Income Tax Reassessment | S. 292BB Cannot Cure Absence Of S.143(2) Notice Even If Assessee Participated : Supreme Court

A bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva dismissed the appeals filed by the Revenue Authority, upholding the view of the Income Tax Appellate Tribunal and the High Court that the reassessment proceedings stood vitiated.

The decision was made in a batch of appeals wherein the assessees had filed returns under Section 139, and assessment orders were passed under Section 143(3). The Revenue Authority later sought to reopen the assessments under Section 147 and issued notices under Section 148 requiring returns to be filed. However, the respondent reiterated that its original return be treated as the return filed in response to the Section 148 notice, while one Bijoy Kishore Mohanty (also a respondent) refiled the same return it had earlier filed under Section 139.

Admittedly, no notice under Section 143(2) was issued thereafter. Reassessment proceedings went ahead, with notices under Section 142(1) seeking documents and stock information, and reassessment orders were framed.

In an appeal before the Income Tax Appellate Tribunal, the assessees argued that the failure to issue a Section 143(2) notice vitiated the proceedings. The Appellate Authority rejected this contention, holding that since the assessees had participated after the Section 148 and Section 142(1) notices, they could not raise the ground at the appellate stage. It was, however, held the proceedings vitiated and set aside the reassessment orders, and the High Court upheld the decision.

Aggrieved by the High Court's upholding, an appeal was filed before the Supreme Court.

The Supreme Court framed three questions to decide the dispute. The first was whether Section 292BB precludes an assessee from objecting to non-service of a Section 143(2) notice when the assessee appeared and cooperated in the reassessment proceedings without raising the objection. The second was whether an assessee who asks that the earlier return under Section 139 be treated as the return filed in response to a Section 148 notice is exempt from being given a Section 143(2) notice. The third was whether a letter from the Assessing Officer during reassessment, requiring the assessee to explain the grounds for reassessment, amounts to sufficient compliance with Section 143(2).

Section 143(2) Notice Is Mandatory:
Reliance was placed on Assistant Commissioner of Income Tax v Hotel Blue Moon which held that omission to issue a Section 143(2) notice “cannot be treated as a procedural irregularity that is curable.” The bench noted that where the Assessing Officer intends to make an enquiry, Sections 142, 143(2) and 143(3), must be followed:

“A notice under Section 143(2) of the Act is mandatory, as it grants the Assessee an opportunity to produce or cause to be produced any evidence or particulars based on which the Assessee claims relief. A notice under section 143(2) of the Act is sine qua non for a proceeding for reassessment under Section 147 of the Act. In the absence of a notice under Section 143(2) of the Act, no further proceedings can be undertaken by the Revenue.”

The Revenue Authority argued that Section 292BB, which deems a notice to be validly served where the assessee has appeared or cooperated in an inquiry, saved the proceedings. On this, the Court held that Section 292BB creates a deeming fiction that precludes objections as to non-service, delayed service or improper service of a notice. However, the bench said, such a fiction can come into play only if notice is alleged to have been sent by the Revenue Authority.

“Said deeming fiction cannot come into play where the Revenue has admittedly not even issued the notice. Where the Revenue itself contends that no notice was sent, as required under the Act, the provision of Section 292BB will have no applicability,” the bench held.

“Mere participation of the Assessee in the assessment proceedings, in the absence of a notice under Section 143(2) of the Act, does not confer jurisdiction on the Assessing Officer to frame an assessment under Section 143 (3) of the Act,” it added.

Reference was also made to Commissioner of Income Tax v Laxman Das Khandelwal, noting that the scope of Section 292BB is to make service of a notice with certain infirmities proper and valid if the assessee participated. It does not save complete absence of notice, and non-issuance of the Section 143(2) notice renders the entire proceedings invalid.

Reliance On Earlier Return Does Not Dispense With The Notice:
On the second question, the Court observed that in response to a Section 148 notice, an assessee may file a fresh return, or merely state that the earlier return filed under Section 139 be treated as the return in response to the notice, and remain bound by it. In the latter case, refiling a copy is not necessary.

Since the assessees in the present case chose not to file fresh returns and reiterated the earlier ones, the bench observed that “the obligation on the Revenue to issue a notice under Section 143(2) of the Act, requiring the Assessee to produce evidence on which the Assessee seeks to rely on in support of the Return of Income, cannot be dispensed with.”

Section 142(1) Letter Is Not A Substitute:
With regards to the third question, the bench held as follows:

“A letter given by the Assessing Officer under section 142 (1) of the Act during the course of reassessment proceedings would not satisfy the requirements of a notice under section 143(2) of the Act. A notice under section 143(2) of the Act is a sine qua non for commencing the proceedings. A letter issued after commencing the proceedings would not cover up the lacuna in the proceedings and would not validate what is non est.”

Perusing the above, the Supreme Court held that the Assessing Officer could not have framed the assessments and the proceedings were vitiated. It found no infirmity in the view of the Tribunal's decision, as affirmed by the High Court also.

The Court further held that Section 292BB does not preclude an assessee from objecting to non-issuance of a Section 143(2) notice merely because the assessee appeared and cooperated in the reassessment proceedings without raising the objection. It further held that the Revenue is not absolved of its obligation to serve a Section 143(2) notice even if the assessee requests that the earlier return under Section 139 be treated as the return in response to the Section 148 notice. Finally, it held that a letter issued by the Assessing Officer under Section 142(1) during reassessment, requiring the assessee to explain the grounds for reassessment, does not amount to sufficient compliance with the mandatory obligation to serve a Section 143(2) notice.

In the light of aforesaid, the appeals were dismissed.

Appearance:

For Appellant: Mr. N. Venkataraman, ASG; Ms. Nisha Bagchi, Sr. Adv.; Mr. Sudarshan Lamba, AOR; Ms. Madhulika Upadhyay, AOR; Mr. Raj Bahadur Yadav, AOR; Mr. Venkataraman Chandrashekhara Bharathi, Adv.

For Respondent: Mr. Ashok Panigrahi, Sr. Adv.; Mr. Shubhranshu Padhi, AOR; Mr. Raj Kumar Mehta, AOR; Mr. Subhas Chandra Das, Adv.; Mr. Jay Nirupam, Adv.; Mr. D. Girish Kumar, Adv.; Mr. Pranav Giri, Adv.; Mr. Ritik Sharma, Adv.; Ms. Himanshi Andley, Adv.