Section 143(2) notice mandatory when assessment varies from filed return, omission not curable despite section 142(1) compliance

ITAT Rajkot held that notice under section 143(2) is mandatory when the assessing officer repudiates the return filed by the assessee and proceeds to make an assessment at variance with the filed return. The omission to issue notice under section 143(2) is not curable and cannot be dispensed with, even if the assessee has filed return in response to notice under section 142(1). Since the AO failed to issue the mandatory notice under section 143(2), the assessment order was quashed and the assessee's appeal was allowed.

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The core legal questions considered by the Tribunal in this appeal pertain primarily to the validity and jurisdictional competence of the assessment order framed under section 144(1)(b) of the Income Tax Act, 1961 (hereinafter "the Act") in the context of the assessee having filed a return of income in response to a notice under section 142(1) of the Act, albeit belatedly. The principal issues are:

• Whether the Assessing Officer was required to issue a notice under section 143(2) of the Act after the assessee filed the return of income in response to the notice under section 142(1), even though the return was filed beyond the time specified in the section 142(1) notice;
• Whether the assessment framed under section 144(1)(b) of the Act is valid when the assessee has submitted all required documents and details during the assessment proceedings;
• Whether the appellate authority (CIT(A)) had jurisdiction to set aside and remit the assessment order for fresh adjudication;
• Whether the addition of Rs. 33,95,000/- as unexplained cash deposits under section 69A of the Act was justified;
• Whether the failure to issue notice under section 143(2) of the Act vitiates the assessment order.

Issue-wise Detailed Analysis

1. Requirement of Issuance of Notice under Section 143(2) of the Act

Legal Framework and Precedents: Section 143(2) of the Act mandates the Assessing Officer to issue a notice to the assessee after the return of income is filed, to initiate detailed scrutiny assessment proceedings. The issuance of such notice is a jurisdictional requirement to proceed beyond the return filed. The Tribunal relied on authoritative precedents, including the judgment of the Patna High Court in CIT v. Nagendra Prasad, which held that even a belated return filed in response to a notice under section 148 must be followed by issuance of notice under section 143(2) before assessment can be made. Similarly, the Gujarat High Court decision in Devendranath G Chaturvedi reinforced that when a belated return is not discarded as invalid, the Assessing Officer must issue notice under section 143(2) before making an assessment at higher income.

Court's Interpretation and Reasoning: The Tribunal emphasized that the time limit specified in the notice under section 142(1) is administrative and not a "Laxman Rekha" (i.e., a rigid deadline). Therefore, even if the return is filed beyond the time mentioned, it remains a valid return if not discarded. Once the return is accepted (acknowledged) by the Assessing Officer, the Assessing Officer must issue notice under section 143(2) to acquire jurisdiction for detailed assessment. The Tribunal held that the Assessing Officer's failure to issue such notice before framing the assessment order under section 144(1)(b) was a jurisdictional defect.

Application of Law to Facts: The assessee filed the return of income on 03.06.2019 in response to the notice under section 142(1), though beyond the time limit specified therein. The Assessing Officer acknowledged the return and considered it while framing the assessment order. However, no notice under section 143(2) was issued. The Tribunal found that this omission was fatal and rendered the assessment order invalid.

Treatment of Competing Arguments: The Revenue contended that since the return was filed late, the Assessing Officer was not required to issue notice under section 143(2), and therefore the assessment under section 144 was valid. The Tribunal rejected this, holding that the time limit in the section 142(1) notice is not binding, and the acceptance of the return triggers the mandatory issuance of notice under section 143(2).

Conclusion: The Tribunal concluded that issuance of notice under section 143(2) is mandatory once a return is filed and accepted, regardless of delay. Failure to issue such notice vitiates the assessment order.

2. Validity of Assessment under Section 144(1)(b) When Assessee Filed Return and Submitted Details

Legal Framework: Section 144(1)(b) authorizes the Assessing Officer to make an ex parte assessment where the assessee fails to file a return or comply with notices. Conversely, section 143(3) requires the Assessing Officer to conduct detailed scrutiny when a return is filed and accepted.

Court's Reasoning: The Tribunal noted that the assessee had filed the return and submitted all relevant documents and details during the proceedings, including bank statements, accounts, computation of income, and ITR-V. The Assessing Officer also collected bank details under section 133(6). Thus, the assessment was not ex parte and should have been framed under section 143(3), not section 144.

Application to Facts: Despite the submissions, the Assessing Officer framed the assessment under section 144(1)(b), which is intended for cases where the assessee fails to cooperate. The Tribunal held that this was a mistake and that the assessment order was bad in law.

Treatment of Arguments: The assessee's counsel argued that framing assessment under section 144 was erroneous and that the Assessing Officer had effectively conducted detailed assessment. The Revenue argued that due to delayed filing of return and incomplete submissions, section 144 was applicable. The Tribunal sided with the assessee on this point.

Conclusion: The assessment order framed under section 144(1)(b) was invalid as the facts warranted framing under section 143(3) due to the return filing and submissions.

3. Jurisdiction of CIT(A) to Set Aside and Remand the Assessment Order

Legal Framework: The appellate authority under section 250 of the Act has power to confirm, reduce, enhance, or annul the assessment. However, the power to set aside and remit for fresh assessment is circumscribed and depends on the factual and legal context.

Court's Interpretation: The Tribunal observed that the CIT(A) set aside the assessment order passed under section 144(1)(b) for fresh adjudication after considering the assessee's submissions. However, since the assessment order was framed under section 144, which was held invalid, and the assessment should have been under section 143(3), the CIT(A) ought to have adjudicated the appeal on merits rather than remitting the matter.

Application to Facts: The CIT(A) did not have jurisdiction to remit the assessment for fresh adjudication in the circumstances, especially when the assessment order itself was invalid. The Tribunal found the remand unnecessary and inappropriate.

Conclusion: The CIT(A)'s order to set aside and remit the assessment was not justified in law.

4. Addition of Rs. 33,95,000/- as Unexplained Cash Deposits under Section 69A

Legal Framework: Section 69A of the Act deals with unexplained money found credited in the books of the assessee or deposited in bank accounts. If the assessee fails to explain the source, the amount is added to income and taxed under section 115BBE.

Court's Reasoning and Findings: The Assessing Officer treated the cash deposits made during the demonetization period as unexplained, adding Rs. 33,95,000/- to the income. However, since the assessment order itself was quashed for jurisdictional infirmity, the Tribunal did not delve into the merits of this addition.

Conclusion: The issue of addition under section 69A was rendered academic due to quashing of the assessment order.

5. Validity of Return of Income Filed Beyond Time Limit Specified in Section 142(1) Notice

Legal Framework: The Act does not prescribe a rigid deadline in the notice under section 142(1) for filing the return. The return filed beyond the time specified in the notice is not invalid per se unless discarded by the Assessing Officer.

Court's Interpretation: The Tribunal emphasized that the time limit in the section 142(1) notice is administrative and not a statutory bar. Once the return is filed and accepted, even if late, it is a valid return triggering the Assessing Officer's obligation to issue notice under section 143(2).

Application to Facts: The assessee filed the return late but it was accepted and considered by the Assessing Officer. Therefore, the return was valid and the Assessing Officer's failure to issue notice under section 143(2) was fatal.

Conclusion: Late filing of return in response to section 142(1) notice does not invalidate the return or relieve the Assessing Officer of the obligation to issue notice under section 143(2).

Summary of the Tribunal's Conclusions

• The Assessing Officer's failure to issue notice under section 143(2) after the return was filed and accepted vitiates the assessment order and renders it invalid;
• The assessment framed under section 144(1)(b) was erroneous as the facts warranted assessment under section 143(3) due to submission of return and documents;
• The CIT(A) lacked jurisdiction to set aside and remit the assessment for fresh adjudication in the circumstances and ought to have adjudicated on merits;
• The addition under section 69A was not adjudicated due to quashing of the assessment order;
• The time limit specified in the section 142(1) notice is administrative and does not invalidate a belated return, which once accepted triggers mandatory issuance of notice under section 143(2).

Significant Holdings and Legal Principles

"Once the assessee has filed the Return of Income, in response to notice, u/s 142(1) of the Act, (although it is late, as compare to the date mentioned in the notice u/s 142(1) of the Act), then it would be mandatory for the assessing officer, in order to acquire the jurisdiction, to make the assessment on the assessee, to issue the notice u/s 143(2) of the Act. Without issue of notice u/s 143(2) of the Act, the assessing officer does not get jurisdiction to make the assessment on the assessee."

"The time limit stated by the assessing officer, as per his own whim, or desire, in the notice u/s 142(1) of the Act, is not a LAXMAN REKHA, (that is, expiry date), on which the assessee should have filed the return of income, before the assessing officer."

"The omission on the part of the assessing authority to issue notice u/s 143(2) of the Act is not curable, and therefore, the requirement of notice u/s 143(2) cannot be dispensed with."

"Where return for block period filed by assessee belatedly was not discarded as invalid, in such a case, if Assessing Officer wanted to frame assessment at higher income, he was bound to issue a notice under section 143(2)."

"The assessment order framed under section 144(1)(b) is bad in law where the assessee has submitted all details and documents and filed return of income, and the assessment ought to have been framed under section 143(3)."

In the result, the Tribunal quashed the assessment order and allowed the appeal of the assessee, rendering other issues academic.

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