The Income Tax Appellate Tribunal (ITAT), Pune Bench has delivered a significant ruling on the procedural validity of re-assessment proceedings under the Income Tax Act, 1961. The Tribunal held that the failure to issue a notice under Section 143(2) after the assessee files a return in response to a notice under Section 148, even if belatedly, renders the re-assessment order null and void. This decision reinforces the mandatory nature of procedural compliance in tax assessments, offering critical protection to assessees against arbitrary re-assessment proceedings.
Background & Facts
The Dispute
The appellant, Kamlesh Pramod Gandhi, a businessman engaged in the sale of automobile spare parts under the name M/s. Gandhi Tempo, was subjected to re-assessment proceedings by the Income Tax Department. The dispute arose from cash deposits of Rs. 30,70,470 in the appellant’s bank account with Shri Renukamata Multi State Urban Co-operative Society Limited, which the Assessing Officer (AO) treated as unexplained income.
Key Facts
The appellant filed his original return of income for Assessment Year (AY) 2014-15 on 12.02.2015, declaring a total income of Rs. 3,34,250.
On 31.03.2021, the AO issued a notice under Section 148 of the Act, alleging escapement of income based on information regarding the cash deposits.
In response, the appellant filed a return on 27.01.2022, declaring an income of Rs. 1,78,652 after claiming a deduction of Rs. 75,012 under Chapter VI-A.
The Centralized Processing Centre (CPC) initially treated this return as invalid.
The appellant e-verified the return on 02.03.2022, as evidenced by a screenshot from the income tax portal.
The AO, without issuing a notice under Section 143(2), proceeded to add Rs. 1,55,598 as unexplained income and the entire cash deposit of Rs. 30,70,470 to the appellant’s total income, determining it at Rs. 34,01,720.
Procedural History
12.02.2015: Original return filed for AY 2014-15.
31.03.2021: Notice issued under Section 148 for re-assessment.
27.01.2022: Return filed in response to Section 148 notice.
02.03.2022: Return e-verified by the appellant.
25.03.2022: AO passed re-assessment order under Section 147 r.w.s. 144B, treating the return as invalid and making additions.
15.01.2026: Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (CIT(A) / NFAC) dismissed the appeal, upholding the AO’s order.
24.06.2026: Appeal heard by ITAT, Pune.
07.07.2026: ITAT allowed the appeal, quashing the re-assessment order.
The Parties' Positions
For the Appellant
The appellant argued that the re-assessment order was invalid due to the AO’s failure to issue a notice under Section 143(2) after the return was filed in response to the Section 148 notice. The appellant relied on:
The decision of the Hon’ble Patna High Court in CIT vs. Nagendra Prasad (2023) 156 taxmann.com 19 (Patna), which held that even if the return is filed belatedly, the AO must issue a Section 143(2) notice.
The decision of the ITAT, Pune in Bababhai Sadarbhai Shaikh vs. ITO (ITA No. 144/PUN/2025), where the Tribunal quashed the re-assessment order for non-issuance of Section 143(2) notice.
The decision in Bharat Kantilal Chengede vs. ITO (ITA No. 1902/PUN/2025), where the Tribunal held that failure to issue Section 143(2) notice renders the re-assessment order invalid.
The appellant further contended that the return, once e-verified, could not be treated as invalid, and the AO’s reliance on the system’s initial classification was misplaced.
For the Respondent
The Department argued that the return filed in response to the Section 148 notice was treated as invalid by the system, and thus, no Section 143(2) notice was required. The Department relied on the AO’s observation in the assessment order that the return was invalid. It further contended that the appellant’s reliance on a screenshot of the e-verified return was insufficient to displace the contemporaneous record.
Without prejudice, the Department also sought restoration of the matter to the AO for verification of the return’s status, arguing that the re-assessment was validly initiated based on specific information regarding cash deposits.
The Legal Issue
The central question before the Tribunal was whether the re-assessment order passed without issuing a notice under Section 143(2) of the Act is valid, particularly when the assessee files a return in response to a Section 148 notice, even if belatedly.
Arguments Presented
For the Appellant
The appellant’s counsel argued that:
The return filed in response to the Section 148 notice was e-verified and thus valid, as evidenced by the screenshot from the income tax portal.
The AO’s failure to issue a Section 143(2) notice, despite the return being filed, rendered the re-assessment order invalid.
Reliance was placed on judicial precedents, including CIT vs. Nagendra Prasad and Bharat Kantilal Chengede vs. ITO, which held that non-issuance of Section 143(2) notice is fatal to re-assessment proceedings.
For the Respondent
The Department contended that:
The return was treated as invalid by the system, and thus, no Section 143(2) notice was required.
The screenshot produced by the appellant was not part of the AO’s record and could not override the assessment order’s findings.
The decisions relied upon by the appellant were distinguishable, as they involved cases where a valid return existed on record.
The re-assessment was validly initiated based on specific information regarding cash deposits.
The Court's Analysis
The Tribunal undertook a detailed analysis of the procedural requirements under the Income Tax Act, 1961, particularly the interplay between Sections 143(2) and 148.
"Once the system shows that the return has been e-verified, therefore, merely because the Assessing Officer mentions in the order that the return was treated as invalid return by the system, the same in our opinion cannot be accepted. We, therefore, hold that the return filed by the assessee is not an invalid return."
The Tribunal held that the return filed by the appellant, once e-verified, could not be treated as invalid. It rejected the AO’s reliance on the system’s initial classification, emphasizing that the e-verification confirmed the return’s validity.
On the issue of Section 143(2) notice, the Tribunal relied on the decision in Bharat Kantilal Chengede vs. ITO, which held that non-issuance of Section 143(2) notice renders the re-assessment order invalid. The Tribunal observed:
"Since the facts of the instant case are identical to the facts of the case already decided by the Co-ordinate Bench of the Tribunal cited (supra), therefore, we hold that the order passed by the Assessing Officer without following the mandatory requirement of issue of notice u/s 143(2) makes the re-assessment order an invalid assessment."
The Tribunal further noted that the Hon’ble Patna High Court in CIT vs. Nagendra Prasad had held that even if the return is filed belatedly in response to a Section 148 notice, the AO must issue a Section 143(2) notice. The Tribunal also referred to the Hon’ble Delhi High Court’s decisions in PCIT vs. Draft Infrabuild (P.) Ltd. and PCIT vs. Shri Jai Shiv Shankar Traders (P.) Ltd., which reinforced the mandatory nature of Section 143(2) notice.
The Tribunal distinguished the Department’s reliance on earlier decisions where non-issuance of Section 143(2) notice was held not to invalidate re-assessment proceedings. It noted that subsequent decisions had clarified that Section 143(2) notice is mandatory when the assessee files a return in response to a Section 148 notice, even if belatedly.
The Verdict
The Tribunal allowed the appeal, setting aside the orders of the CIT(A) / NFAC and the AO. The re-assessment order dated 25.03.2022 was held to be invalid due to the non-issuance of a notice under Section 143(2) of the Act. The Tribunal did not adjudicate on the merits of the additions, as the assessee succeeded on the legal ground of procedural invalidity.
What This Means For Similar Cases
Mandatory Nature of Section 143(2) Notice
This judgment reinforces that the issuance of a notice under Section 143(2) is a mandatory procedural requirement in re-assessment proceedings. Practitioners must ensure:
That the AO issues a Section 143(2) notice after the assessee files a return in response to a Section 148 notice, regardless of whether the return is filed belatedly.
That the return’s validity is not solely determined by the system’s initial classification but by subsequent actions such as e-verification.
Evidentiary Burden in Re-Assessment Proceedings
Assessees must maintain robust documentary evidence, such as sale bills, vouchers, stock registers, and VAT returns, to substantiate claims regarding cash deposits or business transactions.
The Tribunal’s observation that the appellant’s explanation was rejected due to lack of supporting documents underscores the importance of maintaining a verifiable trail linking cash deposits to specific commercial transactions.
Precedential Value of Co-ordinate Bench Decisions
The Tribunal’s reliance on its earlier decision in Bharat Kantilal Chengede vs. ITO highlights the binding nature of co-ordinate bench rulings on identical legal issues.
Practitioners can cite this judgment to challenge re-assessment orders where Section 143(2) notice has not been issued, even if the return was filed late.
