ITAT Quashes Assessment as Section 143(2) Notice Was Issued by Non-Jurisdictional AO

Vivek Shukla Vs ACIT (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT), Delhi allowed the assessee’s appeal by deciding the jurisdictional issue and quashed the assessment order without examining the remaining grounds. The assessee challenged the assessment on multiple grounds, including the validity of the notice issued under Section 143(2), unauthorized expansion of limited scrutiny, additions under Section 69, and disallowance of short-term capital loss of ₹16.65 crore. However, during the hearing, the assessee pressed only the jurisdictional ground, contending that the notice under Section 143(2) had been issued by ACIT, Circle 4(1), Gurgaon, although the assessee’s jurisdiction consistently lay with Circle 72(1), New Delhi. The assessee pointed out that returns for the relevant and subsequent assessment years were filed with Circle 72(1), New Delhi, and the assessment records were later transferred to Delhi without any order under Section 127 of the Income-tax Act.

The Revenue argued that the assessee had mentioned a Gurgaon address in the return and that the case was transferred to the jurisdictional Assessing Officer after the assessee raised the issue, making a separate order under Section 127 unnecessary.

The Tribunal found that the notice under Section 143(2) had been issued by the Gurgaon Assessing Officer, while the assessment was ultimately completed by the New Delhi Assessing Officer. It observed that no procedure prescribed under Section 127 for transfer of jurisdiction had been followed, and no transfer order was placed on record. The Tribunal held that merely informing the assessee of a change of incumbent under Section 129 could not substitute the statutory requirement for transfer of jurisdiction.

Relying on earlier Tribunal decisions, including Meena Swaroop v. DCIT and the Third Member decision in Kusum Dube v. ITO, the Tribunal held that a notice issued under Section 143(2) by a non-jurisdictional Assessing Officer is invalid and that jurisdiction can be transferred only through an order under Section 127 passed by the competent authority. Since no such order existed, the jurisdictional defect rendered the assessment unsustainable.

Accordingly, the ITAT quashed the assessment order on the jurisdictional ground and allowed the appeal. As the assessment itself was set aside, the Tribunal did not adjudicate the remaining grounds, including the challenge to the addition of ₹5.15 crore under Section 69, the disallowance of the claimed short-term capital loss of ₹16.65 crore, and the allegation that the Assessing Officer had expanded the scope of limited scrutiny without approval. Those issues were left open.

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FULL TEXT OF THE ORDER OF ITAT DELHI

1. This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”, for short] dated 29.05.2025 for the Assessment Year 2015-16 raising following grounds of appeal :-

“1. That the limited scrutiny notice issued u/s 143(2) of the Act is further illegal and not tenable under the law as the reasons for selection of the case for limited scrutiny were not incorporated in the notice issued under section 143(2) of the Act.

2. That the assessment order passed u/s 143(3) of the Act is further illegal and void ab initio under the law because of unauthorized expansion of scope of limited scrutiny.

3. That the additions of Rs.5,15,35,068/- made by Ld. AO u/s 69 of the Act is illegal and not tenable under the law.

4. That the addition of Rs.5,15,35,068/- made by Ld. AO is not sustainable under the law because no Show Cause notice allowing opportunity of being heard proposing stilted addition was issued by Ld. AO during the course of assessment proceedings.

5. That the Ld. AO grossly erred in law and in facts of the case in making addition and Ld. CIT(A) grossly erred in confirming the addition of Rs.5,15,.35,068/- u/s 69 of tile Act ignoring the evidences and explanations filed by the assessee for explaining the source of the investment without bringing any evidence on record to the contrary OR placing the same before the assessee for his rebuttal.

6. That the assessment order passed by Ld. AO u/s 143(3) of the Act and the appellate order passed by Ld. CIT(A) are bad in law and are passed in contravention of prevailing law as well as facts of the case, therefore liable to be annulled.

7. That the assessment proceedings undertaken and completed in case of assessee u/s 143(3) of the Act is void-ab-initio invalid due to issue of notice u/s 143(2) of the Act by non-jurisdictional AO.

8. That the assessment proceedings undertaken and completed in case of assessee u/s 143(3) of the Act is further not sustainable under the law because of change of jurisdiction over the case of assessee without any order being passed u/s 127 of the Act after giving notice to the assessee.

9. That the Ld. AO has acted against the law and facts by ignoring the evidences filed by the assessee for explaining the source of the investment without bringing any evidence on record to the contrary OR placing the same before the assessee for his rebuttal. Thus, the AO violated the principles of natural justice and the addition is made merely on suspicion and presumption.

10. That Ld. AO grossly erred ill law and in facts of the case in disallowing Short-Term Capital Loss of Rs.16,65,15,162/- from quoted shares alleging the same to non-genuine.

11. That Ld. AO grossly erred in law and in facts of the case in disallowing Short-Term Capital Loss of Rs.16,65,15,162/- from quoted shares while accepting LTCG of Rs.17,96,65.643/- from sale of unquoted shares as such.”

2. At the time of hearing, ld. AR of the assessee specifically pressed the legal ground raised in Ground No.7. Ld. AR brought to our notice page 47 of the paper book which is the notice issued under section 143(2) of the Income-tax Act, 1961 (for short ‘the Act’) on 28.09.2016 by ACIT, CIRCLE 4 (1), Gurgaon for making limited scrutiny. Further he brought to our notice page 53 of the paper book which is the letter submitted by the assessee to the Assessing Officer, Circle 4, Gurgaon in response to final opportunity given to the assessee prior to initiation of penalty proceedings u/s 271(1)(b) of the Act dated 31.08.2017. Ld. AR brought to our notice the third para of the letter wherein assessee has made a submission that the assessing authority under territorial jurisdiction of assessee’s PAN is Circle 72 (1), New Delhi and also enclosed copy of the PAN indicating the jurisdiction. Further it was submitted that the proper territorial jurisdiction has to be invoked while taking cognizance of non-compliance and initiate any action thereof. Further he brought to our notice that assessment order was passed u/s 143(3) of the Act dated 29.12.2017 by the ACIT, Circle 72 (1), New Delhi. In this regard, he further brought to our notice page 198 of the paper book which is the letter received by the assessee in response to information sought under the RTI Act, 2005 wherein the Assessing Officer has informed the assessee that assessment record in assessee’s case was transferred to Deputy/Assistant Commissioner of Income-tax, Circle 72 (1), New Delhi vide this office letter no.725 dated 14.09.2017. Ld. AR submitted that from the above order, the case of the assessee was transferred from Gurgaon to New Delhi. In this regard, ld. AR also brought to our notice page 55 of the paper book which is the notice issued u/s 142 (1) of the Act by the jurisdictional Assessing Officer i.e. ACIT, Circle 72 (1), New Delhi for the AY 2015-16 and further intimated that this notice may also be considered as intimation for change of incumbent u/s 129 of the Act. Further ld. AR brought to our notice page 1 of the paper book which is the return of income filed by the assessee for AY 2015-16 with the details of designation of AO i.e. Circle 72 (1), Delhi, the return was filed on 30.08.2015. He further brought to our notice page 23 of the paper book which is the return of income filed by the assessee for AY 2016-17 indicating the designation of the Assessing Officer as Circle 72 (1), Delhi. Similarly, the intimation u/s 143(1) of the Act was also issued by the CPC indicating the JAO details as Circle 72 (1), Delhi for the AY 2016-17. With the above submissions, ld. AR submitted that the jurisdiction of the assessee is only with Circle 72 (1), Delhi and he wondered how the notice u/s 143(2) was issued by the AO from Gurgaon. He made a submission that in present case, notice u/s 143(2) was issued by non-jurisdictional AO and transferred the case to the jurisdictional AO without there being any order passed u/s 127 of the Act, he specifically referred to pages 48 to 51 of the case law paper book. The case laws relied on are reproduced below :-

(i) Aananda Devcon (P.) ltd. vs. ACIT 163 COM 372 (Raipur – Trib.);

(ii) PCIT vs. Nopany & Sons (2022) 136 com 414 (Calcutta);

(iii) Kusum Dube vs. ITO – ITA No.7444/Del/2018; and

(iv) Meena Swarup vs. DCIT – ITA No.2050/Del/2019.

3. Further he submitted that the case of the assessee was selected for limited scrutiny. In this regard, be brought to our notice page 55 of the paper book which is the notice u/s 143(2) of the Act. However, he brought to our notice assessment order wherein the case of the assessee was selected for Long Term Capital Gains and suspicious sale transaction in shares. Further he brought to our notice assessment order and brought to our notice that additions made by the Assessing Officer relates to short term capital loss claimed by the assessee was disallowed and added to the income of the assessee as long term capital gain treating the same as bogus. In this regard, be submitted that the Assessing Officer has expanded the scope of limited scrutiny without obtaining approval of PCIT/CCIT concerned. In this regard, he relied on the case laws mentioned as sl. nos.10 & 11 of the case law paper book which are as under :-

(i) Duckwoo Autoind Pvt. Ltd. vs. PCIT in ITA No.232/Chny/ 2021 order dated 21.12.2022

(ii) Narendrakumar Rameshbhai Patel vs. DCIT (2020) 58 CCH 663 (Ahd – Trib.).

4. On the other hand, ld. DR of the Revenue brought to our notice ITR filed by the assessee declaring address of Gurgaon mischievously when the assessee is living in Gurgaon what is necessary to maintain the jurisdiction of Delhi. Further he submitted that as soon as assessee brought to the notice of the tax authorities, the case was transferred back to the jurisdictional Assessing Officer, it is transferred on the behest of the assessee, therefore, there is no requirement to pass a separate order u/s 127 of the Act. He heavily relied on the orders passed by the lower authorities.

5. Considered the rival submissions and material placed on record. We observed that the assessee is habitually filing his return of income with Circle 72 (1), Delhi as the jurisdictional AO and his assessments were completed by Circle 72 (1). For the impugned AY 2015-16, based on the address of the assessee given in the return of income, the case of the assessee was selected for limited scrutiny and notice u/s 143(2) was issued by Circle 4 (1), Gurgaon and several notices were issued by the AO from Gurgaon. Since there was no response from the assessee, a final opportunity of being heard prior to initiation of penalty proceedings u/s 271(1)(b) of the Act was issued to the assessee vide letter dated 31.08.2017. In response, assessee vide letter dated 14.09.2017 intimated to the Assessing Officer that his original jurisdiction lies with territorial jurisdictional AO at Circle 72 (1), Delhi. Subsequently on 18^th September, 2017, jurisdictional Assessing Officer – ACIT, Circle 72 (1), New Delhi issued notice u/s 142(1) of the Act and through the abovesaid notice u/s 142(1), the assessee was informed that the case of the assessee was selected for limited scrutiny with the reasons of selection and further intimated that this notice to be considered as intimation for change of incumbent u/s 129 of the Act.

6. We observed from the above factual matrix that the notice u/s 143 (2) was issued by Circle 4 (1), Gurgaon, which is the jurisdictional notice. Since there was no response from the assessee, a final notice was issued to the assessee for compliance since the assessee has responded to the final notice, through which it was brought to the notice that the territorial jurisdiction lies with the Circle 72 (1), New Delhi. From the record, we observed that there was no due procedure which was followed for change of jurisdiction of the case records in this case. The Assessing Officer i.e. Circle 72 (1) has merely intimated the assessee that there is change of incumbent u/s 129 of the Act, however it is fact on record that jurisdictional notice u/s 143(2) was issued by Circle 4 (1), Gurgaon and the case can never be transferred by issue of order u/s 127 of the Act without the approval by the competent authority. Nothing was brought on record before us any order u/s 127 of the Act. In this regard, we rely on the decision of the coordinate Bench in the case of Meena Swaroop vs. DCIT in ITA No.20250/Del/2019 dated 19.09.2025 wherein it was held as under :-

“11. Heard the contentions of both the parties and perused the material available on record. The sole issue raised in this ground of appeal for our consideration is whether the AO who issued notice u/s 143(2) of the Act, has the valid jurisdiction over the assessee as provided in section 120(1) or 120(2) of the Act and further the assessment order passed by AO without assuming the jurisdiction u/s 143(2) of the Act is valid or liable to be quashed?

12. From the perusal of notice issued u/s 143(2) as filed by the Revenue alongwith the report of AO dated 24.04.2025, it is seen that the same was issued by ITO, Ward-28(4), New Delhi. The said notice is reproduced as under:-

………………………

13. It is further seen that assessee filed her return of income on 31.07.2014 with ITO, Ward-22(4), New Delhi who was having territorial jurisdiction over the case of assessee. It is further seen that return of income for the immediately preceding year was filed with DDIT, Circle-2(2)2, International Taxation, New Delhi on 21.02.2014. The claim of assessee is that she is a non-resident and this fact was duly disclosed in the return of income filed and accepted by the Revenue in the order passed u/s 143(1) of the Act. Further from the perusal of para 2 of the order, AO observed that assessee is a non-resident. It is also seen that assessee during the course of assessment proceedings, objected the proceedings carried out by ITO ward 30(2) Delhi and stated that jurisdiction lies with AO, International Taxation. In the instant case, first notice u/s 142(1) alongwith query letter was issued by the ITO, Ward-30(2), New Delhi with whom details were filed by the assessee in terms of letter dated 08.11.2016 when the assessee has requested the AO for transfer of the case to the correct jurisdiction.

14. As observed above, there are 04 AOs in the case of the assessee, First, ITO, Ward-22(4), New Delhi with whom return was filed having territorial jurisdiction. Second, the ITO, Ward-28(4), New Delhi who issued notice u/s 143(2) of the Act; (it is not clear whether ITO, Ward-28(4), New Delhi is having any jurisdiction over the assessee or not); Third, the ITO, Ward-30(2), New Delhi from whose jurisdiction case of the assessee was transferred to DCIT, International Taxation, Circle-3(1)(2), New Delhi and Fourth the DCIT, International Taxation, Circle-3(1)(2), New Delhi who completed the assessment.

15. Section 124(3) of the Act referred by Ld. Sr.DR, relates to the case where territorial jurisdiction is challenged however, it not for the cases where the very subject matter of jurisdiction is challenged as has been done in the present case. Thus the provisions as contained in section 124(3) of the Act are not applicable to the facts of the present case, and as such assessee can challenge the very subject matter of the jurisdiction at any stage. Hon’ble Delhi High Court in the case of Abhishek Jain vs ITO (supra) in para 22 observed that “……… As far as territorial jurisdiction or pecuniary jurisdiction are concerned, objection should be taken at the earliest possible opportunity and / or before the settlement of issues and not at the subsequent stage. Jurisdiction as to the subject matter is distinct and stand at a different footing. Therefore, territorial jurisdiction cannot be equated with lack of subject matter of jurisdiction.

16. Further it is evident from the facts that AO who had completed the assessment i.e. DCIT, International Taxation, Circle-3(1)(2), New Delhi assumed the jurisdiction without issue of notice u/s 143(2) of the Act. In the instant case, as observed above, notice issued u/s 143(2) by ITO, Ward-28(4), New Delhi who even was not having territorial jurisdiction over the assessee and since the assessee is Non-resident, it is question of subject matter of jurisdiction and thus the ratio laid down by hon’ble Delhi high court in the case Abhishek Jain (supra) as relied by revenue is not applicable rather the observation of Hon’ble High Court in para 22, favors the case of the assessee. It is further seen that proceedings taken up by ITO, Ward-30(2), New Delhi were without jurisdiction and subsequent transfer of case to DCIT, International Taxation, Circle-3(1)(2), New Delhi is subject matter of jurisdiction which is to be examined separately.

17. In view of these facts, we find that assessee’s case is covered by the judgement of Hon’ble Calcutta High Court in the case of PCIT vs Nopany & Sons (supra) wherein Hon’ble High Court held that notice issued u/s 143(2) by the AO who at that relevant point, had no jurisdiction over the assessee, thus, the notice issued u/s 143(2) of the Act had no jurisdiction.

18. Further, the Hon’ble Supreme Court in the case of ACIT vs Hotel Blue Moon (supra) has held that omission on the part of the AO to issue notice u/s 143(2) cannot be a procedural irregularity and the same is not curable. The Hon’ble Allahabd High Court in the case of CIT vs M.I.Builders (P) Ltd. [2012] 349 ITR 271 (Allahabad) held that the notice issued by non-jurisdictional AO is invalid.

19. In case where the jurisdiction is transferred from AO who is not having jurisdiction over the assessee to the AO having jurisdiction, the same could be done through an order for transfer of jurisdiction u/s 127(2) of the Act which has not been done in the instant case. Transfer order is statutorily required to be passed by the prescribed authority u/s.127 of the Act, and an A.O cannot on his own transfer an income tax file to another officer.

20. Even otherwise, transfer of proceedings u/s. 127 of the Act cannot be retrospective so as to confer jurisdiction on a person who does not have it. Section 127 of the Act does not empower the authorities under the Act to confer jurisdiction on a person who does not have jurisdiction with retrospective effect. Section 127 does not validate notices or orders issued without jurisdiction, even if they are transferred to a new officer by an order u/s. 127. In the instant case, the DCIT, International Taxation, Circle 3(1)(2) assumed jurisdiction in terms of the notice issued u/s 143(2) on 21.9.2015 by ITO ward 28(4) who was not having any jurisdiction. The Co-ordinate Bench in the case of Gaurav Singhal in ITA No.5786/Del/2018 held that “without a valid assumption of jurisdictional u/s 127, the assessment order would be rendered illegal and invalid”.

21. In view of the above facts, in our considered opinion, notice issued u/s 143(2) by ITO, Ward-28(4), New Delhi dated 21.09.2015 is without jurisdiction and consequent assessment order passed by DCIT, International Taxation, Circle-3(1)(2), New Delhi is hereby, quashed.”

7. Further we observed that in the Third Member case in the case of Kusum Dube vs. ITO in ITA No.7444/Del/2018 dated 14.08.2025, the Tribunal has held as under :-

“7.9 Now, the question that arises before me is that whether the ITO, Ward1(4), Dibrugarh has valid jurisdiction to issue notice under Section 143(2) of the Act or not. Under Section 120 of the Act, the CBDT may issue directions or orders determining the jurisdiction of the income tax authorities on the basis of one or more of the following criteria viz., (a) in respect of any person carrying on a business or profession if the place at which he carries on his business or profession is situate within the area or where his business or profession is carried out in more places than one, if the principal place of his business or profession is situate within the area, and (b) in respect of any other person residing within the area. The assessee being a human being is not resident of Dibrugarh, rather, she is resident of Gurgaon. Section 124(3) of the act stops the assessee from raising objection about jurisdiction of an AO where the assessee has filed her return of income under Section 139 after the expiry of one month from the date on which she was served with notice under Section 143(2) of the Act or after the completion of the assessment, whichever is earlier. It is a fact that the assessee filed her returns of income with ITO, Ward-2(3), Gurgaon from AY 2014-15 on 17.03.2015, for AY 2013-14 on 18.03.2015 and for AY 2015-16 on 04.08.2015, which was revised under Section 139(5) on 09.08.2015. This fact is within the knowledge of the ITO, Ward-1(4), Dibrugarh and this is proved by the very order sheet entry recorded while issuing notice under Section 143(2) of the Act because he notes that the notice is being sent by speed post on the address available in the assessment records. The address available in the assessment records is “F2484, PalamVihar, Gurgaon, Haryana” and which is the address noted on the notice under Section 143(2) even. I noted that notice under Section 143(2) was issued by ITO, Ward-1(4), Dibrugarh, who was not having any jurisdiction on the assessee by way of transfer order under Section 127 or as territorial jurisdiction under Section 124(1) of the Act because assessee is regularly filing her return of income with ITO, Ward-2(3), Gurgaon. Simplicitor ITO, Ward1(4), Dibrugarh was having PAN jurisdiction as the assessee’s husband being Major General in Army and due to her husband’s posting in East, she applied for PAN from that address. In my view PAN cannot be the basis for jurisdiction and in any case the assessee is regularly filing her return of income with ITO, Ward-2(3), Gurgaon and there is no denial to the fact that these returns of income filed by assessee have been processed by ITO,Ward-2(3), Gurgaon.

8. Alternatively, it was submitted before me that even if it is assumed that ITO, Ward-1(4), Dibrugarh was having jurisdiction and he has rightly issued notice under Section 143(2) of the Act, then, the assessment needs to be framed by the same ITO i.e., ITO, Ward-1(4), Dibrugarh whereas, the order was passed by ITO, Ward-2(3), Gurgaon, which will become nullity having been passed without jurisdiction. Further, it is noted that in case the ITO, Ward1(4), Dibrugarh having valid jurisdiction over the assessee, there was no need on his part to transfer the file to ITO, Ward-2(3), Gurgaon without having any order of transfer of jurisdiction passed by the competent authority in pursuance to the provision of Section 127 of the Act. The action of ITO, Ward1(4), Dibrugarh transferring the notice under Section 143(2) to ITO, Ward-2(3), Gurgaon makes it clear that ITO, Ward-1(4), Dibrugarh was having no jurisdiction over the assessee and thus, the notices issued by him under Section 143(2) of the Act was beyond his jurisdiction. In my view, the jurisdiction of an assessee having been acquired by one AO can only be transferred to another AO by a process known to law i.e., after an order has been passed by the competent authority under Section 127 of the Act. This is an admitted fact that no such order has been passed by the competent authority in the present case. Conversely, the ITO, Ward-1(4), Dibrugarh, if presumed, having jurisdiction on the date when notice under Section 143(2) of the Act was issued, the order passed by ITO, Ward-2(3), Gurgaon under Section 143(3) of the Act shall be without jurisdiction. Therefore, the ITO, Ward-1(4), Dibrugarh does not have any jurisdiction to transfer the file to ITO, Ward-2(3), Gurgaon. The file could have been transferred only by the Chief Commissioner or the Commissioner having jurisdiction over ITO, Ward-1(4), Dibrugarh after giving hearing to the assessee. In my view, ITO, Ward-1(4), Dibrugarh has not complied with mandatory requirement of Section 127 but suomoto transferred the file to ITO, Ward-2(3), Gurgaon as if he has entered into the shoes of Chief Commissioner or the Commissioner of Income Tax. The case relied upon by the learned Counsel of Hon’ble Delhi High Court in the case of ATS Promoters and Builders Pvt.Ltd. Vs. Chief CIT – 308 ITR 65 (Delhi) has set aside the transfer by taking the view that the transfer of assessee’s case from Delhi to Meerut was without disclosing proper application of mind to the objections raised by the assessee. Hence, the impugned notice issued under Section 143(2) of the Act and thereafter transferring the same to ITO, Ward2(3), Gurgaon is in clear violation of the provisions of Section 127 and, in view thereof, being no transfer order passed by the Chief Commissioner or Commissioner, the impugned assessment order passed without issuance of notice under Section 143(2) by the jurisdictional Assessing Officer is invalid and void ab-initio. Accordingly, I agree with the learned Judicial Member quashing the assessment order passed by ITO, Ward-2(3), Gurgaon in the absence of notice under Section 143(2) of the Act by the jurisdictional AO.

9. Now, in view of the above discussion and legal position, I answer the question as under :-

10. In terms of the above, I concur with the decision of learned Judicial Member quashing the assessment order in the absence of notice under Section 143(2) of the Act by the jurisdictional Assessing Officer. Accordingly, the appeal of the assessee is allowed.”

8. Respectfully following the above decisions, we are inclined to allow Ground No.7 raised by the assessee.

9. Since we have quashed the assessment order on the jurisdictional issue, the other grounds raised by the assessee were not adjudicated at this stage and the same are kept open.

In the result, the appeal of the assessee is allowed on the above terms.

Order pronounced in the open court on this day 17^TH of April, 2026.