Mandatory reassessment notice and non-taxability of sale advances absent transfer or forfeiture shaped the tax treatment dispute.

In reassessment proceedings, notice under section 143(2) was treated as mandatory, and its absence was regarded as a jurisdictional defect that vitiated the reassessment. An advance received under an agreement to sell immovable property was also held not taxable as income from other sources where there was no registered transfer, no completed sale within section 2(47), and no forfeiture of the advance. Applying the real income principle, the receipt remained a liability or contingent amount until it crystallised under the agreement or the Act. The reassessment and the addition were accordingly set aside.

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Issues: (i) Whether the reassessment was vitiated for want of notice under section 143(2) of the Income-tax Act, 1961. (ii) Whether the amount received under an agreement to sell could be taxed as income from other sources in the absence of transfer, execution of sale deed, or forfeiture of advance.

Issue (i): Whether the reassessment was vitiated for want of notice under section 143(2) of the Income-tax Act, 1961.

Analysis: The assessment was framed in reassessment proceedings, and the absence of notice under section 143(2) was treated as a jurisdictional defect. The statutory requirement was considered mandatory, and without such notice the Assessing Officer could not validly proceed to scrutinise the return filed in response to notice under section 148.

Conclusion: The reassessment was held to be vitiated for want of notice under section 143(2), in favour of the assessee.

Issue (ii): Whether the amount received under an agreement to sell could be taxed as income from other sources in the absence of transfer, execution of sale deed, or forfeiture of advance.

Analysis: The receipt was characterised as an advance toward proposed sale consideration of immovable property. In the absence of execution of a registered sale deed or transfer within the meaning of section 2(47), the receipt could not be taxed as capital gains. The amount also could not be brought to tax under the residuary head as income from other sources merely on receipt, because an advance ordinarily retains the character of a liability unless adjusted against completed transfer or forfeited under the agreement. No material showed forfeiture during the relevant year, and the principle of real income was applied to reject taxation of a contingent or hypothetical receipt. Reference was also made to the rule applicable to forfeiture of advance in relation to transfer of capital assets under section 51.

Conclusion: The addition of the amount as income from other sources was deleted, in favour of the assessee.

Final Conclusion: The reassessment and the impugned addition were set aside, and the appeal succeeded in full.

Ratio Decidendi: In reassessment proceedings, notice under section 143(2) is mandatory, and an advance received under an agreement to sell does not become taxable income unless it is shown to have been transferred, forfeited, or otherwise crystallised as income under the Act.

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