Cash basis accounting and reassessment notice requirements: income taxed only on receipt, while section 143(2) notice was unnecessary here.

Where no return is filed in response to notice under section 148, failure to issue notice under section 143(2) does not invalidate the reassessment. Professional receipts are not taxable in the year merely because they appear in Form 26AS if the assessee consistently follows the cash basis of accounting and the income was actually received and offered in a later year. A deduction claimed under Chapter VI-A cannot be denied in reassessment when it had been allowed in the original assessment and supporting material was already on record. The reassessment was sustained on the jurisdictional objection, but the addition for professional receipts was deleted and the Chapter VI-A deduction was allowed.

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Issues: (i) Whether reassessment was bad in law for want of notice under section 143(2) when no return was furnished in response to notice under section 148; (ii) whether professional receipts not actually received during the year could be brought to tax despite the assessee following the cash basis of accounting consistently; (iii) whether the deduction claimed under Chapter VI-A could be denied in the reassessment computation.

Issue (i): Whether reassessment was bad in law for want of notice under section 143(2) when no return was furnished in response to notice under section 148

Analysis: The assessee had not filed any return in response to the notice under section 148. In that situation, the requirement of issuing notice under section 143(2) was held to be inapplicable. The authorities relied upon by the assessee were found distinguishable because they concerned cases where a return had been filed in response to reassessment proceedings.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether professional receipts not actually received during the year could be brought to tax despite the assessee following the cash basis of accounting consistently

Analysis: The assessee's method of accounting on cash basis was not disputed. The discrepancy between receipts reflected in Form 26AS and receipts offered in the return was explained as income received in the subsequent year and offered to tax in that year, with corresponding TDS credit also claimed later. On these facts, there was no justifiable basis to tax the amount in the year under consideration merely because tax had been deducted at source.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether the deduction claimed under Chapter VI-A could be denied in the reassessment computation

Analysis: The claim had been allowed in the original assessment and supporting material was available on record. The omission to allow the deduction in the reassessment computation sheet did not justify denial of the claim.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The reassessment was sustained on the jurisdictional objection, but relief was granted by deleting the addition for professional receipts and by directing allowance of the Chapter VI-A deduction, resulting in partial relief to the assessee.

Ratio Decidendi: Where an assessee consistently follows the cash system of accounting, income cannot be taxed in a year of mere accrual shown by TDS records if it is not actually received in that year and is offered to tax on receipt in the subsequent year; additionally, in the absence of a return filed in response to notice under section 148, non-issuance of notice under section 143(2) does not invalidate the reassessment.

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