AO can’t disturb income returned by assessee, without issue of notice u/s 143(2) – ITAT

If AO intends to disturb income returned by assessee, it is mandatory on his part to issue notice under section 143(2) of the Income Tax Act – ITAT

In a recent judgment, ITAT Lucknow has held that if the Assessing Officer intends to disturb the income returned by the assessee, it is mandatory on his part to put the assessee on notice under section 143(2) of the Act indicating that it is considered necessary or expedient to ensure that the assessee had not understated the income or had not computed excessive loss or had not under paid tax in any manner.

ABCAUS Case Law Citation:
5112 (2026) (04) abacus.in ITAT

In the instant case, the assessee had challenged the order passed by the National Faceless Appeal Centre, Delhi (NFAC).

The appellant assessee was an individual having income from distribution of recharge coupons, cash cards, sim cards and telephone handset. The case of the assessee was reopened under section 147 of the Income Tax Act, 1961(the Act) for the reason of large amount of cash deposit in bank and transaction undertaken with Flipkart no which no TDS was deducted.

In response to the notice under section 148 of the Act, the assessee filed her return of income. The AO issued notices to the assessee, requiring the assessee to explain the source of funds.  However, there was no response from the side of the assessee.  The AO, therefore, proceeded to complete the assessment under section 147 read with 144 of the Act. 

The AO treated the entire transaction with Flipkart as unaccounted business receipts of the assessee and also worked out profit @ 20% on the transaction with Flipkart and added the same to the income of the assessee.

Before the Tribunal the assessee challenged the action of the Department in not issuing notice under section 143(2) of the Act after issuance of notice under section 148 of the Act. It was submitted that the AO had passed the assessment order under section 147 read with sections 144/144B of the Act, without issue of notice under section 143(2) of the Act which was a statutory requirement before assessment proceedings could legally be completed.

It was submitted that this legal defect, i.e., non-issuance of notice under section 143(2) of the Act was an incurable defect and that non-issuance of notice under section 143(2) of the Act, as per the settled judicial precedents, vitiates the entire assessment proceedings and, therefore, the assessment deserves to be quashed.

The Tribunal observed that the purpose of issuance of notice under section 143(2) of the Act is to put the assessee on notice that the Assessing Officer intends to require the assessee to produce or cause to be produced evidences on which the assessee may rely in support of return.

The Tribunal opined that it was the duty of the Assessing Officer to issue notice u/s 143(2) before the case was to be taken up for hearing for the reason that it is only after the receipt of notice under section 143(2) of the Act that an assessee becomes aware that the return filed by the assessee would be subject to scrutiny by the Assessing Officer. It is after receipt of notice under section 143(2) of the Act that the assessee is made aware that the assessee is required to produce, or cause to be produced evidence in support of return filed. In the absence of such notice, the Assessing Officer cannot disturb the income disclosed by the assessee in the return filed.

The Tribunal further stated that if the Assessing Officer intends to disturb the income returned by the assessee, it is mandatory on his part to put the assessee on notice under section 143(2) of the Act indicating that the Assessing Officer considered it necessary or expedient to ensure that the assessee had not understated the income or had not computed excessive loss or had not under paid tax in any manner.

The Tribunal further opined that unless a notice under section 143(2) of the Act is served on the assessee, the Assessing Officer is bound to accept the return filed by the assessee. Thus, once the assessee files return, the Assessing Officer cannot proceed to make assessment order to the detriment of the assessee, by disturbing the income returned by the assessee, without issuing and serving notice under section 143(2) of the Act.

The Tribunal noted that the above view is consistent with a number of strong precedents; including order of Hon’ble Jurisdictional Allahabad High Court

Accordingly, the Tribunal held that the re-assessment order was bad in law and was so quashed.

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