Jurisprudential Analysis: Mandatory Nature of Section 143(2) Notice During Reassessment When Returned Income Remains Unaltered

The procedural intricacies of the Income Tax Act often generate significant litigation, particularly concerning the mandatory issuance of statutory notices during reassessment proceedings. A recurring legal debate revolves around whether an assessment order is rendered legally void if the assessing authority fails to issue a scrutiny notice under Section 143(2) of the Income Tax Act before finalizing the assessment.

This complex procedural question was comprehensively addressed by the Income Tax Appellate Tribunal (ITAT), Jaipur Bench, in the judicial pronouncement of Bhaval Synthetics (India) Ltd. Vs DCIT. The tribunal evaluated the necessity of jurisdictional notices in scenarios where the revenue authorities accept the income or loss declared by the assessee without making any substantive additions or variations. The ruling provides critical clarity on the interplay between best judgment assessments, belated returns, and the statutory obligation to issue scrutiny notices.

Factual Matrix of the Dispute

The genesis of the dispute traces back to the initial tax filings made by the assessee for the assessment year (A.Y.) 2013-14.

Original Assessment Proceedings

The assessee submitted its original return of income on 22.10.2013, wherein a total loss of Rs. 1,88,72,993 was declared. This return was subsequently subjected to regular scrutiny. The assessing authority finalized the assessment under Section 143(3) on 13.01.2016, determining the assessed loss at Rs. 1,87,60,143.

During this original filing, the assessee had also claimed a carry-forward of losses amounting to Rs. 1,77,38,920, which pertained to a much earlier period, specifically A.Y. 2005-06.

Initiation of Reassessment

Following the completion of the original scrutiny, the revenue department identified a discrepancy regarding the carry-forward claim. The assessing authority noted that the claim for carrying forward the loss of Rs. 1,77,38,920 from A.Y. 2005-06 was legally untenable. Consequently, proceedings were initiated under Section 147 to bring the escaped income (or improperly claimed loss) to tax.

A statutory notice under Section 148 was issued on 14.06.2017 and was duly served upon the assessee on 16.06.2017. This notice mandated the assessee to file a fresh return of income within a stipulated timeframe of 30 days.

Procedural Default and Subsequent Filings

The assessee failed to comply with the 30-day deadline specified in the Section 148 notice. Due to this non-compliance, the assessing authority issued a subsequent show-cause notice under Section 142(1) on 11.12.2018. This notice required the assessee to explain why a best judgment assessment should not be framed under Section 144 due to the failure to file the requested return.

Prompted by this show-cause notice, the assessee immediately filed a return of income the very next day, on 12.12.2018. In this newly filed return, the assessee rectified its earlier stance. It only claimed the current year's loss of Rs. 1,88,72,993 for A.Y. 2013-14 and completely omitted the contentious carry-forward claim of Rs. 1,77,38,920 relating to A.Y. 2005-06.