2025 (11) TMI 1299 - AT - Income Tax

Reassessment under Sections 144, 147 quashed for total absence of mandatory Section 143(2) notice; Section 292BB inapplicable

ITAT Mumbai-AT held that reassessment proceedings under s.144 r/w s.147 were invalid due to complete absence of notice under s.143(2). Relying on SC ... Validity of assessment proceedings in the absence of issuance of notice u/s 143(2) - HELD THAT:- We find that a similar issue came up for consideration before the Hon’ble Supreme Court in CIT [2019 (8) TMI 660 - SUPREME COURT] wherein after noting the importance of issuance of notice under section 143(2) of the Act, as laid down in its earlier decision rendered in ACIT vs Hotel Blue Moon[2010 (2) TMI 1 - SUPREME COURT] held that for section 292BB to apply, section 143(2) notice must have emanated from the department and it is only infirmities in the manner of service of notice that the section seeks to cure and it is not intended to cure the complete absence of notice under section 143(2) of the Act itself. Thus we are of the considered view that the entire reassessment proceedings under section 144 read with section 147, in the present case, stood vitiated as the AO lacked jurisdiction in the absence of notice under section 143(2) - Appeal by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether reassessment proceedings completed under section 144 read with section 147 of the Income Tax Act are valid where no notice under section 143(2) of the Act was issued by the Department prior to framing the assessment. 2. Whether section 292BB can validate assessment proceedings where there is a complete absence of a notice under section 143(2) (i.e., whether participation by the assessee cures non-issuance of the notice). 3. Ancillary/follow-up issue considered but not decided on merits: Whether additions made under section 68 and denial of exemption under section 10(38) based on alleged accommodation entries and unconfronted third-party statements are sustainable (left open in view of decision on jurisdiction). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reassessment under section 144 read with section 147 in absence of notice under section 143(2) Legal framework: The statutory scheme contemplates issuance of notice under section 143(2) for assessment proceedings. Reassessment proceedings under sections 147/148 and completion under section 144 must be consistent with jurisdictional prerequisites and mandatory notice requirements where applicable. Precedent treatment: The Court considered and followed the Supreme Court's decisions that emphasize the importance of a section 143(2) notice (notably as stated in Hotel Blue Moon and later reinforced in Laxman Das Khandelwal). Those authorities hold that issuance of the notice is a jurisdictional prerequisite and omission cannot be cured by participation alone. Interpretation and reasoning: The Tribunal examined the record and noted that the Revenue was unable to produce any notice under section 143(2) or evidence that such notice emanated from the Department. The Department's contention that participation by the assessee cured non-issuance was evaluated against the statutory fiction in section 292BB. The Tribunal applied the ratio of the Supreme Court in Laxman Das Khandelwal which clarifies that section 292BB cures infirmities in service of a notice but does not cure the complete absence of a notice that must originate from the Department. Because no section 143(2) notice could be shown to have been issued by the Department, the AO lacked jurisdiction to proceed to frame the assessment under section 144 read with section 147. Ratio vs. Obiter: The determination that reassessment is vitiated for want of jurisdiction where no section 143(2) notice has been issued is ratio decidendi for the judgment. Conclusion: The reassessment proceedings and the assessment order under section 144 read with section 147 are quashed for want of jurisdiction insofar as no section 143(2) notice had been issued by the Department. Ground challenging validity of assessment on this basis is allowed. Issue 2 - Applicability of section 292BB to cure non-issuance of section 143(2) notice Legal framework: Section 292BB provides that when an assessee has participated in proceedings, certain infirmities in the service of notices may be treated as cured; however, its scope is limited to defects in service and not to creating a notice where none emanated from the Department. Precedent treatment: The Tribunal relied on the Supreme Court's exposition in Laxman Das Khandelwal which interprets section 292BB as inapplicable where there is a complete absence of a notice emanating from the Department, following the earlier line of authorities including Hotel Blue Moon. Interpretation and reasoning: The Tribunal rejected the Revenue's submission that participation by the assessee renders a prior section 143(2) notice immaterial. Applying the Supreme Court's guidance, it found that section 292BB cannot be invoked to validate proceedings when no section 143(2) notice was ever issued by the Department - the provision is intended to cure infirmities in manner of service, not absence of the statutory notice itself. Ratio vs. Obiter: The holding that section 292BB does not cure complete non-issuance of a mandatory notice is ratio in relation to the jurisdictional point adjudicated. Conclusion: Section 292BB does not validate the reassessment in the present facts; therefore the Revenue's reliance on participation to cure absence of notice fails. Issue 3 - Treatment of substantive additions under section 68 and denial of exemption under section 10(38) (kept open) Legal framework: Additions under section 68 require proof of unexplained cash credits/creditors; exemption under section 10(38) depends on legality of long-term capital gains on transfer of securities effected on a recognized stock exchange. Precedent treatment: The Tribunal did not decide the substantive merits because it quashed the assessment on jurisdictional grounds; it recorded the assessee's contentions regarding documentary proof (broker notes, bank statements), absence of SEBI proceedings, and that the AO's own report accepted majority of transactions as genuine. Interpretation and reasoning: The Tribunal observed that since the assessment order was quashed for lack of jurisdiction, the factual and legal contest on additions under section 68 and denial of section 10(38) relief was not adjudicated and therefore remains open for fresh consideration in accordance with law if proceedings are validly reopened. Ratio vs. Obiter: Observations on these substantive issues are obiter in the present decision because the Tribunal did not decide them on merits following its jurisdictional conclusion. Conclusion: Substantive grounds (natural justice, validity of addition under section 68, denial of exemption under section 10(38)) are not adjudicated and are kept open for determination in any valid proceedings; no direction on merits is given. Cross-reference For the jurisdictional conclusion (Issue 1) the Tribunal expressly applied and followed the Supreme Court's ruling in Laxman Das Khandelwal (and the reasoning of Hotel Blue Moon) regarding the limited scope of section 292BB; consequently the substantive issues were not reached and are reserved.