Facts of the Case

The assessee filed his return of income declaring income of ₹6,46,010. Subsequently, the case was reopened by the Assessing Officer on the basis of information that the assessee had purchased an immovable property for ₹40,23,000. During the reassessment proceedings, the Assessing Officer required the assessee to explain the source of investment made for the purchase of the property.

The assessee submitted that the property had actually been purchased by the HUF of the Karta, namely Shri Deepak Kumar Gupta, and furnished supporting documents including the HUF’s Income Tax Return and bank account details. However, the Assessing Officer was not satisfied with the explanation and treated the amount of ₹40,23,000 as unexplained investment under Section 69 of the Income Tax Act, 1961.

Accordingly, the Assessing Officer completed the reassessment under Sections 147 r.w.s. 144B and made an addition of ₹40,23,000. Separate penalty proceedings under Sections 271(1)(c) and 271F were also initiated. The Commissioner of Income Tax (Appeals) partly confirmed the addition, against which the assessee filed an appeal before the Income Tax Appellate Tribunal. 

Issues Involved

  1. Whether the reassessment order passed under Sections 147/144B without issuing a mandatory notice under Section 143(2) is valid in law.
  2. Whether the addition of ₹40,23,000 as unexplained investment under Section 69 was justified when the assessee claimed that the property was purchased through the HUF and the source of funds was explained. 

Petitioner’s Arguments

  • The assessee contended that he had filed the return of income in response to the notice issued under Section 148.
  • It was argued that once a return is filed pursuant to notice under Section 148, issuance of a notice under Section 143(2) is mandatory before completing the assessment.
  • The assessee submitted evidence including bank statements and HUF income tax return showing that the property purchase was made through the HUF and the source of investment was duly explained.
  • It was further argued that the reassessment order was illegal and void ab initio because the Assessing Officer completed the assessment without issuing the statutory notice under Section 143(2). 

Respondent’s Arguments

  • The Revenue supported the orders of the Assessing Officer and CIT(A), stating that the assessee failed to satisfactorily explain the source of investment in the property.
  • It was contended that the deposits in the bank account used for payment towards the property were not properly substantiated.
  • Therefore, the addition under Section 69 for unexplained investment was justified.

 Court Order / Findings

The Income Tax Appellate Tribunal held that once a return is filed in response to a notice issued under Section 148, the Assessing Officer is required to issue a mandatory notice under Section 143(2) before completing the assessment.

In the present case, the Tribunal observed that the Assessing Officer had acted upon the return filed by the assessee but had not issued any notice under Section 143(2) prior to completing the reassessment.

The Tribunal relied on judicial precedents which clarify that issuance of notice under Section 143(2) is a mandatory jurisdictional requirement, and failure to comply with this statutory requirement renders the assessment invalid.

Accordingly, the Tribunal held that the reassessment order passed without issuing notice under Section 143(2) was bad in law, and therefore the addition made by the Assessing Officer could not survive.

Important Clarification

The Tribunal clarified that when an assessee files a return in response to notice under Section 148, issuance of notice under Section 143(2) becomes mandatory before framing the reassessment. Failure to issue such notice vitiates the entire reassessment proceedings. 

Link to download the order -  https://itat.gov.in/public/files/upload/1704195578-Deepak%20Kumar.pdf

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