ITAT Delhi Quashes Assessment Where Section 143(2) Notice Was Issued by an AO Without Jurisdiction

Background of the Dispute

The Delhi Bench of the Income Tax Appellate Tribunal, in the case of Meena Swarup Vs DCIT, examined the legality of an assessment framed under Section 143(3) for Assessment Year 2014-15, where the foundational notice under Section 143(2) had been issued by an Assessing Officer (AO) who did not possess jurisdiction over the assessee.

The assessee, a non-resident individual, had filed a return of income on 31.07.2014 declaring a total income of ₹47,320. The return was e-filed and processed with ITO, Ward-22(4), New Delhi, which had territorial jurisdiction over the case at that point.

During scrutiny, the Revenue treated the assessee’s declared Long Term Capital Gain (LTCG) of ₹2,47,91,254 as unexplained cash credit under Section 68 of the Income Tax Act 1961, on the allegation that the LTCG claim was bogus. The CIT(A) upheld the assessment order.

In appeal before the Tribunal, the assessee shifted the focus from merits to jurisdiction, by raising additional legal grounds attacking the very validity of the assessment proceedings.

Procedural History

Original Assessment Proceedings

  1. The assessee, a non-resident, filed her return of income for AY 2014-15 on 31.07.2014 with ITO, Ward-22(4), New Delhi, declaring income of ₹47,320.
  2. The case was selected for scrutiny. A notice under Section 143(2) dated 21.09.2015 was issued, not by the ward where the return was filed, but by ITO, Ward-28(4), New Delhi.
  3. During the course of scrutiny, the Revenue took the view that the assessee’s LTCG of ₹2,47,91,254 on sale of listed equity shares represented accommodation entries, and treated the gain as unexplained cash credit under Section 68.
  4. On objections being raised about jurisdiction, the file was later transferred and the assessment was completed by DCIT, International Taxation, Circle-3(1)(2), New Delhi under Section 143(3).

First Appeal Before CIT(A)

The assessee’s appeal before the CIT(A)-43, New Delhi challenged, inter alia:

  • Invoking Section 68 where the assessee was not maintaining books of account.
  • Treating LTCG, exempt under Section 10(38), as income from other sources.
  • Characterising genuine sale of listed shares routed through a recognised stock exchange as accommodation entries.
  • Denial of natural justice by non-supply of statements relied upon and denial of cross-examination.

The CIT(A) upheld the addition of ₹2,47,91,254 under Section 68.

Nature of Additional Grounds

In the appeal before ITAT, the assessee moved an application to raise fresh, purely legal grounds going to the root of jurisdiction:

  1. The notice under Section 143(2) was issued by an AO who did not have jurisdiction over the assessee.
  2. The AO who ultimately completed the assessment (DCIT, International Taxation, Circle-3(1)(2), New Delhi) never issued a fresh notice under Section 143(2) after assuming charge of the case.
  3. The assessment order contained factual assumptions that were patently incorrect, indicating non-application of mind.

The Tribunal, after hearing both sides, admitted these additional grounds noting that they were pure questions of law and did not require fresh factual investigation.

Key Jurisdictional Facts

Filing and Jurisdiction Pattern

  • For AY 2014-15, the return was filed with ITO, Ward-22(4), New Delhi.
  • The earliest scrutiny notice under Section 143(2) dated 21.09.2015 was issued by ITO, Ward-28(4), New Delhi.
  • For the immediately preceding year, the return had been filed before DDIT, Circle-2(2)2, International Taxation, New Delhi.
  • The assessee was shown as a non-resident in the return for AY 2014-15. This status was accepted by the Department in the Section 143(1) intimation and was also noted in the assessment order itself.
  • During assessment, the assessee’s representative specifically objected that the correct jurisdiction lay with International Taxation, and requested transfer to that wing.