Reassessment Without a Section 143(2) Notice is Vitiated

Source: Supreme Court

Why in News? 

A bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva of the Supreme Court decided Principal Commissioner of Income Tax, Bhubaneshwar v. Orissa Mining Corporation Ltd. (2026), along with connected matters. The Court dismissed the Revenue’s appeal and upheld the Orissa High Court’s finding that the reassessment proceedings were vitiated because no notice under Section 143(2) of the Income Tax Act, 1961 had been issued. 

What was the Background of Principal Commissioner of Income Tax v. Orissa Mining Corporation Ltd. (2026) Case? 

• The Revenue started reassessment proceedings against the assessees under Section 147 of the Income Tax Act, 1961 (the Act). 
• It did not issue a formal notice under Section 143(2) of the Act during those proceedings. 
• The assessees still took part in the reassessment proceedings. 
• Proceedings before the High Court:  
  • The Orissa High Court ruled for the assessees. 
  • It held the reassessment proceedings vitiated because the Revenue had not issued the mandatory notice under Section 143(2). 
• Revenue’s contention before the Supreme Court:  
  • The Revenue relied on Section 292BB of the Act. 
  • It argued that failing to issue a formal notice under Section 143(2) would not vitiate the reassessment, because the assessees had otherwise participated in the proceedings. 

What were the Court’s Observations? 

On the mandatory nature of the Section 143(2) notice: 

• A notice under Section 143(2) is mandatory. It gives the assessee an opportunity to produce, or cause to be produced, any evidence or particulars on which they claim relief. 
• The notice is a sine qua non (essential condition) for reassessment under Section 147. 
• Without a notice under Section 143(2), the Revenue cannot take any further proceedings. 

On the scope of Section 292BB: 

• The judgment was authored by Justice Sachdeva. It held that the deeming fiction in Section 292BB works only where a notice has actually been issued. In that case, the assessee who appeared cannot later claim that:  
  • The notice was not issued, 
  • The notice was not served in time, or 
  • The notice was not served properly. 
• So the deeming fiction helps the Revenue where an assessee appears in response to a notice and then disputes how it was issued or served. 
• It does not apply where no notice was issued at all, as in this case. 
• The Court said the fiction cannot come into play where the Revenue admittedly did not issue the notice. Where the Revenue itself says no notice was sent as the Act requires, Section 292BB has no application. 

On participation of the assessee: 

• The assessees’ participation in the reassessment proceedings does not by itself count as compliance with Section 143(2) read with Section 292BB when no formal notice under Section 143(2) was issued. 

Conclusions drawn by the Court: 

• Section 292BB does not stop an assessee from objecting, in any proceedings under the Act, that no notice under Section 143(2) was issued. This holds even if the assessee appeared and cooperated during the reassessment without raising the objection. 
• The Revenue must still serve a notice under Section 143(2) even if the assessee asks that the earlier return filed under Section 139 be treated as the return filed in response to the notice under Section 148. 
• A letter from the Assessing Officer under Section 142(1) during reassessment, asking the assessee to explain the grounds for the proposed reassessment, does not satisfy the mandatory duty to serve a notice under Section 143(2). 

Outcome: 

• The Revenue’s appeal was dismissed. 

What are the Legal Principles Governing Notices in Reassessment Proceedings? 

About: 

• Reassessment is how the Revenue assesses or reassesses income that has escaped assessment for a particular assessment year. 
• The Act lays down a series of procedural safeguards for reassessment. Issuing the required notices is one of them, and it protects the assessee’s right to be heard. 

Section 139 – Return of Income: 

• Every person whose total income is above the maximum amount not chargeable to tax must file a return of income within the time specified. 

Section 142(1) – Inquiry Before Assessment: 

• The Assessing Officer may serve a notice requiring the assessee to file a return, or to produce accounts, documents or information the officer needs for the assessment. 

Section 143(2) – Scrutiny Notice: 

• Where a return has been filed, the Assessing Officer may serve a notice requiring the assessee to attend or to produce evidence in support of the return. 
• The notice must be served within the time limit the provision prescribes. 
• Through judicial interpretation, it is treated as a jurisdictional requirement before an assessment or reassessment can be completed on scrutiny. 

Section 147 – Income Escaping Assessment: 

• If income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess that income, subject to Sections 148 to 153. 

Section 148 – Issue of Notice Where Income Has Escaped Assessment: 

• Before making an assessment or reassessment under Section 147, the Assessing Officer must serve a notice requiring the assessee to file a return of income for the relevant year. 
• A return filed in response to this notice is processed under the Act as if it were a return under Section 139. 

Section 292BB – Notice Deemed to be Valid in Certain Circumstances: 

• This provision was added by the Finance Act, 2008. 
• If an assessee appears in any proceeding, or cooperates in any inquiry, relating to an assessment or reassessment, any notice required under the Act is deemed to have been served on time and properly. 
• The assessee then cannot object, in any proceeding or inquiry under the Act, that the notice was not served, not served in time, or served improperly. 
• Proviso: The section does not apply if the assessee raised that objection before the assessment or reassessment was completed.