Reassessment Held Void for Want of Section 143(2) Notice Despite Late Return Under Section 148

Background of the Dispute

The Pune Bench of the ITAT in Kamlesh Pramod Gandhi Vs ITO (ITAT Pune) examined whether a reassessment framed under Section 147 can survive when:

  • A notice under Section 148 is issued,
  • The assessee files a return in response to that notice, although beyond the time mentioned therein, and
  • No notice under Section 143(2) is ever issued prior to completion of reassessment.

The Tribunal concluded that once a return is filed in response to a Section 148 notice, issuance of a valid Section 143(2) notice is a non-negotiable jurisdictional requirement, and failure to comply with this mandate renders the reassessment order void and unenforceable, even where the return is allegedly “belated” or tagged “invalid” in the system.

The decision covers Assessment Years 2015-16 and 2016-17, and is heavily anchored on binding Supreme Court and High Court precedents, as well as the Tribunal’s own earlier order in the assessee’s case for AY 2014-15.

Brief Facts of the Case

Assessee’s Business and Original Return

  • The assessee, an individual, was carrying on the business of automobile spare parts under the proprietary concern “M/s. Gandhi Tempo”.
  • For AY 2015-16, the assessee filed the original return of income on 11.10.2016, declaring income of Rs. 6,92,110/- and claiming deduction of Rs. 1,17,891/- under Chapter VI-A.

Information Triggering Reopening

  • The Department possessed information that during the relevant previous year, the assessee had made cash deposits aggregating to Rs. 34,88,033/- in an account with Shri Renukamata Multi State Urban Co-operative Society Limited.
  • Treating this as potential income that had escaped assessment, the Assessing Officer invoked Section 147 and issued a notice under Section 148 dated 31.03.2021, after obtaining the necessary sanction from the competent authority.

Return Filed in Response to Section 148

  • In response to the Section 148 notice, the assessee filed a return of income on 27.01.2022:
    • Declared income: Rs. 4,90,990/-
    • Deduction under Chapter VI-A: Rs. 1,11,931/-
  • This income was lower than the income declared in the original return.
  • In the reassessment order, the Assessing Officer noted that this return was treated as an “invalid return by system”, allegedly on the ground that it was filed after the period mentioned in the Section 148 notice.

Assessment Completed Without Section 143(2) Notice

  • After the purportedly “invalid” return, the Assessing Officer issued notice under Section 142(1) and proceeded with the reassessment.

  • The assessment was completed on 27.03.2022 under Section 147 r.w.s. 144B, determining the total income at Rs. 41,80,140/- as against Rs. 4,90,990/- returned in response to Section 148.

  • This included:

    • Addition of Rs. 2,01,120/- on account of difference between original return and the return filed in response to Section 148, and
    • Addition of Rs. 34,88,033/- as unexplained money under Section 69A, being cash deposits in bank.

  • No notice under Section 143(2) was issued after the filing of the Section 148 return.

  • The assessee’s appeal before CIT(A)/NFAC failed; the reassessment was upheld.

Core Jurisdictional Issue Before the ITAT

The principal legal ground urged before the Tribunal was:

Whether a reassessment order framed under Section 147, in respect of a return filed in response to a Section 148 notice, can be sustained in law without issuance of a notice under Section 143(2), merely because the return was filed beyond the time specified in the Section 148 notice and was labelled as “invalid by system”.

The assessee relied on:

  • Binding Supreme Court decisions in Assistant Commissioner of Income-tax v. Hotel Blue Moon and Commissioner of Income-tax v. Laxman Das Khandelwal,
  • High Court rulings such as Principal Commissioner of Income-tax v. Shri Jai Shiv Shankar Traders (P.) Ltd., PCIT v. Dart Infrabuild (P.) Ltd., and CIT v. Nagendra Prasad, and
  • Coordinate bench decisions including its own case Kamlesh Pramod Gandhi v. ITO for AY 2014-15, where the Tribunal had quashed reassessment on identical grounds.

The Revenue attempted to defend the reassessment primarily by arguing that:

  • The return filed on 27.01.2022 was not a “valid return” in the eye of law, since it was filed after the time stipulated in the Section 148 notice.
  • Therefore, no obligation arose to issue a notice under Section 143(2).
  • The assessment, according to the Revenue, was effectively framed on the basis of the original return under Section 139, not on the belated Section 148 return.

Revenue’s Arguments: Return Allegedly “Invalid” and No Need for Section 143(2)

1.