Reassessment for undisclosed capital gains requires a separate s.143(2) notice; absence invalidates reassessment.

Reassessment initiated under section 148 for alleged undisclosed capital gains requires prior compliance with the notice procedure under section 143(2); absence of a separate s.143(2) notice renders subsequent reassessment invalid. The requirement that an assessing officer issue a notice under s.143(2) after response to a s.142(1) notice is mandatory and cannot be satisfied merely by discussion with the assessee or affixation of signature. Although the substantive contention on whether capital gains are taxable in the hands of the firm was not accepted on merits, failure to follow the mandatory notice procedure vitiated the reassessment and favoured the taxpayer.

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Issues Involved:
1. Assessment of capital gains in the hands of the firm.
2. Distinction between partners and the firm regarding the transfer of property.
3. Waiver of notice under Section 143(2) by the appellant.
4. Issuance of notice under Section 143(2) within the prescribed time limit.

Detailed Analysis:

1. Assessment of Capital Gains in the Hands of the Firm:
The court examined whether the capital gains from the sale of a property should be assessed in the hands of the firm or the individual partners. The property in question, although purchased by the partners individually, was funded by the firm and later shown as an asset in the firm's balance sheet. When the property was sold, the sale proceeds were credited to the firm's accounts. The court upheld the Tribunal's decision that the capital gains should be assessed in the hands of the firm, as the property was effectively part of the firm's assets until its sale.

2. Distinction Between Partners and the Firm Regarding the Transfer of Property:
The court addressed whether the transfer of property by partners in their individual capacity could be deemed a transfer by the firm. It was held that without proper registration, the transfer of property from the firm to the individual partners could not be considered valid. Thus, the Tribunal was correct in treating the capital gains as assessable in the hands of the firm.

3. Waiver of Notice Under Section 143(2) by the Appellant:
The Tribunal inferred that the appellant waived the requirement of notice under Section 143(2) based on the appearance of the assessee before the Assessing Officer and the discussions held. However, the court found no evidence of a conscious waiver by the assessee. The court emphasized that waiver must be an intentional act with full knowledge of the right being waived. There was no material to show that the assessee intentionally abandoned the right to notice under Section 143(2).

4. Issuance of Notice Under Section 143(2) Within the Prescribed Time Limit:
The court examined the necessity of issuing a notice under Section 143(2) for reassessment proceedings under Section 148. It was held that the issuance of notice under Section 143(2) is mandatory for the validity of the reassessment. The failure to issue such a notice could not be treated as a procedural irregularity but a fatal flaw, rendering the reassessment invalid. The court cited the Supreme Court's decision in ASST. CIT v. HOTEL BLUE MOON, which established that omission to issue notice under Section 143(2) is not curable and cannot be dispensed with.

Conclusion:
The court concluded that the reassessment proceedings were invalid due to the failure to issue notice under Section 143(2). Although the court did not agree with the assessee's contention on the merits regarding the assessment of capital gains, the procedural lapse necessitated setting aside the Tribunal's order. The court emphasized the mandatory nature of compliance with the procedural requirements under Sections 142 and 143(2) in reassessment proceedings.

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