ITAT Quashes Assessment for Invalid Section 143(2) Notice; Grants Multiple Reliefs to Assessee

The assessee, ABC India Limited, filed its return declaring a loss for AY 2022-23, which was selected for scrutiny under CASS. The Assessing Officer completed the assessment under Section 143(3) read with Section 144B, making multiple additions, including capital gains on the sale of offices, denial of the cost of improvement, rental income taxation, and disallowance of expenses.

The assessee challenged the assessment before the CIT(A), who upheld the additions. Aggrieved, the assessee preferred an appeal before the ITAT, raising challenges regarding the invalidity of the notice issued under Section 143(2), double taxation of capital gains, denial of the cost of improvement, and wrongful taxation of rental income.

Main Issues: Whether assessment is valid where notice under Section 143(2) is not issued in the prescribed CBDT format; whether capital gains can be taxed again in a later year when already offered in an earlier year upon agreement and possession; whether cost of improvement can be denied due to lack of old records?

Tribunal Held: The Tribunal held that the notice issued under Section 143(2) was not in accordance with the CBDT-prescribed format and therefore not valid. Since a valid notice is a jurisdictional requirement, the entire assessment was held to be void ab initio and quashed.

The Tribunal ruled in favour of the assessee on all major issues. It held that capital gains could not be taxed again in AY 2022-23 as the transfer had already taken place in AY 2016-17 when the agreement was executed, the consideration received, and possession handed over. The Tribunal emphasised that transfer under Section 2(47) includes extinguishment of rights and not merely registration.

The Tribunal further allowed the claim of the cost of improvement, observing that such costs were consistently recorded in audited financial statements and could not be disallowed merely due to the non-availability of decades-old vouchers.

For rental income, the tribunal held that it’s an income already taxed on an accrual basis and cannot be taxed again on receipt merely because TDS was deducted later. The addition was deleted to avoid double taxation. 

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