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Facts
The assessee filed an appeal against an order passed by the Ld. CIT(A) which upheld the assessment order. The assessment order was passed by the AO after selecting the case for scrutiny due to abnormal cash deposits during the demonetization period. The AO made additions to the total income by treating cash credited in bank accounts as undisclosed income.
Held
The Tribunal held that the notice u/s 143(2) was issued by an AO who lacked jurisdiction, and the subsequent assessment was completed by another AO without a valid transfer of jurisdiction. Therefore, the assessment order was deemed invalid and quashed.
Key Issues
The primary issue was whether the assessment order was valid given that the initial notice u/s 143(2) was issued by an AO without territorial jurisdiction, and the assessment was completed by another AO without proper transfer of jurisdiction.
Sections Cited
143(2), 143(3), 250, 142(1), 69A, 127
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Income Tax Appellate Tribunal, DEHRADUN “SMC” BENCH: DEHRADUN
Before: SHRI YOGESH KUMAR U.S. & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by the assessee against the order dated 31.01.2025 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Dehradun/10345/2019-20 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 05.11.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that assessee e-filed his return of income on 29.10.2017, declaring total income of INR 7,59,830/-. The case was selected for complete scrutiny under CASS with the reason that “Abnormal increase in cash deposits during demonetization period as compared to pre-demonetization period.” Accordingly, notice u/s 143(2) was issued followed by notices u/s 142(1) alongwith questionnaire issued from time to time. In response, assessee furnished the required information/documents. Thereafter, AO passed the assessment order dated 05.11.2019 u/s 143(3) of the Act assessing total income of assessee at INR 90,89,685/- by holding the cash credited in his bank accounts as his undisclosed income u/s 69A of the Act.
Against the said order, assessee filed an appeal before Ld. CIT(A) which stood dismissed vide order dated 31.01.2025.
Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before the Tribunal by taking following grounds of appeal:-
1. Ground 1: Unexplained Cash Deposits - The AO made an addition of 269,36,030/- on account of unexplained cash deposits during the demonetization period, treating the entire deposit as undisclosed income under Section 69A. The appellant disputes this addition on the following grounds: The AO failed to bifurcate the deposited cash between old and new currency. A certificate from the bank indicates that the Specified Bank Notes (SBNs) deposited were much lower than what was added as unaccounted income. There is no evidence in the order suggesting that cash deposits during the demonetization period were abnormally increased. The deposits were made from daily sales proceeds, and no part of the amount should be treated as unaccounted.
2. Ground 2: Unsecured Loans - The AO made an addition of? 8,19,785/- on account of unsecured loans, treating them as bogus. The appellant submits that: The loans were received from genuine sources, including the appellant's parents and other individuals. Supporting documentation such as loan confirmations and bank statements are available and will be submitted. The AO's conclusion was solely based on the non-submission of documents, without providing the appellant with an adequate opportunity to present them. The addition is unfair and should be deleted.
3. Ground 3: Losses and Deductions under Chapter VIA- The AO disallowed deductions amounting to 75,74,040/- under Chapter VIA, including interest on housing loans. The appellant contends that: The disallowance was arbitrary and unjustified. The appellant has valid supporting documents, including housing loan interest certificates. The deductions should be allowed based on documentary evidence.
4. Ground 4: Bonafide Business Transactions- The appellant has conducted all transactions in the regular course of business.. Due to the perishable nature of milk, daily cash collections and deposits were necessary, including during the demonetization period. The appellant had to accept old currency from customers and deposit it in the bank as part of normal business operations. The entire cash deposit should be treated as genuine business income.
Ground 5: Right to Modify-Grounds The appellant reserves the right to amend, alter, or modify the grounds of appeal
before or during the hearing if new evidence or facts emerge.”
5. During the course of hearing, Ld. AR for the assessee vide letter dated 14.07.2025 filed additions grounds of appeal under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 which reads as under:-
1. That in any case and in any view of the matter, the Assessing Officer issuing the Notice under Section 143(2) did not have jurisdiction over the case of the Appellant and therefore the Notice dated 9.8.2018 and the consequential assessment made under Section 143(3) of the Act is invalid and void ab-initio.
2. That in any case and in any view of the matter, the condition of giving reasonable opportunity of hearing to the Assessee under Section 127 of the Income Tax Act, 1961 was not complied with before transferring the jurisdiction of the case from Delhi to Dehradun after the issue of Notice under Section 143(2) on 9.8.2018.”
6. Ld. AR submits that the legal grounds now taken are purely legal in nature and goes to the root of the matter and requires no investigation thus, the same be admitted for adjudication. He placed reliance on the following judgements:-
(i) CIT vs. Sinhgad Technical Education Society, (2017) 397 ITR 0344 (SC) (ii) NTPC Ltd. vs. CIT, (1998) 229 ITR 0383 (SC) (iii) VMT Spinning Co. Ltd. vs. CIT & Anr., (2016) 389 ITR 0326 (P&H) (iv) CIT vs. Sam Global Securities, (2014) 360 ITR 0682 (Del) (v) Siksha vs. CIT, (2011) 336 ITR 0112 (Orissa) (vi) Inventors Industrial Corporation Ltd. vs. CIT, (1992) 194 ITR 0548 (Bom).
On the other hand, Ld. Sr. DR for the Revenue submits that additional grounds of appeal require verification on the part of the AO therefore, the same should not be admitted at this stage.
After considering the submissions and perused the additions grounds of appeal
taken, we find that the assessee has challenged the validity of the assessment order on the ground of jurisdiction as the notice u/s 143(2) of the Act was issued by the AO having no jurisdiction over the assessee and the assessment was completed by another AO without transfer of jurisdiction in terms of the order u/s 127 of the Act. Therefore, by respectfully following the judgement of Hon’ble Supreme Court as relied upon by the assessee, the additional grounds of appeal are admitted for adjudication.
9. First, we take additional Grounds of appeal Nos.1 & 2 raised by the assessee.
10. Before us, Ld. AR submits that in the instant case, notice u/s 143(2) was issued by ITO, Ward-43(1), Delhi and the assessment was completed by ITO, Ward-2(3), Dehradun. However, ITO, Ward- 43(1), Delhi has no jurisdiction over the assessee as the assessee is residing at Dehradun and the case is fallen under the territorial jurisdiction of the Assessing Officer at Dehradun. In this regard, Ld.AR drew our attention to the letter issued by ITO, Ward-43(1), Delhi through which case of the assessee was transferred to ITO, Ward-2(3), Dehradun however, no order u/s 127 was passed by the competent authority for transfer of case. Ld.AR further submits that in the said letter, ITO, Ward-43(1), Delhi stated that the AO i.e. ITO, Ward-2(3), Dehradun issue fresh notice u/s 143(2) however, no such notice was ever issued and the assessment was completed by the ITO, Ward-2(3), Dehradun on the basis of incorrect notice issued u/s 143(2) of the Act by ITO, Ward-43(1), Delhi. Ld. AR thus, prayed that the assessment order passed by ITO, Ward-2(3), Dehradun is without assuming jurisdiction and therefore, deserves to be held as invalid and be quashed.
On the other hand, Ld. Sr. DR for the Revenue supported the orders of the lower authorities and submits that ITO, Ward-43(1), Delhi had issued notice u/s 143() of the Act as the PAN was lying with him and since the territorial jurisdiction over the assessee was with ITO ward 2(3), Dehradun, therefore, he sent the file to the correct AO having jurisdiction over the assessee. He thus, submits that there is no error in this process consequently, the additional grounds of appeal raised by the assessee deserve to be dismissed.
Heard the contentions of both parties and perused the material available on record. It is seen that in this case, assessee filed an application for supply information about the filed application for under RTI Act and finally the First Appellate Authority issued a letter dated 02.09.2025 wherein it is stated that ITO, Ward-43(2), Delhi has transfer the jurisdiction to ITO, Ward- 2(3), Dehradun however, no order u/s 127 was passed in this case. The relevant copy of the letter is reproduced as under:
It is further seen that ITO, Ward-43(1), Delhi vide letter dated 23.08.2018 had transferred the case to the ITO, Ward-2(3), Dehradun and advised the AO at Dehradun to issue fresh notice u/s 143(2) of the Act. However, no any fresh notice u/s 143(2) of the Act was issued by ITO, Ward-2(3), Dehradun. The relevant copy of the letter is reproduced as under:-
As could be seen from the above that admittedly notice u/s 143(2) was issued by the AO who was not having jurisdiction over the assessee and the AO having jurisdiction over the assessee, had completed the assessment without issue of valid notice issued u/s 143(2) of the Act to assume jurisdiction in the case of assessee for passing the order u/s 143(3) of the Act.
The Hon’ble Delhi High Court in the case of Abhishek Jain vs ITO, Ward-55(1), New Delhi [2018] 94 taxmann.com 355 (Delhi) under identical circumstances held that the notice issued without jurisdiction has no legs to stand. The relevant observations of the Hon’ble Supreme Court are as under:-
“23. In view of the above discussion, objections as to the jurisdiction of assessing officer in the present case cannot be equated with lack of subject matter jurisdiction. They relate to place of assessment. Income-Tax Officer Ward 1(1). Noida would not per se lack jurisdiction, albeit he had concurrent jurisdiction with the Income-Tax Officer Ward 36(1)/58. Delhi. In the facts of the present case the contention raised about the lack of jurisdiction would not justify quashing the notice under Section 147/148 of the Act.”
In view of these facts and in the circumstances of the case, we hereby hold that assessment order passed by ITO, Ward-2(3), Dehradun is without jurisdiction and is invalid and thus is hereby, quashed. The additional grounds of appeal taken by the assessee are allowed.
Since we have already allowed additional grounds of appeal, the other grounds of appeal are taken on merits, hence not adjudicated.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 24.12.2025.