Failure to Issue Section 143(2) Notice Vitiates Reassessment Order Framed Pursuant to Section 148 Return

ORDER

Ravish Sood, Judicial Member. – The present appeal filed by the assessee company is directed against the order passed by the CIT(Appeals), dated 24.07.2025, which in turn arises from the assessment order passed by the Assessing Officer (for short, ‘AO’) under section 147 read with section 144 read with section 144B of the Income-tax Act, 1961 (for short, ‘the Act’), dated 15.03.2024. The assessee company has assailed the impugned order on the following grounds of appeal:

“1. That the order passed by the Learned Commissioner of Income Tax (Appeals), NFAC is erroneous, contrary to law and facts of the case.

2. That the learned CIT(Appeals) erred in holding that the proceeds from the sale of properties of Rs.5,36,63,145/- are liable to be taxed under the head “Capital Gains,” without appreciating the fact that the said properties were held as stockin-trade and said sale proceeds were shown as revenue from operations in the statement of profit & loss account.

3. That the Learned CIT(Appeals) failed to appreciate the fact that the cash deposits

of Rs.1,25,25,500/- made by the Appellant were out of the proceeds from sale of properties and cash withdrawals from the bank accounts thereby the addition made u/s 69A is liable for deletion.

4. The appellant craves to leave, add, amend, alter and or modify any of the grounds of appeal before or at the time of hearing.

5. For these and other grounds that may be urged before the Honourable Income Tax Appellate Tribunal, it is prayed that the additions on account of cash deposits and capital gains be deleted.”

Also, the assessee company has raised the following additional grounds of appeal:

“1 . That on the facts and circumstances of the case and in law, the Learned Assessing Officer erred in passing the impugned assessment order without issuing statutory notice u/s 143(2) of the Act and hence impugned assessment order is bad-in-law and is liable to be quashed.

2. That the impugned notice u/s. 148 of the Act dt. 24-03-2023 issued by the Jurisdictional Assessing Officer (i.e. ITO, Ward-17(1), Hyderabad) instead of Faceless Assessing Officer is bad-in-law, as the same was issued without following the automated allocation procedure specified by the CBDT vide its notification no.18/2022 dt. 29th March, 2022 and hence the impugned assessment order is also bad-in-law and is liable to be quashed.”

As the assessee company, by raising the aforesaid additional grounds of appeal, has sought our indulgence to adjudicate issues that are purely legal and do not require looking any further beyond the facts available on record, we have no hesitation in admitting the same. Our aforesaid view is supported by the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998]   (SC)/[1998] 229 ITR 383 (SC).

2. Succinctly stated, the AO, based on information that the assessee company during the subject year had carried out substantial financial transactions, viz., (i) sale of immovable property: Rs. 70 lakh; (ii) cash deposits in bank account maintained with ICICI Bank: Rs. 31,38,000/-; and (iii) cash deposits in bank account with ICICI Bank: Rs. 58,30,000/-, initiated proceedings under section 147 of the Act. Thereafter, the AO issued notice under section 148A(b) of the Act, dated 13.03.2023, wherein the assessee company was called upon to furnish its reply on or before 15.03.2023. In response, the assessee company furnished its reply on 15.03.2023. Thereafter, the AO passed an order under section 148A(d) of the Act on 24.03.2023 and issued notice under section 148 of the Act on 24.03.2023. In response to the notice under section 148 dated 24.03.2023, the assessee company filed its return of income on 28.12.2023, declaring total income at Rs. Nil and current year loss of Rs. 10,72,076/-.

3. Thereafter, the AO issued notices under section 142(1) of the Act dated 09.10.2023 and 27.10.2023. However, there was no compliance by the assessee company. The AO thereafter issued a communication dated 06.12.2023, followed by a show-cause notice (SCN) under section 144 of the Act dated 21.12.2023. In response thereto, the assessee company filed replies dated 28.12.2023, 29.12.2023 and 12.01.2024.

4. The AO, during the course of assessment proceedings, called upon the assessee company to furnish details regarding the sale of immovable properties and the source of cash deposits made in the bank accounts. In reply, the assessee company submitted that it was engaged in the real estate business and that the cash deposits represented sale proceeds received in the course of its business. It was also submitted that it had incurred losses in its real estate business and that no original return of income had been filed for the relevant assessment year. The assessee company further submitted that it had sold immovable properties for an aggregate consideration of Rs. 5,36,63,145/- and that the cash deposits in the bank accounts were sourced from the sale proceeds of the said properties.

5. Thereafter, the AO directed the assessee company to furnish the details and documentary evidence relating to the purchase and sale of the properties, including the relevant sale deeds and details of the cost of acquisition. However, the assessee company failed to furnish the requisite documentary evidence to the AO’s satisfaction.

6. The AO, accordingly, treated the cash deposits of Rs. 1,25,25,500/-, which comprised, viz. (i). cash deposited in account No. 62312542202 maintained with State Bank of India: Rs. 75,45,000/-; and (ii. cash deposited in account No. 111105000308 maintained with ICICI Bank: Rs. 49,80,500/-, as unexplained money of the assessee company under section 69A of the Act. The AO further treated the entire sale consideration of Rs. 5,36,63,145/- received on the sale of the immovable properties as a capital gain under section 45 of the Act, on the ground that the assessee company had failed to furnish the details of the purchase and sale of the properties and the cost of acquisition thereof.

7. Accordingly, the AO, vide his order passed under section 147 r.w. section 144 r.w. section 144B of the Act, dated 15.03.2024, determined the income of the assessee company at Rs. 6,61,88,645/-.

8. Aggrieved, the assessee company carried the matter in appeal before the CIT(Appeals), but without success.

9. The assessee company, aggrieved with the order of the CIT(Appeals), has carried the matter in appeal before us.

10. We have heard the learned authorized representatives of both parties, perused the orders of the authorities below, material available on record, and considered the judicial pronouncements relied upon by the learned AR to drive home his contentions.

11. Shri G. Srinivasa Rao, CA, Ld. Authorized Representative (for short, “AR”) for the assessee company at the threshold of hearing of the appeal, submitted that the assessment framed by the AO is bad in law as no notice under section 143(2) of the Act was issued to the assessee company after it had furnished the return of income in response to the notice under section 148 of the Act, dated 24.03.2023. Elaborating further on his contention, the Ld. AR submitted that section 148 of the Act specifically provides that the return furnished in response to a notice under section 148 shall be treated, so far as may be, as a return required to be furnished under section 139 of the Act. Therefore, once the assessee company furnished its return of income on 28.12.2023 in response to the notice under section 148, the AO was mandatorily required to issue notice under section 143(2) before framing the reassessment. The Ld. AR, to support his contention, relied on the decision of the coordinate Bench of the Tribunal in Sanjay Kumar Badure v. ITO [IT Appeal No. 2221 (Hyd) of 2025, dated 26.06.2026]. The Ld. AR also placed reliance on the decision of the coordinate Bench of the Tribunal in the case of Sanghi Textiles Private Limited v. ITO [IT Appeal No. 1311 (Hyd) of 2025, dated 07.01.2026], wherein the Tribunal has held that the return of income filed in response to a notice under section 148 is to be construed as a return of income filed under section 139 of the Act and that the AO is under a statutory obligation to issue notice under section 143(2) for framing the assessment. The Ld. AR submitted that section 148 of the Act, though facilitates calling upon the assessee to furnish a return of income, does not provide the machinery and procedure prescribed for framing the assessment. It was submitted that once the return is treated as a return under section 139, the requirement under section 143(2) necessarily follows.

12. Alternatively, the Ld. AR challenged the validity of the notice under section 148 on the ground that the proceedings were required to be conducted in accordance with section 151A of the Act and the e-Assessment of Income Escaping Assessment Scheme, 2022, notified vide Notification No. 18/2022 dated 29.03.2022. In this regard, reliance was placed on the judgment of the Hon’ble High Court of Punjab & Haryana in Jyoti Sareen v. Union of India (Punjab & Haryana). Elaborating on his contention, the Ld. AR submitted that, because the notice under section 148 was issued otherwise than in accordance with the statutory faceless mechanism prescribed under section 151A of the Act, the reassessment proceedings were liable to be held as invalid.

13. Per contra, Shri Waseem UR Rehman, the Ld. Senior Departmental Representative (for short, ‘Sr. DR’) opposed the submissions of the Ld. AR and supported the orders of the authorities below. The Ld. Sr. DR submitted that, as per section 148 of the Act, the assessee is required to furnish the return of income in response to the notice issued thereunder within the prescribed period. The Ld. Sr. DR submitted that, as per the amended provisions of section 148 of the Act, the assessee was required to furnish the return within a period of three months from the end of the month in which the notice was issued, or within such further period as may be allowed by the AO on an application made by the assessee. The Ld. Sr. DR submitted that in the present case, the notice under section 148 was issued on 24.03.2023, but the assessee company failed to furnish its return of income in response thereto within the prescribed period and filed the same only at the fag end of the assessment proceedings, on 28.12.2023. The Ld. Sr. DR further submitted that as the return was furnished beyond the period prescribed under section 148 of the Act, the provisions of the “third proviso” to section 148 were attracted, whereby a return furnished beyond the period allowed under section 148 shall not be deemed to be a return under section 139 of the Act. Accordingly, the Ld. Sr. DR submitted that, as the assessee company had filed the return of income in response to the notice under section 148 of the Act, dated 24/03/2023, beyond the prescribed period, the requirement to issue a notice under section 143(2) did not arise. The Ld. Sr. DR submitted that the “third proviso” to section 148 was inserted by the Finance Act, 2023 with effect from 01.04.2023; therefore, the delayed return of income furnished by the assessee company after 01.04.2023 could not be treated as a return under section 139 of the Act and, therefore, the decision relied upon by the Ld. AR could not be applied.

14. We have given thoughtful consideration to the contentions advanced by the Ld. Authorized Representatives of both parties in the backdrop of the orders of the authorities below.

15. Admittedly, it is a matter of fact borne from the record that the notice under section 148 of the Act was issued to the assessee company on 24.03.2023. Also, it is undisputed that, in response to the said notice, the assessee company furnished its return of income on 28.12.2023. Further, a perusal of the assessment order and a screenshot of the e-filing on the assessee company’s portal reveal that no notice under section 143(2) of the Act was issued to the assessee company. Also, the Ld. Sr. DR had neither controverted the aforesaid claim of the assessee’s counsel, nor brought on record any material proving to the contrary.

16. We shall, in the backdrop of the aforesaid factual premises, first consider as to whether the return of income furnished by the assessee company in response to the notice issued under section 148 of the Act, dated 24.03.2023, was required to be treated as a return under section 139 of the Act and, consequently, whether issuance of notice under section 143(2) was mandatory.

17. Before dealing with the controversy, it is necessary to notice the statutory position governing the return filed in response to a notice under section 148 of the Act. Section 148 of the Act, as substituted by the Finance Act, 2021 with effect from 01.04.2021, provided that the assessee was required to furnish the return within such period as may be specified in the notice and that the provisions of the Act shall, so far as may be, apply as if such return were a return required to be furnished under section 139 of the Act. Subsequently, the Finance Act, 2023 amended section 148 and, inter alia, provided for furnishing the return within a period of three months from the end of the month in which the notice is issued, or within such further period as may be allowed by the AO on an application made by the assessee. Interestingly, the same amendment also inserted the “third proviso” to section 148 of the Act, providing that any return of income required to be furnished under section 148 and furnished beyond the period allowed shall not be deemed to be a return under section 139 of the Act, and the said amendments were made effective from 01.04.2023.

18. We are of the view that the Ld. Sr. DR’s contention that the return was filed beyond the prescribed period cannot be summarily brushed aside. At the same time, we find that the specific statutory consequence that a belated return under section 148 shall not be deemed to be a return under section 139 was introduced by insertion of the “third proviso” to section 148 only with effect from 01.04.2023. In the present case, however, the notice under section 148 was issued on 24.03.2023, i.e., prior to 01.04.2023, the date on which the aforesaid “third proviso” to section 148 came into force. Now the question, therefore, is whether the statutory consequence introduced by the Finance Act, 2023 with effect from 01.04.2023 can be applied to a notice under section 148 which had already been issued on 24.03.2023, so as to deprive the return furnished pursuant to that notice of the character contemplated under section 148 as it stood on the date of issuance of the notice. In our considered view, the answer has to be found from the statutory provision applicable on the date of issuance of the notice. On 24.03.2023, section 148 contained the requirement that the provisions of the Act shall, so far as may be, apply to the return furnished in response to the notice as if such return were a return required to be furnished under section 139. The specific statutory consequence that a return furnished beyond the period allowed under section 148 shall not be deemed to be a return under section 139 was introduced only with effect from 01.04.2023. Therefore, while the assessee company admittedly furnished its return on 28.12.2023, the consequence contemplated by the “third proviso” to section 148 cannot, in our considered view, be invoked in respect of the notice under section 148 issued on 24.03.2023, since the said proviso came into force only from 01.04.2023. In this regard, we find support from the decision of the coordinate Bench in Sanghi Textiles Private Limited(supra), wherein it was held that the return of income filed in response to a notice under section 148 is to be construed as a return of income filed under section 139 of the Act and that the AO is under a statutory obligation to issue notice under section 143(2) for framing the assessment. The coordinate Bench further observed that section 148 facilitates calling upon the assessee to file a return of income but does not take within its fold the machinery and procedure for framing the assessment, for which the legislature has specifically provided that the return filed in response to notice under section 148 is to be treated as a return under section 139, thereby requiring issuance of notice under section 143(2). Also, we find that the issue as to whether or not the return of income filed by an assessee beyond the prescribed time period allowed by the notice under section 148 of the Act is to be construed as a return of income has been answered by the Hon’ble High Court of Kerala in the case of Chirakkal Service Co-Operative Bank Ltd. Kannur v. CIT [2016] 68  384 ITR 490 (Kerala). The indulgence of the Hon’ble High Court was, inter alia, sought for adjudicating the following substantial question of law.

“Whether the return filed by the assessee beyond the period stipulated u/s 139(1)/(4) or Section 142(1)/148 can be held as non-est in law and invalid for the purpose of deciding exemption u/s 80P of the Income Tax Act, 1961?”

The Hon’ble High Court answered the aforesaid issue and held that the “return of income” filed by the assessee beyond the period stipulated under Section 139(1) or Section 139(4) or Section 142(1) or Section 148 can also be accepted and acted upon provided further proceedings in relation to such assessment are pending in the statutory hierarchy of adjudication in terms of the provisions of the Incometax Act. As in the present case before us, the “return of income” filed by the assessee company in compliance to the notice issued under Section 148 of the Act, dated 24.03.2023 was filed on 28.12.2023, i.e during the pendency of the assessment proceedings which had thereafter culminated vide order passed under Section 147 r.w.s 144 r.w.s 144B of the Act, dated 15.03.2024, therefore, we are of the firm conviction that now when the AO had at Page 1/para 1 of the assessment order specifically observed that the assessee company had filed its return of income in response to notice under section 148 of the Act, dated 24.03.2023 on 28.12.2023, declaring its income at Rs. Nil (after declaring current year loss of Rs. (-) 10,72,076/-), and thereafter, while quantifying its income, also taken cognizance of the income returned in response to notice under section 148 of the Act, dated 24.03.2023, there was no justification for him not to have issued notice under section 143(2) of the Act. Also, support is drawn from the judgment of the Hon’ble High Court of Patna in the case of CIT v. M. Chellappan [2006] 281 ITR 444 (Madras). The Hon’ble High Court had observed that where the notice was issued by the A.O. u/s 148 requiring the assessee to file his return of income within thirty days but the said return was filed after eight and a half months, since the return was filed by the assessee in response to the said notice, though delayed, there should have been a notice issued under Section 143(2) as the requirement to issue notice could not be dispensed with. Accordingly, based on our aforesaid observations, we are of the view that the “return of income” filed by the assessee company on 21.10.2021 i.e., in response to the notice u/s. 148 of the Act dated 27.03.2021, though delayed, remained a “return of income” in the eyes of the law.

19. Applying the aforesaid principle to the facts of the present case, we are of the view that once the assessee company furnished its return of income on 28.12.2023 in response to the notice under section 148 dated 24.03.2023, and the “third proviso” to section 148 cannot be invoked in respect of the said notice, the AO was required to comply with the mandatory requirement of section 143(2) before framing the reassessment.

20. We shall now deal with another important aspect stemming from the issue involved in the present appeal, i.e., whether the AO, in response to the return of income filed by the assessee company for the subject year, i.e., AY 2016-17, on 28.12.2023, in compliance to the notice issued under section 148 of the Act, before proceeding with and framing the impugned assessment was statutorily obligated to issue a notice under Section 143(2) of the Act. We find that section 143(2) of the Act contemplates that where the return of income has been furnished under section 139 of the Act, or in response to a notice under sub-section (1) of section 142, the AO or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence, which the assessee may rely in support of the return of income. Although, at first blush, it appeared that issuance of the notice under section 143(2) of the Act is restricted only in a case where the return of income is filed by the assessee under section 139 of the Act, or in response to a notice under subsection (1) of section 142, and, thus, cannot be stretched to a case where the return of income is filed in response to a notice under section 148 of the Act, but we stand corrected on our esaid view. We say so, for the reason that section 148 of the Act (as was available on the statute at the relevant point of time) contemplated that the provisions of the Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 of the Act. Accordingly, a return of income filed in response to notice under section 148 of the Act is to be treated as a return of income required to be furnished under section 139 of the Act. We thus, are of the view that as the return of income filed in response to the notice under section 148 of the Act is to be construed as a return of income filed under section 139 of the Act with all the provisions of the Act to be applied in the similar manner as it would apply to a return of income filed under section 139 of the Act, therefore, the AO to ensure that the assessee had not under stated the income disclosed by him in the return of income filed in response to notice under section 148 of the Act remains under a statutory obligation to issue a notice under section 143(2) of the Act, in a similar manner as if he would have done in response to a return of income furnished under section 139 or under section 142(1) of the Act.

21. We, thus, are of the firm conviction that for framing of assessment under section 148 of the Act, as per the law as was then available in the statute, the AO was obligated to issue a notice under section 143(2) of the Act. We say so, for two reasons, viz., (i) as observed by us herein above, the return of income filed by the assessee in response to notice under section 148 of the Act is to be construed as if it is a return of income filed under section 139 of the Act; and (ii) that section 148 of the Act though provides for a notice to be issued to the assessee calling upon him to file his return of income, but the machinery for framing of the assessment is not provided in the said section and for the said limited purpose the return of income so filed by the assessee is to be construed as a return of income filed under section 139 of the Act, and, thus, for framing of the assessment pursuant to the return of income filed by the assessee in response to the notice under section 148 of the Act notice under section 143(2) of the Act is mandatorily required to be issued. Our aforesaid view that a notice under section 143(2) is mandatorily required to be issued where the assessee has filed a return of income in response to notice under section 148 of the Act is supported by the judgment of the Hon’ble High Court of Allahabad in the case of CIT v. Rajeev Sharma /[2011] 336 ITR 678 (Allahabad). It was observed that where the assessee files the return of income in response to a notice under section 148 of the Act, the AO, before deciding the controversy regarding the escaped assessment, is required to issue a notice under section 143(2) of the Act. Also, a similar view was taken by the Hon’ble High Court of Madras in CIT v. M. Chellappan [2006] 281 ITR 444 (Madras). The Hon’ble High Court had observed that where the assessee had filed a return of income in response to notice under section 148 of the Act, but no notice under section 143(2) was issued after filing of the said return of income, then the same is a violation of the mandatory provisions of law, and therefore, the re-assessment order passed under section 147 of the Act was a nullity and was to be quashed. Also, we find that the Hon’ble High Court of Rajasthan in the case of PCIT v. Kamala Devi Sharma [IT Appeal No. 197 of 2018, dated 10/07/2018], had observed that the issue of notice under section 143(2) of the Act in reassessment proceedings, prior to finalizing the reassessment order, cannot be condoned by referring to section 292BB of the Act and was fatal to the order of the reassessment. Also, we find that the Hon’ble High Court of Madras in the case of Amec Foster Wheeler Iberia SLU – India Project Office v. Dy. CIT  451 ITR 117 (Madras) has held that where the AO did not issue notice under section 143(2) of the Act upon the assessee, then initiation of reassessment proceedings, order rejecting the assessee’s objection against assumption of jurisdiction for reopening and also reference to the Transfer Pricing Officer (TPO) were to be quashed. We further find that the Hon’ble High Court of Patna in the case of CIT v. Nagendra Prasad  (Patna) had observed that where the notice was issued by AO under section 148 of the Act requiring the assessee to file a return within 30 days, but the said return was filed after 8^ months, since return of income was filed by the assessee in response to the notice under section 148 of the Act, though delayed, there should have been a notice issued under section 143(2) as the requirement to issue notice cannot be dispensed with. Further, the Hon’ble High Court of Delhi in the case of Pr. CIT v. S.G. Portfolio (P.) Ltd.  454 ITR 761 (Delhi) had, inter alia, held that where the assessee company had filed the return of income in response to notice under section 148 of the Act, the AO was required to issue notice under section 143(2) of the Act for framing the assessment. Also, the Hon’ble High Court of Madras in the case of Sapthagiri Finance & Investments v. ITO  (Madras) had, inter alia, held that where the AO found that there was an issue in the return of income filed by the assessee under section 148 of the Act, which required an explanation, then he ought to have followed up by issuing notice under section 143(2) of the Act. Also, we find that the Hon’ble High Court of Delhi, in the case of PCIT v. Dart Infrabuild Pvt. Ltd. (2024) 460 ITR 532 (Delhi)(HC), observed that the issuance of a notice under section 143(2) of the Act is mandatory for the framing of an assessment. Further, the Hon’ble High Court of Allahabad in the case of CIT v. Salarpur Cold Storage (P.) Ltd.  (Allahabad), after relying upon the judgment of the Hon’ble Supreme Court in the case of Asstt. CIT v. Hotel Blue Moon  (SC)/[2010] 321 ITR 362 (SC), held that the requirement of issuance of a notice under section 143(2) is mandatory and cannot be brought within the meaning of a procedural irregularity. Apart from that, we find that the “Special Bench” of the ITAT, Delhi, in the case of Raj Kumar Chawla(supra), has held that return of income filed pursuant to notice under section 148 of the Act must be assumed and treated to be a return of income filed under section 139 of the Act and the assessment must thereafter be made under section 143 or 144 of the Act after complying with the mandatory provisions. Also, it was observed that, pursuant to the assessee’s return of income filed in response to a notice under section 148 of the Act, it is incumbent upon the assessing authority to issue a notice under section 143(2) of the Act within the prescribed time period.

22. Considering the aforesaid host of judicial pronouncements, wherein it has been held that pursuant to a return of income filed by the assessee in response to notice issued under section 148 of the Act, it is incumbent on the part of the AO to issue notice under section 143(2) of the Act for framing the assessment, we respectfully follow the same.

23. Admittedly, in the present case no notice under section 143(2) was issued to the assessee company, despite the fact that the AO had at Page 1/para 1 of the assessment order observed that the assessee company in response to notice under section 148 of the Act, dated 24.03.2023 had filed its return of income on 28.12.2023 declaring Nil income (declaring current years loss of Rs. (-) 10,72,076/-), and had further considered the said returned income while quantifying the assessed income of the assessee company at Page 6/para 4 of the assessment order. We are of the firm conviction that the absence of notice under section 143(2) of the Act goes to the validity of the reassessment proceedings and cannot be treated as a mere procedural irregularity. We, therefore, hold that the assessment framed by the AO under section 147 r.w. Section 144, r.w. Section 144B of the Act dated 15.03.2024, without issuing a notice under Section 143(2) after the assessee company had furnished the return in response to the notice under Section 148 of the Act, dated 24.03.2023, is invalid and liable to be quashed.

24. Since we have quashed the assessment on the aforesaid jurisdictional ground, the other grounds raised by the assessee company challenging the validity of the notice under Section 148 on the basis of section 151A of the Act and the eAssessment of Income Escaping Assessment Scheme, 2022, as well as those raised qua the merits of the addition made by the AO are not being adverted to and adjudicated upon and, thus, are left open.

25. In the result, the appeal of the assessee company is allowed in terms of our aforesaid observations.