The main legal point established in the judgment is that the notice under Section 143(2) of the Income Tax Act is a prerequisite for the initiation of assessment proceedings under Section 147, and the absence of such notice renders the assessment ab initio void.

JUDGMENT

Alok Aradhe, J. - This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2005-06. The appeal was admitted by a bench of this Court vide order dated 26.09.2012 on the following substantial questions of law:

(i) Whether on the facts and circumstances of the case the tribunal was right in law in annulling the reassessment made under Section147 of the Act on the ground of non-issuance of notice under Section 143(2) of the Act would invalidate the assessment, which is not a prerequisite as per scheme of the provisions of Section 147 and 148 of the Act?

(ii) Whether on the facts and circumstances of the case the tribunal was right in law in annulling the reassessment made under Section 147 especially when the provisions of Section 292B of the Act introduced w.e.f. 01.10.1975, would govern that such reassessment and makes it valid in law when the assessment made was in substance and effect, in conformity with or according to the intent and purpose of the Act?

2. Facts leading to filing of the appeal briefly stated are that assessee is an individual engaged in real estate business. The assessee filed the return of income for the Assessment year 2005-06 declaring loss of Rs.65,49,770/- and subsequently filed the audit report. The assessing officer completed the reassessment under Section 143(3) read with Section 147 of the Act and by an order dated 31.12.2008 determined the taxable income at Rs.12,10,51,209/- after making an addition of Rs.12,14,68,180/- as long term capital gains and a sum of Rs.61,32,800/- as short term capital gains by invoking Section 45(2) of the Act.

3. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) on the ground that reopening of assessment is invalid since, no notice under Section 143(2) of the Act was issued. The Commissioner of Income Tax (Appeals) vide order dated 26.11.2010 inter alia held that assessee has not raised any objection with regard to non service of notice under Section 143(2) before the assessing officer and therefore, the objection raised in appeal is not maintainable in light of the provisions contained in Section 292B of the Act. It was further held that on family partition if assets are allotted to the assessee, the character of the assets in the hands of the assessee is only capital asset. It was further held that the assessee had treated the lands received by him in partition as stock in trade in his books and had offered business income on the sale of the lands. Thus, no infirmity was found with the order passed by the assessing officer and the appeal was dismissed.

4. The assessee thereafter approached the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal by an order dated 27.01.2012 inter alia held that for reassessment to be completed under Section 143(3) read with Section 147, notice under Section 143(2) has to be issued within the prescribed limit. It was further held that no notice under Section 143(2) of the Act was issued, therefore, the proceedings are vitiated in law. However, the revenue was granted the liberty to take appropriate curative steps. In the result, the appeal was partly allowed. In the aforesaid factual background, the revenue is in appeal before us.

5. Learned counsel for the revenue submitted that in response to the notice under Section 147 of the Act, the assessee appeared. However, it was fairly submitted that notice under Section 143(2) of the Act was not issued. It is argued that non issuance of notice under Section 143(2) of the Act is a procedural irregularity and would not vitiate the proceeding of assessment under Section 143(3) read with Section 147 of the Act. It is contended that substantial compliance has been made even though in the notice issued under Section 147 there is no reference to Section 143(2) of the Act. It is submitted that the defec