Pankaj Kumar Baheti Vs ITO (ITAT Hyderabad)
Summary: The ITAT Hyderabad allowed the assessee’s appeal for AY 2013-14 and quashed the reassessment order dated 09.05.2023 because the Assessing Officer had not issued the mandatory notice under Section 143(2). The assessee had originally declared income of Rs. 11,38,610/-. The Assessing Officer subsequently denied the exemption claimed under Section 10(38) on long-term capital gains from share sales and added the entire sale consideration of Rs. 26,27,400/-, assessing total income at Rs. 37,66,010/-. The CIT(A) sustained the addition.
Before the Tribunal, the assessee submitted that he had filed a return on 29.05.2021 in response to the earlier Section 148 notice. Following the Supreme Court’s decision in Union of India And Others Vs. Ashish Agarwal, a subsequent notice under Section 148 was issued on 31.07.2022. Through his communication dated 01.03.2023, the assessee specifically requested that the earlier return be treated as the return furnished in response to the subsequent notice. The Revenue argued that this request did not amount to furnishing a fresh return and, alternatively, that it was beyond the period allowed in the notice.
The Tribunal held that, in the peculiar facts, the assessee was not required to mechanically upload an identical return when the return for the same assessment year was already available and had been expressly adopted in response to the subsequent notice. Once the Assessing Officer proceeded on that basis, scrutiny of the return and additions to the returned income required compliance with Section 143(2). The Tribunal also rejected the Revenue’s reliance on the third proviso to Section 148, inserted by the Finance Act, 2023 with effect from 01.04.2023. That provision could not retrospectively alter the legal character of the assessee’s request made on 01.03.2023.
Accordingly, the Tribunal held that the reassessment completed without issuing Section 143(2) notice was without jurisdiction and quashed the order passed under Section 147 read with Sections 144 and 144B. The remaining grounds concerning the addition and other challenges became academic and were not separately adjudicated. The appeal was allowed.
Cases Discussed
- Union of India And Others Vs. Ashish Agarwal, (2022) 444 ITR 1 (Supreme Court), decided on 04.05.2022 — The decision formed the procedural background for continuation of the reassessment proceedings under the substituted regime and issuance of the subsequent Section 148 notice dated 31.07.2022.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Shri Pankaj Kumar Baheti (“the assessee), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 20.03.2026 for the A.Y.2013-14.
2. The assessee has raised the following grounds of appeal:
1) That the Reassessment proceedings initiated u/s. 147 are bad in law as there is no escapement of Income since there is no Information in terms of Explanation 1 to Section 148 which suggests that Income chargeable to tax has escaped assessment and the Learned CIT(Appeals) erred in not deciding the Grounds of Appeal on this issue.
2) That without prejudice to above, since the reasons recorded for reopening of Assessment under the Reopening Provision as they stood before 01.04.2021 was that bogus long term capital gains / short term capital loss on transaction value of Rs.26,27,400/- has escaped assessment but in the Notice issued u/s 148A(b) consequent to the decision of Hon’ble Supreme Court in Union of India Vs. Ashish Agarwal, the scope of Reopening was expanded by including verification of Third Party Information which was not part of the Original Reasons recorded for Reopening, the Reopening of Assessment u/s 147 is bad in law and the Learned CIT(Appeals) erred in not deciding this issue.
3) That without prejudice to the above, the Assessment is barred by limitation u/s 149(1) since the Income alleged to have escaped assessment is 26,27,400/- but in terms of Section 149(1) no notice can be issued if three years have elapsed from the end of the relevant assessment year unless Assessing Officer has in his possession books of Accounts or other documents or evidence which reveal that Income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to Rs. 50 lakhs or more and the Learned CIT(Appeals) erred in not deciding the Grounds of Appeal on this issue
4) That without prejudice to above, the Learned CIT(Appeals) erred in sustaining the addition of 26,27,400/- as Unexplained Cash Credit u/s 68 by treating the transaction of sale of Equity Shares of Financial Credit and Guarantee Limited as Bogus.
Contd…2
4) That since the transaction of sale of Shares is absolutely genuine and fully supported by documentary evidence and none of the evidence submitted by Appellant has been doubted by the Assessing Officer, the Learned CIT(Appeals) erred in not deleting the addition made u/s 68.
5) That without prejudice to above, the Reassessment Order passed u/s 147 dated 09.05.2023 is bad in law since Notice u/s 143(2) was not issued before passing the Reassessment Order which invalidates the Reassessment Order and the Learned CIT(Appeals) erred in not deciding the Grounds of Appeal on this issue.
6) The Appellant prays leave to add, amend or delete any Grounds of Appeal.
Appellant
3. The brief facts of the case are that the assessee is an individual who had filed his return of income for the assessment year 2013-14 on 18.10.2013, declaring a total income of Rs. 11,38,610/-. The Assessing Officer observed that during the year under consideration, the assessee had sold shares amounting to Rs. 26,27,400/- and had claimed the resultant long-term capital gain as exempt under section 10(38) of the Income-tax Act, 1961 (“the Act”). Accordingly, reassessment proceedings were initiated in the case of the assessee and notice under section 148 of the Act was issued on 31.07.2022 after following the procedure pursuant to the judgment of the Hon’ble Supreme Court in the case of Union of India And Others Vs. Ashish Agarwal, (2022) 444 ITR 1 (SC), dated 04.05.2022. After considering the submissions of the assessee, the Assessing Officer denied the exemption claimed under section 10(38) of the Act in respect of the long-term capital gain arising from the sale of shares and added the entire sale consideration of Rs. 26,27,400/- to the income of the assessee. Accordingly, the Assessing Officer completed the assessment under section 147 read with sections 144 and 144B of the Act vide order dated 09.05.2023, assessing the total income of the assessee at Rs. 37,66,010/-.
4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who confirmed the addition made by the Assessing Officer and dismissed the appeal of the assessee.
5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. The Learned Authorized Representative (“Ld. AR”) submitted that the ground no. 5 raised by the assessee involves a legal issue challenging the validity of the reassessment order on the ground that the Assessing Officer completed the reassessment without issuing the mandatory notice under section 143(2) of the Act. In this regard, the Ld. AR submitted that the assessee had specifically intimated the Assessing Officer vide reply dated 01.03.2023, placed at page no. 40 of the paper book, that the return of income filed by him on 29.05.2021 in response to the notice issued under section 148 under the erstwhile provisions of the Act may be treated as the return of income filed in response to the subsequent notice issued under section 148 under the amended provisions of the Act. Despite such specific intimation, the Assessing Officer proceeded to complete the reassessment without issuing any notice under section 143(2) of the Act. The Ld. AR, therefore, submitted that issuance of notice under section 143(2) of the Act being a mandatory jurisdictional requirement, the assessment framed without issuance of such notice is invalid and liable to be quashed.
6. Per contra, the Learned Departmental Representative (“Ld. DR”) submitted that the assessee had not filed any fresh return of income in response to the notice issued under section 148 under the amended provisions of the Act. According to the Ld. DR, a mere request made by the assessee that the return filed earlier in response to the notice issued under the erstwhile provisions may be treated as the return in response to the subsequent notice under section 148 cannot be equated with the filing of a return pursuant to the subsequent notice. The Ld. DR further submitted, in the alternative, that even if the assessee’s communication dated 01.03.2023 is considered as a request to treat the earlier return as the return filed in response to the subsequent notice under section 148 of the Act, the same was beyond the period prescribed in the notice dated 31.07.2022. Inviting our attention to the third proviso to section 148 of the Act, the Ld. DR submitted that a return furnished beyond the period allowed for furnishing the return shall not be deemed to be a return under section 139 of the Act. Therefore, according to the Ld. DR, once the return cannot be regarded as a return under section 139 of the Act, there was no requirement for the Assessing Officer to issue a notice under section 143(2) of the Act. Accordingly, the Ld. DR prayed that the legal ground raised by the assessee be dismissed.
7. We have heard the rival submissions and perused the material available on record. We have also gone through the relevant statutory provisions and the material placed in the paper book. There is no dispute before us that the Assessing Officer has completed the reassessment without issuing any notice under section 143(2) of the Act. The principal controversy is whether, in the facts of the present case, the assessee can be regarded as having furnished a return in response to the notice issued under section 148 of the Act dated 31.07.2022 so as to attract the mandatory requirement of issuance of notice under section 143(2) of the Act. It is an admitted position that the assessee had already filed a return of income on 29.05.2021 in response to the earlier notice issued under section 148 under the erstwhile provisions of the Act. Pursuant to the judgment of the Hon’ble Supreme Court in Ashish Agarwal (supra), the proceedings were thereafter continued under the substituted reassessment regime and a fresh notice under section 148 was issued on 31.07.2022. In this regard, we have gone through the submission of the assessee, dated 01.03.2023 placed at page no. 40 of the paper book, which is to the following effect:
8. On perusal of the above, we find that the assessee, vide its communication dated 01.03.2023, specifically requested the Assessing Officer to treat the return already filed on 29.05.2021 as the return filed in compliance with the subsequent notice under section 148 of the Act. It is pertinent that under section 148 of the Act, as it then stood, the provisions of the Act were to apply to a return furnished pursuant thereto, so far as may be, as if such return were a return required to be furnished under section 139 of the Act. In our considered view, the objection of the Ld. DR that such communication cannot amount to furnishing a return in response to the subsequent notice under section 148 of the Act cannot be accepted in the peculiar facts of the present case. Once a return of income for the very same assessment year was already available with the Assessing Officer and the assessee specifically and unequivocally communicated that such return should be treated as the return furnished in response to the subsequent notice under section 148 of the Act, there was no requirement in law for the assessee to mechanically upload an identical return once again merely for the purpose of completing a procedural formality. The substance of the assessee’s communication was clear and unambiguous, namely, that the return already furnished should constitute its return in response to the subsequent notice. Once such request was made and the Assessing Officer proceeded with the reassessment on that basis, the return already on record was required to be treated as the return furnished in response to the subsequent notice under section 148 of the Act. Consequently, if the Assessing Officer intended to scrutinize such return and make additions to the income returned therein, compliance with the mandatory requirement of section 143(2) of the Act was necessary.
9. We also do not find merit in the alternative contention of the Ld. DR based upon the third proviso to section 148, which is to the following effect:
14[Issue of notice where income has escaped assessment.
148. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within 15[a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee], 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:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:
16[Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section:]
17[Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139.]
10. On perusal of the above, it is evident that the third proviso providing that a return furnished beyond the period allowed shall not be deemed to be a return under section 139 of the Act, was introduced by the Finance Act, 2023 with effect from 01.04.2023. In the present case, the assessee had already made the specific request on 01.03.2023 to treat the return earlier filed on 29.05.2021 as the return furnished in response to the subsequent notice under section 148 of the Act. Thus, on the date on which the assessee made the said request, the third proviso relied upon by the Revenue was not on the statute book. Therefore, a substantive consequence introduced by the Finance Act, 2023 with effect from 01.04.2023, namely, that a return furnished beyond the permitted period would not be deemed to be a return under section 139 of the Act, cannot be invoked to retrospectively alter the legal character of the assessee’s return/request made on 01.03.2023. We are, therefore, unable to accept the contention of the Ld. DR that, by virtue of the subsequently inserted third proviso to section 148 of the Act, the return of the assessee should be treated as a non est return and consequently no notice under section 143(2) of the Act was required to be issued. Once the return filed earlier by the assessee was specifically adopted by him as the return in response to the subsequent notice under section 148 of the Act, the Assessing Officer, before proceeding to scrutinize the return and make additions thereto, was required to issue notice under section 143(2) of the Act. The requirement of issuance of such notice is not an empty procedural formality but goes to the assumption of jurisdiction to make a scrutiny assessment. Admittedly, no notice under section 143(2) of the Act was issued in the present case.
11. In view of the foregoing discussion, we hold that the reassessment completed by the Assessing Officer without issuance of the mandatory notice under section 143(2) of the Act is without jurisdiction and, therefore, cannot be sustained. Accordingly, the assessment order passed under section 147 read with sections 144 and 144B of the Act dated 09.05.2023 is hereby quashed. Consequently, ground no. 5 raised by the assessee is allowed.
12. Since we have quashed the reassessment itself on the aforesaid jurisdictional ground, the other grounds raised by the assessee challenging the addition on merits have become academic and, therefore, do not require separate adjudication.
13. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 16th September,2026.
