Notice issued u/s 143(2) prior to filing of return of income assessee is invalid

Notice issued u/s 143(2) prior to filing of return of income by the assessee was invalid. Before filing ITR provisions of section 143(2) can not be triggered. 

In a recent judgment, ITAT has held that notice issued under section 143(2) of the Act prior to filing of return of income by the assessee was invalid because at that point of time, provisions of section 143(2) of the Act could not have got triggered. 

AABCAUS Case Law Citation:
ABCAUS 3990 (2024) (05) ITAT

Important Case Laws relied upon:
Pr. CIT Vs. Marck Biosciences Ltd., 106 taxmann.com 399 (Guj.)
CIT Vs. Laxman Das Khandelwal, 417 ITR 325 (SC)
Sumitra Menon Vs. ACIT, [2009] 315 ITR 111 (Madras)
Josh Builders & Developers (P.) Ltd. Vs. PCIT, [2016] 389 ITR 314 (P&H)

In the instant case, the assessee had challenged the order passed by the CIT(A) for not adjudicating the additional ground raised by the assessee challenging the validity of the assessment order due to invalid notice issued under section 143(2) of the Income Tax Act, 1961 (the Act).

The assessee was a resident corporate engaged in the business of manufacturing. For the assessment year under dispute, the assessee filed its return of income electronically declaring book profit under section 115JB of the Act and paid tax on the book profit.

Assessee’s case was picked up for scrutiny assessment. In course of assessment proceedings, the Assessing Officer called upon the assessee to furnish various details from time to time. In response, the assessee furnished the details called for. Ultimately, the Assessing Officer completed the assessment under section 143(3) of the Act making couple of additions towards unexplained expenditure and unexplained purchases.

Contesting the aforesaid additions, the assessee filed an appeal before first appellate authority and canvassed an additional ground challenging the validity of the assessment order due to invalid notice issued under section 143(2) of the Act.

While deciding the appeal, the first appellate authority granted substantial relief to the assessee on merits by restricting the total addition. However, the CIT(A) did not decide the additional ground raised by the assessee challenging the validity of the assessment order.

Before the Tribunal the assessee submitted that the notice issued under section 143(2) of the Act was invalid, as, it was issued prior to filing of return of income by the assessee.

It was submitted that a valid notice under section 143(2) of the Act being a sine qua non for a valid assessment order under section 143(2) of the Act, any lapse in issuing a valid notice under section 143(2) of the Act will render the assessment order invalid.

It was contended that assumption of jurisdiction to make assessment under section 143(3) of the Act was entirely based on the notice issued under section 143(2) of the Act and any invalidity in the notice under section 143(2) of the Act would affect the assumption of jurisdiction to make an assessment. Therefore, such defect cannot be cured under section 292BB of the Act, with the participation of the assessee in the assessment proceedings.

On the contrary, the Department submitted, though, notice under section 143(2) of the Act was issued and served on the assessee prior to filing of return, however, it was a fact on record that the assessee has fully participated in the assessment proceedings. Therefore, infirmity, if any, in the notice issued under section 143(2) of the Act, would get cured in terms of section 292BB of the Act.

Both, the assessee and the Department in support of their contentions relied upon various judgments.

The Tribunal noted that there was no dispute that the impugned notice under section 143(2) of the Act was issued and served on the assessee prior to the filing of the return of income by the assessee.

The Tribunal observed that the provisions of section 143 read as a whole, makes it clear that assumption of jurisdiction to make an assessment under section 143(3) of the Act is based on notice issued under section 143(2) of the Act, which gets triggered only upon filing of return of income either under section 139(1) of the Act or in response to notice issued under section 142(1) of the Act.

The Tribunal opined that in the present case, undisputedly, on the date of issuance of notice under section 143(2) of the Act, there was no return of income filed by the assessee either under section 139, or in response to notice issued under section 142(1) of the Act. Therefore, there was no occasion for the Assessing Officer to issue notice under section 143(2) of the Act in absence of a return of income. More so, when assessee’s case was selected under manual scrutiny, which presupposes that the Assessing Officer must have examined all the facts and materials available on record. Therefore, the very initiation of assessment proceedings under section 143(3) of the Act, suffers from serious jurisdictional error and infirmity.

The Tribunal rejected the contention of the Department that notice under section 143(2) of the Act was issued based on Form 29B, Form 3CA and form 3CEB as the provision contained under section 143(2) of the Act makes it clear that only upon filing of return of income proceedings could have been initiated. Certainly Form 29B, Form 3CA and Form 3CEB cannot be considered as return of income in terms of section 139 of the Act.

The Tribunal stated that a reading of section 292BB makes it clear that if any notice, which is served upon the assessee in time and in accordance with the provisions of the Act, then such assessee can be precluded from taking any objection qua proceeding or inquiry under this Act on the ground of invalidity of the notice. Thus, the provisions postulate that firstly, the notice has to be served in time, and secondly, it has to be in accordance with the provisions of the Act.

The Tribunal opined that in the present case, notice under section 143(2) of the Act was not in accordance with the provisions of the Act, as, it was not based on any return of income filed by the assessee. Rather, at the time of issuance of notice under section 143(2) of the Act, there was no return of income for the impugned assessment year available before the Assessing Officer. Therefore, he could not have assumed jurisdiction under section 143(2) of the Act. Therefore, it was clearly a jurisdictional error, which cannot be cured under section 292BB of the Act.

The Tribunal in the light of the ratio laid down in various judgments held that the notice issued under section 143(2) of the Act was invalid. Consequently, the impugned assessment order was also invalid.

Accordingly, the Tribunal quashed the impugned order.

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