The Supreme Court has held that the Revenue's failure to serve a notice under Section 143(2) of the Income Tax Act on an assessee would render the reassessment proceedings vitiated.

“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 Court observed.

A bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva dismissed the Revenue's appeal against the Orissa High Court's judgment, which had ruled in favour of the assessees by declaring the reassessment proceedings against them to be vitiated for the Revenue's failure to issue a mandatory notice under Section 143(2) of the Act.

Further, the Court clarified that the mere participation of the assessees in the reassessment proceedings would not ipso facto be treated as compliance with Section 143(2) read with Section 292BB of the Act, when no formal notice under Section 143(2) is issued.

A notice under Section 143(2) is issued requiring the Assessee to produce evidence on which the Assessee seeks to rely in support of the Return of Income.

Section 292BB deals with deemed service of notice in assessment and reassessment proceedings. It says that if an assessee appears in any proceeding or cooperates in any inquiry relating to an assessment or reassessment, it is legally deemed that any notice required under the Act has been duly and timely served.

The Revenue relied on Section 292BB to contend that mere failure to issue a formal notice under Section 143(2) would not vitiate the reassessment proceedings, as the assessees have otherwise participated in the proceedings. Rejecting such contention, the judgment authored by Justice Sachdeva observed that the deemed fiction under Section 292BB would operate only when a notice was issued to an assessee so that the assessee cannot make a claim that notice was not issued, or was not served in time, or that the service of notice was not proper.

Deeming fiction under Section 292BB would aid the Revenue when the assessee appears pursuant to a notice, though disputes the issuance of notice itself. However, the provision would be inapplicable when no notice was issued, as happened in the present case.

“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 Court said.

The following conclusions were drawn:

"(i) Section 292BB of the Act does not preclude an Assessee from raising an objection in any proceedings under the Act regarding non-issuance of a notice under Section 143(2) of the Act, merely because the Assessee had appeared and cooperated during the reassessment proceedings without raising any objection with regard to non-issuance of the notice. and

(ii) The revenue is not absolved of its obligation to serve a notice under Section 143(2) of the Act even if the Assessee requests that the earlier Return of Income filed under Section 139 of the Act be treated as the Return of Income filed in response to a notice under Section 148 of the Act. and

(iii) Mere issuance of a letter by the Assessing Officer under section 142(1) of the Act during the course of reassessment proceedings, requiring the Assessee to explain the grounds on which re-assessment of income was proposed, does not amount to sufficient compliance of the mandatory obligation to serve a notice under Section 143(2) of the Act."

As a result, the appeal was dismissed.

Appearance:

For Petitioner(s) Mr. N Venkataraman, A.S.G.(N/P) Mrs. Nisha Bagchi, Sr. Adv. Miss Madhulika Upadhyay, AOR Mr. Sudarshan Lamba, AOR Mr. Venkataraman Chandrashekhara Bharathi, Adv. Mr. Shashank Bajpai, Adv. Mr. A K Kaul, Adv. Mr. Raj Bahadur Yadav, AOR

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