ITAT Quashes Bogus LTCG Assessment for Non-Service of Mandatory Section 143(2) Notice:

The ITAT Kolkata quashed the assessment order passed against Rajesh Jalan, holding that the assessee was not served the mandatory notice under Section 143(2) of the Income Tax Act, 1961. The Tribunal also found that the assessment suffered from a jurisdictional defect concerning the monetary limits prescribed under the CBDT instructions.

The assessee filed his Income Tax Return (ITR) for Assessment Year 2015-16, declaring an aggregate income of Rs 1.96 lakh. During scrutiny, the Assessing Officer (AO) treated the long-term capital gains (LTCGs) arising from the sale of 4,000 equity shares of Jackson Investments Ltd. as bogus, alleging that the share prices had been artificially increased through manipulation. The AO completed the assessment after adding the LTCG to the assessee's income. The aggrieved assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], which upheld the impugned assessment.

Before the Income Tax Appellate Tribunal (ITAT), the assessee argued that the assessment was invalid because the notice under Section 143(2), dated August 1, 2016, had been returned by the postal authorities with the remark “Left” on September 14, 2016. The Revenue’s records did not establish that the notice was subsequently served on the assessee.

The tribunal noted that "notice in this case issued u/s 143(2) dated 1.08.2016 was returned by the postal authority with the postal comment “Left” on 14.09.2016 and thereafter the database was checked and did not find out how the notice was served on the assessee. The Ld. Counsel vehemently claimed before the Bench that this issuance of notice would not meet the requirement of good service and is not suffice. Whereas the Act mandates the service of the notice on the assessee. Thus in our opinion the notice was not served at all."

It was further observed that the notice under Section 143(2) had been issued by the Assistant Commissioner of Income Tax (ACIT), whereas the assessee’s declared income was below Rs 15 lakh. It held that the action violated CBDT Circular No. 1/2011 dated January 31, 2011, which prescribed jurisdictional limits for non-corporate assessees. Relying on the Calcutta High Court’s decision in Kusum Goyal v. ITO, the Tribunal concluded that the assessment suffered from jurisdictional defects.

The Tribunal held that proper service of this mandatory notice was essential and that its non-service invalidated the assessment proceedings. Accordingly, the ITAT quashed the impugned assessment order dated December 22, 2017.