2025 (6) TMI 619 - AT - Income Tax

Assessment order quashed due to invalid Section 143(2) notice violating CBDT instruction F.No. 225/157/2017/ITA-II format requirements

Shri Abhi naw Singh Versus ITO Ward-47 (6), Kolkata

ITAT Kolkata quashed an assessment order after finding the notice issued under section 143(2) was invalid for non-compliance with CBDT instruction F. No. ... Invalid notice issued u/s 143(2) - as alleged notice issued u/s 143(2) was not in the prescribed format as prescribed by the CBDT in CBDT instruction no. F. No. 225/157/2017/ITA-II Dated 23-06-2017 - HELD THAT:- We find that admittedly, the notice has been issued in violation of CBDT instruction no. F. No. 225/157/2017/ITA-II Dated 23-06-2017 and therefore, we find merit in the contention of the assessee that the assessment framed in consequent to the said notice is also invalid and is to be quashed. We note that the notice u/s 143(2) has to be mandatorily issued in either of any of the three formats namely; (1) limited scrutiny or (2) Completed scrutiny or (3) compulsory manual scrutiny. However, the said notice was not issued in either of the formats prescribed by CBDT. The case of the assessee is squarely covered by the decision of Sajal Biswas [2025 (3) TMI 1494 - ITAT KOLKATA]. The notice issued u/s 143(2) is invalid and accordingly the assessment framed consequentially is also invalid and is hereby quashed. Appeal of the assessee allowed. The core legal issue considered by the Appellate Tribunal (AT) was whether the notice issued under section 143(2) of the Income-tax Act, 1961, dated 10.08.2018, was valid in light of the prescribed formats mandated by the Central Board of Direct Taxes (CBDT) Instruction No. F. No. 225/157/2017/ITA-II dated 23-06-2017. The validity of the assessment framed under section 143(3) based on this notice was also examined. The Tribunal admitted this issue as it goes to the root of the assessment and is purely legal in nature. The Tribunal also considered whether the violation of the CBDT instruction renders the notice and subsequent proceedings invalid and void ab initio.Regarding the first issue-the validity of the notice under section 143(2)-the relevant legal framework comprised the Income-tax Act, 1961, particularly sections 143(2) and 143(3), and the CBDT instruction dated 23-06-2017 prescribing three specific formats for issuance of such notices: (1) limited scrutiny, (2) completed scrutiny, and (3) compulsory manual scrutiny. The Tribunal also relied on precedents, including decisions of the Hon'ble Apex Court in Jute Corporation of India Ltd. vs CIT and National Thermal Power Co. Ltd. vs CIT, as well as the Calcutta High Court in PCIT vs. Britannia Industries Ltd., which recognize the right of the assessee to challenge procedural irregularities in assessment proceedings.The assessee contended that the notice was issued in violation of the prescribed formats, as it merely stated 'computer aided scrutiny selection' without specifying the nature of scrutiny as required by the CBDT instruction. The assessee relied on the Tribunal's earlier decision in Sajal Biswas vs. ITO, where a similar notice was held invalid because it did not conform to any of the three prescribed formats. The assessee argued that such non-compliance renders the notice and all consequential proceedings invalid.The Revenue's contention was that the notice was generated online and therefore the format could not be faulted. They urged dismissal of the legal challenge.Upon examination, the Tribunal found that the notice admittedly did not conform to any of the three prescribed formats under the CBDT instruction. The Tribunal noted that the instruction is mandatory and binding on the Income-tax authorities, as established by the Hon'ble Apex Court in the UCO Bank case, which held that circulars issued under section 119 of the Income-tax Act are binding on the authorities and intended to ensure just and proper administration of fiscal laws. The Tribunal emphasized that failure to comply with these instructions results in invalidity of the notice and all consequential proceedings.The Tribunal reproduced the operative part of the Sajal Biswas decision, which underscored that a notice issued without adherence to the prescribed format is invalid and void ab initio. It also referenced the Tapas Kumar Das case, where a similar issue was decided in favor of the assessee. The Tribunal further relied on the decision in Shib Nath Ghosh vs. ITO, where a co-ordinate Bench held that non-compliance with the CBDT instruction in issuance of notice under section 143(2) renders the notice and the assessment invalid. The Tribunal highlighted that these instructions are binding and failure to follow them invalidates the proceedings.The Tribunal applied these principles to the facts of the case, noting that the notice issued to the assessee was not in any of the prescribed formats, as it merely indicated 'computer aided scrutiny selection' without specifying the nature of scrutiny. The Tribunal found no merit in the Revenue's contention regarding the online generation of the notice, holding that the format prescribed by the CBDT must be followed irrespective of the mode of issuance.Regarding competing arguments, the Tribunal carefully considered the Revenue's defense but found it unpersuasive in light of the binding nature of the CBDT instructions and the consistent judicial precedents emphasizing the mandatory compliance with such procedural requirements. The Tribunal gave precedence to the principle of fair procedure and the protection of the assessee's rights, holding that the procedural infirmity was not a mere technicality but a fundamental defect going to the root of the assessment.Consequently, the Tribunal concluded that the notice issued under section 143(2) was invalid and the assessment framed under section 143(3) based on that notice was also invalid and liable to be quashed. The Tribunal allowed the appeal of the assessee on this ground.Significant holdings include the following verbatim excerpts of crucial legal reasoning:'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 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.''After hearing both the sides and the materials available on record, we find that the notice issued u/s 143(2) dated 9th August, 2017 was not in any of the formats as provided in the CBDT instruction F.No.225/157/2017/ITA-II dated 23.06.2017... In our opinion, 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 core principle established is that adherence to the prescribed format for notices under section 143(2) as mandated by the CBDT is mandatory and non-compliance renders the notice and all consequential proceedings invalid and void ab initio. This principle safeguards the procedural rights of the assessee and ensures fairness and legality in the assessment process.In final determination, the Tribunal held that the notice issued under section 143(2) was invalid due to non-compliance with the CBDT instruction, and the assessment framed under section 143(3) based on that notice was also invalid and quashed the assessment accordingly, allowing the appeal of the assessee.