Featured image for Supreme Court Judgment dated 13-08-2019 in case of petitioner name Commissioner of Income Tax vs Laxman Das Khandelwal
| |

Income Tax Reassessment Quashed: Supreme Court Rules on Notice Requirement

The case of Commissioner of Income Tax v. Laxman Das Khandelwal deals with the validity of an income tax reassessment when no notice under Section 143(2) of the Income Tax Act, 1961, was issued to the assessee. The Supreme Court had to decide whether the omission of such a notice could be cured under Section 292BB, which deems notices valid in certain cases. The Court ruled that the absence of a notice under Section 143(2) is a fundamental defect and not a curable procedural lapse.

Background of the Case

The respondent, Laxman Das Khandelwal, was subjected to a search and seizure operation under Section 132 of the Income Tax Act on March 11, 2010. Following the search, the respondent filed a return declaring an income of Rs. 9,35,130/-. The Assessing Officer (AO) completed the assessment under Section 143(3) read with Section 153A of the Act, adding various amounts as unexplained income:

  • Rs. 9,09,110/- as unexplained cash under Section 69
  • Rs. 15,09,672/- as unexplained jewelry
  • Rs. 45,00,000/- as unexplained hundies
  • Rs. 29,53,631/- as unexplained cash receipts

The respondent challenged the additions before the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted a significant portion of the additions. The Income Tax Department then appealed to the Income Tax Appellate Tribunal (ITAT), where the respondent also raised a cross-objection regarding the lack of a notice under Section 143(2).

Tribunal’s Ruling

The ITAT quashed the reassessment proceedings, holding that the absence of a notice under Section 143(2) invalidated the entire assessment. It observed:

“Issue of notice under Section 143(2) for completion of regular assessment in the case of the assessee was a statutory requirement as per the provisions of the Act and non-issuance thereof is not a curable defect.”

High Court’s Decision

The High Court upheld the ITAT’s decision, citing the Supreme Court’s ruling in ACIT v. Hotel Blue Moon (2010), which held that a notice under Section 143(2) is mandatory for completing an assessment.

The Income Tax Department then appealed to the Supreme Court, arguing that Section 292BB of the Income Tax Act cures any defects related to the service of notice if the assessee has participated in the proceedings.

Arguments of the Parties

Appellant (Income Tax Department):

  • Section 292BB deems notices valid if the assessee has appeared and participated in the proceedings.
  • The respondent had participated in the assessment proceedings, and thus, any defect in the notice was cured.
  • The High Court erred in ignoring the effect of Section 292BB.

Respondent (Laxman Das Khandelwal):

  • No notice under Section 143(2) was issued, which is a jurisdictional defect and not a mere procedural irregularity.
  • Section 292BB applies only to curable defects, not to complete absence of a notice.
  • The ITAT and High Court correctly applied the ruling in Hotel Blue Moon.

Supreme Court’s Observations

The Supreme Court analyzed the impact of Section 292BB and whether it could cure the absence of a statutory notice. The Court noted:

“Section 292BB does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the section seeks to cure.”

The Court further reiterated the principle laid down in Hotel Blue Moon, stating:

“Where the Assessing Officer in repudiation of the return filed under Section 158-BC(a) proceeds to make an inquiry, he has necessarily to follow the provisions of Section 142, sub-sections (2) and (3) of Section 143.”

Final Judgment

The Supreme Court dismissed the Income Tax Department’s appeal and ruled:

“Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered by the High Court and the Tribunal and the conclusion arrived at were correct.”

Thus, the reassessment proceedings were quashed.

Key Takeaways from the Judgment

  • A notice under Section 143(2) is mandatory for completing an assessment under Section 143(3).
  • Section 292BB does not apply where no notice was issued at all; it only cures defects in service or timing of a notice.
  • Failure to issue a notice under Section 143(2) is a jurisdictional defect that renders the entire assessment void.

Implications of the Judgment

This ruling reinforces the principle that income tax reassessments must strictly follow statutory procedures. The Income Tax Department cannot rely on Section 292BB to cover up fundamental lapses in compliance. This judgment will likely influence future cases where procedural lapses are used to challenge reassessment proceedings.

Conclusion

The Supreme Court’s decision in this case underscores the importance of procedural compliance in income tax assessments. It highlights that jurisdictional requirements, such as the issuance of a statutory notice, cannot be overlooked or remedied by deeming provisions. This ruling ensures greater accountability in tax assessments and provides clarity on the application of Section 292BB.


Petitioner Name: Commissioner of Income Tax.
Respondent Name: Laxman Das Khandelwal.
Judgment By: Justice Uday Umesh Lalit, Justice Vineet Saran.
Place Of Incident: Gwalior, Madhya Pradesh.
Judgment Date: 13-08-2019.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Commissioner of Inco vs Laxman Das Khandelwa Supreme Court of India Judgment Dated 13-08-2019.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Income Tax Disputes
See all petitions in Tax Evasion Cases
See all petitions in Tax Refund Disputes
See all petitions in Judgment by Uday Umesh Lalit
See all petitions in Judgment by Vineet Saran
See all petitions in dismissed
See all petitions in supreme court of India judgments August 2019
See all petitions in 2019 judgments

See all posts in Taxation and Financial Cases Category
See all allowed petitions in Taxation and Financial Cases Category
See all Dismissed petitions in Taxation and Financial Cases Category
See all partially allowed petitions in Taxation and Financial Cases Category

Similar Posts