Facts of the Case

The Revenue preferred an appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) concerning Assessment Year 2003–04. The Assessing Officer (AO) had initiated reassessment proceedings by issuing notice under Section 148 and subsequently framed the assessment ex parte under Section 144 after alleging non-compliance by the assessee.

During the reassessment proceedings, the assessee appeared and filed its return in response to the notice under Section 148. However, the AO completed the assessment without issuing a statutory notice under Section 143(2). The assessee challenged the validity of such assessment before the ITAT through cross-objections. The ITAT held the assessment order to be void ab initio for non-issuance of notice under Section 143(2), leading to cancellation of the assessment order. The Revenue thereafter approached the High Court.

Issues Involved

1.      Whether an assessment framed pursuant to reassessment proceedings under Section 148 can be sustained without issuance of notice under Section 143(2)?

2.      Whether the Revenue could challenge only part of the ITAT order while not challenging the portion allowing the assessee’s cross-objections?

3.      Whether non-issuance of notice under Section 143(2) renders the assessment void ab initio?

Petitioner’s Arguments (Revenue’s Contentions)

·         The Revenue argued that the ITAT erred in holding the assessment invalid solely on the ground of absence of notice under Section 143(2).

·         It was contended that the assessment proceedings were otherwise validly initiated under Section 148.

·         The Revenue sought to persuade the High Court to consider the entire ITAT order, including the cross-objections, even though no separate challenge was filed against that part.

Respondent’s Arguments (Assessee’s Contentions)

·         The assessee contended that once a return was filed pursuant to notice under Section 148, issuance of notice under Section 143(2) became mandatory.

·         Failure to issue such statutory notice vitiated the entire assessment proceedings.

·         The assessee relied upon judicial precedents, particularly the Supreme Court decision in ACIT v. Hotel Blue Moon, to establish the mandatory nature of Section 143(2).

Court Findings / Observations

The Delhi High Court observed that:

·         Once the assessee filed a return in response to notice under Section 148, the Assessing Officer was mandatorily required to issue notice under Section 143(2) before proceeding with assessment.

·         The requirement under Section 143(2) is not procedural but mandatory in nature.

·         The ITAT’s order allowing the assessee’s cross-objections had attained finality since the Revenue did not challenge that specific portion.

·         Consequently, the Revenue could not indirectly challenge the same in the present appeal.

·         The entire assessment having already been declared null and void by the ITAT, no surviving issue remained for adjudication.

Court Order / Final Decision

The Delhi High Court dismissed the Revenue’s appeal and upheld the ITAT’s finding that the assessment order was invalid for non-issuance of notice under Section 143(2). It was held that no substantial question of law arose for consideration.

Important Clarification

This judgment reiterates that even in reassessment proceedings under Section 148, if the assessee files a return, issuance of notice under Section 143(2) is compulsory before making an assessment. Failure to comply renders the assessment legally unsustainable.

The Court also clarified that if a party fails to challenge a decisive part of a tribunal order, such portion attains finality and cannot be reopened indirectly in appellate proceedings.

Sections Involved

·         Section 143(2) – Notice for scrutiny assessment

·         Section 148 – Reassessment notice for escaped income

·         Section 144 – Best judgment assessment

·         Section 139 – Filing of return of income

·         Section 260A – Appeal before High Court

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:3866-DB/CSH28042015ITA9352015.pdf 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.