Reassessment proceedings invalid without mandatory notice under section 143(2) - order declared void ab initio

The ITAT Nagpur held that reassessment proceedings were invalid due to non-issuance of notice u/s 143(2). The tribunal ruled that when an AO seeks to reject any part of the return or makes contrary assessment orders, notice u/s 143(2) is mandatory, even during reassessment proceedings. Following precedents from SC and Calcutta HC, the tribunal determined this omission constitutes more than a procedural irregularity and cannot be cured under s 292BB. The reassessment order passed u/s 147 without proper notice was declared void ab initio, with the case decided in favor of the assessee.

---

---

Issues Involved:

1. Confirmation of addition of Rs. 23,11,000 by the Assessing Officer.
2. Non-issuance of notice under section 143(2) in reassessment proceedings.
3. Consideration of merits of the case by the Commissioner (Appeals).

Detailed Analysis:

1. Confirmation of Addition of Rs. 23,11,000:

The primary issue in the appeal was the confirmation of an addition of Rs. 23,11,000 made by the Assessing Officer. The Assessing Officer had determined that the assessee made cash payments totaling Rs. 27 lakh for the purchase of agricultural land, of which Rs. 23,11,000 was treated as undisclosed income. The assessee contended that the payment was made from a gift received from his wife, but failed to provide adequate evidence for the full amount. The Commissioner (Appeals) upheld the addition, leading to the assessee's appeal.

2. Non-Issuance of Notice Under Section 143(2):

A significant procedural issue was the non-issuance of a notice under section 143(2) of the Income Tax Act, which the assessee argued was a fatal flaw in the reassessment proceedings. The Assessing Officer admitted in a remand report that such a notice was not issued. The Commissioner (Appeals) reasoned that since the assessee participated in the proceedings and did not initially object, the lack of notice did not invalidate the reassessment. However, the Tribunal found that the issuance of notice under section 143(2) is mandatory, as clarified by the Supreme Court in the Hotel Blue Moon case. The Tribunal concluded that the omission was not a mere procedural irregularity and could not be cured by section 292BB, thus rendering the reassessment order void ab initio.

3. Consideration of Merits:

The assessee also contended that the Commissioner (Appeals) failed to consider the merits of the case adequately. The Tribunal's decision focused primarily on the procedural lapse concerning the notice under section 143(2), which overshadowed the substantive examination of the merits. Consequently, the Tribunal did not delve deeply into the merits, as the procedural defect was sufficient to quash the reassessment order.

Conclusion:

The Tribunal allowed the appeal, quashing the reassessment order due to the non-issuance of the mandatory notice under section 143(2). The Tribunal emphasized the legal necessity of this notice in reassessment proceedings, aligning with the precedent set by the Supreme Court. The procedural lapse, coupled with the assessee's participation in the proceedings, did not suffice to cure the defect, leading to the appeal's success.

---