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Facts
The Assessing Officer (AO) passed an assessment order under section 143(3) read with section 263 of the Income Tax Act, 1961, pursuant to a revisionary order. The CIT(A) quashed this assessment order, holding that a notice under section 143(2) was mandatory after the set-aside proceedings, and relied on the Supreme Court judgment in Hotel Blue Moon. The Revenue appealed this decision.
Held
The Tribunal held that it is not mandatory for the AO to issue a fresh notice under section 143(2) when passing an assessment order pursuant to a section 263 order, as it is considered a continuation of the original proceedings and not a fresh assessment or reassessment. The cited Supreme Court decision in Hotel Blue Moon was deemed not applicable as it pertained to block assessments.
Key Issues
Whether a fresh notice under section 143(2) is mandatory after a section 263 order, for an assessment proceeding that is considered a continuation of the original assessment.
Sections Cited
143(3), 263, 143(2), 148, 139, 158BC, 153A, 153C, 14A, 153(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI KESHAV DUBEY
ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT i. This appeal has been filed by the Deputy Commissioner of Income Tax, Circle 3(1)(9), Bangalore (the learned Assessing Officer) in the matter of G Corp Private Limited (the Assessee) for Assessment Year 2014–15. The appeal challenges the appellate order issued by The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (the learned CIT(A)), dated 14 February 2025, whereby the assessee’s appeal against the assessment order dated 29 December 2019, passed under section 143(3) read with section 263 of The Income Tax Act, 1961, was allowed. The CIT(A) held that no notice under section 143(2) was The DCIT V G Corp P Ltd AY 14-15 Page 2 of 14 issued by the learned Assessing Officer when passing the assessment order under section 143(3) read with section 263, pursuant to the revisionary order under section 263 of the Act, which is considered mandatory. This decision was based on the judgment of the Honourable Supreme Court of India in Hotel Blue Moon (TS-113-SC- 2010-O), resulting in the quashing of the assessment order. ii. The learned assessing officer has raised following grounds of appeal:–
The learned CIT(A) has erred in holding that the assessment order passed under section 143(3) read with section 263 of the Income Tax Act, 1961, is invalid merely on the ground that a notice under section 143(2) was not issued after the set-aside proceedings, without appreciating that the original assessment had already been preceded by a valid notice under section 143(2).
The Learned CIT(A) has erred in relying upon the decision of the Hon'ble Supreme Court in the case of ACIT v. Hotel Blue Moon (2010) 321 ITR 362 (SC), which is not applicable to the facts of the present case. The said decision pertains to block assessments under Chapter XIV-B and not to reassessment or set-aside proceedings u/s 263.
The learned CIT(A) has failed to appreciate that in the case of set- aside assessments u/s 263, there is no requirement for issuance of a fresh notice u/s 143(2), since the proceedings are in continuation of the original assessment and no fresh return of income is filed.
The learned CIT(A) has erred in allowing the appeal of the assessee without adjudicating on merits of the additions made by The DCIT V G Corp P Ltd AY 14-15 Page 3 of 14 the Assessing Officer, solely on the procedural ground, thereby rendering the order contrary to law and facts.
The appellant craves leave to add, alter, attend or withdraw any of the grounds at the hearing.
iii. The learned CIT – A has erred in holding that the assessment order passed under section 143 (3) read with section of the income tax act, 1961, is invalid merely on the ground that a notice under section 143 (2) was not issued after the set-aside proceedings without appreciating that the original assessment had already been preceded by a valid notice under section 143 (2). iv. The learned CIT – A has erred in relying upon the decision of the Honourable Supreme Court in the case of ACIT versus Hotel blue moon (2010) 321 ITR 362 (SC), which is not applicable to the facts of the present case. The said decision pertains to the block assessment under chapter XIV B and not to reassessment order set-aside proceedings under section 263. v. The learned CIT – A has failed to appreciate that in case of set aside assessment under section 263 there is no requirement for issuance of a fresh notice under section 143 (2), since the proceedings are in continuation of the original assessment and no fresh return of income is filed. vi. The learned CIT – A has erred in allowing the appeal of the assessee without adjudicating on merits of the addition made by the assessing officer, solely on the procedural ground, thereby rendering the order contrary to the law and facts.
The DCIT V G Corp P Ltd AY 14-15 Page 4 of 14 vii. Brief facts of the case shows that assessee company is in the business of Property Management. The original assessment under section 143 (3) was completed on 6 December 2016 determining the total income at ₹ 2,088,894/–. viii. The Principal Commissioner of Income Tax – 3, Bangalore (the learned PCIT) in exercise of powers vested in him under section 263 of the income tax act issued notice to the assessee on 22 October 2018 and finding that the assessment order dated 6/12/2016 is erroneous and so far as prejudicial to the interest of the revenue as per order dated 28th of March 2019 directed the learned assessing Officer to pass assessment bringing to tax the annual value of capital 1MG Mall as house property income after giving opportunity to the assessee company. ix. In pursuance to that, the learned assessing officer issued notice to the assessee of granting opportunity on 18 December 2019, the assessee submitted and submission on 21 December 2019 and after considering the submission the assessment was completed wherein the learned assessing officer computed the gross annual value of 1MG Mall at ₹ 100,251,881 instead of the gross annual value offered in the return of income at ₹ 81,994,392. x. Thus the assessment was completed at the total income of ₹ 131,358,751 against the original income as per assessment order dated 6 December 2016 pursuant to the order of the learned CIT – A dated 30 June 2017 determined at ₹ 30,425,242/–. The assessment order was passed under section 143 (3) read with section 263 of the income tax act on 20 December 2019. xi. This assessment order was challenged before the learned CIT – A by the assessee wherein assessee raised one ground of appeal
15. Page 5 of 14 section 263 without serving notice under section 143 (2). The assessee submitted that the order passed under section 143 (3) read with section 263 needs to be quashed on this ground alone. xii. The assessee submitted before him that the assessing officer has as per order under section 143 (3) read with section 263 dated 29 December 2019 without serving the notice under section 143 (2) of the act of the act. It was submitted that the principal Commissioner of income tax Bangalore vide order under section 263 dated 28 March 2019 directed the learned AO to redo the assessment in accordance with his direction. The AO issued the notice under section 142 (1) of the act on 18 December 2019 and it is obligation upon him to serve the notice under section 143 (2) prior to initiating the assessment proceedings under section 143 (3) of the act. The assessing officer has passed the fresh assessment order on 29 December 2019 in pursuance of order under section 263 within the time limit prescribed under section 1 53 (3) of the act. It is the claim of the assessee that the assessing officer has passed an order under section 143 (3) and therefore it was incumbent upon him to serve the notice under section 143 (2) of the act. It was further submitted that since no notice under section 143 (2) was served on the assessee prior to the assessment, the action of the assessing officer is bad in law and therefore needs to be annulled in entirety. The assessee further relied upon the decision of the Honourable Bombay High Court in case of CIT versus sodder b builder and developers private limited (2019) (419 ITR 436) (Bombay) wherein relying upon the decision of the Honourable Supreme Court in case of Hotel blue moon [ Supra] the assessment order deserves to be quashed. xiii. The learned CIT – A agreed with the submission of the assessee and held that assessing officer has issued notice under section 142 (1) on 18 December 2019 but no notice under section 143 (2) was issued. The The DCIT V G Corp P Ltd AY 14-15 Page 6 of 14 assessee contended before him and relied upon the decision of the Honourable Supreme Court of India in case of Hotel blue moon (supra) and submitted that the assessment order needs to be quashed. The learned CIT – A found from the assessment order that the assessing officer has not issued notice under section 143 (2) before passing the assessment order, hence the assessment order passed by the AO was not valid and therefore he allowed the ground No. 1 of the appeal and quashed the assessment order. He held that since assessment order passed under section 143 (3) read with section 263 is treated as invalid, he did not adjudicate on any other grounds. xiv. Despite notice none appeared on behalf of assessee. Therefore the issue is decided on the merits of the case as per information available on record. xv. The learned Joint Commissioner Of Income Tax Shri N Balusamy, senior departmental representative, vehemently submitted that there is no requirement of issuing notice under section 143 (3) of the act where the assessment is passed in pursuance of the revisionary order under section 263 of The Income Tax Act passed by The Principal Commissioner Of Income Tax. He submitted that in plain reading of the provisions of the law, there is no such requirement. He further stated that it is not the case that the now the return of assessee is being questioned. It is only the direction of the learned CIT is given effect to. He referred to the provisions of section 143 (2) of the act and submitted that when the assessing officer would like to tinker with the return of income filed by the assessee, only at that point of time the learned AO is obligated to issue such notice. He further stated that even in the reassessment proceedings, assessment gets concluded, based on that concluded assessment, a notice for filing the return of income is given, the assessee files a new return, and therefore, the assessing officer is tinkering with the concluded assessment The DCIT V G Corp P Ltd AY 14-15 Page 7 of 14 and authorized to investigate of the whole assessment proceedings on the issues which were there in the reopening proceedings as well as any other issue which is coming to his knowledge. Therefore the decision of the Honourable Supreme Court in case of Hotel blue moon (supra) has laid down that law and therefore for the purpose of assessment and the reassessment it is accepted that the assessing officer should have issued notice under section 143 (2) of the act. xvi. However he stated that this is an assessment made by the assessing officer pursuant to the order under section 263 of the Income Tax Act. He referred to the provisions of section 263 of the act and stated that if an order is found to be erroneous and prejudicial to interest of the revenue, either the CIT himself can do the adjustment to the assessed income or he may direct the learned assessing officer, for the purpose of following the principles of natural justice, sends back that issue only to the file of the learned AO. The learned AO would not have done anything else or could not have touched any other issue other than what is directed to be done by the learned PCIT in terms of provisions of section 263 of the act. He therefore submitted that it is substantially different then the provisions of assessment order reassessment proceedings where the whole return of income is available before the assessing officer to be tinkered with. same is not the case with respect to the assessment order passed in pursuance of order under section 263 of the learned PCIT. He therefore submitted that there is neither a statutory provision which requires the AO to issue such notice neither any judicial precedent of any High Court which has held so. xvii. The Honourable Supreme Court in case of Hotel blue moon (2010) 321 ITR 362 (Supreme Court), he submitted that it is the case of block assessment in search cases where the assessee files a separate return of income pursuant to the search. He further referred to the paragraph No. The DCIT V G Corp P Ltd AY 14-15 Page 8 of 14 of that the judgement of Honourable supreme court to state that the only issue before the Honourable supreme court was whether service of notice on the assessee under section 143 (2) within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIVB of The Income Tax Act 1961 or not. The Honourable Supreme Court answered that that it is mandatory. Therefore the reliance by the learned CIT – A on that decision to hold that same applies in case of order passed in pursuance of revisionary orders under section 263 of the act is invalid and order deserves to be set aside. xviii. He further stated that that assessee cited decision of the Honourable Bombay High Court in case of 115 taxmann.com 25 one (Bombay) in case of CIT versus Sodder builder and developers private limited dated 16 July 2019 which was also in respect of the assessment to be made under section 158BC of the act. In that case also the assessment of search was made by without issuing a notice under section 143 (2) of the act. He further stated that the assessee also filed return of income under section 158BC of the act which was required to be assessed. Therefore the facts of that case is also different and reliance on the same by the assessee and the learned CIT – A is incorrect. xix. He further referred to the facts of the case and submitted that in this case the original assessment order was passed on 6 December 2016 wherein the total income of the assessee was determined on 30 June 2017 at ₹ 30,425,242/– the total assessed income by the order under section 143 (3) of the act./ In pursuance of revisionary order passed under section 263 of the income tax act, it was determined at ₹ 131,358,751/– . The only addition that has been made by the learned assessing officer is income from house property of ₹ 100,251,681/–. In the original assessment order, notice under section 143 (2) of the act was undisputedly issued.
The DCIT V G Corp P Ltd AY 14-15 Page 9 of 14 xx. He once again referred to in sub section 143 (2), 143 (3) and section 263 of the act and submitted that the order of the learned CIT – A is not sustainable. xxi. We have carefully considered the contention of the ld. DR and perused the orders of the learned lower authorities. In this case the assessee is engaged in the business of real estate developer, construction etc. Assessee filed its return of income on 29 November 2014 at a total loss of ₹ 36,265,775. The assessment under section 143 (3) of the Income Tax Act was passed on 16 December 2016 by the Asst Commissioner of income tax, circle – 3 (1) (2), Bangalore assessing the total income of the assessee at ₹ 2,088,894/–. The assessing officer has made the adjustment of disallowance of expenditure of ₹ 30,425,247 and disallowance of interest expenditure under section 14 A of the act of ₹ 7,929,427. This assessment order was challenged before the Commissioner of income tax (Appeals) – 3, Bangalore who passed an appellate order on 20 February 2018 deleting the interest disallowance under section 14 A of the act to the extent of ₹ 6,452,727/–. xxii. On 22 October 2018 , the principal Commissioner of income tax issued a notice under section 263 of the act to the appellant which was responded to on 3 December 2018. The learned PCIT passed an order under section 263 of the act on 28th of March 2019 directing the assessing officer to bring to tax the annual value of 1 MG Mall as house property income. xxiii. Pursuant to the same, the learned assessing officer passed an assessment order under section 143 (3) read with section 263 of the act dated the 29 December 2019 assessing the income of the appellant at ₹ 131,358,751 by making the several adjustment to the income from house property by bringing the annual value of that property to tax under the head income from house property.
The DCIT V G Corp P Ltd AY 14-15 Page 10 of 14 xxiv. The assessee aggrieved with that order preferred an appeal before the learned CIT – A contesting that no notice under section 143 (2) of the act was served on the appellant and therefore the assessment order is invalid , deserves to be quashed. The learned CIT – A quashed the same holding that the learned assessing officer should have issued a notice under section 143 (2) of the act before passing an assessment order under section 143 (3) of the act pursuance to direction of revisionary order under section 263 of the act.he relied up on the decision of Assistant Commissioner of Income Tax and Another vs. Hotel Blue Moon (2010) 3 SCC 259. xxv. The issue at hand concerns whether, following a revisionary order under Section 263 of the Income Tax Act, it is mandatory for the assessing officer to issue a notice under Section 143(2) prior to passing an assessment order pursuant to Section 143(3) read with Section 263. It is undisputed that, in the original assessment, subsequently deemed erroneous and prejudicial to the interests of revenue—a notice under Section 143(2) was duly issued by the assessing officer before validly framing the assessment order. xxvi. The matter at hand concerns the order issued under Section 263 of the Income Tax Act, which directs the Assessing Officer (AO) to bring income from house property to tax. Except for this directive from the learned Principal Commissioner of Income Tax (PCIT), all other aspects of the original assessment order remain unchanged. Consequently, this represents only a modification of the initial assessment order. It is possible, however, that when the PCIT cancels the original assessment under Section 263 and instructs the AO to conduct a fresh assessment, it indicates that the proceedings resulting in an erroneous order are effectively nullified. Accordingly, the assessment for that year must be The DCIT V G Corp P Ltd AY 14-15 Page 11 of 14 undertaken anew by the AO, but within the scope and directions outlined in the revisionary order. In such circumstances, the learned PCIT returns the entire proceedings to the stage where the assessment of the return is pending before the AO for scrutiny, for which notice under Section 143(2) of the Act has already been issued. Therefore, even in cases of cancellation, there is no requirement to issue a fresh notice under Section 143(2) of the Act. xxvii. In this context, the authority vested in the Assessing Officer (AO) pursuant to the order under section 263 of the Income Tax Act is limited to examining specific aspects of the assessee’s return of income as directed by the learned Principal Commissioner of Income Tax (PCIT). These aspects were erroneously decided in the original assessment, leading to prejudice against the revenue and necessitating correction. Accordingly, the AO is empowered to evaluate only those issues highlighted by the PCIT; he does not have jurisdiction to review other components of the return of income outside the scope of section 263 order. Therefore, this process cannot be regarded as equivalent to conducting a fresh assessment. xxviii. Furthermore, there is no statutory requirement mandating that the assessing officer issue a notice under Section 143(2) of the Act when modifying the original assessment order or passing a fresh assessment order as directed by the learned Principal Commissioner of Income Tax under Section 143(3) of the Act. xxix. Section 143(2) empowers the Assessing Officer to issue a notice to the assessee when it is deemed necessary or expedient to verify that income has not been understated, losses have not been overstated, or taxes have not been underpaid. In such cases, the officer may require the assessee to produce evidence supporting their return. Therefore, notice u/s 143(2)
The DCIT V G Corp P Ltd AY 14-15 Page 12 of 14 is necessary. During search proceedings, the Assessing Officer may encounter situations where the assessee files a fresh return of income in response to a notice issued under section 158BC, 153A, or 153C of the Act, regardless of any original return previously filed under section 139. xxx. When the Principal Commissioner of Income Tax issues an order under Section 263 of the Act, the assessee neither submits a new return of income nor is required to do so. Consequently, whether the order pertains to the cancellation or modification of the assessment, Section 143(2) does not obligate the Assessing Officer to issue a fresh notice when acting upon a revisionary order passed under Section 263 by the Principal Commissioner of Income Tax. xxxi. Furthermore, the order issued by the learned Principal Commissioner of Income Tax, directing the learned Assessing Officer to either make a fresh assessment or modify the original assessment order, constitutes a continuation of the initial proceedings. Accordingly, the assertion that the learned Assessing Officer was required to issue an additional notice under Section 143(2) of the Act is inconsistent with the provisions of the Income Tax Act, which does not mandate the issuance of more than one notice under Section 143(2) for the same assessment year in a single set of proceedings. This situation does not constitute a reassessment, where the assessee would be expected to file a return in response to a notice under Section 148 of the Act. xxxii. When issuing a fresh assessment order under Section 263 of the Act— whether it modifies or cancels the original order—the scope is restricted exclusively to the matters specified in the Section 263 order. Accordingly, where an original assessment order has already been issued under Section 143(3) following notice under Section 143(2), no additional notice under Section 143(2) is required for the subsequent assessment., if it is The DCIT V G Corp P Ltd AY 14-15 Page 13 of 14 not a reassessment. This is because, when the Assessing Officer redoes an assessment pursuant to an order from the Principal Commissioner of Income Tax under Section 263, the new assessment must be limited to the issues identified by the Principal Commissioner. The Assessing Officer is not permitted to investigate new issues independently. Furthermore, this approach differs fundamentally from reassessment proceedings under Section 148, where the entire assessment is open for review. In contrast, assessments pursuant to a Section 263 order are confined to the specific areas directed by the Principal Commissioner. xxxiii. The decisions of the Honourable Supreme Court in Assistant Commissioner of Income-tax vs. Hotel Blue Moon [2010] 188 Taxman 113 (SC)/[2010] 321 ITR 362 (SC)/[2010] 229 CTR 219 (SC)[02-02-2010] and the Honourable Bombay High Court addressed situations where the assessee filed a fresh return of income pursuant to the provisions of Chapter XIVB of the Income Tax Act. Accordingly, these precedents are not applicable to the present case as considered by the learned CIT(A). Therefore, reliance on both judgments is misplaced. xxxiv. Accordingly, we conclude that it is not mandatory for the learned Assessing Officer to issue a notice under section 143(2) of the Act when modifying or passing a fresh assessment order pursuant to a cancellation directed under section 263 of the Income Tax Act by the Principal Commissioner of Income Tax, who has determined that the original assessment order issued by the learned Assessing Officer is both erroneous and prejudicial to the interests of the revenue. xxxv. In the result, the order of the learned Commissioner of income tax (A) is not sustainable and therefore is reversed and the issue is restored back to the file of the learned CIT – A to decide the issue on its merit as per other grounds of appeal raised by the assessee before him.