2021 (1) TMI 1001 - AT - Income Tax

Validity of notice u/s 143(2) - assumption of jurisdiction by the AO/ACIT, Circle International Tax 2(2)(2) -curable defect u/s 292BB or not? - assessee is a non-resident Indian residing in the USA - HELD THAT - Undisputedly, assessee being non-resident Indian has been filing her return of income as a non-resident Indian and in any case, assessment is required to be framed by the ITO (International Taxation) - notice in this case u/s 143(2) has never been issued by the jurisdictional ITO to the assessee. Perusal of the notice issued u/s 143 (2) goes to prove that the same has been issued by the Income-tax Officer, Ward 52(5), New Delhi who had no jurisdiction to issue the same. On the basis of notice issued u/s 143 (2) (supra) by the non-jurisdictional AO, the subsequent assessment proceedings on the basis of which assessment order dated 30.12.2018 was framed by the jurisdictional ITO are void ab initio and bad in law. Particularly when AO in para 3 of the assessment order has himself admitted that assessee is a non-resident Indian living in USA. Assuming wrong jurisdiction by issuing notice u/s 143 (2) by a non-jurisdictional AO and then framing the assessment by jurisdictional AO is an illegality which is not curable under the law and makes the entire assessment proceedings void ab initio. As per instructions issued by the Central Board of Direct Taxes (CBDT), ITO, International Taxation, Ward 2(2)(2) have the jurisdiction u/s 143 (2) and not the ITO, Ward 52 (5). When notice issued by non-jurisdictional ITO, Ward 52 (5) being quasi-judicial authority and assessment framed by jurisdictional ITO, Ward 2(2)(2) is not a mere regularity curable u/s 292BB of the Act because issuance of notice u/s 143 (2) is a foundational step to initiate and complete the assessment proceedings, so when foundation is missing subsequent assessment framed in this case is not sustainable in the eyes of law being void ab initio, hence liable to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO)
2. Computation of cost of acquisition and construction
3. Exemption under Section 54 of the Income-tax Act
4. Validity of capital gains computation

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO):
The primary issue raised by the assessee was the jurisdiction of the AO who issued the notice under Section 143(2) of the Income-tax Act. The assessee, being a non-resident Indian, contended that the notice should have been issued by the ITO (International Taxation) and not by the ITO, Ward 52(5), Delhi. The Tribunal agreed with the assessee, stating that the issuance of the notice by a non-jurisdictional AO is not a mere irregularity but an illegality that renders the entire assessment proceedings void ab initio. This conclusion was supported by precedents from the Hon'ble Supreme Court and various High Courts, which held that jurisdictional errors in issuing notices cannot be cured under Section 292BB of the Act.

2. Computation of Cost of Acquisition and Construction:
The Revenue challenged the CIT(A)'s method of computing the cost of acquisition as of 01.04.1981 based on data from the Ministry of Urban Development instead of relying on documents from the Department of Archives. The Revenue also argued that the cost of construction of the property should have been taken at NIL. However, the Tribunal did not delve into these merits due to the jurisdictional issue that invalidated the entire assessment.

3. Exemption under Section 54 of the Income-tax Act:
The Revenue contended that the CIT(A) erred in holding that the number of residential units in a residential building is not relevant for granting exemption under Section 54, ignoring the specific amendment made by the Finance Act, 2014. Again, this issue was rendered moot due to the jurisdictional defect identified.

4. Validity of Capital Gains Computation:
The assessee argued that the CIT(A) erred in recomputing additions for Long Term and Short Term Capital Gains without appreciating that no property was sold during the relevant year and no sale consideration was received. The assessee also claimed that the valuation of land as of 01.04.1981 was erroneously decreased without referring the matter to the DVO and without providing an opportunity to rebut. The Tribunal did not address these substantive issues due to the foundational jurisdictional error.

Conclusion:
The Tribunal quashed the assessment order on the grounds that the notice under Section 143(2) was issued by a non-jurisdictional AO, making the entire assessment proceedings void ab initio. Consequently, the appeal filed by the assessee was allowed, and the appeal filed by the Revenue was dismissed as infructuous. The Tribunal emphasized that jurisdictional errors in issuing notices cannot be cured and render subsequent assessment proceedings invalid.