Scrutiny assessment annulled as invalid Section 143(2) notice ignored mandatory CBDT instructions on scrutiny type specification

The ITAT Kolkata annulled the scrutiny assessment on the ground that the notice issued u/s 143(2) was invalid. The notice, dated 24.09.2018, mentioned only "computer aided scrutiny selection" without specifying whether it was limited, complete, or compulsory manual scrutiny, contrary to binding CBDT instructions. The Tribunal held that revenue authorities are mandatorily required to follow CBDT directions, and non-compliance vitiates the notice itself. Consequently, the defective notice rendered the entire assessment proceedings void ab initio, and the matter was decided in favour of the assessee.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether delay of 61 days in filing the appeal should be condoned on the grounds stated by the appellant.

1.2 Whether an additional legal ground challenging the validity of notice under section 143(2) of the Act, not raised before lower authorities, is admissible at the appellate stage.

1.3 Whether the notice issued under section 143(2) of the Act, in a format not conforming to CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017, is invalid and consequently renders the assessment order void.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay in filing the appeal

Interpretation and reasoning

2.1 The Tribunal examined the condonation petition and affidavit and found "plausible reasons" for the delay of 61 days. The delay was considered to be for "bonafide and genuine reasons".

Conclusions

2.2 The delay in filing the appeal was condoned and the appeal was admitted for adjudication on merits.

Issue 2: Admissibility of additional legal ground on validity of notice under section 143(2)

Legal framework

2.3 The Tribunal referred to the principles laid down by the Supreme Court in Jute Corporation of India Ltd. v. CIT and National Thermal Power Co. Ltd. v. CIT, and by the High Court in PCIT v. Britannia Industries Ltd., recognizing the right of an assessee to raise a pure question of law for the first time before an appellate authority, where no further factual verification is required.

Interpretation and reasoning

2.4 The additional ground challenged the very validity of the notice under section 143(2) and, consequently, the jurisdiction of the assessing authority. The Tribunal found that the ground was purely legal, went to the root of the matter, and that all necessary facts (including the notice itself) were already on record in the appeal folder.

2.5 It was held that no further investigation or verification of facts from any authority was required to decide the additional ground.

Conclusions

2.6 The additional legal ground challenging the notice issued under section 143(2) was admitted for adjudication at the appellate stage.

Issue 3: Validity of notice under section 143(2) not conforming to CBDT Instruction and effect on assessment

Legal framework

2.7 The Tribunal considered CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017, which prescribed specific formats for notices under section 143(2) indicating whether the case was selected for "limited scrutiny", "complete scrutiny" or "compulsory manual scrutiny".

2.8 Reliance was placed on coordinate bench decisions, including Tapas Kumar Das v. ITO and Shib Nath Ghosh v. ITO, wherein it was held that non-compliance with the prescribed formats and CBDT instructions renders the notice under section 143(2) invalid and the consequent assessment void ab initio. The Tribunal also noted the principle that CBDT circulars issued under section 119 are binding on income-tax authorities, as recognized by the Supreme Court in UCO Bank.

Interpretation and reasoning

2.9 The Tribunal found as an undisputed fact that the notice issued under section 143(2) dated 24.09.2018 merely mentioned "computer aided scrutiny selection" and did not specify whether the scrutiny was "limited", "complete", or "compulsory manual scrutiny".

2.10 The notice format was held to be in violation of the above CBDT Instruction, as it was not in any of the prescribed formats.

2.11 The Tribunal held that instructions issued by CBDT are mandatory and binding on the revenue authorities, and that violation of such instructions in issuing a notice under section 143(2) renders the notice invalid. Consequently, all subsequent proceedings based on such an invalid notice are also invalid.

2.12 Applying and following the earlier coordinate bench decisions in similar fact situations, the Tribunal held that the impugned notice under section 143(2) was not in the prescribed format and therefore invalid.

Conclusions

2.13 The notice issued under section 143(2) dated 24.09.2018 was declared invalid as it did not conform to the CBDT-prescribed formats and violated the binding Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017.

2.14 As a consequence, the assessment framed on the basis of such invalid notice was held to be without jurisdiction, invalid and void ab initio, and was quashed.

2.15 The additional ground challenging the validity of the notice and jurisdiction of the assessment was allowed, resulting in the appeal being allowed.

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