Witty Global Education Trust Vs ITO (ITAT Jodhpur)
Section 143(2) Notice by Officer Without Jurisdiction Invalidates Assessment: ITAT Jodhpur
Assessment Quashed for Invalid Scrutiny Notice
The Income Tax Appellate Tribunal, Jodhpur Bench, quashed an assessment under Section 143(3) because the scrutiny notice under Section 143(2) had been issued by an officer who did not have jurisdiction over the assessee.
The Tribunal held that the subsequent transfer of records to the correct Assessing Officer could not validate the earlier notice. It also clarified that a notice under Section 142(1) cannot substitute a valid notice under Section 143(2).
The Bench comprising Judicial Member Amit Shukla and Accountant Member Girish Agrawal allowed the appeal of Witty Global Education Trust on the jurisdictional ground, without adjudicating the disputed tax adjustments on merits.
Background of the Case
The assessee was a society registered under the Rajasthan Society Registration Act, 1958, holding registration under Section 12AA of the Income-tax Act. It operated a school and was engaged in imparting education.
For Assessment Year 2016-17, the assessee filed its return in Form ITR-7 on 10 November 2016, declaring nil income.
The case was selected for scrutiny. A notice under Section 143(2), dated 10 August 2017, was issued by the Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur.
The assessment order recorded that the case records were subsequently transferred to the Income Tax Officer, Exemption Ward, Udaipur, who had the correct jurisdiction. That officer completed the assessment on 24 December 2018.
Disputed Loss Adjustment and Depreciation
During the relevant year, the assessee reported fee receipts of ₹3,42,18,375 against expenditure of ₹2,53,69,976, resulting in a surplus of ₹88,48,399.
The assessee adjusted the surplus against brought forward losses and declared nil income. The Assessing Officer rejected the adjustment and also disallowed depreciation of ₹97,260 under Section 11(6).
The assessment determined total income at ₹38,12,902.
The Commissioner (Appeals), National Faceless Appeal Centre, dismissed the assessee’s appeal for non-prosecution and on merits. The assessee then approached the Tribunal, challenging both the assessment’s validity and the substantive disallowances.
Jurisdictional Ground Admitted
The assessee raised an additional ground challenging the authority of the Assistant Commissioner, Exemption Circle, Jodhpur, to issue the scrutiny notice.
The Tribunal admitted the ground because it involved a legal issue going to the root of the assessment and could be decided from the existing record.
For admission, it relied on the Supreme Court decisions in National Thermal Power Co. Ltd. v. CIT and CIT v. Sinhgad Technical Education Society.
The central question was whether the officer issuing the notice dated 10 August 2017 possessed jurisdiction over the assessee.
Assessment Record Identified the Correct Officer
The Tribunal noted that the assessment order itself identified the Income Tax Officer, Exemption Ward, Udaipur, as the officer having correct jurisdiction.
However, the only Section 143(2) notice recorded in that order was the notice issued by the Assistant Commissioner at Jodhpur.
The record showed neither a Section 143(2) notice issued by the jurisdictional officer at Udaipur nor an order conferring jurisdiction on the Assistant Commissioner at Jodhpur.
For the return filed on 10 November 2016, the Tribunal recorded that the deadline for service of the scrutiny notice was 30 September 2017. No valid notice by the jurisdictional officer had been issued and served within that period.
Transfer of Records Could Not Cure the Defect
The Tribunal followed the Delhi High Court’s decision in SK Industries v. ACIT, which required the officer having jurisdiction to issue the scrutiny notice within the prescribed time.
It held that subsequent continuation of proceedings by another officer could not sustain the assessment where the jurisdictional defect remained uncured.
The later transfer of records therefore did not validate the original notice.
The Tribunal also considered the fresh Section 142(1) notice dated 3 December 2018. That notice, issued by the officer then handling the assessment, could not replace the mandatory scrutiny notice under Section 143(2).
Appeal Allowed; Merits Left Undecided
Applying the above reasoning, the Tribunal held that the notice dated 10 August 2017 was not issued by the officer having jurisdiction. Consequently, the assessment dated 24 December 2018 was unsustainable in law and was quashed.
The jurisdictional ground and additional ground were allowed.
The remaining grounds concerning the statement of facts, assessed income, brought forward losses and depreciation became academic and were not adjudicated.
The decision thus grants relief through invalidation of the assessment proceedings. It does not separately establish the admissibility of the loss adjustment or depreciation claim. The appeal was allowed.
Cases Discussed
- National Thermal Power Co. Ltd. Vs CIT (Supreme Court), (1998) 229 ITR 383 — Relied upon to admit the additional legal ground arising from the existing record.
- CIT Vs Sinhgad Technical Education Society (Supreme Court), (2017) 397 ITR 344; 84 taxmann.com 290 — Relied upon for admitting a jurisdictional legal ground without further fact-finding.
- SK Industries Vs ACIT (Delhi High Court), [2022] 141 taxmann.com 568 (Del) — Followed: a Section 143(2) notice issued by an officer lacking jurisdiction cannot sustain the assessment.
FULL TEXT OF THE ORDER OF ITAT JODHPUR
This appeal filed by assessee is directed against the order of ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1069830539(1) dated 21.10.2024 arising from assessment order passed by ld. Assessing Officer under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year 2016-17.
2. Grounds of appeal raised by assessee are reproduced as under:
Ground No. 1
On the facts and circumstances of the case the notice under section 143(2) by Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur on 10.08.2017 is without jurisdiction and therefore assessment order passed pursuant to the same dated 24.12.2018 is bad in law and deserves to be quashed.
Ground No. 2
On the facts and circumstances of the case and in law the ld. CIT(A), NFAC erred in passing order without considering the statement of facts filed by assessee.
Ground No. 3
On the facts and circumstances of the case and in law the ld. CIT(A), NFAC erred in confirming the assessed income at Rs.38,12,902 made by the ld. Assessing Officer.
Ground No. 4
On the facts and circumstances of the case and in law the ld. CIT(A), NFAC erred in disallowing the brought forward losses of earlier years of Rs.88,48,399 against the profit of the assessment year under appeal. The reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case and the provisions of the Act and rules made thereunder.
Ground No. 5
On the facts and circumstances of the case and in law the ld. CIT(A), NFAC erred in confirming the disallowance of depreciation of Rs.97,260. The reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case.
2.1. Assessee has also raised an additional ground challenging the jurisdiction of the Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur in issuing notice under section 143(2) dated 10.08.2017. The additional ground reads as under:
“The notice u/s 143(2) by Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur on 10.08.2017 is without jurisdiction and therefore assessment order passed pursuant to same dated 24.12.2018 is bad in law and deserves to be quashed.”
3. Brief facts of the case are that assessee is a society registered under the Rajasthan Society Registration Act, 1958 and also holds registration under section 12AA of the Act. Assessee is engaged in imparting education by running a school. For the year under consideration, assessee filed its return of income in Form ITR-7 on 10.11.2016, reporting nil income.
3.1. Case was selected for scrutiny and notice under section 143(2) was issued on 10.08.2017 by the Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur. Thereafter notices under section 142(1) were issued and assessee furnished the requisite details. As recorded in the assessment order, case records were subsequently transferred to the Income Tax Officer, Exemption Ward, Udaipur who was stated to have the correct jurisdiction over the case.
3.2. During the year under consideration, assessee declared receipts from fees of Rs.3,42,18,375/- against expenditure of Rs.2,53,69,976/-, resulting in a surplus of Rs.88,48,399/-. Assessee adjusted this surplus against brought forward losses of earlier years and declared nil income. Ld. Assessing Officer did not accept the set-off of brought forward losses and also disallowed depreciation of Rs.97,260/- under section 11(6). Assessment was completed on 24.12.2018, determining total income at Rs.38,12,902. Aggrieved, assessee went in appeal before ld. CIT(A) who dismissed it both, for non-prosecution and on merits. Aggrieved, assessee is in appeal before the Tribunal.
4. We have considered the application seeking admission of the additional ground. The issue raised therein concerns the jurisdiction of the authority issuing notice under section 143(2) and the consequential validity of the assessment proceedings. The issue is legal in nature and goes to the root of the assessment. Its adjudication is possible on the basis of the material available on record. Respectfully following the principles laid down by the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT reported in 229 ITR 383 and CIT v. Sinhgad Technical Education Society reported in 84 taxmann.com 290, we admit the additional ground for adjudication.
5. We have heard the rival submissions and perused the material available on record. The limited issue for consideration is whether the notice under section 143(2) issued by the Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur on 10.08.2017 was issued by an authority having jurisdiction over the assessee.
6. We note from the assessment order that the return of income was filed on 10.11.2016 by the assessee, reporting nil income. Notice under section 143(2) was issued on 10.08.2017 by the Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur. The assessment order itself records that the case records were subsequently transferred to the Income Tax Officer, Exemption Ward, Udaipur who had the correct jurisdiction over the case. The assessment was thereafter completed by the Income Tax Officer, Exemption Ward, Udaipur on 24.12.2018.
6.1. In support of its contention assessee has placed reliance on the decision of the Hon’ble Court of Delhi in the case of SK Industries v. ACIT [2022] 141 taxmann.com 568 (Del), placed in the case law paper book submitted by it. The relevant findings reproduced therein read as under:
“8. Be that as it may, in the considered view of the Court, the AO having jurisdiction i.e. Respondent No. 1 ought to have issue a notice under section 143(2)(a) of the Act within the prescribed time limit i.e. 30th September, 2014 in order to proceed with the assessment. Considering that a similar mistake of an AO not having jurisdiction over the Assessee issuing a notice to it had been committed earlier, there was no occasion for the Revenue to continue to repeat the same mistake and expect that it will be condoned.
9. The impugned assessment order dated 31st March, 2016 is unsustainable in law since it has been passed without the AO having jurisdiction over the Assessee issuing notice to it under section 143(2)(a) within the prescribed time limit i.e. on or before 30th September, 2014. The impugned assessment order dated 31st March, 2016 is hereby set aside.
10. The writ petition is accordingly allowed, but in the circumstances, no order as to costs. The application is disposed of.”
6.2. The above decision lays down that the notice required under section 143(2) must be issued by the Assessing Officer having jurisdiction over assessee within the prescribed time. Where such notice is issued by an authority not having jurisdiction and the defect is not cured in accordance with law, the consequential assessment cannot be sustained merely because the proceedings are subsequently continued by another authority.
7. The issue before us is thus narrow. Section 143(2) requires that notice be served on the assessee by the Assessing Officer within the prescribed time for the assessment to proceed. The return for the year under consideration was filed on 10.11.2016 and the time for service of such notice expired on 30.09.2017. The Assessing Officer having jurisdiction over assessee was the Income Tax Officer, Exemption Ward, Udaipur. This is recorded in para 1 of the assessment order itself. The only notice u/s 143(2) recorded in the assessment order is the one dated 10.08.2017 issued by the Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur. The assessment order records neither any notice u/s 143(2) issued by the Income Tax Officer, Exemption Ward, Udaipur nor any order conferring jurisdiction on the Assistant Commissioner of Income Tax, Exemption Circle, Jodhpur.
7.1 The assessment order thus itself admits that the correct jurisdiction lay with the Income Tax Officer, Exemption Ward, Udaipur. The case records were transferred to that office only after the notice dated 10.08.2017 had been issued and after assessee had responded to the notices. The fresh notice u/s 142(1) dated 03.12.2018 was issued by the present Assessing Officer on change of incumbent. A notice u/s 142(1) is not a substitute for the notice u/s 143(2). Transfer of the case records after the notice cannot validate a notice issued by an authority that did not have jurisdiction. The position is on all fours with SK Industries (supra).
7.2 In SK Industries (supra), the Hon’ble Delhi High Court held that the Assessing Officer having jurisdiction ought to have issued notice u/s 143(2)(a) within the prescribed time. The assessment order passed without such notice by the Assessing Officer having jurisdiction was held to be unsustainable in law and was set aside. The Court also observed that Revenue could not repeat the same mistake and expect it to be condoned. No decision of the Hon’ble Rajasthan High Court to the contrary has been brought to our notice. We therefore respectfully follow the above decision. Applying the same, we hold that the notice dated 10.08.2017 was not a notice issued by the Assessing Officer having jurisdiction over the assessee. No valid notice u/s 143(2) was issued and served on the assessee by the Assessing Officer having jurisdiction over it, on or before 30.09.2017. The assessment order dated 24.12.2018 passed u/s 143(3) is therefore unsustainable in law and is quashed.
Ground No. 1 and the additional ground are allowed.
8. Since the legal ground on the jurisdictional issue has been allowed in favour of assessee, the merits of the case are rendered academic. Ground Nos. 2 to 5 relating to the non-consideration of the statement of facts and to the assessed income of Rs.38,12,902 and the disallowance of brought forward losses of Rs.88,48,399 and of depreciation of Rs.97,260 are therefore not adjudicated upon.
9. In the result the appeal of assessee is allowed.
Order pronounced in terms of Proviso to Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963 on 03 November, 2026
