Reassessment quashed as void ab initio for complete absence of mandatory s.143(2) notice, not curable by s.292BB

ITAT allowed the assessee's appeal and quashed the reassessment as void ab initio. The AO had completed reassessment after taking cognizance of a belated return but failed to issue mandatory notice under s.143(2). Relying on SC rulings in Hotel Blue Moon and Laxman Das Khandelwal, ITAT held that issuance of notice under s.143(2) is mandatory and its complete absence is a jurisdictional defect not curable under s.292BB, which only cures defects in service, not non-issuance. Consequently, the addition on account of unexplained gift was annulled.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether delay of 68 days in filing the appeal before the Tribunal deserved condonation in the interest of substantial justice.

1.2 Whether non-issuance of a statutory notice under section 143(2) of the Income-tax Act, 1961, after filing of return in response to notice under section 148, renders the reassessment proceedings void ab initio, even when the return is belated and the Assessing Officer has taken cognizance of it.

1.3 Whether the defect of complete non-issuance of notice under section 143(2) can be cured by section 292BB of the Act.

1.4 Consequentially, whether other grounds on merits required adjudication once the reassessment proceedings are held invalid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay in filing appeal

2.1 Interpretation and reasoning

The Tribunal noted that there was a delay of 68 days in filing the appeal. Upon considering the reasons adduced in the condonation petition, it found sufficient cause and held that, in the interest of substantial justice, the delay ought to be condoned.

2.2 Conclusion

The delay of 68 days in filing the appeal was condoned and the appeal was admitted for adjudication.

Issue 2 and 3: Effect of non-issuance of notice under section 143(2) in reassessment proceedings and applicability of section 292BB

2.3 Legal framework as discussed

The Tribunal examined the provisions of sections 143(2), 147, 148, 144 and 292BB of the Act. It relied on binding precedent of the jurisdictional High Court in holding that issuance of notice under section 143(2) after receipt of return in response to section 148 is mandatory and that failure to issue such notice vitiates the reassessment. It further relied on the decisions of the Supreme Court holding that: (i) issuance of notice under section 143(2) is a mandatory requirement and cannot be dispensed with; and (ii) section 292BB cures only defects in manner of service of a notice that has emanated from the department, and does not cure the complete absence of such notice.

2.4 Interpretation and reasoning

(a) The Tribunal recorded that information was received regarding cash deposit in the assessee's bank account, pursuant to which notice under section 148 was issued. The assessee filed a return of income in response to the said notice on 22-11-2019. The reassessment was completed under sections 144/147 on 29-11-2019 without issuance of any notice under section 143(2) after filing of the return.

(b) The Tribunal found, as a matter of fact, that the Assessing Officer had taken cognizance of the belated return because the computation of assessed income in the reassessment order started with the "returned income" figure and then made the addition of the cash deposit amount.

(c) In view of this, the Tribunal held that once the Assessing Officer had acted on the return filed in response to notice under section 148, he was bound to issue a statutory notice under section 143(2) before framing reassessment.

(d) Relying on the jurisdictional High Court decision, the Tribunal held that absence of a notice under section 143(2) after the filing of return in response to section 148 renders the entire reassessment procedure invalid, since the requirement is mandatory and cannot be dispensed with.

(e) By referring to the Supreme Court judgments, the Tribunal further held that this defect goes to the root of the jurisdiction of the Assessing Officer and is not curable under section 292BB, because that provision presupposes the existence of a notice and only cures infirmities in its service, not total absence.

2.5 Conclusions

(i) Non-issuance of notice under section 143(2) of the Act, after the assessee filed the return in response to notice under section 148, is fatal to the reassessment proceedings, even if the return is filed belatedly and within a short time before completion of assessment.

(ii) Since no notice under section 143(2) was ever issued, section 292BB could not cure the defect, as it applies only where a notice has emanated from the department and there are infirmities in its service, not where there is complete absence of notice.

(iii) The entire reassessment proceedings were quashed as void ab initio.

Issue 4: Necessity of adjudication of other grounds

2.6 Interpretation and reasoning

Having quashed the reassessment proceedings on the preliminary legal ground of non-issuance of notice under section 143(2), the Tribunal held that examination of the remaining grounds on merits would be purely academic.

2.7 Conclusion

Other grounds raised in the appeal were not adjudicated and were left open, the appeal being allowed on the preliminary jurisdictional issue.

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