Deciphering Legal Judgments: A Comprehensive Analysis of Judgment

Reported as:

2025 (3) TMI 1494 - ITAT KOLKATA

Introduction

The present decision of the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT), arises from an appeal against an order of the National Faceless Appeal Centre (NFAC) for Assessment Year (AY) 2017-18. The appeal raises a foundational jurisdictional issue: the validity of an assessment framed u/s 143(3) of the Income-tax Act, 1961 ("the Act") in the absence of a notice u/s 143(2) issued in the prescribed and valid format, in conformity with binding Central Board of Direct Taxes (CBDT) instructions issued u/s 119.

This decision fits squarely within the growing body of jurisprudence emphasising the mandatory adherence by the Revenue to CBDT circulars and instructions in the conduct of scrutiny assessments, particularly in the era of Computer Aided Scrutiny Selection (CASS) and faceless/IT-driven procedures. It reinforces the principle that procedural lapses that go to the root of jurisdiction, especially in relation to statutory notice requirements, render the resultant assessment order void ab initio.

The Tribunal's reasoning also revisits important Supreme Court and High Court precedents on two distinct but related points of law:

• the right of an assessee to raise a purely legal ground for the first time before an appellate forum, and
• the binding and mandatory nature of CBDT circulars and instructions on income-tax authorities.

Key Legal Issues

1. Condonation of delay in filing the appeal

The appeal was filed with a delay of 129 days. The first issue was whether such delay could be condoned based on the assessee's explanation of illness and consequent inability to act within time.

This is essentially a procedural question of limitation and condonation, turning on sufficiency of cause rather than interpretation of a substantive tax provision.

2. Admissibility of an additional ground before the ITAT

The assessee raised, for the first time at the Tribunal stage, an additional legal ground challenging the very validity of the notice issued u/s 143(2). The issue here is whether a purely legal ground that goes to the root of the assessment can be raised at the appellate stage even if not urged before the lower authorities.

This is a question of appellate procedure and scope of powers of the ITAT under the Act, in light of precedents such as Jute Corporation of India Ltd. v. CIT and National Thermal Power Co. Ltd. v. CIT.

3. Validity of notice u/s 143(2) issued in a format contrary to CBDT Instruction dated 23-06-2017

The core substantive issue is whether a scrutiny notice u/s 143(2) which does not conform to the formats prescribed by CBDT Instruction F. No. 225/157/2017/ITA-II dated 23 June 2017-particularly by failing to specify whether the case is selected for limited scrutiny, complete scrutiny, or compulsory manual scrutiny-is a valid notice in the eyes of law.

This is a mixed question of law and procedure involving:

• interpretation of section 143(2) and section 119 of the Act, and
• the effect of non-compliance with CBDT's binding instructions on the jurisdiction of the Assessing Officer (AO) to frame an assessment.

4. Consequence of an invalid notice u/s 143(2)

Assuming the notice is invalid, the further issue is whether the entire assessment framed u/s 143(3) is rendered null and void, or whether the defect can be treated as curable or procedural.

This question is jurisdictional in nature: if the pre-condition for assuming scrutiny jurisdiction is not satisfied, can the assessment survive?

Detailed Issue-wise Analysis

1. Condonation of delay in filing the appeal

The Tribunal records that the appeal was delayed by 129 days. The assessee explained that illness from late June 2023, including diagnosis of hepatitis and viral fever, rendered her bedridden, and that she recovered only in the third week of October 2023, after which steps were taken to prepare and file the appeal on 20 November 2023.

The ITAT, accepting these reasons as sufficient cause, condoned the delay. While the order does not explicitly cite section 253(5) of the Act or section 5 of the Limitation Act, the approach is consistent with established jurisprudence that condonation of delay should be approached with a justice-oriented and liberal stance where the explanation is bona fide and plausible and no mala fides or deliberate inaction is evident.

Although a relatively minor procedural facet in this case, the condonation forms the gateway for adjudication of the more substantive jurisdictional challenge.

2. Admissibility of the additional legal ground

The assessee raised an additional ground before the ITAT contending that the assessment u/s 143(3) was void for want of a valid notice u/s 143(2), the latter allegedly being issued in contravention of the CBDT Instruction dated 23 June 2017. The assessee argued that this being a pure question of law, no further factual investigation was necessary and thus could be urged for the first time at the Tribunal stage.

The Tribunal accepted this proposition, explicitly relying on the following authorities:

• Jute Corporation of India Limited Versus Commissioner of Income-Tax And Another - 1990 (9) TMI 6 - Supreme Court
• National Thermal Power Company Limited Versus Commissioner of Income-Tax - 1996 (12) TMI 7 - Supreme Court (LB)
• Commissioner of Income Tax, Kolkata Versus M/s Britannia Industries Ltd. - 2017 (7) TMI 502 - CALCUTTA HIGH COURT

In Jute Corporation, the Supreme Court held that an assessee is entitled to raise additional grounds before the appellate authority, so long as they are in respect of the subject-matter of assessment and no new facts needing investigation are involved. In NTPC, the Court clarified that the Tribunal has the jurisdiction to examine a question of law arising from the facts found by the authorities below even if not raised earlier, provided it is necessary to correctly assess the tax liability.

The Tribunal correctly applied these principles, noting that:

• the additional ground is purely legal,
• all relevant facts (the text and format of the impugned notice) are already on record, and
• no fresh factual inquiry is needed.

Accordingly, the additional ground was admitted for adjudication. This step is crucial, since the entire outcome of the appeal hinges on this newly raised jurisdictional objection.

3. Validity of notice u/s 143(2) and the CBDT Instruction dated 23-06-2017

The dispute centres on the notice u/s 143(2) dated 10 August 2018, which, according to the Tribunal, mentions only "computer aided scrutiny selection" without specifying whether the case falls under:

• limited scrutiny,
• complete scrutiny, or
• compulsory manual scrutiny.

CBDT Instruction F. No. 225/157/2017/ITA-II dated 23 June 2017 had prescribed specific formats for issuance of notices u/s 143(2), tailored to the type of scrutiny. The assessee's contention, accepted by the Tribunal, is that a notice which does not conform to any of these prescribed formats is not a valid notice in law.

The assessee relied on the recent co-ordinate Bench decision in Tapas Kumar Das Versus ITO, Ward-50 (5), Kolkata - 2025 (3) TMI 1481 - ITAT KOLKATA, where an identically worded notice was held invalid for non-conformity with the CBDT instruction. In that decision:

• The Tribunal examined the actual text of the notice and found that it did not fit into any of the formats under the Instruction.
• It concluded that a notice u/s 143(2) not issued in the prescribed format is invalid, and that all proceedings consequent thereto are void ab initio.

The present Bench quoted extensively from Tapas Kumar Das, thus treating it as directly applicable precedent. Additionally, Tapas Kumar Das had itself relied upon another Kolkata ITAT decision in SHIB NATH GHOSH Versus Income Tax Officer, Ward 42 (1), Dist. Murshidabad (WB) - 2024 (11) TMI 1455 - ITAT KOLKATA, where an analogous issue arose. In Shib Nath Ghosh, the Tribunal held that:

• The notice dated 9 August 2017 was not in any of the formats prescribed by the same CBDT Instruction.
• Instructions issued by CBDT u/s 119 are mandatory and binding on income-tax authorities.
• Non-compliance with such instructions renders the proceedings invalid.

In support of the binding nature of CBDT circulars, the Tribunal in Shib Nath Ghosh referred to the Supreme Court's landmark judgment in UCO Bank v. CIT, where the Court held that CBDT circulars issued u/s 119 are binding on the income-tax authorities and may, inter alia, tone down the rigour of the law to ensure fair and proper administration. The Supreme Court underscored that such circulars are a beneficial power for just and efficient management of the tax regime and cannot operate adversely to assessees.

Applying this chain of reasoning to the present case, the Tribunal held that:

• The notice u/s 143(2) did not satisfy the formats mandated by the CBDT Instruction.
• Given the binding nature of such instructions, the AO was obliged to comply; failure to do so renders the notice invalid.
• Once the jurisdictional notice is invalid, all subsequent assessment proceedings fall.

The Revenue's contention that the defect should be overlooked because the notice was "computer-generated" was specifically rejected. The Tribunal implicitly treated the nature of generation (manual vs. electronic) as irrelevant to the legal requirement of conformity with prescribed formats. The requirement to indicate the type of scrutiny is not a mere formality: it goes to the scope of jurisdiction and the extent of permissible enquiries by the AO (especially in limited scrutiny situations).

4. Consequences of an invalid notice u/s 143(2)

Having found the section 143(2) notice invalid, the Tribunal held that the assessment framed u/s 143(3) was consequently invalid and had to be quashed. This follows the well-settled principle that issuance of a valid notice u/s 143(2) within the prescribed time is a condition precedent to the validity of an assessment u/s 143(3). An invalid or improperly issued notice is tantamount to no notice.

The Tribunal explicitly followed the ratio of the co-ordinate Benches in Tapas Kumar Das and Shib Nath Ghosh, which had both concluded that:

• A notice u/s 143(2) not in the format prescribed by the CBDT Instruction is an invalid notice.
• Proceedings based on such a notice are void ab initio.

As a result, the Tribunal allowed the assessee's additional ground, quashed the assessment order, and declined to adjudicate the other grounds on the merits, leaving them open.

Key Holdings and Reasoning

1. Condonation of delay

Holding: The delay of 129 days in filing the appeal was condoned based on the assessee's medical condition and subsequent recovery timeline.

Nature: Procedural; largely a discretionary and fact-based determination, not forming a significant legal ratio for future application, except as an illustration of liberal interpretation of "sufficient cause."

2. Admission of additional ground

Holding: A purely legal ground, going to the root of the matter and not requiring further factual investigation, can be raised for the first time before the ITAT. The Tribunal is bound to consider such a ground to correctly determine the assessee's tax liability.

Ratio: In line with Jute Corporation of India Ltd., NTPC, and Britannia Industries, appellate forums may admit and adjudicate new legal grounds when all relevant facts are already on record and no prejudice is caused to the Revenue by lack of prior factual inquiry.

3. Binding nature of CBDT Instruction and invalidity of non-conforming notice

Holding:

• CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017 prescribes mandatory formats for issuance of notices u/s 143(2).
• A notice that does not conform to any of these formats, particularly by failing to specify the category of scrutiny, is not valid in law.
• Income-tax authorities are bound by such instructions u/s 119; non-compliance vitiates the notice and consequential assessment.

Ratio: The Tribunal, echoing Shib Nath Ghosh and grounded in UCO Bank, treats CBDT instructions issued u/s 119 as mandatory and binding on the Revenue. A jurisdictional notice (u/s 143(2)) that contravenes binding CBDT formats is invalid; the defect is not merely procedural but jurisdictional.

Obiter (indicative): The rejection of the Revenue's "computer-generated notice" argument suggests that the Tribunal will not accept IT-system limitations or standard templates as a justification for deviation from binding instructions; technology must be adapted to law, not vice versa.

4. Consequence: Assessment quashed as void ab initio

Holding: The assessment order passed u/s 143(3), founded on an invalid section 143(2) notice, is invalid and is quashed. Other grounds on merits need not be adjudicated.

Ratio: A valid section 143(2) notice is a condition precedent for a valid scrutiny assessment. Where the notice itself is invalid, the assessment is void ab initio and cannot be salvaged by subsequent participation or compliance by the assessee.

By following earlier co-ordinate Bench decisions in Tapas Kumar Das and Shib Nath Ghosh, the Tribunal reinforces a consistent line of authority within the Kolkata Benches on this specific issue of notice-format compliance.

Conclusion

This decision underscores the centrality of jurisdictional safeguards in income-tax assessments and the non-negotiable obligation of the Revenue to comply with CBDT instructions issued u/s 119. In an era of algorithm-driven case selection and electronically generated notices, the Tribunal has reiterated that the statutory and regulatory architecture governing scrutiny assessments cannot be diluted by procedural shortcuts or template deficiencies.

The ruling has several practical and doctrinal implications:

• It strengthens the position of assessees to challenge scrutiny assessments where the underlying section 143(2) notices do not clearly specify the type of scrutiny in accordance with CBDT instructions.
• It compels administrative and IT-system alignment within the Department to ensure that all automated notices fully reflect the prescribed formats and mandatory contents.
• It reinforces the doctrinal proposition that CBDT circulars and instructions, especially those issued to guide the administration of assessments, are binding on officers and may confer enforceable procedural protections on assessees.
• It illustrates the continued willingness of appellate bodies to entertain pure questions of law, even if raised for the first time at the Tribunal stage, particularly where such questions go to the very root of the assessment's validity.

Looking forward, one may expect increased litigation focused on the form and content of statutory notices in faceless and e-proceedings, especially in relation to:

• the precise demarcation of limited versus complete scrutiny,
• the legal consequences of deviating from CASS-related instructions, and
• the extent to which defects in notice formats can be treated as curable or as jurisdictional nullities.

If similar matters reach higher courts, further clarification may emerge on whether all deviations from CBDT-prescribed formats necessarily vitiate jurisdiction or whether a distinction can be drawn based on the materiality of the omission. Until then, this decision, together with Tapas Kumar Das and Shib Nath Ghosh, operates as a robust precedent within the Kolkata ITAT jurisdiction for invalidating assessments grounded on defective section 143(2) notices.

 

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Full Text:

2025 (3) TMI 1494 - ITAT KOLKATA

Section 143(2) notices not following CBDT formats invalidate ensuing scrutiny assessments; computer generation does not cure the defect. A scrutiny notice that does not conform to CBDT-prescribed formats-specifically by failing to specify whether selection is for limited, complete, or compulsory manual scrutiny-is not a valid jurisdictional notice; non compliance with the binding CBDT Instruction vitiates the Assessing Officer's authority and renders any consequent scrutiny assessment void ab initio. Computer generation of the notice does not cure the defect. A pure legal challenge to such notice validity may be admitted at the appellate stage where no new facts are required.