Reassessment order quashed due to invalid Section 151 approval lacking date and missing mandatory Section 143(2) notice

The ITAT Ahmedabad quashed a reassessment order under Section 143(3) read with Section 147, despite finding valid reasons for reopening. The tribunal acknowledged that the AO had reasonable grounds to believe income escaped assessment due to unexplained cash deposits and non-filing of returns. However, the reassessment failed on procedural grounds. The approval under Section 151 was invalid as it lacked a date, making it impossible to verify whether approval was obtained before issuing the Section 148 notice. Additionally, the Revenue failed to issue the mandatory notice under Section 143(2) after the assessee filed returns in response to the Section 148 notice. Following the SC decision in Hotel Blue Moon, the tribunal held that failure to issue Section 143(2) notice rendered the reassessment invalid. The assessee's appeal was allowed and the reassessment order was quashed.

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ISSUES:

Whether the reasons recorded under Section 147 of the Income Tax Act, 1961 constitute valid "reason to believe" for reopening assessment.Whether the approval under Section 151 of the Act is valid in the absence of a recorded date of approval prior to issuance of notice under Section 148.Whether issuance of notice under Section 143(2) of the Act is mandatory for validity of reassessment proceedings under Sections 147 and 148 when a return is filed in response to notice under Section 148.Whether failure to issue notice under Section 143(2) renders the reassessment order void ab initio.

RULINGS / HOLDINGS:

The reasons recorded under Section 147, based on undisputed cash deposits and non-filing of return, constitute a valid "reason to believe" and are sufficient to initiate reassessment; the requirement is "reason to believe" and not proof of escapement of income.The approval under Section 151 of the Act is invalid if the date of approval is not recorded, as approval must precede issuance of notice under Section 148; absence of proof that approval was obtained prior to notice issuance results in failure to discharge the onus on Revenue.Issuance of notice under Section 143(2) is mandatory and not merely procedural for reassessment under Section 147 when a return is filed in response to notice under Section 148; failure to issue such notice invalidates the reassessment proceedings.The reassessment order passed without issuance of notice under Section 143(2) is void ab initio and liable to be quashed, as established by binding precedents and jurisdictional High Court rulings.

RATIONALE:

The Court applied the statutory framework under the Income Tax Act, 1961, particularly Sections 143(2), 147, 148, and 151, alongside judicial precedents including the Supreme Court ruling in ACIT vs. Rajesh Javeri Stock Brokers Pvt. Ltd. emphasizing the standard of "reason to believe."The Court underscored the statutory requirement under Section 151 that approval for reopening must be obtained before issuance of notice under Section 148, and the absence of a recorded date of approval constitutes a procedural defect undermining validity.The Court relied on a series of authoritative decisions from various High Courts and ITAT benches holding the mandatory nature of notice under Section 143(2) for reassessment proceedings under Section 147 when a return is filed in compliance with notice under Section 148, including the jurisdictional High Court decision in CIT vs. Sukhini P. Modi and the Supreme Court decision in ACIT v. Hotel Blue Moon.The Court noted a doctrinal preference for the binding jurisdictional High Court precedent over conflicting decisions from other jurisdictions, emphasizing that failure to issue notice under Section 143(2) cannot be cured under Section 292BB and renders reassessment void.

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