Assessment quashed as s.143(2) notice ignoring CBDT scrutiny instructions held invalid and incurable by tribunal

ITAT Kolkata held that the notice issued u/s 143(2) was invalid as it merely mentioned "computer aided scrutiny selection" without specifying whether it was limited, complete, or compulsory manual scrutiny, contrary to binding CBDT instructions. Since the Revenue is required to strictly follow CBDT directions, the defect was not curable and rendered the notice itself invalid. Consequently, the entire assessment framed pursuant to such notice was held void and quashed. The appeal of the assessee was allowed, following a similar ITAT Kolkata precedent.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1. Whether an assessee may raise, for the first time on appeal before the Appellate Tribunal, a legal ground challenging the validity of a notice issued under section 143(2) when that ground was not raised before lower authorities.

2. Whether a notice issued under section 143(2) that does not specify the type of scrutiny (limited scrutiny, complete scrutiny, or compulsory manual scrutiny) and is in a format not conforming to the CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017 is invalid, and whether consequential assessment proceedings framed under section 143(3) are void ab initio.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Admissibility of a new legal ground on appeal

Legal framework: Appellate practice permits raising pure questions of law at any appellate stage; appellate authorities may admit legal grounds not taken below where facts are fully placed on record and no further factual inquiry is required.

Precedent treatment: The Court relied on higher-court authority establishing that legal issues can be raised for the first time on appeal and on parallel decisions of coordinate benches applying that principle.

Interpretation and reasoning: The Court observed that the additional ground challenging the validity of the section 143(2) notice is purely legal and that all relevant facts necessary to adjudicate the legal question were available in the appeal record. The absence of the ground in earlier proceedings was attributable to lack of knowledge/legal opinion and did not preclude admission where the matter involves only legal interpretation.

Ratio vs. Obiter: Ratio - A pure legal question, where facts are not in dispute and no further factual investigation is required, may be admitted for the first time on appeal to the Tribunal even if not raised earlier.

Conclusion: The Tribunal admitted the additional legal ground for adjudication.

Issue 2 - Validity of section 143(2) notice not in prescribed CBDT format

Legal framework: Notices under section 143(2) must conform to formats and procedures prescribed by the Board's instructions; CBDT instructions issued under statutory power (section 119) are binding on income-tax authorities and intended to regulate assessment procedure and safeguard fairness.

Precedent treatment: The Court followed coordinate-bench decisions holding that deviation from the prescribed formats in CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017 renders a section 143(2) notice invalid. The Court referred to decisions (including higher-court pronouncements on the binding nature of CBDT circulars) treating such instructions as mandatory and binding on assessing authorities.

Interpretation and reasoning: The notice in the appeal record indicated only "computer-aided scrutiny selection" and failed to state whether the scrutiny was limited, complete, or compulsory manual. The Tribunal held that such omission amounts to non-conformity with the formats prescribed by the CBDT instruction. The reasoning emphasized that revenue authorities are bound to follow the Board's instructions and that failure to do so vitiates the procedural validity of the notice; consequential proceedings based on an invalid notice are also invalid. The Tribunal drew support from coordinate-bench orders where identical defects led to quashing of assessments.

Ratio vs. Obiter: Ratio - A section 143(2) notice that does not comply with the formats prescribed by CBDT Instruction F. No. 225/157/2017/ITA-II (specifically failing to indicate whether scrutiny is limited, complete, or compulsory manual) is invalid; consequential assessment proceedings under section 143(3) founded on such notice are void ab initio.

Conclusion: The Tribunal held the impugned section 143(2) notice invalid for non-compliance with the CBDT instruction and quashed the assessment framed thereunder. Other grounds on merits were left undecided as rendered unnecessary by the legal determination.

Cross-references and consequential observations

1. The Tribunal treated the admissibility issue and the validity issue as interlinked: admitting the legal ground (Issue 1) enabled adjudication of the format-compliance question (Issue 2) on the merits without remitting the matter for factual inquiry.

2. The Court relied on binding character of CBDT instructions under section 119 (as interpreted by higher authority) to justify treating deviation from prescribed formats as fatal to the notice and resultant proceedings.

3. Because the appeal was allowed on the legal ground (invalidity of the section 143(2) notice), the Tribunal expressly refrained from adjudicating other substantive substantive grounds, leaving them open for future consideration if necessary.

---