Reassessment based on earlier tax return after Section 148 notice: missing Section 143(2) notice voids best-judgment assessment

Where an assessee, in response to notice u/s 148, treats the original return u/s 139 as the return for reassessment, issuance and service of notice u/s 143(2) is a mandatory jurisdictional prerequisite to frame an order u/s 143(3) r.w.s. 147. Section 292BB, being a deeming provision curing defects in service, does not cure complete non-issuance of notice u/s 143(2). Resort to best judgment assessment u/s 144 was held impermissible when the return stood filed and no valid notice u/s 143(2) was issued. Consequently, the reassessment order u/s 144 r.w.s. 147 was vitiated as null and void, and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether reassessment orders are vitiated for want of issuance of the mandatory jurisdictional notice under section 143(2) after the assessee, during reassessment proceedings, requested that its earlier return filed under section 139(1) be treated as the return in response to notice under section 148.

2. Whether section 292BB can cure complete non-issuance (as distinct from defective/non-timely/improper service) of a notice under section 143(2) in reassessment proceedings.

3. Whether, when a return (or a request to treat an earlier return as a section 148 return) was on record before completion of reassessment, recourse to best judgment assessment under section 144 read with section 147 was permissible without issuing notice under section 143(2).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Mandatory nature of notice under section 143(2) once a return is on record in reassessment

Legal framework: The Court examined the interaction of sections 148 and 143(2) in reassessment, and treated issuance of notice under section 143(2) as a jurisdictional prerequisite where the Assessing Officer proposes to scrutinize the return and make variations/disallowances, even if the reassessment order is ultimately framed under section 144 read with section 147.

Interpretation and reasoning: The Court found it undisputed that (i) notice under section 148 was issued; and (ii) before completion of reassessment, the assessee filed a written request asking the Assessing Officer to treat its earlier return under section 139(1) as the return in response to section 148, enclosing the return and acknowledgement. The Court held the Assessing Officer's statement in the reassessment order that no return was filed in response to section 148 to be incorrect, particularly because the Assessing Officer reproduced/scanned the assessee's request in the assessment order itself and also used the return figures while concluding the assessment. The Court reasoned that once such return/request is on record, the Assessing Officer must either (a) accept it and proceed in accordance with scrutiny procedure, or (b) reject the request and require a fresh return; however, if the Assessing Officer intends to examine claims and make additions, issuance of notice under section 143(2) becomes mandatory to assume jurisdiction for a valid reassessment.

Conclusions: Non-issuance of notice under section 143(2) after the assessee's request to treat the earlier return as a section 148 return rendered the reassessment proceedings void; the reassessment orders were held null and void.

Issue 2: Inapplicability of section 292BB to cure non-issuance of notice under section 143(2)

Legal framework: The Court considered section 292BB and its scope, specifically its deeming fiction regarding due service of a notice required to be served, in cases where the assessee has appeared/co-operated.

Interpretation and reasoning: The Court distinguished between defects in service of an issued notice (non-service, late service, or improper service) and complete non-issuance of the notice itself. It held that section 292BB addresses only service-related objections and does not cure a total failure to issue the jurisdictional notice under section 143(2). Accordingly, the assessee's participation in proceedings could not validate reassessment where the statutory notice under section 143(2) was never issued.

Conclusions: Section 292BB could not be invoked to sustain reassessment; non-issuance of section 143(2) remained a fatal, non-curable defect.

Issue 3: Impropriety of resort to section 144 read with section 147 when a return/request was available, and mandatory notice requirement even for section 144 reassessment

Legal framework: The Court examined section 144 as applicable in situations of failure to file return or non-compliance with statutory notices, and assessed its use in the reassessment context where a return/request existed.

Interpretation and reasoning: The Court held that, given a return/request was filed before completion of reassessment and the assessee had participated by submitting responses, invoking section 144 on the footing that no return existed was "completely uncalled for." Further, the Court held that it is immaterial whether the reassessment order is styled under section 143(3) or section 144; where the Assessing Officer seeks to scrutinize and disallow claims on the basis of the return on record, issuance of notice under section 143(2) is mandatory. The Court also held that the assessee's request/return could not be disregarded merely because it was made beyond the period mentioned in the section 148 notice, and noted that during the relevant years there was no statutory provision deeming a belated section 148 return as not being a section 139 return; therefore, the late filing did not dispense with the requirement of notice under section 143(2).

Conclusions: Recourse to section 144 read with section 147, without issuing section 143(2) despite a return/request being on record, vitiated the reassessment; the reassessment orders were quashed in entirety and the appeals were allowed.

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