Assessment quashed as vague section 143(2) notice ignored CBDT scrutiny instructions, making entire proceedings invalid for assessee

ITAT Kolkata held that a notice issued under s.143(2) was invalid because it failed to specify whether the case was selected for limited scrutiny, complete scrutiny, or compulsory manual scrutiny, as mandated by CBDT instructions. The notice mentioned only "computer aided scrutiny selection," which did not meet the prescribed format. The Tribunal ruled that CBDT instructions are binding on the revenue authorities and non-compliance renders the notice, and all consequential proceedings, invalid. Relying on earlier precedent, ITAT quashed the assessment order and decided the matter in favour of the assessee.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

- Whether the delay of 129 days in filing the appeal should be condoned given the assessee's health condition.

- Whether the assessee can raise an additional ground challenging the validity of the notice issued under section 143(2) of the Income Tax Act, 1961 (hereinafter "the Act") before the appellate tribunal, despite not having raised it before the lower authorities.

- Whether the notice issued under section 143(2) of the Act is invalid for not being in the prescribed format as mandated by the Central Board of Direct Taxes (CBDT) Instruction No. F. No. 225/157/2017/ITA-II dated 23-06-2017, specifically for failing to specify whether the scrutiny is limited, complete, or compulsory manual scrutiny.

- Whether the assessment order framed under section 143(3) consequent to the allegedly invalid notice is void ab initio, ultra vires, and null in law.

- Whether the appeal should be allowed on the basis of the invalidity of the notice and consequential assessment order, without adjudicating other merits raised in the appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Condonation of Delay in Filing Appeal

The assessee filed the appeal with a delay of 129 days and submitted a condonation petition citing serious illness, including Hepatitis and viral fever, which incapacitated her from taking timely action. The Court considered the medical condition and recovery period, concluding that the delay was justified and condoned it. This follows the legal principle that sufficient cause for delay, especially health-related, is a valid ground for condonation.

Admissibility of Additional Ground Challenging Notice under Section 143(2)

The assessee raised an additional ground challenging the validity of the notice under section 143(2) for the first time before the appellate tribunal, contending that the notice was issued in an invalid format contrary to CBDT instructions. The Court referred to binding precedents from the Apex Court, including decisions in Jute Corporation of India Ltd. v. CIT and National Thermal Power Co. Ltd. v. CIT, as well as the Calcutta High Court decision in PCIT vs. Britannia Industries Ltd., which held that a legal issue can be raised at any stage before any appellate authority, even if not raised earlier. The Court accepted this principle and admitted the additional ground for adjudication.

Validity of Notice under Section 143(2) of the Act

The central issue was whether the notice issued on 10.08.2018 under section 143(2) was valid, given that it did not specify the nature of scrutiny (limited, complete, or compulsory manual) as required by the CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017.

The assessee argued that the notice was computer-generated and failed to comply with the prescribed formats, rendering the notice invalid and the consequent assessment order void ab initio. The assessee relied on a coordinate bench decision in Tapas Kumar Das v. ITO, where a similar issue was decided in favor of the assessee.

The revenue contended that the omission of specifying the type of scrutiny in a computer-generated notice does not invalidate the notice.

Upon examination, the Court found that the notice indeed did not conform to any of the three prescribed formats mandated by the CBDT instruction. The Court emphasized that the CBDT instructions issued under section 119 of the Act are binding on income tax authorities, as held by the Apex Court in UCO Bank's case, and non-compliance renders the notice invalid.

The Court reproduced the operative part of the Tapas Kumar Das decision, which held that the notice not issued in the prescribed format is invalid and all subsequent proceedings are void ab initio. The Court also cited another coordinate bench decision in Shib Nath Ghosh v. ITO, which reinforced the mandatory nature of the CBDT instructions and the invalidity of non-compliant notices.

Applying these precedents, the Court held that the notice issued under section 143(2) was invalid, and consequently, the assessment order framed under section 143(3) was also invalid and quashed the assessment.

Effect on Other Grounds Raised in Appeal

Since the appeal was allowed on the legal ground of invalidity of the notice and assessment order, the Court refrained from adjudicating other grounds raised on merit, leaving them open for future consideration if necessary.

3. SIGNIFICANT HOLDINGS

- "The assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities."

- "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 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 assessment framed consequentially to that is also invalid and is hereby quashed."

- "The Central Board of Direct Taxes under section 119 of the Income-tax Act, 1961, has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Act which are binding on the authorities in the administration of the Act."

The Court's final determination was to condone the delay, admit the additional legal ground, hold the notice under section 143(2) invalid for non-compliance with CBDT instructions, quash the consequent assessment order, and allow the appeal on this basis without adjudicating other merits.

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