2025 (7) TMI 179 - AT - Income Tax

Reopening of assessment u/s 147 - return of income was not e-verified the same was treated as invalid and non-est by AO - as observed AO had not issued notice u/s 143(2) to the assessee and also had not furnished the reasons recorded for reopening of assessment - whether curable defect u/s 292BB? HELD THAT - Since the return was treated as non-est the stand of the revenue is that there was no requirement for AO to either issue notice u/s 143(2) of the Act or furnish the reasons recorded for reopening the assessment. But we find from the final page of the assessment order AO had started the computation of income from the returned income for computing the assessed income of the assessee. This goes to prove that return filed by the assessee either the original return or the return filed in response to notice u/s 148 of the Act has been taken due cognizance by the AO. Having done so it is mandatory for AO to issue notice under section 143(2) of the Act first in the reassessment proceedings and also furnish the reasons recorded for reopening of the assessment. Further we find that the AO had intimated on 14-2-2022 to the assessee that the return of income was not e-verified. The assessee immediately on 15-2-2022 (i.e. the very next day) rectifies the same and duly e-verifies the return of income filed in response to notice u/s 148 of the Act. This excruciating fact has been ignored by the AO while framing the re-assessment. Admittedly notice u/s 143(2) of the Act was not issued to the assessee in the reassessment proceedings and reasons recorded for reopening the assessment were also not furnished to the assessee by AO. These become jurisdictional defect and hence not curable even in terms of section 292BB of the Act. Reliance in this regard is placed on the decision of Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT wherein it was held that when no notice under section 143(2) of the Act has been issued the entire assumption of jurisdiction fails and the assessment proceedings are required to be quashed. Also in the case of CIT vs Trend Electronics 2015 (9) TMI 1119 - BOMBAY HIGH COURT had categorically held that where no reasons recorded for reopening of assessment were furnished to the assessee it becomes fatal to the entire reassessment proceedings per se and accordingly the reassessment proceedings are required to be quashed. Appeal of the revenue is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961, were valid in law, specifically focusing on the jurisdictional and procedural requirements. The key issues were:

• Whether the Assessing Officer (AO) was justified in treating the return filed in response to the notice under section 148 as invalid due to non-e-verification;
• Whether the AO was required to issue a notice under section 143(2) of the Act in the reassessment proceedings;
• Whether the AO was obligated to furnish the reasons recorded for reopening the assessment to the assessee;
• Whether the failure to issue notice under section 143(2) and non-furnishing of reasons recorded for reopening the assessment constituted a jurisdictional defect rendering the reassessment proceedings invalid;
• Whether such defects are curable under section 292BB of the Act;
• The applicability of relevant judicial precedents on the necessity of procedural compliance in reassessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of treating the return filed in response to the section 148 notice as invalid due to non-e-verification

Relevant legal framework and precedents: Section 140(2)(b) of the Income-tax Act mandates that a return filed electronically must be verified either by electronic verification code or by sending a signed copy of the return to the Assessing Officer. Non-compliance results in the return being treated as invalid or non-est.

Court's interpretation and reasoning: The AO treated the return filed on 25-05-2021 in response to the section 148 notice as non-est due to lack of e-verification. However, the assessee rectified this defect immediately upon intimation on 14-02-2022 by e-verifying the return on 15-02-2022. This fact was ignored by the AO in framing the reassessment.

Key evidence and findings: Documentary evidence on record (Page 4 of the Paper Book) showed prompt rectification of the e-verification defect by the assessee.

Application of law to facts: Since the return was ultimately e-verified, it should have been treated as valid for the purpose of reassessment proceedings.

Treatment of competing arguments: The Revenue argued that since the return was initially non-est, no further procedural requirements were necessary. The Tribunal rejected this, emphasizing the subsequent valid e-verification.

Conclusions: The return filed in response to the section 148 notice was valid and taken cognizance of by the AO, as evidenced by the AO's computation starting from the returned income figure.

Issue 2: Requirement to issue notice under section 143(2) in reassessment proceedings

Relevant legal framework and precedents: Section 143(2) of the Income-tax Act requires the AO to issue a notice to the assessee before making an assessment or reassessment, providing an opportunity to be heard. The Supreme Court in CIT v. Hotel Blue Moon held that failure to issue notice under section 143(2) results in the entire assumption of jurisdiction failing, rendering the reassessment void.

Court's interpretation and reasoning: The AO did not issue any notice under section 143(2) in the reassessment proceedings. This omission is a fatal jurisdictional defect.

Key evidence and findings: It was undisputed that no section 143(2) notice was served.

Application of law to facts: The procedural lapse vitiates the reassessment order.

Treatment of competing arguments: The Revenue contended that since the return was non-est, issuance of notice under section 143(2) was not required. The Tribunal rejected this, holding that since the return was ultimately valid and taken cognizance of, the AO was mandated to issue the notice.

Conclusions: Non-issuance of notice under section 143(2) invalidates the reassessment proceedings.

Issue 3: Obligation to furnish reasons recorded for reopening assessment

Relevant legal framework and precedents: Section 148 requires that the AO record reasons for reopening an assessment and furnish these to the assessee. The Bombay High Court in CIT v. Trend Electronics held that failure to furnish reasons recorded is fatal to reassessment proceedings.

Court's interpretation and reasoning: Despite a specific request, the AO did not furnish the reasons recorded for reopening the assessment. This omission is a jurisdictional defect.

Key evidence and findings: Assessee's request for reasons recorded and the AO's failure to comply was established on record.

Application of law to facts: The non-furnishing of reasons deprived the assessee of the opportunity to effectively contest the reassessment.

Treatment of competing arguments: The Revenue argued that since the return was non-est, furnishing reasons was not obligatory. The Tribunal rejected this, relying on the fact that the return was ultimately valid and that procedural safeguards are mandatory.

Conclusions: Failure to furnish reasons recorded for reopening is a fatal defect invalidating reassessment.

Issue 4: Jurisdictional nature of procedural defects and curability under section 292BB

Relevant legal framework and precedents: Section 292BB allows for condonation of certain procedural defects if the assessee has knowledge of the proceedings. However, the Supreme Court in CIT v. Hotel Blue Moon clarified that failure to issue section 143(2) notice is a jurisdictional defect and not curable under section 292BB.

Court's interpretation and reasoning: Both the failure to issue notice under section 143(2) and non-furnishing of reasons recorded are jurisdictional defects that cannot be cured by section 292BB.

Key evidence and findings: The procedural lapses were established and not remedied during the proceedings.

Application of law to facts: The reassessment proceedings were invalid due to jurisdictional defects.

Treatment of competing arguments: The Revenue's contention that these defects could be cured was rejected.

Conclusions: Jurisdictional defects vitiate the reassessment and cannot be cured.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"When no notice under section 143(2) of the Act has been issued, the entire assumption of jurisdiction fails and the assessment proceedings are required to be quashed."

"Where no reasons recorded for reopening of assessment were furnished to the assessee, it becomes fatal to the entire reassessment proceedings per se and accordingly, the reassessment proceedings are required to be quashed."

Core principles established include the mandatory nature of procedural safeguards in reassessment proceedings, namely issuance of notice under section 143(2) and furnishing of reasons recorded for reopening. These are jurisdictional requirements, and failure to comply renders the reassessment void and non-est, not curable under section 292BB.

On the facts, the Tribunal concluded that the AO's failure to issue notice under section 143(2) and to furnish reasons recorded for reopening the assessment, despite the return being ultimately valid, constituted fatal jurisdictional defects. Accordingly, the reassessment proceedings were rightly quashed by the Learned Commissioner of Income Tax (Appeals), and the appeal filed by the Revenue was dismissed.