Notice under section 143(2) invalid due to incorrect format makes entire assessment proceedings void ab initio

ITAT Kolkata held that a notice issued under section 143(2) of the Act was invalid as it was not in the prescribed format required by law. The tribunal ruled that when a notice under section 143(2) is defective, all subsequent proceedings become invalid and void ab initio. Consequently, the assessment order framed based on this invalid notice was also quashed. The assessee's appeal was allowed, emphasizing that procedural compliance with statutory requirements is mandatory for valid tax proceedings.

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1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Tribunal are:

- Whether the notice issued under section 143(2) of the Income-tax Act, 1961 (hereinafter "the Act") was valid in law, particularly whether it complied with the mandatory CBDT Instruction F.No. 225/157/2017/ITA-II dated 23.06.2017.

- If the notice under section 143(2) was invalid, whether all subsequent proceedings including the assessment order framed under section 144 of the Act are also invalid and void ab initio.

- Whether the additional ground raised by the assessee challenging the validity of the notice could be admitted and adjudicated at the appellate stage.

- The Tribunal did not decide other grounds raised on merit, leaving them open for future adjudication if necessary.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of notice issued under section 143(2) of the Act

Relevant legal framework and precedents:
Section 143(2) of the Act empowers the Assessing Officer (AO) to issue a notice for scrutiny assessment. The Central Board of Direct Taxes (CBDT), under its statutory power conferred by section 119 of the Act, issued Instruction F.No. 225/157/2017/ITA-II dated 23.06.2017 prescribing the mandatory format and procedure for issuing such notices. The Apex Court has held that CBDT circulars issued under section 119 are binding on the tax authorities and must be complied with, failing which the proceedings can be held invalid. This principle was reiterated in the decisions cited by the Tribunal, including the Apex Court rulings in Jute Corporation of India Ltd. vs. CIT and National Thermal Power Co. Ltd. vs. CIT, which emphasize that compliance with statutory instructions is mandatory.

Court's interpretation and reasoning:
The Tribunal examined the notice issued under section 143(2) and found that it did not conform to the prescribed format mandated by the CBDT Instruction dated 23.06.2017. The notice lacked the essential elements and language as required by the Instruction, thereby rendering it invalid. The Tribunal relied on a coordinate bench decision in Shib Nath Ghosh vs. ITO, where a similarly non-compliant notice was held invalid. The Tribunal emphasized that the CBDT Instruction is mandatory and binding, and non-compliance vitiates the entire assessment process.

Key evidence and findings:
The notice issued to the assessee was placed on record and scrutinized. It was found to be non-conforming to the prescribed format under the CBDT Instruction. The Tribunal noted that the notice was issued electronically but did not meet the procedural requirements laid down.

Application of law to facts:
Since the notice under section 143(2) was invalid, the Tribunal held that all subsequent actions taken based on that notice, including the framing of assessment under section 144 of the Act, were also invalid and void ab initio. The Tribunal applied the principle that a jurisdictional defect in the issuance of notice invalidates the entire proceeding.

Treatment of competing arguments:
The Revenue contended that the notice was valid and that the assessment was rightly framed ex-parte due to non-compliance by the assessee. However, the Tribunal found that since the foundational notice was invalid, the subsequent assessment could not stand. The Tribunal did not delve into merits of the additions made in the assessment since the procedural defect was fatal.

Conclusions:
The Tribunal concluded that the notice issued under section 143(2) was invalid for non-compliance with the mandatory CBDT Instruction, and therefore, the assessment framed under section 144 consequential to that notice was also invalid and quashed the assessment order.

Issue 2: Admission of additional ground challenging validity of notice

Relevant legal framework and precedents:
The Tribunal referred to the Apex Court rulings in Jute Corporation of India Ltd. vs. CIT and National Thermal Power Co. Ltd. vs. CIT, which allow admission of purely legal grounds at the appellate stage if all relevant facts are available on record and no further factual investigation is necessary.

Court's interpretation and reasoning:
The Tribunal found that the additional ground raised by the assessee challenging the validity of the section 143(2) notice was purely a legal issue. Since all facts necessary for adjudication were available in the appeal records, no further fact-finding was required. Therefore, the Tribunal admitted the additional ground for adjudication.

Key evidence and findings:
The letter dated 04.11.2024 raising the additional ground was on record, and the Tribunal noted that the facts relating to issuance of notice were already part of the appeal folder.

Application of law to facts:
The Tribunal applied the principle that legal issues can be raised and decided at the appellate stage if no factual disputes arise, thereby admitting the additional ground.

Treatment of competing arguments:
The Revenue did not dispute the admission of the additional ground, focusing instead on the validity of the notice itself.

Conclusions:
The Tribunal admitted the additional ground challenging the notice and proceeded to adjudicate on its validity.

Issue 3: Validity of assessment framed under section 144 following invalid notice

Relevant legal framework and precedents:
Section 144 of the Act allows the AO to make an ex-parte assessment if the assessee fails to comply with notices or fails to appear. However, such assessment presupposes a valid notice under section 143(2). The Tribunal relied on established principles that if the foundational notice is invalid, the assessment framed thereunder is also invalid.

Court's interpretation and reasoning:
The Tribunal held that since the section 143(2) notice was invalid, the ex-parte assessment order passed under section 144 was also invalid and void ab initio. The Tribunal emphasized that procedural compliance is a jurisdictional requirement and non-compliance cannot be cured by subsequent proceedings.

Key evidence and findings:
The assessment order dated 27.12.2019 framed under section 144 was based on the invalid notice and was therefore vitiated.

Application of law to facts:
The Tribunal applied the principle of jurisdictional defect and invalidity of subsequent proceedings flowing from an invalid notice.

Treatment of competing arguments:
The Revenue argued that the ex-parte assessment was justified due to non-compliance by the assessee. The Tribunal rejected this argument on the ground that the foundational notice itself was invalid, rendering the assessment void.

Conclusions:
The Tribunal quashed the assessment order framed under section 144 as it was consequential to an invalid notice.

3. SIGNIFICANT HOLDINGS

- "In our opinion, the notice issued u/s 143(2) of the Act which is not in the prescribed format as provided under the Act is an invalid notice and accordingly, all the subsequent proceedings thereto would be invalid and void ab initio."

- "The instruction issued by the CBDT are mandatory and binding on the Income tax authorities failing which the proceedings would be rendered as invalid."

- The Tribunal upheld the binding nature of CBDT circulars issued under section 119 of the Act as held by the Apex Court, stating: "The Central Board of Direct Taxes under section 119 of the Income-tax Act, 1961, has power... to ensure a fair enforcement of its provisions, by issuing circulars... which are binding on the authorities in the administration of the Act."

- The Tribunal allowed the appeal, quashing the assessment framed under section 144 as consequential to the invalid notice under section 143(2).

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