Reassessment : S. 143(2), S. 147 and S. 148 of Income-tax Act, 1961 : A.Ys. 1994-95 and 1995-96 : Return filed in response to notice u/s.148 : Notice u/s.143(2) mandatory before proceeding to pass reassessment order.

[CIT v. Rajeev Sharma,
192 Taxman 197 (All.); 232 CTR 309 (All.)]

For the A.Y. 1994-95, the
assessee had filed original return of income on 29-3-1996. On 26-12-2000, the
Assessing Officer issued a notice u/s.148 of the Income-tax Act, 1961. In
response to the said notice, the assessee informed that he had already filed
return of income on 29-3-1996 and requested the Assessing Officer to withdraw
the said notice u/s.148. Thereafter, the Assessing Officer issued notice
u/s.143(2) and u/s.142(1) informing the assessee that notice u/s.148 was pending
and had not been withdrawn as requested by him. Thereafter, the assessee filed
return on 7-2-2002. The AO thereafter completed the assessment u/s.147 of the
Act. In appeal before the Commissioner (Appeals) the assessee contended that
since no notice was issued u/s.143(2) after filing of return in response to
notice u/s.148, reassessment was not valid. The Commissioner (Appeals) rejected
the contention holding that when the assessee had filed return in response to
notice u/s. 148, non-issuance of notice u/s.143(2) after filing return would not
be fatal. The Tribunal allowed the assessee’s appeal holding that after filing
of return in response to notice u/s.148, a notice u/s.143(2) should have been
issued being mandatory in nature.

On appeal by the Revenue,
the Allahabad High Court upheld the decision of the Tribunal and held as under :

“(i) The provisions
contained in S. 143(2) are mandatory and the Legislature, in its wisdom by
using the word ‘reason to believe’, has cast a duty on the Assessing Officer
to apply his mind to the material on record and after being satisfied with
regard to escaped liability, to serve notice specifying particulars of such
claim. In view of the above, after receipt of return in response to notice
u/s.148, it shall be mandatory for the Assessing Officer to serve a notice
u/s.143(2) assigning reason therein.

(ii) In the absence of any
notice issued u/s.143(2) after receipt of fresh return submitted by the
assessee in response to notice u/s.148, the entire procedure adopted for
escaped assessment shall not be valid.

(iii) In the instant case,
in response to the notice issued u/s.148, the assessee sent a letter to drop
the proceedings. Therefore, vide letter dated 18-12-2001, the Deputy
Commissioner informed that proceeding would not be dropped and gave last
opportunity to file return. Along with letter dated 18-12-2001, notices
u/s.143(2) and u/s.142(1) were also sent. In consequence thereof, the assessee
filed return on 7-2-2002. After filing of return, the Assessing Officer should
have applied his mind and after considering the material on record on ‘reason
to believe’, notice u/s. 143(2) should have been issued afresh.

(iv) Since return was
filed on 7-2-2002 in response to notice u/s.148, earlier notice dated
29-3-2001 would not be treated as valid notice for the purpose of escaped
assessment. The Legislature, in its wisdom had categorically provided that
after receipt of notice u/s.148 a fresh return may be filed and in consequence
thereof, the Assessing Officer has to apply his mind to the contents of fresh
return and then issue a notice u/s.143(2). The satisfaction, under reason to
believe, must be recorded by the Assessing Officer after applying his mind to
the contents of fresh return before issuing a notice u/s.143(2).

(v) Therefore, the appeals
were to be dismissed and the judgments of the Tribunal were to be upheld.”