Delhi High Court cancels Section 144/143(3) assessment where Section 143(2) notice was not issued in time by jurisdictional AO

Background and procedural history

The Delhi High Court in S.K. Industries Vs ACIT (Delhi High Court) examined the validity of an assessment framed under Sections 144/143(3) of the Income Tax Act, 1961 where the foundational requirement of a valid and timely notice under Section 143(2) by the jurisdictional Assessing Officer was not satisfied.

The assessee, S.K. Industries, acting through its partner, filed a writ petition (W.P.(C) 4014/2016) challenging the assessment order dated 31st March, 2016 passed by the Assistant Commissioner of Income Tax, Circle 50(1), New Delhi (Respondent No. 1). The core issue before the Court was narrow but decisive:

Whether an assessment order under Sections 144/143(3) can survive in law when the jurisdictional AO fails to issue a notice under Section 143(2) within the statutory time limit, and a notice is instead issued only by an AO who has no jurisdiction over the assessee.

Transfer of jurisdiction under Section 127

The Court recorded that, much prior to the assessment year in question, the jurisdiction over the assessee had been formally shifted:

• On 28th March, 2010, the Commissioner of Income Tax (Central), New Delhi passed an order under Section 127 transferring the case of the petitioner from:
  • AO of Circle VIII, to
  • AO of Circle 8(1), New Delhi.

Thus, as per the statutory transfer order under Section 127, the AO of Circle 8(1) became the officer having jurisdiction over S.K. Industries.

Return filing and subsequent notices

For AY 2013-14, the following sequence of events was noted:

• On 29th September, 2013, the assessee filed its return of income in the office of the AO of Circle 8(1), New Delhi, declaring a loss.
• Despite the above, on 3rd September, 2014, Respondent No. 2 (ACIT, Circle 31(1)) issued a notice under Section 143(2) to the assessee for scrutiny of the return.
  • It was undisputed that the AO of Circle 31(1) did not have jurisdiction over the assessee’s case.
• Later, on 21st July, 2015, Respondent No. 1 (the AO who actually had jurisdiction over the petitioner’s case) issued a notice under Section 142(1) calling for details for AY 2013-14.

By this time, the statutory cut-off date for issuing a Section 143(2) notice for AY 2013-14—30th September, 2014—had already lapsed.

Assessee’s objections on limitation and jurisdiction

Initial objection to Section 142(1) proceedings

Upon receiving the Section 142(1) notice dated 21st July, 2015, the assessee immediately raised its objection:

• On 27th July, 2015, the assessee addressed a letter to Respondent No. 1 stating:
  • The proceedings initiated by the notice dated 21st July, 2015 should be ignored.
  • The assessee had not received any notice under Section 143(2) from the jurisdictional AO within the statutory period, which expired on 30th September, 2014.

The assessee thus asserted that, in the absence of a valid Section 143(2) notice from the correct officer within time, the assessment proceedings could not lawfully continue.

Subsequent notice and reiteration of limitation plea

Despite the above position:

• Another notice under Section 143(2) was issued by Respondent No. 2 (ACIT, Circle 31(1)) on 8th September, 2015.
• The assessee replied vide letter dated 23rd March, 2016, once again:
  • Highlighting that all such notices were beyond the permissible time limit (30th September, 2014) for AY 2013-14.
  • Requesting that the assessment proceedings be dropped.