Reassessment u/s 147 quashed for non-issuance of mandatory Section 143(2) notice, entire proceedings invalid

The ITAT Delhi-AT quashed the reassessment proceedings initiated u/s 147 on the ground of non-issuance of mandatory notice u/s 143(2). The assessee demonstrated through the income-tax e-filing portal that no such notice was ever issued or served, and the Department failed to produce any contrary evidence. The Tribunal reiterated that issuance of notice u/s 143(2) is a jurisdictional requirement even in reassessment proceedings; its absence vitiates the entire reassessment. Consequently, the reassessment order was held invalid and the matter was decided in favour of the assessee.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether reassessment proceedings under sections 147/144/144B are vitiated for non-issuance of mandatory notice under section 143(2) of the Act after filing/consideration of the return in response to notice under section 148.

1.2 Whether the objection regarding non-issuance of notice under section 143(2), not raised before the Assessing Officer or the first appellate authority, can be entertained as a jurisdictional ground before the Tribunal.

1.3 Consequential effect on the additions made under section 69C and on account of difference between receipts as per Form 26AS and income declared in the return, once the reassessment order is held invalid for want of notice under section 143(2).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment for non-issuance of notice under section 143(2)

(a) Legal framework (as discussed)

2.1 The Tribunal noted that under the law, a notice under section 143(2) is required to be issued even in reassessment proceedings initiated under section 147, and failure to issue such notice vitiates the reassessment proceedings and renders the reassessment order invalid.

2.2 Reliance was placed on the decision of the jurisdictional High Court which held that absence of notice under section 143(2) creates a jurisdictional defect, not cured by section 292BB, and that the requirement of such notice is mandatory even in reassessment.

(b) Interpretation and reasoning

2.3 The Tribunal examined the assessment records and found that the Assessing Officer had issued notice under section 142(1) and treated the assessee's reply thereto as a response to notice under section 148. The assessment was framed under sections 147/144/144B.

2.4 It was the specific case of the assessee that no notice under section 143(2) was ever issued during the reassessment proceedings. To substantiate this, the assessee produced the e-filing portal records, which did not reflect issuance or communication of any notice under section 143(2).

2.5 The Department failed to produce any document to show that a notice under section 143(2) had been issued or served on the assessee.

2.6 Referring to the jurisdictional High Court judgment, the Tribunal endorsed the following propositions extracted therein:

(i) Absence of notice under section 143(2) in reassessment proceedings is a jurisdictional defect rendering the proceedings invalid.

(ii) After a return is filed or treated as filed in response to notice under section 148, it is mandatory for the Assessing Officer to issue notice under section 143(2); failure to do so invalidates the reassessment.

(iii) Section 292BB cures only defects in "service" of a notice that has been issued; it does not cure a complete "failure to issue" notice under section 143(2).

(iv) The requirement to issue notice under section 143(2) cannot be viewed as a mere procedural irregularity and is not dispensable.

2.7 Applying these principles, the Tribunal held that, in the absence of any evidence of issuance or service of notice under section 143(2), the reassessment order was hit by a jurisdictional defect.

(c) Conclusions

2.8 The Tribunal held that non-issuance of mandatory notice under section 143(2) in reassessment proceedings under section 147 vitiated the entire reassessment and rendered the assessment order invalid in law.

2.9 On this ground alone, the reassessment order and the order of the first appellate authority were set aside.

2.10 The Tribunal, however, reserved liberty to the Revenue to file an appropriate application for recall of this order if it is subsequently able to produce tangible material demonstrating that a mandatory notice under section 143(2) was indeed issued and served on the assessee.

Issue 2: Entertaining jurisdictional ground not raised before lower authorities

(a) Interpretation and reasoning

2.11 The Departmental Representative argued that the ground regarding non-issuance of notice under section 143(2) was raised for the first time before the Tribunal and was not taken before the Assessing Officer or the first appellate authority, and therefore should not be entertained.

2.12 The Tribunal proceeded to examine and decide the ground on merits, treating the requirement of notice under section 143(2) as a jurisdictional condition going to the root of the validity of the reassessment.

2.13 By adjudicating the issue and setting aside the assessment on this ground, the Tribunal implicitly accepted that such a jurisdictional objection can be raised and considered even if taken for the first time before the Tribunal.

(b) Conclusions

2.14 The Tribunal entertained the assessee's objection regarding non-issuance of notice under section 143(2) as a pure question of law affecting jurisdiction, notwithstanding the fact that it had not been raised before the Assessing Officer or the first appellate authority.

Issue 3: Consequential effect on additions made in reassessment

(a) Interpretation and reasoning

2.15 The Revenue's appeal challenged deletion of additions made (i) under section 69C on account of alleged bogus purchases from a shell entity, and (ii) on account of difference between receipts as per Form 26AS and turnover declared in the return.

2.16 Since the reassessment order itself was held to be invalid for want of mandatory notice under section 143(2), the foundation for all additions made therein stood vitiated.

(b) Conclusions

2.17 The Cross Objection was allowed, the reassessment order and the order of the first appellate authority were set aside as invalid.

2.18 As a consequence, the Revenue's appeal against the deletions of additions became infructuous and was dismissed accordingly.

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