Reassessment Proceedings | Issuing Notice Under Section 143(2) Prior To Disposing Of Assessee's Objections Is Impermissible: Bombay High Court

"The Assessing Officer is bound to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." Bombay High Court, in a significant ruling dated September 30, 2026, held that an Assessing Officer (AO) cannot initiate scrutiny proceedings under Section 143(2) of the Income Tax Act (IT Act) before disposing of an assessee’s objections to the reopening of an assessment under Section 148.

A division bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla emphasized that bypassing this procedural requirement amounts to "putting the cart before the horse."

The Petitioner, H.P. Diamonds India Pvt. Ltd., challenged a notice issued under Section 148 of the IT Act for the Assessment Year 2012-13. The Petitioner contended that the reassessment was a mere "change of opinion" following an earlier scrutiny assessment and that the AO had acted in violation of procedural safeguards established by the Supreme Court in GKN Driveshafts (India) Ltd. The matter was previously dismissed by the High Court but was remanded by the Supreme Court, which directed that a reasoned and speaking order be passed on merits.

The primary question before the court was whether the issuance of a notice under Section 143(2) during reassessment proceedings constitutes "proceeding with the assessment" and whether such a notice can be validly issued prior to the disposal of the assessee's objections to the reasons for reopening the assessment. The court was also called upon to determine if a notice issued under Section 142(1) within four weeks of rejecting the assessee’s objections violates the mandate laid down in Asian Paints Ltd.

Nature of Reassessment Scrutiny

The court observed that once an assessee files a return in response to a Section 148 notice, the law treats it as a return furnished under Section 139. Consequently, if the AO intends to scrutinize that return, the issuance of a notice under Section 143(2) marks the formal commencement of assessment proceedings. The court noted that because the AO is legally required to establish "reason to believe" that income has escaped assessment, the assessee has a substantive right to file objections against those reasons.

Court Clarifies Meaning Of Proceeding With Assessment

The bench rejected the Revenue's argument that "proceeding with the assessment" only prohibits the passing of a final assessment order before disposing of objections. The court held that the procedural safeguard is meant to protect the assessee from unnecessary scrutiny if the jurisdictional requirements for reopening are not met. If the AO could issue a 143(2) notice before deciding on objections, the entire protective framework of GKN Driveshafts would be rendered nugatory.

"The issuance of a Notice under Section 143(2) would amount to proceeding with the assessment whereby the Assessing Officer issues the Notice to ensure that the Assessee has not understated its income or has not computed excessive loss... in reassessment proceedings, the Assessing Officer cannot issue a Notice under Section 143(2), or even a Notice under Section 142(1) before disposing of the objections."

Violation Of Established Precedents

The court highlighted that the AO had issued the 143(2) notice before even furnishing the reasons for reopening to the assessee, and subsequently issued a 142(1) notice within the four-week cooling-off period mandated by Asian Paints Ltd. This practice, the court observed, denies the assessee the opportunity to challenge the rejection of their objections in a court of law before the assessment process consumes the taxpayer's resources.

"If the Assessing Officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee."

Concluding that the procedural lapses were fatal to the reassessment, the court set aside the notice issued under Section 143(2) dated September 2, 2019, and the notice under Section 142(1) dated November 12, 2019. Any subsequent actions taken pursuant to these notices were also quashed. The court clarified that while it allowed the petition on these procedural grounds, all other substantive contentions regarding the validity of the reopening were left open for future litigation if the occasion arises.

Date of Decision: 30 September 2026