Reassessment Order Quashed as Assessing Officer Issued

Reassessment Order Quashed as Assessing Officer Issued Section 143(2) Notice Before Disposing of Objections

Issue

Whether reassessment proceedings under Section 147 and the consequential assessment order are legally sustainable when the Assessing Officer issues a notice under Section 143(2) prior to disposing of the assessee’s objections against the reopening of assessment.

Facts

Assessment Year: The case pertains to Assessment Year 2014-15.
Initiation of Reassessment: The Assessing Officer (AO) initiated reassessment proceedings under Section 147 by issuing a notice under Section 148 to the assessee.
Objections Filed: The assessee filed formal objections challenging the validity and reasons for the reopening of the assessment under Section 147.
Procedural Default: Prior to passing a speaking order disposing of the assessee’s objections to the reopening, the AO issued a notice under Section 143(2) to proceed with the assessment.

Decision

Procedural Violation Fatal (In Favour of Assessee): Issuing a statutory notice under Section 143(2) before formally disposing of the assessee’s objections violates the established procedure for reassessment.
Quashing of Order (In Favour of Assessee): The reassessment proceedings initiated pursuant to the Section 148 notice were vitiated, and the consequential assessment order passed by the AO was liable to be quashed.

Key Takeaways

Mandatory Order on Objections: The Assessing Officer is legally bound to dispose of an assessee’s objections against reopening by passing a separate speaking order before taking further statutory steps (such as issuing a Section 143(2) notice).
Jurisdictional Defect: Bypassing the mandatory procedural sequence of deciding objections first renders the subsequent reassessment proceedings void ab initio.

IN THE ITAT MUMBAI BENCH ‘C’

ACIT

Perlin Cosmeceuticals (P.) Ltd.

Ms. Debjani Mitra Neogy, Judicial Member
and Om Prakash Kant, Accountant Member

IT Appeal No. 7781 (Mum.) of 2026
CO No. 289 (Mum.) of 2026
[Assessment year 2014-15]

OCTOBER 8, 2026

V.S. Mahajan, SR-DR for the Appellant. Devendra Jain, Adv. and Mahesh O. Rajora, CA for the Respondent.

ORDER

Om Prakash Kant, Accountant Member. – This appeal by the Revenue and cross-objection by the assessee are directed against order dated 6th April 2026 passed by the learned National Faceless Appeal Centre, Delhi [hereinafter shall be referred as learned CIT(A)] for Assessment Year 2014-15.

2. The ground raised by the Revenue are reproduced as under:

“1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in law by deleting the adjustment of Rs. 70,98,36,611/- to the Book Profit u/s. 115JB, without appreciating that the assessee utilized sham, unverified, and highly inflated internal asset projections to artificially lower its book profit, which constitutes a colorable tax avoidance device designed to circumvent the actual profits realized from the L’Oreal brand transfer.”

2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in giving directions regarding the levy of surcharge and interest u/s. 234B of the Act without reaching other co-related grounds to the finality yet.”

3. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in giving directions regarding the initiation of penalty proceedings u/s. 271(1)(c) without reaching other co-related grounds to the finality yet.”

4. “The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.”

5. “The Department craves leave to add, amend, modify, or delete any ground of appeal at the time of hearing.”

3. Ground raised by assessee in the cross-objection are reproduced as under:

“1. (a) The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [‘CIT(A)’] erred in confirming the action of AO in issuing notice u/s 148 of the Act and passing the assessment order u/s 143(3) r.w.s. 147 of the Act in the name of M/s Perlin Cosmeceuticals Pvt Ltd, a non-existent person/entity, as the same has already been amalgamated with M/s Fairmount Healthcare Private Limited as on the date of issue of notice u/s 148 of the Act.

The Appellant submit that w.e.f. 01.04.2016 M/s Perlin Cosmeceuticals Pvt. Ltd is amalgamated with M/s Fairmount Healthcare Private Limited, hence the notice issued u/s 148 of the Act and assessment order passed u/s 143(3) r.w.s. 147 of the Act on a non-existent person/entity is null and void, bad in law, ultravires to provisions of the Act and is liable to be quashed.

(b) The CIT(A) erred in upholding the validity of notice issued by the AO u/s 148 and assessment order passed u/s 147 of the Act, inspite of making specific observation that the notice u/s 148 and order u/s 147 of the Act passed by the AO on an entity that had ceased to exist and order passed by AO is without jurisdiction, null and void

2. (a) The CIT(A) erred in confirming the action of AO in reopening the assessment by invoking provisions of section 147 read with section 148 of the Act and assessing the book profit u/s 115JB of the Act at Rs.71,74,76,406/- u/s 143(3) r.w.s. 147 of the Act as against the book profit of Rs.76,39,796/- declared by the Appellant in his return of income and assessed u/s 143(3) of the Act.

The Appellant submits that the reopening of the assessment and consequential order passed by the AO is wrong on facts, bad in law, ultra vires and contrary to the provisions of the Act and shall be quashed.

(b) The CIT(A) erred in confirming the action of AO in issuing the notice u/s 148 of the Act after expiry of four years from the end of relevant assessment year, without there being any failure on the part of the Appellant to disclose fully and truly all material facts necessary for its assessment.

The Appellant submits that in its case assessment proceeding has been completed u/s 143(3) of the Act after considering full details/disclosure filed by the Appellant; hence, the assessment cannot be reopened after expiry of four years from the end of relevant assessment year when there is no failure on the part of the Appellant to disclose fully and truly all material facts necessary for its assessment.

(c) The CIT(A) erred in confirming the reopening u/s 148 of the Act inspite of making specific observations that there is no allegation by the AO that any primary document was concealed or that the Appellant withheld any material fact and the AO has merely reappreciated the facts of the case which amounts to a change of opinion.”

4. Since the grounds raised by the assessee in the crossobjection challenge the very validity of the reassessment proceedings and, therefore, go to the root of the matter, we deem it appropriate to adjudicate the same first.

5. Before us, the learned counsel for the assessee submitted that, after issuance of notice under section 148, the assessee had raised objections to the reopening. However, without first disposing of those objections by a speaking order, the Assessing Officer proceeded with the reassessment by issuing notice under section 143(2) of the Act. It was submitted that such action is contrary to the settled law laid down by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC) and by the Hon’ble jurisdictional Bombay High Court in H. P. Diamonds India (P.) Ltd. v. Dy. CIT (Bombay).The relevant finding of the Honorable High Court is reproduced as under:

“16. We have heard the learned Counsel for the parties at great length on this issue. We have also perused the papers and proceedings in the above whit Petition. In the facts of the present case, the impugned Notice issued under Section 148 is dated 31 March 2019. Hence, the present case would be governed by the law as it stood prior to its amendment on 1 April 2021. To put it in a nutshell the law as it stood then was this: (a) If the Assessing Officer had “reason to believe” that income of the Assessee had escaped assessment, he could issue a Notice under Section 148 within the time stipulated under the IT Act; (b) once a Notice was issued under Assessee could call upon the Assessing Officer, if it so chose, to furnish the reasons for reopening the Section 148, the Assessee was obligated to file a Return of Income; (c) after filing the Return of Income, the assessment; (d) once the reasons were furnished, the Assessee had the option to file its objections to those reasons; (e) if the objections were filed, it was incumbent upon the Assessing Officer to dispose of those objections by a speaking order, (f) thereafter, the Assessing Officer had to wait for a period of 4 weeks from the date of service of the order disposing of the objections so as to enable the Assessee to challenge the same before the Court; (9) only thereafter could the Assessing Officer proceed with the reassessment proceedings and pass an Assessment Order. We do not think that there is any dispute with reference to the law as set out by us above.

17. However, the issue that arises for our consideration is whether a Notice under Section 143(2) could be issued before disposing of the objections filed by the Assessee. In other words, can it be said that by issuing a Notice under Section 143(2) before disposing of the objections filed by the Assessee, would amount to proceeding with the assessment. To decide this question, we would first refer to the relevant portion of Section 148 which reads thus:-

“148. Issue of notice where income has escaped assessment. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on theassessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.”

(emphasis supplied)

18. As can be seen from this Section, before making any assessment, reassessment or recomputation under Section 147, the Assessing Officer is mandated to serve upon the Assessee a Notice requiring him to furnish a Return of Income or the income of any other person in respect to which he is assessable under the Act, in the prescribed form, verified in the prescribed manner, and setting forth such other particulars as may be prescribed. Section 148 further stipulates that the provisions of IT Act, so far as may be, apply as if such return were a return required to be furnished under Section 139. In other words, once a return is filed in answer to a Notice under Section 148, the same is processed as if it was a return filed under Section 139. In such a scenario, if that return is to be scrutinized, then necessarily, first a Notice under Section 143(2) must be issued, and thereafter, Notices under Section 142(1) can also be issued asking for further particulars and other details. Thereafter, the Assessing Officer, after examining the details, if any, furnished by the Assessee, can pass the reassessment order under Section 143(3) read with Section 147. If no Return is filed or no details are forthcoming, then the Assessing Officer can also pass a reassessment order under Section 144 (best judgment assessment) read with SSection 147. If no Return is filed or no details are forthcoming, then the Assessing Officer can also pass a reassessment order under Section 144 (best judgment assessment) read with Section 147. On analyzing the provisions of Section 148 as well as the provisions of Section 143 and 142, it is clear that when a Return is filed in answer to a Notice issued under Section 148, to procced with the reopened assessment, a Notice is issued under Section 143(2) to the concerned Assessee. This is really the starting point of the assessment proceedings. This is also clear from what is stated in Section 143(2) which reads thus:-

“143(2) Where a return has been furnished under Section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case maybe, 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 the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return.”

(emphasis supplied)

19. Hence, where a Return is filed by the Assessee, the issuance of a Notice under Section 143(2) would amount to proceeding with the assessment whereby the Assessing Officer issues the Notice to ensure that the Assessee has not understated its income or has not computed excessive loss or under-paid the tax in any manner, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the Assessee may rely upon in support of the return filed. The question therefore is, in reassessment proceedings, can a 143(2) Notice be issued before the objections of the Assessee to the reopening are disposed of by the Assessing Officer.

20. It is now well settled that the sine qua non for reopening the assessment for any Assessment Year, the Assessing Officer must have “reason to believe” that income has escaped assessment for that particular Assessment Year. Further, no Notice under Section 148 can be issued unless reasons are recorded by the Assessing Officer and those are placed before the concerned higher authority under Section 151, seeking its sanction for issuance of the said Notice. Once the said higher authority, after examining the reasons for reopening the assessment, is satisfied that the income of the Assessee has escaped assessment, it grants its sanction for issuance of a Notice under Section 148. Once the sanction is received by the Assessing Officer, he proceeds to issue the Notice under Section 148. When one looks at the scheme of Section 148, it is clear that reassessment proceedings can be initiated only if the Assessing Officer has “reason to believe” that income has escaped assessment. Those reasons are then finally furnished to the Assessee to which he files his objections. If those objections are upheld by the Assessing Officer, then naturally, the reassessment proceedings are dropped. If for any reason the Assessing Officer rejects the objections, then the Assessing Officer can proceed with the assessment/Once this is the scheme, we are of the view that before proceeding with assessment, namely by initiating a Notice under Section 143(2), the Assessing Officer must dispose of the objections filed by the Assessee. We say this because, in the objections, the Petitioner could certainly argue that the jurisdictional requirements for reopening the assessment have not been met in the facts and circumstances of a particular case. It is only when the Assessing Officer rules on those jurisdictional requirements can he then proceed with the assessment. If one were to issue a Section 143(2) Notice and proceed with the assessment without first disposing of the objections, it would really amount to putting the cart before the horse.21. In the view that we have taken, we are supported by the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd (supra). In this decision, the Hon’ble Supreme Court has in fact stated that the Assessing Officer must dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment. The relevant portion of this decision reads thus:-

“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years. ”

(emphasis supplied)

22. As mentioned earlier, the issuance of a Notice under Section 143(2) is really the starting point of the assessment proceedings once the return is filed by an Assessee. To scrutinize that return, the Assessing Officer starts the scrutiny proceedings by issuing a Notice under Section 143(2). Therefore, we are clearly of the view that before issuance of a Notice under Section 143(2) [in reassessment proceedings] the Assessing Officer must dispose of the objections filed by the Assessee with a speaking order. In reassessment proceedings the10 Assessing Officer cannot issue a Notice under Section 143(2), or even a Notice under Section 142(1) be disposing of the objections filed by the Assessee by passing a speaking order.

23. In view of what we have held earlier, we are unable to agree with the argument of Mr. Sharma that in GIN Driveshafts (India) Ltd (supro), when the Hon’ble Supreme Court has stated that the Assessing Officer shall dispose of the objections filed by the Assessee before proceeding with the assessment, the same really means that an Assessment Order cannot be passed before disposing of the Assessee’s objections. There is nothing even remotely in the decision of GKN Driveshafts (India) Ltd (supra) to suggest such a conclusion. In fact, the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd (supra) has been explicit in stating that the Assessing Officer shall dispose of the objections, if filed, by a speaking order, before proceeding with the assessment. If the Hon’ble Supreme Court in fact wanted to lay down that it is only an Assessment Order that cannot be passed before the objections were decided, it would have explicitly stated so. We, therefore, find that the argument canvassed by Mr. Sharma on this aspect is wholly misconceived and is therefore rejected.

24. In the facts of the present case, we find that issuance of the Notice under Section 142(1) was also contrary to the law laid down by this Court in Asian Paints Ltd. (supro). In this decision, this Court has clearly held that if the Assessing Officer does not accept the objections filed by the Assessee, he shall not proceed further in the matter for a period of 4 weeks from the date of receipt of service of the said order on the objections by the Assessee. The relevant portion of the decision in Asian Paints Ltd. (supra) reads thus:-

“2. In all the above petitions, it is a case regarding reopening of the assessment order under section 148 of the Income-tax Act. In all the above cases, the petitioners have filed their respective objections on January 15, 2007, with regard to reopening of the assessment.

3. The learned senior counsel for the petitioner pointed out that in some of the cases as soon as the objections were rejected by the concerned Income-tax Officer, even the assessment order has been passed within a very short time whereby the assessee is left without any remedy to challenge such an order of rejection.

4. Hence we make it clear that if the Assessing Officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee.”

(emphasis supplied)

25. In the facts of the present case, as mentioned earlier, the Notice under Section 143(2) (in reassessment proceedings) was issued on 2nd September 2019 and the reasons for reopening the assessment were furnished to the Petitioner only on 3rd September 2019. Once the reasons were furnished, the Petitioner filed his objections to the reasons recorded on 2nd October 2019. Those objections were rejected by the 1st Respondent by passing an order on 31st October 2019. As per the decision of this Court in Asian Paints Ltd. (supra), the Assessing Officer could not proceed further for a period of 4 weeks from 31st October 2019 [assuming that the said order was served on the very same date]. However, in the facts of the present case the Assessing Officer proceeded further by issuing a Notice under Section 142(1) on 12th November 2019. In other words, the said Notice was issued even prior to the expiry of the period of 4 weeks after the passing of the order rejecting the objections of the Petitioner. The issuance of this Notice is clearly in violation of the law laid down by this Court in Asian Paints Ltd. (supra) and hence cannot be sustained.

26. In view of the foregoing discussion, we hereby set aside the Notice dated 2nd September 2019 issued under Section 143(2) and Notice dated 12th November 2019 issued under Section 142(1) of the IT Act. Necessarily, any action taken in furtherance of these two Notices is also quashed and set aside.”

6. We have heard the rival submissions and carefully perused the material available on record. The undisputed sequence of events is that notice under section 148 was issued by the Assessing Officer on 1st August 2019. In response thereto, the assessee filed its return of income on 22nd August 2019. The reasons recorded for reopening were furnished to the assessee on 25th September 2019. The assessee thereafter filed its objections to the reopening on 17th October 2019. However, on the very same date, and without disposing of the objections so raised, the Assessing Officer issued notice under section 143(2) of the Act. The objections were ultimately disposed of only on 16th February 2021.Thus, the chronology of events leaves no manner of doubt that the Assessing Officer proceeded with the reassessment by issuing notice under section 143(2) before adjudicating upon the objections raised by the assessee against the assumption of jurisdiction under section 148.

7. The issue is no longer res integra. In GKN Driveshafts (India) Ltd. (supra) , the Hon’ble Supreme Court laid down the procedure to be followed in reassessment proceedings and categorically held that, upon receipt of objections to the reasons recorded, the Assessing Officer is bound to dispose of the same by passing a speaking order before proceeding with the assessment.

8. The Hon’ble jurisdictional High Court in HP Diamonds India Pvt. Ltd. (supra) has thereafter examined the precise question as to whether issuance of notice under section 143(2), before disposal of the objections to reopening, amounts to proceeding with the assessment. Answering the question in the affirmative, the Hon’ble High Court held that issuance of notice under section 143(2) is the commencement of the scrutiny assessment proceedings and, consequently, such notice cannot be issued before disposal of the objections raised by the assessee against the reopening. The Court further held that the Assessing Officer must thereafter allow the assessee the period prescribed in Asian Paints Ltd. (supra) before proceeding further with the reassessment.

9. Applying the aforesaid binding principles to the facts of the present case, we find that the Assessing Officer issued notice under section 143(2) on 17th October 2019, notwithstanding that the assessee’s objections to the reopening were pending and were disposed of only on 16th February 2021. The Assessing Officer, therefore, proceeded with the reassessment without first determining the validity of the assumption of jurisdiction under section 148.

10. Such action is directly contrary to the procedure mandated by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) and the law declared by the Hon’ble jurisdictional High Court in HP Diamonds India Pvt. Ltd. (supra). The defect is not a mere irregularity in the course of assessment proceedings; it goes to the manner in which the reassessment proceedings were lawfully required to be proceeded with. Once the Assessing Officer was confronted with objections challenging the very assumption of jurisdiction under section 148, he was required to adjudicate those objections first by passing a speaking order and could proceed with the assessment only thereafter, in accordance with law.

11. We, therefore, respectfully following the aforesaid binding judicial precedents, hold that the reassessment proceedings initiated by the Assessing Officer in the present case are not sustainable in law. Consequently, the assessment order passed pursuant thereto is liable to be quashed.

12. Since we have quashed the reassessment proceedings on the aforesaid jurisdictional ground, the other grounds raised by the assessee in the cross-objection, as well as the grounds raised by the Revenue challenging the deletion of the addition on merits, become academic. We, therefore, do not consider it necessary to adjudicate upon those grounds, leaving the same open.

13. In the result, the cross-objection filed by the assessee is allowed, whereas the appeal filed by the Revenue is dismissed.