Reassessment under section 147 invalid without mandatory notice under section 143(2), assessment quashed

ITAT Raipur held that reassessment under section 147 was invalid due to non-issuance of notice under section 143(2). The tribunal emphasized that valid notice under section 143(2) is mandatory for framing valid assessment, citing SC precedents in Hotel Blue Moon and Laxman Das Khandelwal cases. The revenue's argument to cure the defect under section 292BB was rejected. The assessment was quashed for lack of valid jurisdictional assumption, with the tribunal ruling in favor of the assessee.

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Issues Involved:

1. Validity of reassessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Applicability of Section 40(a)(ia) related to non-deduction of TDS on labor charges.
3. Requirement of notice under Section 143(2) for a valid assessment.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:

The reassessment proceedings were challenged on the grounds of lack of satisfaction or bona fide belief regarding the escapement of income as required under Section 147 of the Income-tax Act, 1961. The approval granted under Section 151 was argued to be mechanical and without application of mind. The tribunal examined the reasons recorded by the Assessing Officer (A.O) and found that the reasons contained a mere narration of facts and recitation of statutory language, without indicating satisfaction about the escapement of income. The tribunal, referencing the decision in ITO Vs. Bishambar Dayal Agrawal, concluded that the initiation of reassessment proceedings was illegal and without jurisdiction, warranting the quashing of the assessment order.

2. Applicability of Section 40(a)(ia) Related to Non-deduction of TDS on Labor Charges:

The revenue appealed against the deletion of disallowance of Rs. 58,50,226/- under Section 40(a)(ia) for non-deduction of TDS on payments to sub-contractors. The Commissioner of Income-Tax (Appeals) had earlier allowed the assessee's appeal on this issue. However, since the tribunal quashed the reassessment proceedings due to procedural lapses, it refrained from addressing the merits of this issue. Therefore, the tribunal did not make a determination on the applicability of Section 40(a)(ia) in this specific case.

3. Requirement of Notice under Section 143(2) for a Valid Assessment:

The tribunal emphasized that the issuance of a valid notice under Section 143(2) is a sine qua non for the framing of a valid assessment, as established by the Hon'ble Supreme Court in cases such as ACIT & Anr. Vs. Hotel Blue Moon and CIT Vs. Laxman Das Khandelwal. It was noted that no notice under Section 143(2) was issued in the present case, rendering the assessment invalid. The tribunal cited the decision in Pr. CIT Vs. S.G Portfolio (P). Ltd., which reiterated the necessity of issuing a notice under Section 143(2) when an original return is treated as a return in response to a notice under Section 148. The tribunal rejected the revenue's contention to cover the issue under Section 292BB, affirming that the absence of a Section 143(2) notice invalidated the assessment.

Conclusion:

The tribunal quashed the assessment framed by the A.O under Section 147, dated 27.05.2014, due to the absence of a valid notice under Section 143(2), and thus dismissed the revenue's appeal. The tribunal did not address the merits of the case regarding the disallowance under Section 40(a)(ia) due to the procedural invalidity of the assessment. The order was pronounced in open court on 30th September 2024.

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