Reassessment orders under Section 147 quashed for applying wrong provisions and missing mandatory Section 143(2) notices

ITAT Delhi quashed reassessment orders u/s 147 for two assessment years, ruling the proceedings invalid on multiple grounds. The AO issued notice u/s 148 on 01.04.2021 but applied old provisions instead of amended procedures effective from that date, completing assessment hastily without proper investigation or providing adequate opportunity to the assessee. Additionally, the AO failed to issue mandatory notice u/s 143(2) for both years, rendering the assessments void ab initio. The tribunal held that section 292BB cannot cure complete absence of statutory notice, only defects in service manner, making the entire reassessment proceedings beyond jurisdiction and bad in law.

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1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment include:

• The validity of the notice issued under Section 148 of the Income Tax Act, 1961, particularly concerning the procedural requirements post-amendments effective from April 1, 2021.
• The legality of the assessment conducted under Section 147 without issuing a notice under Section 143(2) following the filing of a return in response to a Section 148 notice.
• The appropriateness of the additions made under Section 68 concerning unsecured loans and the treatment of evidence regarding the identity, creditworthiness, and genuineness of the transactions.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Notice under Section 148

• Relevant Legal Framework and Precedents: The amendments to Section 148 and the introduction of Section 148A in the Finance Act 2021, effective April 1, 2021, require specific procedures to be followed before issuing a notice for reassessment. The issuance of a notice is considered valid only when it is dispatched, not merely when it is digitally signed.
• Court's Interpretation and Reasoning: The Tribunal found that the notice under Section 148 was issued on April 1, 2021, and thus, the new procedural requirements should apply. The Tribunal relied on precedents from various High Courts, which held that the issuance date is the dispatch date, not the date of digital signing.
• Key Evidence and Findings: Evidence showed that the notice was dispatched on April 1, 2021, as per the communication reference and email records.
• Application of Law to Facts: Since the notice was issued after the new provisions became effective, the Assessing Officer (AO) was required to follow the amended procedures, which were not adhered to, rendering the notice and subsequent assessment invalid.
• Conclusions: The Tribunal concluded that the assessment under Section 147 was beyond jurisdiction and bad in law due to non-compliance with the new procedural requirements.

Legality of Assessment without Notice under Section 143(2)

• Relevant Legal Framework and Precedents: Section 143(2) mandates issuing a notice to the assessee after a return is filed in response to a Section 148 notice. The absence of such a notice invalidates the assessment.
• Court's Interpretation and Reasoning: The Tribunal emphasized that the issuance of a notice under Section 143(2) is crucial for completing the assessment, as established in various judicial precedents.
• Key Evidence and Findings: The record showed no notice under Section 143(2) was issued for the assessment years 2016-17 and 2017-18.
• Application of Law to Facts: The failure to issue a notice under Section 143(2) rendered the assessments for these years invalid and void ab initio.
• Conclusions: The Tribunal quashed the assessments for the years 2016-17 and 2017-18 due to the absence of a notice under Section 143(2).

Additions under Section 68 for Unsecured Loans

• Relevant Legal Framework and Precedents: Section 68 requires the assessee to prove the identity, creditworthiness, and genuineness of any loan or credit entries in their accounts.
• Court's Interpretation and Reasoning: The Tribunal noted that the assessee provided partial compliance and evidence regarding the unsecured loans but found procedural lapses in the AO's approach.
• Key Evidence and Findings: The Tribunal observed that the AO relied on internal reports without adequate independent verification or opportunity for the assessee to respond.
• Application of Law to Facts: The Tribunal found that the AO's assessment lacked proper investigation and procedural fairness, leading to the partial allowance of the assessee's claims.
• Conclusions: The Tribunal allowed partial relief to the assessee by setting aside some of the additions made under Section 68.

3. SIGNIFICANT HOLDINGS

• The Tribunal held that the assessment under Section 147 was invalid due to non-compliance with the amended procedural requirements effective from April 1, 2021. It stated, "the assessment passed u/s 147 is without adhering to the new procedure applicable from 01.04.2021 and it is beyond jurisdiction and bad in law."
• The Tribunal established that the absence of a notice under Section 143(2) invalidates the assessment, reinforcing the necessity of procedural compliance in reassessment cases.
• It concluded that procedural lapses and lack of proper investigation by the AO could not justify the additions made under Section 68, granting partial relief to the assessee.

In conclusion, the Tribunal partly allowed the appeals filed by the assessee and dismissed the appeals filed by the Revenue, emphasizing the importance of adhering to procedural requirements in reassessment proceedings.

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