Mandatory section 143(2) notice in reassessment is essential; penalty based on a quashed assessment cannot survive.

In reassessment proceedings, absence of service of the mandatory notice under section 143(2) vitiated the assessment because the record showed only notice under section 148 for the relevant year, and no proof of the required notice for that assessment year. The reassessment was therefore quashed. Penalty under section 271(1)(c) also could not survive because it was founded entirely on the quashed assessment and had no independent basis. The penalty order and the appellate order confirming it were accordingly set aside, granting partial relief to the assessee.

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Issues: (i) whether the reassessment framed without service of notice under section 143(2) of the Income-tax Act, 1961 was sustainable; (ii) whether the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 could survive after the assessment was quashed.

Issue (i): whether the reassessment framed without service of notice under section 143(2) of the Income-tax Act, 1961 was sustainable.

Analysis: The record did not show that notice under section 143(2) was issued for the relevant assessment year. The material placed on record indicated notice under section 148, while the reference to notice under section 143(2) related to a different assessment year. In the absence of proof of service of the mandatory notice for the year under consideration, the assessment could not be sustained.

Conclusion: The reassessment was held unsustainable and the assessment order was quashed in favour of the assessee.

Issue (ii): whether the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 could survive after the assessment was quashed.

Analysis: The penalty order was founded on the assessment that had already been set aside. Once the quantum addition itself no longer survived, the penalty based on that assessment also ceased to have an independent basis.

Conclusion: The penalty order and the appellate order confirming it were set aside in favour of the assessee.

Final Conclusion: The quantum appeal succeeded on the jurisdictional objection and the penalty appeal was allowed consequentially, resulting in overall partial relief to the assessee.

Ratio Decidendi: In reassessment proceedings, absence of service of the mandatory notice under section 143(2) vitiates the assessment, and a penalty imposed solely on the basis of such an assessment cannot survive.

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