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Facts
The Revenue appealed against the CIT(A)'s order annulling the assessment. The assessee had filed a Cross Objection supporting the CIT(A)'s order and questioning additions made by the AO. The primary issue revolved around the validity of the assessment proceedings, particularly concerning the issuance and service of notice under Section 143(2).
Held
The Tribunal held that the CIT(A) was justified in annulling the assessment order due to the failure to issue and serve the notice under Section 143(2) within the prescribed time, rendering the assessment proceedings null and void. The Tribunal also upheld the CIT(A)'s jurisdiction to hear the appeal.
Key Issues
Whether the assessment order was valid without the mandatory issuance and service of notice under Section 143(2), and whether the CIT(A) had the proper jurisdiction to hear the appeal.
Sections Cited
147, 143(3), 143(2), 292BB, 148, 142(1), 271(1)(b), 144, 2(15), 11, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW, ‘A’ BENCH, LUCKNOW
Before: SH. KUL BHARAT & SH. NIKHIL CHOUDHARY
A.Y. 2011-12 Dy. Commissioner of Income- v M/s Ayodhya Faizabad Development tax (Exemption), Lucknow s. Authority, Civil Lines, Faizabad PAN:AAALA0206C (Appellant) (Respondent) And C.O. No.20/LKW/2017 (in A.Y. 2011-12 M/s Ayodhya Faizabad vs. Dy. Commissioner of Income-tax Development Authority, Civil (Exemption), Lucknow Lines, Faizabad PAN:AAALA0206C (Appellant) (Respondent) Assessee by: Ms. Shweta Mittal, C.A. Revenue by: Sh. R.K. Agarwal, CIT DR Date of hearing: 01.07.2025 Date of pronouncement: 25.09.2025 O R D E R PER NIKHIL CHOUDHARY, A.M. This is an appeal filed by the Revenue against the order of the ld. CIT(A)-2, Lucknow, annulling the order of assessment passed by the ld. AO under section 147 r.w.s. 143(3) of the Income Tax Act, 1961 on 27.12.2016. The assessee has filed a Cross Objection in support of the order of the ld. CIT(A) and questioning the order of the ld. AO in making disallowance of its exemption under section 11 and adding back certain amounts to its income. As both the matters are arising out of the same assessment order and same order of the ld. C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority CIT(A), they are taken up together for the sake of convenience. The grounds of appeal are as under:-
“1. Ld. Commissioner of Income Tax(A) has erred on facts and in law by passing the assessment order u/s 147/143(3) of the I.T. Act without having jurisdiction over the case, as the Ld. Pr. CCIT (UP, East), Lucknow vide order dated 17.07.2017 had issued directions that the Ld. CIT(A)-1, Lucknow shall exercise the powers and perform the functions in respect of any appeal pending as on 13.04.2017 relating to Faizabad and Gonda Ranges under the Pr. Commissioner/Commissioner of Income Tax, Faizabad. The jurisdiction over jurisdiction this case was either with the Ld. CIT(A)-1, Lucknow (as per order) or with Ld. CIT(A)-4, Lucknow (where appeals from exemption ranges are filed). Therefore the order passed by the Ld. CIT(A)-2, Lucknow is without jurisdiction in the case of M/s Ayodhya Faizabad Development Authority, Faizabad, as the order in this case was passed by Exemption Circle, Lucknow; 2. Ld. Commissioner of Income Tax(A) has erred on facts and in law by annulling the assessment completed u/s 147/143(3) on the ground of non issuance of notice u/s 143(2), ignoring the fact that the notice u/s 143(2) dated 05.12.2016 was issued and served on the assessee; 3. Ld. Commissioner of Income Tax(A) has erred on facts and in law by quashing the assessment order passed u/s 147/143(3) of the LT. Act ignoring the fact that the provisions of section 292BB are applicable in this case as the notice u/s 143(2) was issued and served on the assessee, in compliance to this very notice, the AR of the assessee Shri R.K. Agarwal attended proceedings; 4. Ld. Commissioner of Income Tax(A) has erred in law and on facts in allowing the appeal of the assessee by admitting the additional grounds in appeal without providing proper opportunity to the AO; 5. Ld. Commissioner of Income Tax(A) has erred on facts and in law by quashing the assessment order passed u/s 147/143(3) of the I.T. Act relying upon the Hon'ble High Court's judgement in the case of M/s U.P. Hotels and also relying upon the other various judgements, as the facts of these cases referred in the case laws are different from the facts of this case, because the notice u/s 143(2) was issued and served on the assessee in this case; 6. Ld. Commissioner of Income Tax(A) has erred on facts and in law by annulling the assessment completed u/s 147/143(3), even though the assessee was non- cooperative during the re-assessment proceedings, as he had not complied with any of the notices dated 15.03.2016, 01.07.2016,18.11.2016 and penalty notice dated 19.07.2016. Even he has not responded to show cause letter dated 18.11.2016 for proposal for initiation of prosecution u/s 276CC of the I.T. Act. The assessee attended the proceedings for the first time on 05.12.2016, when there was very little time left for completion of assessment 7. The order of Ld. CIT(A) be cancelled and the order of the A.O. be restored; C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority 8. Appellant craves leave to modify/amend or add any one or more grounds of appeal
.” C.O. No.20/LKW/2017
1. Because the Assessing Officer is not justified to allege that the notice U/s 143(2) dt. 05.12.2016 was issued. The respondent on 05.12.2016 filed application for treating the original return as filed in compliance to notice U/s 148. On 09.12.2016, the respondent filed legal objection to the notice issued U/s 148. In the absence of any notice U/s 143(2) after 09.12.2016, the assessment order was rightly annulled by Ld. CIT (Appeals).
2. Because the impugned assessment passed by the Assessing Officer denying exemption u/s 11 of the I.T. Act is in utter disregard to the judicial principles laid down by Hon'ble Jurisdictional High Court and several decisions of Hon'ble ITAT. The declared income, having been worked out in accordance with report in Form 10B should have been accepted.
3. Because the Ld. Assessing Officer was wholly unjustified, both on facts and in law, in making addition of Rs 4,19,46,586/- out of grant received from Tourism Department. The Ld. Assessing Officer failed to appreciate that the grant from State Government is a capital receipt and not the income, even on commercial principles. The addition of capital receipt, being wholly illegal, may kindly be deleted from total income worked out by the Ld. Assessing Officer.
4. The respondent craves leave to add, alter or amend any of the ground of Cross- Objections before or at the time of hearing.”
The facts of the case are that the assessee filed a return of income on 30.09.2011 declaring nil income, after claiming exemption under section 11. The case was scrutinized under section 143(3) and the assessment was completed on 28.03.2014 at the returned income. Subsequently, proceedings under section 148 were initiated by way of issue of notice under section 148 of the Act. The assessee did not initially make compliance to this notice therefore, a notice under section 142(1) was issued and upon the failure to comply, the Assessing Officer also issued notice for levy of penalty under section 271(1)(b). Subsequently, a notice for best judgment assessment under section 144 was issued on 30.11.2016. In response to this notice, the representative of the assessee appeared on 5.12.2016 and filed a letter stating that the original return filed may kindly be treated as the return filed in compliance to the notice C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority under section 148 of the Income Tax Act. Thereafter, he took a copy of the reasons to believe and on 9.12.2016, the assessee submitted a written objection to the notice under section 148. These objections were disposed of on the same date. Subsequently, the ld. AO proceeded to analyze the accounts of the assessee and came to the conclusion, that as the assessee was neither in the field of education nor in the field of medical relief, at the most it could be considered to be a general public utility under section 2(15) of the Act, but since the activities of the assessee were in the nature of a real estate business and since the provisions of the first proviso to section 2(15) were applicable therefore, he proposed to withdraw the exemption granted to the assessee. The assessee protested against the same, but the ld. AO rejected the submissions made by the assessee on account of the fact that on 24.07.2014, the Hon’ble Supreme Court had rejected the SLP filed by the Jammu Development Authority against the order of the Hon’ble Jammu & Kashmir High Court, wherein the Hon’ble High Court had dismissed the appeals of that assessee against the orders of the ITAT, Amritsar Bench, which had upheld the cancellation of registration of the Development Authority by the ld. CIT(E). Taking cue from the same, the ld. AO held that the activities of the assessee development authority, were not charitable in nature and were hit by the provisions of section 2(15), effective from 1.04.2009, as it was involved in the activities of trade/commerce/business and as such was required to be assessed under the head, “profit & gains from business and profession”. Therefore, the ld. AO recounted the issues on which the notice under section 148 had been issued and held that since the income had now been computed under the head, income from business and profession”, he would not be making any addition on account of depreciation claimed or on capital expenditure or of prior period expenses, but would be making a disallowance of the unutilized amount of C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority tourism grant, which had not been taken into the income and expenditure account and accordingly, he made an addition of Rs. 4,19,46,586/-.
Aggrieved by the said orders, the assessee went in appeal to the ld. CIT(A)-2, Lucknow. Before the ld. CIT(A), the assessee filed an additional ground, in which it was contended that no notice under section 143(2) had been served upon it, therefore, the assessment proceedings were bad in law and were liable to be set aside in view of several authoritative judicial pronouncements. The ld. CIT(A) considered the submissions made by the assessee in this regard and held that the issuance of notice under section 143(2) of the Act was mandatory for the AO to assume jurisdiction and complete the scrutiny assessment, even after notice was issued under section 148 of the Act. He took note of the letter filed by the assessee on 22.11.2016 which stated that the return originally filed on 30.09.2011 may kindly be treated as the return filed in compliance to notice under section 148 of the Act. He records in his order, that he obtained the relevant assessment record from the concerned Assessing Officer during the appellate proceedings, to verify the facts and he observed from the same that the assessment proceedings were closed on 9.12.2016 and notice under section 143(2) was not issued and served upon the appellant in the re-assessment proceedings, till the completion of scrutiny assessment. Thereafter, he held that it was mandatory to issue notice under section 143(2) of the Act, if the assessee had filed an ITR in response to notice under section 148 and since in this case, the basic requirement of the provisions of the Income Tax Act had not been fulfilled, the scrutiny assessment completed under section 147/143(3) dated 27.12.2016 could not be said to be a valid assessment.
He relied upon the order of the ITAT, Lucknow ‘B’ Bench in the case of Sh. Zafar Khan vs. ITO-2(1), Lucknow in wherein the C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority ITAT had held that in the case of U.P. Hotels Limited, the Hon’ble Allahabad High Court had held that in the case where the notice under section 143(2) had not been issued to the assessee, the assessment framed without issuing the notice within the permissible time limit would be a nullity. The Hon’ble High Court had relied upon the decision of the Hon’ble Supreme Court in the case of ACIT & Anr vs. Hotel Blue Moon as reported in (2010) 321 ITR 362 (SC). Accordingly, the ld. CIT(A) held, that since the facts of the assessee’s case were identical to the case of Sh. Zafar Khan, in which the Hon’ble ITAT had quashed the assessment therefore, in this case also, the assessment was liable to be quashed and accordingly he annulled the assessment. After deciding the additional ground in favour of the assessee, the ld. CIT(A) did not decide any other ground of appeal
, in view of the fact that they were rendered infructuous.
5. The Department is aggrieved at this annulment of the orders under section 147 r.w.s. 143(3) by the ld. CIT(A) and has accordingly come in appeal before us. Sh. R.K. Agarwal, CIT DR (hereinafter referred to as the ‘ld. DR’) arguing the case of the Department, pointed out that the ld. CIT(A) had erred in law and in facts by annulling the assessment orders ignoring the fact that the notice under section 143(2) had been issued to the assessee on 5.12.2016 and served upon the assessee. He had omitted to understand that the provisions of section 292BB were applicable in this case, as the notice under section 143(2) was issued and served on the assessee and in compliance to this very notice, the ld. AR of the assessee had attended the proceedings. It was argued that the ld. CIT(A), before annulling the assessment ought to have allowed an opportunity to the AO to explain the position and his decision annul the assessment, was against principles of natural justice. The ld. CIT DR pointed out that the ld. CIT(A) had erroneously relied upon the orders of Hon’ble Allahabad High Court in the case of M/s U.P. Hotels because the facts of those cases were C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority different from the facts of the assessee’s case where the notice under section 143(2) had been issued and served upon the assessee. He had omitted to consider the fact that the assessee was non-compliant throughout the assessment proceedings and only began attending the proceedings for the first time on 5.12.2016, leaving the ld. AO very little time for the completion of the assessment. In the circumstances, the ld. CIT DR argued that the matter was deserving of being restored back to the file of the ld. CIT(A) for taking a decision on the merits of the additions made by the ld. AO, rather than quashing the proceedings altogether. The ld. CIT DR also pointed out that the Department was also objecting to the fact of the order by the ld. CIT(A), since he did not enjoy the jurisdiction over the case. He invited our attention to the fact that the ld. Pr. CCIT (U.P. East), Lucknow vide his orders dated 17.07.2017, had issued directions that the ld. CIT(A)-1, Lucknow would exercise the powers and perform the functions in respect of any appeal pending as on 13.04.2017 relating to Faizabad and Gonda ranges under the jurisdiction of the Pr. CIT, Faizabad after the transfer of the post of CIT(A), Faizabad to CIT (DRP) Bengaluru. Therefore, the ld. CIT DR argued, that since the ld. CIT(A)-2 did not enjoy jurisdiction over any cases of the erstwhile CIT(A), Faizabad pending as on 13.04.2017, he could not have passed any such order and he ought to have transferred the case to the file of the ld. CIT(A)-1, Lucknow. It was, therefore, requested that on these grounds also, the order of the ld. CIT(A)-2, Lucknow was not maintainable and accordingly it should be quashed.
6. On the other hand, Smt. Shweta Mittal, C.A. (hereinafter referred to as the ld. AR) arguing on behalf of the assessee, pointed out that the ld. CIT(A) very much had the jurisdiction to hear the case of the assessee. She pointed to page no. 5 of the paper book wherein the ld. CIT(A)-2, Lucknow had written to the CCIT (U.P. East), Lucknow bringing the directions of the Hon’ble Allahabad High C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority Court, Lucknow Bench to complete the appeal within one month from the receipt of the certified copy of the order. The assessee had submitted before the Hon’ble Allahabad High Court that the appeal was pending before the CIT(A)-2, Lucknow and thus the directions were issued to the CIT(A)-2, Lucknow. Vide aforementioned letter, the ld. CIT(A)-2 had requested the Chief Commissioner to kindly assign the case to him, since the post of CIT(A), Faizabad had been abolished. In consequence to this letter, the Pr. Chief Commissioner of Income Tax, Lucknow vide his letter C No.108/CIT(A), FZD(Tek)/2015/339 dated 15.06.2017, assigned the case to the CIT(A)-2, Lucknow for disposal of the appeal as per the directions of the Hon’ble Allahabad High Court, given vide its order dated 5.05.2017. Accordingly, the ld. AR prayed that since the authority who was duly empowered to assign the jurisdiction had assigned the jurisdiction to the ld. CIT(A), there was no lack of jurisdiction in his case and the orders were therefore, very much valid. On the issue of non-service of notice under section 143(2), the ld. AR invited our attention to the fact that the assessment order did not make any mention of issue of notice under section 143(2), while it made mention about the issue and service of notices under section 148. It was further submitted that the assessee had not received any notice under section 143(2) by hand and the Department was not able to prove the service of the same. The ld. CIT(A) had examined the record and come to the conclusion that no notice under section 143(2) had been issued or served and therefore, he was justified in his decision that the assessment proceedings were null and void. The ld. AR therefore, prayed that the order of the ld. CIT(A) be upheld. Arguing on her cross objection, the ld. AR argued that in any case, the order of the AO denying the exemption under section 11 was with utter disregard to the judicial principles laid down by the Hon’ble High Court and several decisions of the Hon’ble ITAT, that held that development authorities were eligible to be considered as GPU charities and eligible for the exemption C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority under section 11. She argued that in any case now the issue had been settled in the case of the assessee by virtue of the orders of the ITAT, Lucknow Bench in 519 & 520/LKW/2018 for the assessment years 2012-13, 2014- 15 and 2015-16 and also 144 & 145/LKW/2021 for the A.Ys.2016- 17, 2017-18 & 2018-19 in the assessee’s own case, where the Hon’ble ITAT, Lucknow ‘A’ Bench had after examining all the issues, held that exemption under section 11 of the Income Tax Act was allowable to the assessee. It was, therefore, prayed that following the said orders, the additions made by the ld. AO were deserving of being quashed. As even the addition on account of grants received from the Government stood covered by the orders of the ITAT referred to above, it was, therefore, prayed that the assessee may be granted relief in this regard.
7. We have duly considered the facts and circumstances of the case. Before proceeding to decide any other issue, we must decide the question of whether the ld. CIT(A) enjoyed jurisdiction over the assessee or not. On our request, the ld. CIT DR filed a copy of the order of the ld. Pr. CCIT (U.P. East) wherein the Pr. CCIT had, on 17.07.2017, assigned the jurisdiction of all cases arising out of Faizabad and Gonda Ranges to the CIT(A)-1, Lucknow following the diversion of the post of CIT(A), Faizabad to CIT (DRP), Bengaluru. We notice that this order has been passed after the passing of the appellate order by the ld. CIT(A)-2, Lucknow. Prior to this, the ld. CIT(A)-2, Lucknow had been assigned the jurisdiction by the authority competent to assign the jurisdiction i.e. the ld. Pr. CCIT (U.P. East), Lucknow, vide his letter dated 15.06.2017. In the circumstances, we do not see any reason to uphold the arguments of the ld. CIT (DR) that the ld. CIT(A)-2, Lucknow could not have passed the order under section 250, as the jurisdiction order that he relies upon has been passed after the passing of the said appeal order, after due authorization by the ld. Pr. CCIT.
C.O. No. 20/LKW/2017 A.Y. 2011-12 M/s Ayodhya Faizabad Development Authority Accordingly, ground no. 1 of the Department’s appeal is dismissed. Ground nos.2, 3, 4, 5 & 6, all relate to the annulling of the assessment by the ld. CIT(A), on account of the fact that the notice under section 143(2) was not served upon the assessee within the permitted timelines. On our request, the ld. CIT DR produced a copy of the notice under section 143(2) dated 5.12.2016. The ld. CIT DR was gracious enough to state that the proof of service of this notice was not available on the records, though he contended that the order-sheet of 5.12.2016 showed that the notice had been issued and since the counsel for the assessee was present on that date and had received a copy of the reasons to believe, it was presumed that the notice under section 143(2) would have been served upon him in person. However, a perusal of the notice under section 143(2) that has been filed and a perusal of the order-sheet that has been filed before this Bench by the office of the CIT DR, reveals that the notice under section 143(2) does not contain a receiving of the ld. AR and even the order-sheet dated 5.12.2016 only contains an acknowledgment of having received a copy of the reasons to believe. Therefore, we cannot accept the contention of the ld. CIT DR that the notice under section 143(2) was duly served upon the assessee. We cannot fail to note, that the ld. AO has not made any reference to the issue or service of the notice under section 143(2) in his assessment order. In the circumstances, there does not appear to be any infirmity in the order of the ld. CIT(A) annulling the assessment on account of failure to serve notice under section 143(2) upon the assessee by following the judgments of the ITAT, Lucknow Bench in the case of Sh. Zafar Khan vs. ITO-2(1), Lucknow in which in turn was based on the decision of the Hon’ble Allahabad High Court in the case of U.P. Hotels Limited and the Hon’ble Supreme Court in the case of CIT vs. Hotel Blue Moon (supra). Accordingly, the Revenue’s challenge to the orders of the ld. CIT(A) are dismissed and thus the appeal of the Revenue in is also dismissed.