Does failure to issue a notice under section 143(2) render the assessment order  to be void?

Introduction

Once the assessee files his return of income the income tax department scrutinizes his return and issues assessment intimations, scrutiny notices etc. This applies even if the assesses does not file his return of income.

The following Notices can be issued under the Income Tax Act:

Notice Under Section 142(1)

A notice under section 142(1) can be issued under two circumstances:

• If you have filed your return, but the assessing officer requires additional information and documents; or
• If you have not filed your return, but the assessing officer wants you to file it.

The information is called for, to enable the officer to make a fair assessment.

Notice Under Section 143(2)

The purpose of this notice is to notify the assessee, that the return filed has been picked for a scrutiny.

It is pertinent to note that the section under which it will be scrutinized is different from the one in which the notice has been issued. By a detailed scrutiny, the assessing officer intends to be assured that you have not done any of the following:

• Understated your income;
• Claimed excessive loss; or
• Paid lesser taxes

Notice Under Section 148

• An assessing officer may have a reason to believe that you have not disclosed your income correctly and therefore, you have paid lower taxes.
• Alternatively, you may not have filed your return at all, even if you must have filed it as per law. This is termed as income escaping assessment.
• Under these circumstances, the assessing officer is entitled to assess or reassess your income, according to the case.
• Prior to making such assessment or reassessment, the assessing officer should serve a notice to the assessee asking him to furnish his return of income. The notice issued for this purpose is issued under the provisions of Section 148.

Notice Under Section 245

• If the assessing officer has reason to believe that tax has not been paid for the previous years and he wants to set off the current year refund against that demand, a notice under Section 245 can be issued.
• However, the adjustment of demand and refund could be done only if you have been provided a proper notice and an opportunity of being heard.
• The timeline to respond to the notice is 30 days from the day of receipt of the notice. If you do not respond within the aforesaid timeline, the assessing officer can consider this as a consent and proceed with the assessment.
• Therefore, it is advisable to respond to the notice at the earliest.

The section 292BB of the Income Tax Act talks about ‘Notice deemed to be valid in certain circumstances.’

According to the said section, where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of the Income Tax Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was:

• not served upon him; or
• not served upon him in time; or
• served upon him in an improper manner:

Nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.

Let us refer to the case of CIT v. Laxman Das Khandelwal, where the issue under consideration was whether section 292BB sought to cure infirmities in the manner of service of notices or whether the non-issuance of the notice could be cured by the participation of the Assessee in the proceedings?

Facts of the Case:

• The assessee was an individual carrying a business of brokerage.
• Search and seizure operations were conducted under Section 132 at his residential premises. The assessee submitted return of income and assessment was completed under Section 143(3) read with Section 153(D).
• Addition was made on account of unexplained cash, unexplained jewellery, unexplained hundies and unexplained cash receipts.
• Aggrieved, the assessee filed an appeal before the Commissioner Income Tax (Appeal) [CIT(A)].
• On Appeal, the CIT(A) deleted the addition.
• The Department filed an appeal to the Tribunal. The Assessee filed cross objections challenging the jurisdiction of the AO on the ground that notice under section 143(2) had not been issued.
• The Tribunal allowed the cross objection filed by the Assessee. This view was upheld by the High Court.

Observations of the Supreme Court (SC)

• According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section.
• The scope of the provision was to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee.
• It was, however, to be noted that the Section did not save complete absence of notice.
• For Section 292BB to apply, the notice must have emanated from the department.
• It was only the infirmities in the manner of service of notice that the Section sought to cure.
• The Section was not intended to cure complete absence of notice itself.

Therefore, SC held that the failure to issue a notice under section 143(2) rendered the assessment order void even if the Assessee has participated in the proceedings.