2025 (6) TMI 1213 - AT - Income Tax

Validity of reassessment order - as argued no notice u/s 143(2) was issued before completing the assessment though the assessee has filed the return of income - HELD THAT - The re-assessment order deserves to be hold bad in law as the AO has failed to issue notice u/s 143(2) of the Act which is mandatory and even provisions of section 292BB of the Act could not validate such proceedings. Accordingly the order passed u/s 143(3) r.w.s. 147 of the Act in the absence of issue of notice u/s 143(2) is hereby quashed. Assessee appeal allowed.

Summary

The core legal question considered in this appeal is whether the reassessment order passed under section 143(3) read with section 147 of the Income Tax Act, 1961, without issuance of a notice under section 143(2) after the filing of the return of income in response to a notice under section 148, is valid and sustainable in law.

In particular, the issues presented and considered are:

• Whether the issuance of notice under section 143(2) of the Act is mandatory before passing an assessment order under section 143(3) subsequent to reassessment proceedings initiated by a notice under section 148.
• Whether the reassessment order passed without issuing notice under section 143(2) can be held valid, especially when the assessee had filed a return of income in response to the notice under section 148.
• Whether the non-issuance of notice under section 143(2) is a procedural irregularity that can be cured under section 292BB of the Act or whether it vitiates the entire reassessment proceedings.
• Reliance on judicial precedents concerning the mandatory nature of notice under section 143(2) and the consequences of non-compliance.

Issue-wise Detailed Analysis

Issue 1: Mandatory issuance of notice under section 143(2) before passing reassessment order under section 143(3) read with section 147

The relevant legal framework includes sections 139(1), 143(2), 143(3), 147, 148, and 292BB of the Income Tax Act, 1961. Section 148 empowers the Assessing Officer (AO) to reopen assessments if reasons to believe income has escaped assessment are recorded. Upon issuance of notice under section 148, the assessee may file a return of income. Section 143(2) mandates issuance of a notice to the assessee to enable scrutiny of the return before the AO passes an order under section 143(3).

Judicial precedents cited by the appellant include decisions of the Hon'ble Supreme Court and High Courts, notably the Supreme Court decision in ACIT vs Hotel Blue Moon, which clarified that issuance of notice under section 143(2) is mandatory and non-compliance cannot be cured as a mere procedural irregularity. The Court emphasized that even in block assessments under Chapter XIV-B, the procedure under sections 142, 143(2), and 143(3) must be followed "so far as may be," and that the phrase "so far as may be" does not imply optional compliance but rather compliance to the extent practicable.

In this case, the AO issued notice under section 148 on 30.03.2018. The assessee filed a return of income on 11.12.2018 in response thereto and requested supply of reasons recorded for reopening. The AO supplied the reasons and dealt with objections raised by the assessee. However, no notice under section 143(2) was issued before passing the reassessment order under section 143(3) on 28.12.2018.

The Court examined the letter dated 11.12.2018 wherein the assessee explicitly stated that the return filed under section 139(1) on 25.09.2011 be treated as the return in response to the section 148 notice and enclosed a complete set of the return. The AO's subsequent supply of reasons and disposal of objections indicated that the return was considered. Hence, the procedural mandate to issue notice under section 143(2) arose.

The Court relied heavily on the Supreme Court's reasoning in ACIT vs Hotel Blue Moon, which held that the notice under section 143(2) is not a mere procedural formality but a substantive requirement that cannot be dispensed with. The Court rejected the Revenue's contention that the expression "so far as may be" in section 153BC(b) (pertaining to block assessments) allows optional compliance with section 143(2), holding that such interpretation is untenable.

Issue 2: Validity of reassessment order passed without issuance of notice under section 143(2)

The Court found that the reassessment order passed without issuing notice under section 143(2) is invalid. The absence of such notice deprived the assessee of the opportunity to be heard and the procedural safeguards guaranteed by the Act. The Court referred to the binding precedent of the Hon'ble Jurisdictional High Court in PCIT vs Shri Jai Shiv Shankar Traders Pvt. Ltd., which held that even if the return is filed late during reassessment proceedings, the AO must issue notice under section 143(2), and any delay or omission is fatal to the reassessment.

The Court further clarified that section 292BB, which deals with the validity of notices and other documents, cannot validate an assessment order passed without compliance to the mandatory requirement of issuing notice under section 143(2).

Issue 3: Treatment of competing arguments

The Revenue argued that issuance of notice under section 143(2) is not mandatory in reassessment proceedings and that the expression "so far as may be" in the relevant provisions allows flexibility. The Court rejected this contention by interpreting the legislative intent and judicial precedents, emphasizing that the procedural safeguards under section 143(2) are integral to the reassessment process and cannot be dispensed with.

The Court also noted that the assessee had complied with the procedural requirements by filing the return and raising objections, thereby entitling it to the protections under section 143(2).

Significant Holdings

"The issuance of notice u/s 143(2) of the Act is mandatory and the said defect is not curable in nature i.e. the assessment proceedings cannot be held to be legal in case of noncompliance with basic requirement of said provisions of the Act."

"Where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143."

"Any delay or omission in issuing notice under section 143(2) of the Act is fatal to the reassessment proceedings."

"Section 292BB of the Act cannot validate the reassessment order passed in the absence of issuance of notice under section 143(2)."

In conclusion, the Court held that the reassessment order passed under section 143(3) read with section 147 without issuance of notice under section 143(2) after the assessee filed return of income in response to section 148 notice is invalid and quashed the reassessment order. Other grounds raised by the assessee became academic and were not adjudicated.