sec. 124(3) of the Act, there is a bar on the assessee in raising jurisdictional issue beyond one month. 6.9 In the present case no objection was filed even though the appellant was well aware that proceedings u/s 147 of the Act had been initiated by ACIT, Circle 30(1), Mumbai. In case it had any objections in this regard it should have raised in a timely manner. Thus this contention of the appellant is totally incorrect. 6.10 The other contention of the appellant is that the status of appellant had changed from firm to company w.e.f. 15.09.2010. Thus the order passed u/s 144 in name of non-existent entity was incorrect. It has further submitted that the information regarding change of status was communicated to the AO. It has relied on various case laws and judgements as under: 1. Thermax Ltd vs NFAC 2025) 170 taxmann.com 249 (Bombay) 2. City corporation Ltd vs CIT (WP No. 6076 of 2023) Bombay High Court 3. PCIT vs Maruti Suzuki Ltd (2019) 107 taxamnn.com 375 (SC) 6.11 On careful perusal of records, I have noted that the claim of the appellant that the jurisdictional AO was informed about the change of status to company on 24.11.2015 is incorrect. The appellant had informed ACIT Circle 18(1), Mumbai through a letter. However, interestingly, it did not inform ACIT Circle 30 (1), Mumbai. Considering the fact that notice u/s 148 dtd. 11.07.14 was issued by ACIT Circle 30 (1) and the appellant had also replied to ACIT Circle 30 (1), the question that arises here is why the appellant didn’t inform ACIT Circle 30(1), Mumbai that arises here is why the appellant didn’t inform ACIT Circle 30(1), Mumbai who had issued the notice u/s 148 of the Act? Even later, as discussed in pre paras and for the sake of repetition, notices u/s 143(2) & 142(1) of the Act dated 25.02.2015 were issued by ACIT Circle 30(1). However there was no response from the appellant. Another notice u/s P a g e | 8 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai 142(1) dated 08.03.2016 along with questionnaire was issued by ACIT Circle 30(1), and again there was no response from the appellant. Thus the important questions that arise here are: -Why didn’t the appellant inform ACIT Circle 30 (1) when it informed ACIT Circle 18(1) on 24.11.2015? • -Why no objections were filed to the notice u/s 148 issued in the name of DNH Spinners? -Why no submissions were filed before ACIT Circle 30(1) when all correspondences were being received by it and especially when there is No change of address. 6.12 Thus in my opinion it appears to be a deliberate act on the part of the appellant to slyly forward a copy to the department and later claim that it had informed the department. The ACIT Circle 30(1) Mumbai was not made aware of the change in status even though the same could have easily been done by the appellant. In the light of these circumstances the claim of the appellant regarding jurisdiction of the AO and issuance of notice to nonexistent entity cannot be accepted. 6.13 With regard to the judgments quoted by the appellant it is noted that in those cases the AO had been informed about the amalgamation and change of status which has clearly not been done in present case. Thus the cases are clearly distinguishable. 6.14 It would be pertinent to mention here that the Hon’ble Madras High Court in the case of The Principal Officer, M/s. Vedanta Limited v. Deputy Commissioner of Income-Tax (2021) held that assessment order framed in the name of a non-existing person is not to be Void if a mistake is identified, corrected by the Income Tax Department. In the present case the appellant made no effort to bring the complete facts before the AO so that necessary correction could have been made. Thus I am of the opinion that a correction can be made even now since complete facts and sequence of events have been discussed in detail in pre paras. 6.15 Further the appellant had also raised a contention that there was no new material so reopening could not have been done. In this regard it is noted from the reason recorded that the reopening was done on the basis of audit scrutiny. Various judgments have held that reopening on the basis of audit objection is a valid reopening. Reliance is placed on following decisions: Hon’ble Supreme court in CIT Vs P.V.S. Beedies (P.) Ltd. [1999] 103 Taxman 294 (SC) held that Audit party had merely pointed out a fact which had been overlooked by Assessing Officer and this was not a case of information on a question of law. Reopening of case under section 147 on the basis of factual information given by internal audit party was valid in law. Hon’ble Delhi High Court in Dalmia Brothers (P.) Ltd. Vs CIT [2011] 16 taxmann.com 336 (Delhi) held that where audit objection on basis of which assessment was reopened was P a g e | 9 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai available in assessment records, assessee cannot challenge reassessment proceedings on ground that it was unaware of same Hon’ble Allahabad High Court in Suresh Chand Gupta Vs PCIT [2020] 117 taxmann.com 731 (Allahabad) held that where Assessing Officer worked out profit on basis of contract/sub- contract income but failed to add interest income shown in books as other income, subsequently, on basis of audit objection, Assessing Officer was justified in invoking section 147/148 and reassessing 'interest income' 6.16 During the appellate proceedings the appellant has filed submission with regard to the treatment of Premium on Forward cover Exchange loss of Rs.75,27,882/- as alleged Speculation loss and disallowing the deduction u/s. 80IB of Rs.3,19,226/- by the AO. It has also relied on various case laws in this regard. 6.17 Considering the facts, mentioned above, I am of the opinion that matter requires extensive factual verification, the assessment order is set aside and the Assessing Officer is directed to make a fresh assessment after taking into consideration the change in status of the appellant from firm to company, after giving adequate opportunities to the appellant and complying with all extant rules and provisions and following principles of natural justice. The appellant may note that all necessary compliance should be made at the earliest and within the time limit prescribed in the notices issued by Ld. AO. It should be the endeavor of the appellant to promptly submit necessary evidences in support of the grounds raised, suo-moto or as required by the Assessing Officer without causing undue delays leading to submissions towards the fag end of the limitation period. The assessment order is set aside accordingly in accordance with proviso to S 251(1)(a) with a direction to the AO to make a fresh assessment in accordance with rules and timelines prescribed u/s 153(3) of the Act. 7. For Statistical purposes, the appeal for A.Y. 2008-09 [u/s. 144 of the I.T Act] is Set Aside.” 6. We have carefully considered all the relevant facts of the case. We notice that the ld.CIT(A) has already set aside the assessment order which was passed ex parte due to non compliance by the assessee and restored it to the file of the AO for de novo assessment. We do not find any infirmity in the appellate order. The authority of CIT(A) is now also empowered to set aside any assessment order passed u/s 144 of the Act P a g e | 10 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai as per proviso to section 251(1)(a) of the Act w.e.f.1.10.2024 as per Finance (No.2) Act,2024.In such a situation, we are of the considered view that the appeal filed by the assessee before us is frivolous and infructuous since all the issues being raised in this appeal are already restored to the AO for fresh consideration and the assessee has been allowed liberty to furnish relevant details before the AO for due consideration. 7. In the result, the appeal being infructuous is dismissed. Order pronounced in the open court on 24.06.2025. Sd/- Sd/- PAWAN SINGH PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER) Place: म ुंबई/Mumbai ददनाुंक /Date 24.06.2025 Lubhna Shaikh / Steno आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai P a g e | 11 ITA No. 2624/Mum/2025 A.Y. 2008-09 DNH Spinners Private Limited Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अयिकरण/ ITAT, Bench, Mumbai. "