Mandatory reassessment notice and valid draft assessment procedure determine jurisdiction under the Income-tax Act

Notice under section 143(2) was treated as mandatory before completing reassessment under section 147; where the assessment records did not show service of such notice, the reassessment was held without jurisdiction. Draft assessment orders were also held invalid where they were accompanied by demand notices, tax computation and penalty proceedings, because section 144C requires a staged draft-order process before any final demand can arise. The combined failure to follow these jurisdictional steps rendered the assessment orders void, with the consequential demand and penalty proceedings unable to survive.

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Issues: (i) whether notice under section 143(2) of the Income-tax Act, 1961 was mandatory before completing reassessment under section 147; and (ii) whether orders styled as draft assessment orders were invalid where they were accompanied by demand notices, computation sheets, and penalty proceedings, thereby breaching section 144C of the Income-tax Act, 1961.

Issue (i): Whether notice under section 143(2) of the Income-tax Act, 1961 was mandatory before completing reassessment under section 147.

Analysis: The assessment records did not show issuance of notice under section 143(2), and the departmental report also stated that copies of such notices were not available. The binding decisions relied upon, including those on reassessment and analogous reopening provisions, establish that when reassessment is undertaken, the procedural safeguard of section 143(2) must be complied with before framing an assessment under section 143(3) read with section 147.

Conclusion: The requirement of notice under section 143(2) was mandatory, and the reassessment orders were without jurisdiction for want of such notice.

Issue (ii): Whether orders styled as draft assessment orders were invalid where they were accompanied by demand notices, computation sheets, and penalty proceedings, thereby breaching section 144C of the Income-tax Act, 1961.

Analysis: The so-called draft assessment orders themselves directed assessment, computation of tax, issuance of demand notices under section 156, and initiation of penalty proceedings under section 271(1)(c). Under section 144C, a draft order is only a order and final demand can arise only after completion of the statutory DRP process. The accompanying demand notices and penalty proceedings showed that the Assessing Officer had effectively concluded the assessment at the draft stage, defeating the mandatory sequence under section 144C(1), section 144C(3), and section 144C(13).

Conclusion: The purported draft assessment orders were invalid and without jurisdiction, and the consequential proceedings also could not survive.

Final Conclusion: The preliminary jurisdictional grounds succeeded, the impugned assessment orders were quashed, and the remaining grounds were treated as academic.

Ratio Decidendi: Where the statute prescribes a mandatory assessment procedure, including prior notice and a staged draft-order mechanism, failure to comply with those jurisdictional steps renders the assessment void and the resulting demand and penalty proceedings non est.

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