A section 143(2) notice must be issued before the AO can scrutinise an income tax return

Facts and Issues of the Case

In brief, the fact of the case are that the ld. Counsel for the assessee, at the very outset, submitted that though the ld. Assessing Officer has passed an assessment order under section 143( 3) read with section 147, but he did not issue any notice under section 143( 2) of the Income Tax Act. According to him, if the ld. Assessing Officer failed to issue a notice under section 143( 2) of the Income Tax Act, then assessment order would be void ab initio and on that wrong order, no 263 action can be taken. In order to buttress his argument, that no notice under section 143( 2) was issued, he took us through the paragraph no. 6 of the impugned order, where ld. Commissioner himself admitted this fact.

Observation by the court

The court had considered the rival contentions and gone through the record carefully. A perusal of sub-section 2 of section 143( 3) would contemplate that where a return has been furnished under section 139, or in response to a notice under section 142(1), ld. Assessing Officer or the prescribed Income Tax Authority, as the case may be, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend or to produce, or cause to be produced, before the ld. Assessing Officer any evidence on which the assessee may rely in support of the return. In other words, this section provides that i f any Assessing Officer has any doubt about the claim made by the assessee in the return, which can be excess claim of loss understatement of the income or payment of taxes on a lower amount, then in order to cross verify his doubt, he would first provide an opportunity to the assessee to submit the details in support of the return filed by it. It is the first opportunity to be given to the assessee before cross verifying the claim by issuing a notice under section 142( 1) for collecting the other details or in other words investigating the issue claimed by the assessee in the return. Thus it is a jurisdictional notice and without giving this notice, he cannot scrutinise the return, though in the present case, the returned income is nil and assessed income is also nil. In a way, the ld. Assessing Officer has accepted the return as it is. But even before doubting the claim of assessee disclosing nil income, he has to first issue a notice under section 143(2), so that the assessee can submit evidence in support of its claim while it has shown nil income. After this notice only, he can verify other details and change the status of nil income. Thus the assessment order itself is not sustainable. If an order itself suffers from the patent irregularity, it cannot be made a foundation for subsequent proceedings either 263 or any other proceeding. It is also pertinent to note that as far as the fact regarding non-issuance of notice is concerned, it has been specifically observed by the ld.

In view of the above discussion, the impugned order is not sustainable and accordingly it is quashed. For fortifying ourselves, the court draw the support from the decision of the Hon’ble Jurisdictional High Court in the case of PCIT –vs.- Oberoi Hotels (P) Limited.