Court holds that Assessing Officer cannot issue Section 143(2) or Section 142(1) notices before furnishing reasons and disposing of assessee's objections with a speaking order, reaffirming Supreme Court precedent in GKN Driveshafts and Bombay High Court ruling in Asian Paints
In a significant judgment delivered on September 30, 2026, the Bombay High Court (Division Bench comprising Justices B.P. Colabawalla and Firdosh P. Pooniwalla) set aside notices issued under Sections 143(2) and 142(1) of the Income Tax Act, 1961, in the reassessment proceedings of H.P. Diamonds India Pvt. Ltd. The Court ruled that the Assessing Officer (AO) cannot proceed with assessment actions such as issuing notices under Section 143(2) or Section 142(1) before first furnishing the reasons for reopening the assessment, considering the assessee's objections thereto, and disposing of these objections by passing a reasoned, speaking order.
The case arose from the reassessment notice issued under Section 148 for Assessment Year (AY) 2012-13, following scrutiny related to share premium transactions. The assessee filed a return in response to the Section 148 notice and requested reasons for reopening. However, the AO issued a notice under Section 143(2) before furnishing the reasons and before disposing of the objections filed by the assessee. Subsequently, objections were rejected, but the AO proceeded to issue a Section 142(1) notice even before the mandatory four-week waiting period prescribed by the Bombay High Court in the Asian Paints Ltd. case had expired.
The petitioner challenged these actions, contending that issuing notices under Sections 143(2) and 142(1) prior to disposal of objections violated the statutory reassessment scheme and Supreme Court precedents. The Supreme Court had earlier remanded the matter to the Bombay High Court for a detailed hearing in light of its recent decision in Vishal Ashwin Patel v. ACIT, which underscored the necessity of a reasoned order disposing objections before reassessment proceedings advance.
The Court analyzed the statutory provisions and relevant case law, including the landmark Supreme Court judgment in GKN Driveshafts (India) Ltd. v. Income Tax Officer (2002), which held that the AO must dispose of the objections by a speaking order before proceeding with assessment. The Court emphasized that issuing a Section 143(2) notice is the starting point of reassessment proceedings once a return is filed under Section 148. Therefore, issuance of such a notice before disposal of objections amounts to "proceeding with the assessment" prematurely and is legally impermissible.
Furthermore, the Court reiterated the binding nature of the Bombay High Court's own ruling in Asian Paints Ltd. v. DCIT (2009), which mandates a four-week waiting period after rejecting objections before the AO may continue reassessment actions. Issuance of the Section 142(1) notice within this period was also held to be contrary to law.
Consequently, the Court quashed the Section 143(2) notice dated September 2, 2019, and the Section 142(1) notice dated November 12, 2019, along with all consequential proceedings arising therefrom. The Court left other contentions open for future adjudication and did not impose any costs.
This judgment reaffirms important procedural safeguards for assessees in reassessment proceedings, ensuring that the AO exercises jurisdiction with due diligence and respects the right to be heard before reopening assessments. It clarifies that reassessment cannot be mechanically pursued without first addressing the assessee's objections to the reasons for reopening, thereby upholding principles of natural justice and statutory compliance.
Bottom Line:
Income Tax - Reassessment - In proceedings under Sections 147/148 of the Income Tax Act, 1961, the Assessing Officer cannot issue notice under Section 143(2) or Section 142(1) before furnishing reasons, disposing of assessee's objections by a speaking order, and observing the 4 weeks waiting period after rejection of objections - Issuance of such notices amounts to proceeding with assessment and is contrary to GKN Driveshafts and Asian Paints.
Statutory provision(s): Sections 147, 148, 143(2), 142(1) of the Income Tax Act, 1961
