The Income Tax Appellate Tribunal, Mumbai, has delivered a landmark ruling affirming that the issuance of a notice under Section 143(2) is mandatory in reassessment proceedings under Section 147, and that issuing a demand notice alongside a draft assessment order under Section 144C renders the entire assessment void ab initio. This judgment reinforces procedural rigour in income tax assessments and invalidates actions that bypass statutory safeguards for the assessee.
Background & Facts
The Dispute
The appellant, Global Cricket Corporation Pte. Ltd., a foreign company, challenged the final assessment orders for Assessment Years 2005-06 and 2006-07, which were passed in pursuance of directions from the Dispute Resolution Panel (DRP). The Assessing Officer (AO) had reopened the assessments under Section 147 of the Income-tax Act, 1961, alleging escaped income. However, the appellant contended that the AO committed serious jurisdictional errors by failing to issue a notice under Section 143(2) and by passing what were purportedly draft assessment orders while simultaneously issuing demand notices and initiating penalty proceedings.
Key Facts
The assessments were reopened under Section 147 for A.Y. 2005-06 and 2006-07.
The draft assessment orders were dated 28.03.2013.
The AO did not issue any notice under Section 143(2) prior to framing the draft assessment orders.
The draft assessment orders explicitly directed: "Issue Demand notice and Challan accordingly" and "Issue Penalty proceedings u/s 271(1)(c) of the Act."
Alongside the draft assessment orders, the AO issued:
Income tax computation sheets
Demand notices under Section 156
Show-cause notices under Section 274 read with Section 271(1)(c) for penalty
The Department admitted in its report dated 27.05.2026 that copies of notices under Section 143(2) were not available in the records.
The appellant was an "eligible assessee" under Section 144C(15)(b) as a foreign company.
The AO framed the draft assessment orders under Section 147 read with Section 144C(1), which mandates a specific procedural sequence.
Procedural History
28.03.2013: Draft assessment orders issued for A.Y. 2005-06 and 2006-07, accompanied by demand notices and penalty show-cause notices.
25.08.2022: Appellant filed a letter raising additional grounds challenging jurisdictional validity of the assessment.
23.01.2023: Appellant filed another letter raising additional ground on non-issuance of Section 143(2) notice.
10.06.2026: Hearing before ITAT Mumbai.
30.06.2026: Judgment pronounced.
The Parties' Positions
For the Appellant
The appellant argued that:
The AO’s failure to issue a notice under Section 143(2) before completing the reassessment vitiated the entire proceeding.
The issuance of demand notices, penalty show-cause notices, and tax computation sheets alongside the draft assessment order amounted to passing a final assessment order prematurely.
This violated the mandatory procedure under Section 144C, which requires the AO to first issue a draft order, allow the assessee to file objections with the DRP, and only then pass a final order.
The AO’s actions rendered the assessment void ab initio, not merely procedurally defective.
Relied on CIT v. Hotel Blue Moon, Geno Pharmaceuticals Ltd., CWT v. HUF of H.H. Late J.M. Scindia, PCIT v. Hyundai Motor India, Vijay Television (P.) Ltd., and Cisco Systems Services B.V.
For the Respondent
The Department contended that:
Section 143(2) notice is not mandatory in reassessment proceedings under Section 147.
The issuance of demand notices and penalty notices was inadvertent and curable.
The AO’s actions were in line with practice, and the assessment was valid.
Section 292B of the Act could cure any procedural irregularity.
The appellant had participated in subsequent proceedings and could not now challenge the validity.
Relief Sought
The appellant sought:
Quashing of the draft assessment orders dated 28.03.2013.
Declaration that the assessments for A.Y. 2005-06 and 2006-07 are void ab initio.
Setting aside of all consequential proceedings including demand notices and penalty show-cause notices.
The Legal Issue
Is the issuance of a notice under Section 143(2) mandatory in reassessment proceedings under Section 147 of the Income-tax Act, and does the issuance of a demand notice and penalty show-cause notice alongside a draft assessment order under Section 144C(1) render the assessment void ab initio?
Arguments Presented
For the Appellant
The appellant relied on binding precedents from the Supreme Court and High Courts to establish that Section 143(2) notice is mandatory even in reassessment. In CIT v. Hotel Blue Moon, the Supreme Court held that the absence of a Section 143(2) notice vitiates assessment under Section 158BC. The Bombay High Court in Geno Pharmaceuticals Ltd. and the jurisdictional High Court in CWT v. HUF of H.H. Late J.M. Scindia extended this principle to reassessment under Section 147, holding that the language of Section 147 read with Section 143(3) requires compliance with the procedural safeguards of regular assessment. The appellant further argued that Section 144C(1) mandates a strict sequence: draft order first, then objections, then final order. Issuing a demand notice and initiating penalty proceedings at the draft stage constitutes a complete bypass of this procedure, rendering the assessment jurisdictionally invalid. The reliance on Vijay Television, Cisco Systems, and Hyundai Motor India established that such actions are not curable under Section 292B.
For the Respondent
The Department argued that Section 143(2) notice is not required in reassessment because Section 143(3) refers only to returns filed under Section 139 or in response to Section 142(1) notices, not Section 148. It contended that reassessment is a self-contained code and that the AO’s actions were merely procedural lapses. It further argued that Section 292B could cure the defect and that the appellant’s participation in subsequent proceedings estopped it from challenging the assessment. The Department also claimed that the demand notices were "draft" in nature and not final, despite their content and issuance alongside tax computation sheets.
The Court's Analysis
The Tribunal undertook a meticulous analysis of statutory provisions and binding precedents. It first addressed the issue of Section 143(2) notice. The Court noted that the AO’s own report confirmed the absence of such notice in the records. It then examined the Supreme Court’s decision in CIT v. Hotel Blue Moon, which held that Section 143(2) notice is mandatory for valid assessment under Section 158BC. The Court extended this reasoning to Section 147 reassessments, relying on CWT v. HUF of H.H. Late J.M. Scindia, where the High Court drew a parallel between Section 17 of the Wealth Tax Act and Section 147 of the Income-tax Act, concluding that the phrase "so far as may be" in Section 147 incorporates procedural requirements of Section 143(2). The Court observed:
"The language used in section 143(2) is similar to the language used in section 16(2) [of the Wealth Tax Act]. Parliament in the case of the Income-tax Act under section 148 noting the omission in the section which was likely to affect assessments done, pursuant to powers conferred under section 147, inserted the proviso to section 148 to protect the assessments already done. It is true that merely because Parliament has as a matter of abundant caution intervened and amended the provisions of section 148 cannot be read to mean that there is a lacunae. Two High Courts, Madras and Gauhati, have taken a view that notice under section 143(2) is mandatory even in a case of reopening of assessment under section 148 of the Income-tax Act. In our opinion, the view taken by the two High Courts reflects the language of section 147. Therefore, even in a case of reopening of assessment under section 147, the Assessing Officer is bound to comply with the requirement of section 143(2) of the Income-tax Act."
The Court rejected the Department’s argument that reassessment is a self-contained code, holding that such an interpretation would nullify the statutory safeguards intended for the assessee.
On the second issue, the Court examined the violation of Section 144C. It noted that the draft assessment orders explicitly directed the issuance of demand notices and penalty proceedings. The Court cited Vijay Television (P.) Ltd., Cisco Systems Services B.V., and PCIT v. Hyundai Motor India, all of which held that issuing a demand notice at the draft stage brings finality to the assessment and defeats the purpose of the DRP mechanism. The Court emphasized:
"The very fact that along with the draft assessment order, the AO has issued a notice of demand and penalty notice, indicates that the AO has passed the final assessment order."
It further held that Section 292B cannot cure such a jurisdictional defect, as it only protects against mistakes in form, not the absence of statutory authority. The Court relied on JCB India Ltd. and Turner International, which held that failure to follow Section 144C is an incurable illegality. The Court concluded:
"By issuing the demand notice on 27.12.2018 itself the Assessing Officer has by-passed all the mandatory sub-sections of section 144C of the Act. Whether by by-passing mandatory provisions of the Act can assessment survive? The answer has been given by the Hon'ble Supreme Court in the case of Dipak Babaria 3SCC 502 wherein the Hon'ble Supreme Court has held as under: 'If the law requires that a particular thing should be done in a particular manner, it must be done in that way and none other.'"
The Court found no distinction between the facts of this case and the precedents cited, and held that the AO’s actions rendered the assessment void ab initio.
The Verdict
The appellant succeeded on both grounds. The Tribunal quashed the draft assessment orders dated 28.03.2013 for A.Y. 2005-06 and 2006-07, holding them to be void ab initio. All consequential proceedings - including the demand notices under Section 156 and the penalty show-cause notices under Section 274 read with Section 271(1)(c) - were set aside. The Tribunal held that the failure to issue a notice under Section 143(2) and the premature issuance of demand and penalty notices violated mandatory statutory procedures under Section 147 and Section 144C, rendering the entire assessment jurisdictionally invalid. The rest of the grounds were rendered academic.
What This Means For Similar Cases
Notice Under Section 143(2) Is Non-Negotiable in Reassessment
Practitioners must now insist on proof of Section 143(2) notice in all reassessment cases, regardless of whether the reopening is under Section 147, 153A, or 153C.
If the notice is absent, the assessment is void ab initio - not merely defective - and cannot be saved by Section 292B.
The Department’s internal record-keeping practices (e.g., "notice not found in records") are not a defence; the burden of proof lies with the Department.
Draft Assessment Orders Cannot Be Used to Pre-Empt Final Orders
Issuing a demand notice, tax computation sheet, or penalty show-cause notice alongside a draft assessment order under Section 144C constitutes a fatal jurisdictional error.
Such actions are not curable by corrigendum or subsequent DRP proceedings.
Practitioners should immediately challenge any assessment where the draft order includes language directing demand or penalty initiation.
The ITAT’s reliance on Vijay Television and Cisco Systems confirms that courts will not tolerate procedural circumvention, even if the assessee participated in later stages.
Section 292B Does Not Cure Jurisdictional Defects
Section 292B protects against technical or clerical errors, not the absence of statutory authority.
Failure to follow mandatory procedures under Section 144C or Section 143(2) is a jurisdictional flaw - not a procedural irregularity.
Practitioners should cite JCB India Ltd. and Turner International to argue that such defects render the assessment null and void, irrespective of subsequent conduct.
Strategic Takeaway for Practitioners
In reassessment cases, file a preliminary objection on non-issuance of Section 143(2) notice.
In Section 144C cases, scrutinize the draft assessment order for any language indicating finality - demand, penalty, or tax computation.
If such language exists, challenge the assessment as void ab initio, not merely on merits.
Do not rely on the Department’s claim of "inadvertence" - courts have uniformly rejected this defence.
