Assessment order under Section 143(3) invalid due to faulty notice under Section 143(2); Section 263 revision also invalidated

The ITAT Kolkata held that the notice issued u/s 143(2) was not in accordance with CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017, rendering the assessment order passed u/s 143(3) invalid and void. Consequently, the revisionary proceedings u/s 263 based on this invalid assessment were also held to be invalid and bad in law. The Tribunal quashed the order passed u/s 263, affirming that the assessee retains the right to challenge the validity of the assessment during appeal proceedings before the Tribunal.

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ISSUES:

Whether an assessment order framed under section 143(3) of the Income Tax Act, 1961, based on a notice issued under section 143(2) in an invalid format not conforming to CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017, is valid in law.Whether revisionary proceedings under section 263 of the Income Tax Act, 1961, can be validly initiated against an assessment order that is itself invalid due to the defective issuance of notice under section 143(2).Whether the validity of an assessment order can be challenged for the first time during revisionary proceedings under section 263 before the Tribunal.

RULINGS / HOLDINGS:

The assessment order framed under section 143(3) based on a notice issued under section 143(2) which is "not in accordance with the C.B.D.T. Instruction F. No. 225/157/2017/ITA-II Dated 23-06-2017" is "invalid and bad in law" and is a "nullity in the eyes of law."Revisionary proceedings under section 263 initiated on the basis of such an invalid assessment order are also "invalid and bad in law" and lack jurisdiction.The assessee is entitled to challenge the validity of the assessment order in collateral proceedings, including during appeal against the revisionary order under section 263, even if the validity was not challenged earlier before the Commissioner (Appeals) or the Tribunal.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, particularly sections 143(2), 143(3), and 263, alongside the mandatory CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017, which prescribes the formats for notices under section 143(2) to ensure proper scrutiny procedures.The Court relied on precedents from coordinate Benches and High Courts emphasizing that notices under section 143(2) must strictly comply with the prescribed formats, and failure to do so renders the assessment invalid, referencing decisions such as those in Nadia District Central Co-operative Bank Ltd. and others.The Court noted the binding nature of CBDT circulars and instructions under section 119 of the Act, as upheld by the Supreme Court, which mandate compliance by tax authorities to avoid invalidation of proceedings.The Court recognized a doctrinal position that an invalid assessment order cannot be the foundation for valid revisionary proceedings under section 263, thereby quashing the revisionary order as lacking jurisdiction.The Court acknowledged that the issue of validity of the assessment order can be raised at any stage, including collateral proceedings before the Tribunal, even if not previously challenged, thus protecting the assessee's legitimate rights.

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