Reassessment u/s 144/147 quashed for no mandatory notice u/s 143(2), despite return filed to 148

ITAT Kolkata allowed the assessee's appeal and quashed the reassessment framed u/s 144/147. The AO had issued notice u/s 148 and the assessee filed a return, which the AO treated as non-est, yet proceeded to compute income by adopting the same returned figure and making additions. Crucially, no notice u/s 143(2) was issued at any stage of the reassessment proceedings. Holding that issuance of notice u/s 143(2) is mandatory and its absence renders the assessment void, ITAT declared the assessment order bad in law.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a reassessment completed under sections 144/147 of the Act is invalid in law where no notice under section 143(2) was issued after the assessee filed a return in response to notice under section 148, despite the Assessing Officer treating such return as non est while simultaneously using it as the basis for computation of total income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment under sections 144/147 in absence of notice under section 143(2) where return filed in response to section 148 is treated as non est but used for computation

Legal framework (as discussed)

2.1 The Court examined the scheme of reassessment under sections 147 and 148 of the Act, and the requirement of issuance of notice under section 143(2) where a return of income is filed and taken into account for framing the assessment. It referred to a coordinate bench decision and to the judgment of a High Court which held that when a return of income filed in response to a notice under section 148 is considered for assessment, the Assessing Officer is obliged to issue notice under section 143(2), even if such return is filed beyond the time stated in the section 148 notice or is otherwise considered invalid.

Interpretation and reasoning

2.2 It was undisputed that no notice under section 143(2) was issued by the Assessing Officer at any stage of the reassessment proceedings.

2.3 The assessee filed a return of income in response to the notice under section 148, declaring the same income as in the original return. The Assessing Officer treated this return as non est on the ground that it was not filed within the time allowed under section 148, but nevertheless adopted the income declared therein as the starting point for computation of total income and then made additions under section 68.

2.4 The Court held that if a return is treated as non est, it cannot simultaneously be used as the basis for computation of income in the assessment order. Reliance on such a return for computation necessarily implies that the return has been taken into account for purposes of assessment, which attracts the mandatory requirement of issuing notice under section 143(2).

2.5 The Court followed the reasoning of the coordinate bench decision, which in turn applied the High Court ruling that where the return filed in response to a section 148 notice is considered by the Assessing Officer while framing the assessment, the omission to issue notice under section 143(2) renders the assessment invalid, irrespective of the return being belated or termed invalid.

Conclusions

2.6 The reassessment framed under sections 144/147 without issuance of notice under section 143(2), in a case where the return filed in response to notice under section 148 was treated as non est but used for computation of income, is bad in law.

2.7 The assessment order was quashed, and the assessee's appeal was allowed.

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