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Judgment
PER MADHUMITA ROY, JM.:
The instant appeal filed by the Revenue is directed against the order dated 02.09.2025 passed by the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the Assessment Order dated 26.12.2017passed by the Assessment Unit, Income-tax Department under Section 147 of the Act for Assessment Year 2010-11.
None appeared on behalf of the assessee.
The short point involved in this matter is as to whether in the absence of mandatory notice under Section 143(2) of the Act issued to the assessee whether the assessment order under Section 147 of the Act is sustainable. Further, point involved is that based on incorrect assumption that the tax payer did not file the return of income whether notice under Section 148 of the Act is valid.
The notice under Section 148 of the Act dated 31.03.2017 was issued by the Ld. AO to the assessee whereupon it was responded by the assessee that the return originally filed on 30.03.2011 to be considered as the return filed under Section 148 of the Act. However, while initiating reassessment proceedings under Section 147 of the Act, the AO recorded reason by noting that the assessee has not filed the return of income under Section 139 of the Act.
Under these facts and circumstances of the matter, the Ld. CIT(A) passed order allowing the ground raised by the assessee as above with the following reasons:
“5.2.3It is pertinent to mention here that an income tax reassessment notice issued under Section 148 is invalid if it is based on the incorrect assumption that the taxpayer did not file a return, when in fact he did. The Assessing Officer has a legal duty to verify the filing status before initiating proceedings. When the stated reason for reopening is factually wrong, it constitutes a jurisdictional error that can be challenged and quashed.
Reliance is placed on the judicial pronouncement of the Hon’ble High Court of Gujarat in the case of M/s. Sagar Enterprises Vs. Assistant Commissioner of Income-tax reported in [2002] 124 Taxman 641 (Gujarat), wherein it has been held as under:
“Ongoing through the entire reasons recorded by the revenue, it was apparent that the factor of non-filing of the return for the assessment year 1991-92 had overbearingly weighed with the Assessing Officer for arriving at the satisfaction about the failure on the part of the assessee and escapement of assessment of income. On the basis of the same, even for the sake of argument, if the contention raised by the Assessing Officer was taken into consideration, the settled legal position would be that in such circumstances, it would not be possible to say with certainty as to which factor would have weighed with the officer concerned and once it was shown that an irrelevant fact had been taken into consideration, to what extent the decision was vitiated would be difficult to say. On that count alone, the petition required to be accepted.”
Further, reliance is placed on the judicial pronouncement of the Hon’ble High Court of Delhi in the case of Dr. Ajit Gupta v. Assistant Commissioner of Income-tax reported in [2017] 79 taxmann.com 316 (Delhi), wherein it has been held as under:
Section 145 of the Income-tax Act, 1961 - Method of accounting - Change of - Assessment years 2006-07 to 2009- 10 - Where reason for reopening of assessment was a mistaken factual premise that assessee had changed system of accounting from mercantile to cash system, reopening of assessment was not valid [In favour of assessee]
Thus, from the above discussion and judicial pronouncement relied upon, it is held that as the reopening was based on wrong facts and on wrong ground, the reopening is considered to be erroneous and bad in law. Therefore, the order u/s 147 is quashed as being bad in law.
The Grounds of Appeal are allowed.”
Thus, having regard to the order passed by the Ld. CIT(A), considering the fact that the assessee duly filed the return of income the reopening on the basis of the wrong finding of fact has rightly been considered as erroneous and bad in law so as not to warrant interference. The order passed by the Ld. CIT(A) to this effect is upheld.
So far as the notice under Section 143(2) of the Act neither issued upon the assessee has been duly narrated by the CIT(A) with the following observation
“5.3.2On perusal of assessment order, it is seen that nowhere the AO has mentioned that mandatory notice u/s. 143(2) of the Act was issued to the appellant before passing assessment order u/s. 147 of the Act on 26.12.2017.
In para 3 of the assessment order, the AO has discussed about issue of notice u/s. 148 of the Act, response made by the appellant in compliance to notice u/s. 148 and issue of notice u/s. 142(1) of the Act. In para 4 of the assessment order, the AO has mentioned about issue of show cause notice to the appellant. However, he has not mentioned anywhere in the assessment order as to when the mandatory notice u/s. 143(2) of the Act, was issued to the appellant.
It is pertinent to mention here that issuing a notice under Section 143(2) is a mandatory requirement for completing a reassessment order under Section 147 if the assessee has filed a return in response to the Section 148 notice.
n the instant case, in response to notice u/s. 148, the appellant had requested the AO to consider his original return filed u/s. 139 on 30.03.2011 to consider the return filed by him in response to notice u/s. 148. On perusal of assessment order, it is seen that the AO has neither rejected such request of the appellant nor mentioned that the return filed by the appellant on 30.03.2011 was invalid. Moreover, while computing the assessed income of the appellant, the AO has taken the returned income of the appellant filed u/s. 139 of the Act on 30.03.2011.
5.3.3If the assessee files a return in response to the Section 148 notice, the AO must then follow the procedure for scrutiny assessment, which is initiated by issuing a notice under Section 143(2). The Hon’ble Supreme Court has addressed this issue in cases such as CIT v. Hotel Blue Moon, establishing that the issuance of a Section 143(2) notice is mandatory and not a mere procedural irregularity. This means that the AO cannot skip this step when an assessee files a return during reassessment proceedings.
The Hon’ble Supreme Court of India in the case of Assistant Commissioner of Income-tax v. Hotel Blue Moon in Civil Appeal Nos. 1198 to 1203 of 2010 reported in [2010] 188 Taxman 113 (SC), has held as under:
“Section 158BC, read with section 143(2), of the Income-tax Act, 1961 - Block assessment in search cases - Procedure for -Whether for determination of undisclosed income for a block period under provisions of section 158BC, provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and no assessment can be made without issuing notice under section 143(2) - Held, yes - Whether, therefore, where Assessing Officer, for any reason, repudiates return filed by assessee in response to notice under section 158BC(a), he must necessarily issue a notice under section 143(2) within time prescribed in proviso to section 143(2) - Held, yes”
Further, the Hon’ble ITAT Delhi Bench 'SMC' in the case of Major Suresh Yadav Vs. Income-tax Officer in IT Appeal No. 9432 (Delhi) of 2019 reported in [2023] 153 taxmann.com 159 (Delhi - Trib.), has held as under:
“Section 143, read with sections 148 and 292BB, of the Income-tax Act, 1961 - Assessment - Issue of notice (Illustrations) - Assessment year 2003- 04 - Whether non-issuance of notice under section 143(2) is not a curable defect and failure of Assessing Officer in reassessment proceedings to issue notice under section 143(2) prior to finalizing reassessment order cannot be condoned under section 292BB -Held, yes - Assessee filed his return under section 139(1) -Thereafter, Assessing Officer issued notice under section 148 in response to which assessee had requested to treat return of income filed under section 139(1) as in response to section 148 - Having noted this, Assessing Officer proceeded to frame assessment - Whether since revenue itself had admitted that issuance of notice under section 143(2) was not ascertainable, in absence of any proof of issuance of notice under section 143(2) and service of same to assessee, it could be inferred that no such notice was issued by Assessing Officer to assessee - Held, yes - Whether failure by Assessing Officer to issue a notice to assessee under section 143(2) would be fatal to order of reassessment and therefore, impugned assessment order suffered from patent illegality and deserved to be quashed - Held, yes”
Furthermore, the Hon’ble High Court of Delhi in the case of Shaily Juneja Vs Assistant Commissioner of Income-tax reported in [2024] 167 taxmann.com 90 (Delhi), has held as under:
“Section 143, read with section 147, of the Income-tax Act, 1961 - Assessment - Issue of notice (Reassessment) - Whether issuance of notice under section 143(2) is mandatory in reassessment proceedings under section 147 - Held, yes -Whether failure to issue notice under section 143(2) would render reassessment order invalid - Held, yes [Paras 9, 10 and 13]”
Thus, from the above discussion and judicial pronouncement relied upon, it is held that assessment order passed u/s. 147 of the Act without issuing mandatory notice u/s. 143(2) of the Act is erroneous and bad in law. Therefore, the order u/s 147 is quashed as being bad in law.
The Grounds of Appeal are allowed.
6.As the order u/s 147 has been quashed, the remaining grounds do not need to be adjudicated. As a result, the appeal is allowed.”
Since as it appears that mandatory notice under Section 143(2) of the Act, having not been issued to the assessee, in our considered opinion, the order passed by the Ld. CIT(A) holding the assessment under Section 147 of the Act is above just and proper so as to warrant interference. The Departmental appeal is thus, found to be devoid of any merit and dismissed.