2025 (6) TMI 885 - AT - Income Tax

Income Tax Assessment Notice Invalidated Due to Procedural Defects in Scrutiny Type and CBDT Instruction Non-Compliance

Basudeb Das, Mamudpur Versus ITO, Ward-26 (1), Kolkata

ITAT ruled that a section 143(2) income tax notice lacking specification of scrutiny type and non-conforming to CBDT Instruction is invalid. The tribunal ... Validity of notice issued u/s.143(2) - un specified scrutiny notice - issuing notice u/s. 143(2) without complying to the CBDT Instruction f. No. 225/157/2017/ITA-II dated 23.06.2017 - HELD THAT:- As instruction issued by the Government of India, Ministry of Finance, Department of Revenue, wherein it has been provided that w.e.f. 23.06.2017, the notice u/s.143(2) of the Act to be issued in any of the three following forms :- - Limited Scrutiny (Computer Aided Scrutiny Selection - Complete Scrutiny (Computer Aided Scrutiny Selection) - Compulsory Manual Scrutiny The notice is not bearing to any of the above forms prescribed by the CBDT in the above instruction, therefore, notice issued u/s.143(2) of the Act is bad in law for which the assessment is not sustainable. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the Assessing Officer (A.O.) had jurisdiction to issue the notice under section 143(2) of the Income Tax Act, 1961, when the notice did not specify the type of scrutiny under which the case was selected;(b) Whether the notice issued under section 143(2) on 24.09.2018 was valid and in compliance with the Central Board of Direct Taxes (CBDT) Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017, which prescribes the forms of scrutiny notices to be issued;(c) Whether the assessment order passed pursuant to such notice is sustainable or liable to be quashed;(d) The admissibility of the additional ground challenging the validity of the notice at the appellate stage.2. ISSUE-WISE DETAILED ANALYSISIssue (a) & (b): Validity and jurisdiction of notice issued under section 143(2) of the Income Tax ActRelevant legal framework and precedents:Section 143(2) of the Income Tax Act empowers the Assessing Officer to issue a notice for scrutiny assessment. The CBDT Instruction dated 23.06.2017 mandates that, with effect from that date, any notice issued under section 143(2) must be in one of the following three prescribed forms:Limited Scrutiny (Computer Aided Scrutiny Selection)Complete Scrutiny (Computer Aided Scrutiny Selection)Compulsory Manual ScrutinyThis instruction aims to bring transparency and uniformity in the issuance of scrutiny notices. Non-compliance with this instruction has been challenged in various judicial forums.The appellant relied on the Supreme Court decision in National Thermal Power Co. Ltd. v. CIT, which recognizes the right of an assessee to raise legal issues at any appellate stage, especially those going to the root of the matter.Court's interpretation and reasoning:The Tribunal observed that the notice issued on 24.09.2018 did not mention the type of scrutiny under which the case was selected and did not conform to any of the three prescribed forms mandated by the CBDT Instruction. This non-compliance rendered the notice invalid.The Tribunal emphasized that the issue raised is purely legal, requiring no further factual investigation or evidence. This justified the admission of the additional ground challenging the validity of the notice despite it being raised at the appellate stage.Key evidence and findings:The appellant produced the CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017, which clearly prescribes the forms of scrutiny notices. The notice issued in the present case did not conform to these forms.Further, the Tribunal relied on a series of decisions from various ITAT benches where similar issues were decided in favor of the assessee, holding notices issued without adherence to the prescribed forms as invalid. These precedents included decisions from Patna ITAT, Kolkata ITAT, and Delhi ITAT.Application of law to facts:Applying the CBDT Instruction and the legal precedents, the Tribunal concluded that the notice issued under section 143(2) was invalid due to non-compliance with the prescribed forms. Consequently, the jurisdiction of the Assessing Officer was vitiated, and the assessment order framed under section 143(3) based on such notice was also invalid.Treatment of competing arguments:The Revenue opposed the admission of the additional ground at the appellate stage. However, the Tribunal rejected this objection, holding that the issue is purely legal and fundamental, and therefore admissible. The Tribunal did not find merit in the Revenue's contention and proceeded to decide the appeal on this ground.Conclusions:The notice under section 143(2) issued without specifying the type of scrutiny and not conforming to the CBDT Instruction was invalid. The assessment order passed pursuant to such notice was also invalid and liable to be quashed.Issue (c): Validity and sustainability of the assessment orderSince the notice under section 143(2) was held invalid, the assessment order framed under section 143(3) following such notice was also invalid. The Tribunal quashed the assessment order accordingly.Issue (d): Admissibility of additional groundThe Tribunal admitted the additional ground despite it being raised at the appellate stage, relying on the principle that legal issues going to the root of the matter can be raised at any stage. The Supreme Court precedent cited by the appellant supported this approach.3. SIGNIFICANT HOLDINGSThe Tribunal held:'The issue raised by the assessee is purely a legal issue which goes to the root of the matter and we further note that no further facts are required to be brought on records or require any verification at any level whatsoever. Consequently, we admit the additional ground filed by the assessee before us and we proceed to decide the appeal of the assessee on the above legal ground.''Since the facts and issue involved in the present case are identical to the decisions as relied on by the ld. AR above, we are inclined to hold that notice issued u/s.143(2) of the Act is invalid and, therefore, the assessment framed u/s.143(3) of the Act is also invalid and accordingly quashed.''Since we have decided the appeal of the assessee on legal issue, the grounds raised on merit by the assessee are not deliberated upon at this stage. Thus, appeal of the assessee is allowed.'Core principles established include:Non-compliance with the CBDT Instruction prescribing the form of scrutiny notices under section 143(2) renders the notice invalid.An invalid notice under section 143(2) vitiates the jurisdiction of the Assessing Officer, making the subsequent assessment order under section 143(3) unsustainable.Legal grounds going to the root of the matter can be admitted and decided at any appellate stage, even if raised belatedly.Final determinations:The delay in filing the appeal was condoned.The additional ground challenging the validity of the notice under section 143(2) was admitted.The notice under section 143(2) issued without specifying the type of scrutiny and not conforming to CBDT Instruction was held invalid.The assessment order passed pursuant to such notice was quashed.The appeal of the assessee was allowed on the legal ground raised, without adjudicating the merits of other grounds.