Assessment quashed for invalid s.143(2) notice lacking scrutiny type, CBDT instructions held mandatory for Revenue

ITAT Guwahati allowed the assessee's appeal, holding the assessment invalid for want of a valid notice under s. 143(2) of the Income-tax Act. The notice dated 27.08.2018 mentioned only "computer aided scrutiny selection" without specifying whether it was for limited scrutiny, complete scrutiny, or compulsory manual scrutiny, contrary to binding CBDT instructions. ITAT held that Revenue authorities are mandatorily bound by such instructions, and their violation renders the notice invalid. Consequently, all ensuing assessment proceedings were declared void and the assessment order was quashed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the notice issued under section 143(2) of the Income-tax Act, 1961, without specifying whether the case was selected for limited scrutiny, complete scrutiny, or compulsory manual scrutiny, and not being in any of the prescribed formats under CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017, is legally valid.

1.2 Whether non-compliance with the binding CBDT Instruction regarding the format and content of notices under section 143(2) vitiates the entire assessment framed under section 143(3) as void and without jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of notice under section 143(2) not conforming to CBDT Instruction and effect on consequent assessment

Legal framework (as discussed)

2.1 The Tribunal considered the requirement of issuance of notice under section 143(2) of the Income-tax Act, 1961, for framing an assessment under section 143(3).

2.2 The Tribunal referred to CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017, which mandates that notices under section 143(2) be issued only in one of the specifically prescribed formats, clearly indicating whether the case is under limited scrutiny, complete scrutiny, or compulsory manual scrutiny.

2.3 Through reliance on a coordinate bench decision, the Tribunal took note of judicial recognition that CBDT circulars/instructions issued under section 119 are binding on income-tax authorities, with reference to the principle laid down by the Supreme Court in UCO Bank that such circulars are mandatory and meant for just, proper and efficient administration of the Act.

Interpretation and reasoning

2.4 The Tribunal found as an undisputed fact that the notice issued under section 143(2) dated 27.08.2018 mentioned only "Computer Aided Scrutiny Selection" and did not specify whether it was a case of limited scrutiny, complete scrutiny or compulsory manual scrutiny.

2.5 The Tribunal held that the impugned notice was not in any of the prescribed formats contemplated in CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017 and therefore was in violation of the said Instruction.

2.6 The Tribunal rejected the contention of the Revenue that being a computer-generated notice, non-mention of the category of scrutiny would not invalidate the notice, holding instead that revenue authorities are required to follow CBDT Instructions, and violation of such Instructions renders the notice invalid.

2.7 The Tribunal relied on the decisions of coordinate benches in similar fact situations, where notices under section 143(2) not issued in the prescribed CBDT formats were held to be invalid and all consequential proceedings were quashed.

2.8 By adopting the reasoning of the coordinate benches, the Tribunal reiterated that CBDT Instructions issued under section 119 are mandatory and binding on the assessing authorities, and non-compliance with the prescribed format and contents of notice under section 143(2) strikes at the root of the validity of the assessment proceedings.

Conclusions

2.9 The Tribunal concluded that the notice dated 27.08.2018 issued under section 143(2) was invalid as it was not in conformity with CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017, particularly for not indicating the nature of scrutiny and not being in any prescribed format.

2.10 Consequently, the assessment order passed under section 143(3) on 24.12.2019, being founded on an invalid notice under section 143(2), was held to be invalid, void ab initio and without jurisdiction, and was therefore quashed.

2.11 The appeal was allowed on this preliminary legal ground, and no further issues on merits were adjudicated.

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