Supreme Court holds income tax reassessment void without mandatory Section 143(2) notice

Key facts

• The Supreme Court held that income tax reassessment proceedings are invalid if the department fails to issue the mandatory notice under Section 143(2) of the Income Tax Act, 1961, even if the taxpayer participates in the proceedings.
• A Bench of Justices Sanjay Kumar and Sanjeev Sachdeva dismissed the tax department's appeal against an Orissa High Court judgment that had set aside reassessment proceedings for non-issue of the notice.
• Section 143(2) is a scrutiny notice to verify that a taxpayer has not understated income, claimed excessive losses, or underpaid tax; without it, the department cannot proceed with reassessment under Section 147.
• The court ruled that Section 292BB, dealing with deemed service of notices, cannot apply when no notice was issued at all, only when a notice's service is disputed.
• The Bench clarified that taxpayers can challenge reassessment for non-issue of a Section 143(2) notice even after participating without objection, that the notice must be issued even when a Section 139 return is treated as the Section 148 response, and that a Section 142(1) letter does not satisfy the notice requirement.