Commissioner of Income Tax v. Laxman Das Khandelwal
Background
Following a search and seizure operation, the tax department made several additions to an individual assessee's income (for unexplained cash, jewellery, and cash receipts). The assessee successfully argued before the Income Tax Appellate Tribunal that the entire reassessment was invalid because the Assessing Officer never issued a mandatory notice under Section 143(2) of the Income Tax Act before completing the assessment. The High Court of Madhya Pradesh upheld this finding, and the tax department appealed to the Supreme Court, arguing that Section 292BB of the Act, which deems a notice validly served if the assessee participated in proceedings, cured any such defect since the assessee had participated.
Decision Breakdown
Relying on its own earlier decision in Assistant Commissioner of Income Tax v. Hotel Blue Moon, the Supreme Court reaffirmed that issuing notice under Section 143(2) is a mandatory prerequisite for a valid assessment, not a mere procedural formality. On the Section 292BB argument, the Court clarified that this provision only cures defects in how a notice was served (such as being late or served improperly): it cannot cure a situation where no notice was issued at all. Since it was undisputed that the department never issued any Section 143(2) notice, the Court held the lower authorities were correct that the reassessment was invalid, and dismissed the department's appeals.
Lesson Learnt
A legal provision that "cures" defective notice service cannot be stretched to excuse a complete failure to issue the required notice in the first place: the government must actually send the mandatory notice, not just show that the taxpayer later took part in the proceedings.