Raj Kumar Kapoor Vs Assessing Officer (ITAT Delhi)
Delhi ITAT Quashes Reassessment for Failure to Issue Mandatory Notice under Section 143(2), Even Though Return Filed under Section 148 Was Treated as Invalid
The Delhi ITAT quashed the reassessment framed under section 147 after holding that the issuance of notice under section 143(2) is a mandatory jurisdictional requirement once an assessee files a return in response to a notice under section 148, irrespective of the Revenue’s contention that such return was treated as invalid by the CPC for want of e-verification. The assessee had challenged an addition of ₹2.11 crore under section 56(2)(vii)(b)(ii) arising from the difference between the purchase consideration of an immovable property and its stamp duty valuation. However, the Tribunal admitted the additional legal ground relating to the validity of the reassessment and held that it went to the root of the jurisdiction. Relying on the Delhi High Court’s decisions in PCIT v. Dart Infrabuild (P.) Ltd. and PCIT v. Jai Shiv Shankar Traders (P.) Ltd., as well as the Allahabad High Court’s ruling in CIT v. Rajiv Sharma, the Tribunal held that non-issuance of notice under section 143(2) is not a mere procedural irregularity but a jurisdictional defect, which cannot be cured by section 292BB or by the assessee’s participation in the proceedings. Since the Assessing Officer admittedly did not issue a notice under section 143(2) after the return was filed in response to section 148, the entire reassessment proceedings were declared null and void, rendering it unnecessary to examine the merits of the addition under section 56(2)(vii)(b) or the controversy regarding reference to the DVO under section 50C(2).
Cases Discussed
- PCIT-1, Delhi vs. M/s Dart Infrabuild (P.) Ltd. (Delhi High Court), ITA 10/2022, dated 17.11.2023
- PCIT vs. Shri Jai Shiv Shankar Traders (P.) Ltd. (Delhi High Court), (2015) 64 taxmann.com 220
- National Thermal Power Corporation vs. CIT (Supreme Court), 229 ITR 383 (SC)
- CIT vs. Rajiv Sharma (Allahabad High Court), (2011) 336 ITR 678 (All)
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee, challenging the order of the Learned Commissioner of Income Tax (Appeals) [`Ld. CIT(A)’ for short], passed u/s. 250 of the Income Tax Act, 1961 (`the Act’, for short), pertaining to the Assessment Year (`A.Y.’ for short) 2014-15.
2. The assessee has raised the following grounds of appeal along with additional grounds of appeal: –
“1. That the order passed by the Ld. CIT(A) dated 26.08.2025 and the reassessment order of the AO dated 31.03.2022 are bad in law, perverse, arbitrary, and against the principles of natural justice.
2. That the Ld. CIT(A) erred in law and on facts in upholding the addition of f2,11,33,400/- u/s 56(2) (vii) (b) (ii), ignoring the appellant’s objection that the property was purchased at its actual fair market value of f1,30,00,000/-, prevalent in the actual market and not at the inflated circle rate.
3. That the Ld. CIT(A) erred in law and on facts in invoking Section 55A of The Income Tax Act, 1961 in this case. The correct provision is Section 56(2)(vii)(b) read with Section 50C (2), which is referred by Section 56(2)(vii)(b) itself for determination of FMV. Thus, the governing provision is 50C (2), not SSA of The Income Tax Act, 1961.
4. That Ld. CIT(A) erred in law and on facts in upholding the addition made by the Assessing Officer in arbitrary and unjustified manner by not appreciating the fact that once the assessee disputes the adoption of stamp duty valuation, the AO is duty bound to make a reference to the District Valuation Officer (DVO) u/s 50C (2), as mentioned by the first proviso to section 56(2)(vii) (b) of The Income Tax Act, 1961.
5. That the Ld. CIT(A) erred in law and on facts in holding that reference to DVO is merely discretionary. The Ld. CIT(A) failed to appreciate that once the assessee specifically disputes the adoption of stamp duty valuation, the Assessing Officer is duty bound to make a reference to the DVO in terms of section 50C (2) read with the first proviso to section 56(2)(vii)(b). Judicial precedents, have consistently held that such reference is mandatory and not discretionary. The impugned order, therefore, suffers from a fundamental error of law.
6. That the addition sustained by the Ld. CIT(A) is bad in law and on facts as it is based solely on the stamp duty valuation fixed by the State authority, which is neither conclusive nor binding evidence of the fair market value (FMV) of the property. The stamp duty value is adopted only for the limited purpose of levy of stamp duty and cannot be automatically substituted as FMV for income-tax purposes in the absence of any independent corroborative material. Judicial pronouncements have consistently held that circle rates are only a guideline for collection of stamp duty and do not necessarily reflect actual market value. The stamp duty value can only serve as a presumptive value giving rise to the additions. The impugned order, therefore, suffers from a fundamental error of law and deserves to be quashed.
7. That the assessment order has been framed in haste on the last day of limitation, merely to avoid being time-barred, without properly considering the detailed submissions and objections raised by the appellant, thereby violating the principles of natural justice. While the Assessing Officer took shelter under limitation to avoid making a reference to the District Valuation Officer (DVO), the Ld. CIT(A), who was not bound by such limitation, erred in law and on facts in not exercising his appellate powers to remand the matter back to the AO with a direction to obtain valuation from the DVO. The impugned order is, therefore, unjust, unsustainable, and liable to be set aside.
8. That the addition of f2,11,33,400/- sustained by the Ld. CIT(A) is unjustified, excessive, and bad in law, and deserves to be deleted in toto.
The appellant craves leave to amend, alter, or withdraw any of the above grounds or to raise additional grounds at the time of hearing. “
Additional grounds:
“1. That the reassessment proceedings under Section 147 of the Act are illegal and bad in law, as the same has been completed without issuing the mandatory notice under Section 143(2) of the Act, and therefore the entire proceedings are liable to be quashed.
2. The appellant craves leave to amend, alter, or withdraw any ground or grounds of appeal at any time before or during the course of hearing of the appeal.”
3. As the additional ground of appeal filed by the assessee challenging the validity of the assessment order passed under Section 147 r.w.s. 144B of the Act goes to the very root of the case, we deem it fit to admit the same in terms of the proposition laid down by the Hon’ble Apex Court in the case of National Thermal Power Corporation vs. CIT, 229 ITR 383 (SC), wherein no new verification is required for adjudication of the said ground.
4. The brief facts of the case are that the assessee is an individual and had filed his return of income for the year under consideration dated 22.07.2014 declaring total income at Rs.3,01,930. The assessee’s case was reopened based on the information received from ITO (I & CI), Delhi that the assessee had purchased an immovable property dated 13.03.2014 for a sale consideration of Rs.1,30,00,000/-which stamp duty valuation was valued at Rs.3,41,33,400/-. The Ld. AO recorded the reasons for reopening and the notice under Section 148 dated 31.03.2021 was issued and served upon the assessee and in response to which the assessee filed his return of income dated 26.04.2021 declaring total income at Rs.3,01,930/-. Subsequently, notice under Section 142(1) of the Act was issued and served upon the assessee seeking for details pertaining to the impugned transaction. The Ld. AO, then, passed the assessment order under Section 147 r.w.s. 144B of the Act determining the total income at Rs.2,14,35,330/-, after making an addition of Rs.2,11,33,400/- towards the difference in the sale consideration and the stamp duty valuation under Section 56(2)(vii)(b)(ii) of the Act.
5. Aggrieved, the assessee was in appeal before the First Appellate Authority, who, vide order dated 26.08.2025, upheld the addition made by the Ld. AO on the ground that Section 55A of the Act for reference of valuation to DVO is not mandatory and is only a discretionary power vested with the AO. Aggrieved by the said order, the assessee is in appeal before us challenging the impugned order of the Ld. CIT(A).
6. Before getting into the merits of the case, we deem it fit to adjudicate the legal ground raised by the assessee for the reason that determination of this ground would go to the very root of the assessment proceedings and, hence, the same shall be adjudicated prima facie. It is observed that the assessee has challenged the validity of the assessment order passed under Section 147 of the Act as being without issuance of the mandatory notice under Section 143(2) of the Act and prayed for quashing of the entire assessment proceedings.
7. The Ld. AR for the assessee contended that notice under Section 143(2) of the Act was not issued to the assessee which is a mandatory requirement prior to the passing of the reassessment order. The Ld. AR further contended that not complying with the same is not a curable defect as per the Proviso to Section 292BB of the Act and it is now a settled proposition of law that the issuance of notice under Section 143(2) of the Act is a jurisdictional one which cannot be dispensed with. The Ld. AR relied on a catena of decisions of jurisdictional High Court as well as other High Courts wherein this issue is decided in favour of the assessee.
8. The Ld. DR, on the other hand, controverted the said fact and stated that the assessee has raised this issue for the first time before the Tribunal which was never raised before the Ld. CIT(A). The Ld. DR further contended that the return of income filed by the assessee in response to the notice issued under Section 148 of the Act dated 26.04.2021 was treated as invalid by the CPC and, therefore, it was not obligatory on the part of the Ld. AO to issue notice under Section 143(2) of the Act and had issued notice under Section 142(1) of the Act for furnishing all the relevant details. The Ld. DR further contended that because the return filed in response to notice under Section 148 of the Act was not e-verified, consequent to which the same was treated as an invalid return. The Ld. DR further argued that the Assessing Officer was not duty bound to issue notice under Section 143(2) of the Act when there was no valid ROI and relied on the orders of the lower authorities.
9. In the above factual matrix of the case, the moot issue that requires adjudication is whether the assessment order passed under Section 147 of the Act without issuance of notice under Section 143(2) of the Act is liable to be quashed in the facts of the case, though the assessee had filed his return of income in response to notice under Section 148 of the Act which was alleged to have been treated as invalid by the CPC for lack of e-verification. For this, we would place reliance on the decision of the Hon’ble jurisdictional High Court in the case of PCIT-1, Delhi vs. M/s Dart Infrabuild (P) Ltd. dated 17.11.2023 in ITA 10/2022, relied upon by the ld. AR wherein it was held that though, in the present case, the return of income was filed, but, not within the 30 days provided by the notice issued under Section 148 of the Act, the Ld. AO treated the same to be an invalid return. The Hon’ble High Court rejected the Revenue’s contention that the Ld. AO was not obliged to issue the notice under Section 143(2) of the Act since the return of income filed by the assessee was considered to be an invalid return. The Court held that the assessment proceedings shall be null and void in the absence of notice under Section 143(2) of the Act. It further held that it was mandatory to issue notice under Section 143(2) of the Act when the assessee has filed its return in response to notice under Section 148 of the Act even if it was a belated return as in that case. The said decision has also relied on the decision of the Hon’ble jurisdictional High Court in the case of PCIT vs. Shri Jai Shiv Shankar Traders (P) Ltd., reported in (2015) 64 taxmann.com 220 (Delhi High Court) which, in turn, had relied on the decision of the Hon’ble Allahabad High Court in the case of CIT vs. Rajiv Sharma (2011) 336 ITR 678 (All) where the interplay of Sections 143(2) and 148 of the Act was narrated and not complying with the mandatory requirement of issuing notice under Section 143(2) of the Act cannot be cured by the Proviso to Section 292BB of the Act stating that the assessee has participated in the assessment proceedings, would no longer obviate the mandatory requirement of complying with the jurisdictional condition. It was further reiterated that the same was not merely a procedural irregularity, but, a mandatory requirement not curable by the said provision. The very intention of the said provision was that the legislature in its wisdom had cast a duty on the AO for application of mind on the basis of the materials on record and after being satisfied with regard to the income escaped assessment, for which it shall be mandatory for the AO to serve notice under Section 143(2) pursuant to the return in response to notice under Section 148 by assigning reason thereupon. In the present case in hand, it is not disputed that the assessee had filed ROI in response to notice under Section 148 of the Act which fact was also recorded by the Ld. AO in the assessment order who also specifies that the ROI filed by the assessee was treated as invalid by CPC. Hence, the proposition laid down by the Hon’ble High Court in the above mentioned case would squarely be applicable in assessee’s case as well. Further, there are catena of decisions in support of the assessee’s contention and by respectfully following the same, we deem it fit to hold that the reassessment order framed in the absence of the mandatory notice under Section 143(2) of the Act shall stand vitiated and nullified in entirety as being invalid in the eyes of law. We, therefore, deem it fit to allow the additional ground raised by the assessee. As we have already quashed the entire assessment order, there is no requirement of adjudicating the other grounds of appeal raised by the assessee.
10. In the result, the appeal filed by the assesseee is hereby allowed on the above observations.
Order pronounced in the open court on 24.07.2026.
