ITAT Raipur invalidates Section 143(3) assessment completed without proper Section 143(2) notice

Background of the dispute

The Raipur Bench of the Income Tax Appellate Tribunal decided an appeal filed by Bilasa Medicals Pvt. Ltd. Vs ACIT relating to Assessment Year 2017-18, arising from the order of the Commissioner of Income Tax (Appeals)/NFAC dated 15.01.2024.

The central legal controversy was narrow but fundamental:

  • A statutory notice under Section 143(2) was admittedly issued by the ITO, Ward-1(1), Bilaspur.
  • However, the scrutiny assessment under Section 143(3) was subsequently framed by the ACIT, Circle-1(1), Bilaspur.
  • No fresh or independent notice under Section 143(2) was issued by the ACIT, Circle-1(1), Bilaspur before completing the assessment under Section 143(3).

The assessee argued that this break in the statutory procedure rendered the entire assessment invalid, as the officer who finally completed the assessment had never assumed jurisdiction in the manner prescribed by law, namely by issuing a notice under Section 143(2).

The Tribunal examined this jurisdictional challenge in detail, with reference to several binding precedents of the Supreme Court and various High Courts, and ultimately quashed the assessment.

Assessee’s contention

Counsel for the assessee submitted that:

  1. The notice under Section 143(2) had emanated from ITO, Ward-1(1), Bilaspur.
  2. The assessment order under Section 143(3) was, however, passed by ACIT, Circle-1(1), Bilaspur.
  3. The ACIT, Circle-1(1), Bilaspur never issued a notice under Section 143(2) in his own jurisdiction.

On this basis, it was urged that:

  • The mandatory precondition for assuming jurisdiction to complete an assessment under Section 143(3) was not satisfied.
  • The assessment order suffered from inherent lack of jurisdiction and was therefore void ab initio.

Tribunal’s first line of reference: Delhi High Court in Shaily Juneja Vs. ACIT

The Tribunal noted that an identical legal question had already been decided by the Hon’ble Delhi High Court in Shaily Juneja Vs. ACIT, (2024) 167 taxmann.com 90 (Delhi).

In that case, the High Court categorically held that:

  • Issuance of a notice under Section 143(2) is a sine qua non for framing an assessment under Section 143(3).
  • Absence of such notice is not a mere procedural irregularity but goes to the very root of jurisdiction.

The Tribunal reproduced and relied upon portions of the Delhi High Court’s reasoning, which drew from:

  • Principal Commissioner of Income-Tax vs. Dart Infrabuild Pvt Ltd
  • Principal CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd.
  • DIT v. Society for Worldwide Inter Bank Financial Telecommunication
  • CIT v. Rajeev Sharma
  • CIT v. Salarpur Cold Storage (P.) Ltd.
  • Sapthagiri Finance and Investments v. ITO
  • ACIT v. Hotel Blue Moon
  • Commissioner of Income-Tax vs. Delhi Kalyan Samiti
  • Pr. CIT v. Silver Line and Anr.
  • CIT v. Pawan Gupta

These decisions collectively underscore that:

Once a return is filed and the Assessing Officer does not accept it on its face, a notice under Section 143(2) must be issued if the assessment is to be framed under Section 143(3) or in reassessment proceedings under Section 147. Failure to issue such notice is fatal and not curable.

Discussion on jurisdictional defect versus service defects

Distinction between “issue” and “service” of notice

A key aspect highlighted in the Delhi High Court’s analysis, and subsequently adopted by the Tribunal, is the distinction between: