This is a neutral professional article. The judgment is analysed in the context of its factual background, issues framed, and conclusions reached by the Court.

2026 (7) TMI 1968 - ITAT BENGALURU (LB) (SB)

At a Glance

The validity of a scrutiny notice under Section 143 does not depend, by itself, upon conformity with the three formats prescribed in the CBDT Instruction dated 23 June 2017. The Special Bench has answered the reference against invalidation: a notice under section 143(2) that is otherwise issued and served within the statutory period, and which effectively conveys selection of the return for scrutiny, is not rendered invalid merely because it does not state whether the scrutiny is Limited Scrutiny, Complete Scrutiny or Compulsory Manual Scrutiny.

The decisive distinction is between a statutory condition for the assumption of jurisdiction and an administrative prescription governing the form and management of scrutiny proceedings. The 2017 Instruction is binding upon departmental authorities for administrative purposes, but its breach does not automatically create a jurisdictional defect where the Act itself does not require disclosure of the scrutiny category. Any defect of this kind is, in appropriate circumstances, protected by Section 292B, subject to the notice being in substance and effect consistent with the Act and the taxpayer not establishing actual prejudice.

The ruling does not dilute the separate rule that, where a case is in fact selected for limited scrutiny, the Assessing Officer must remain within the authorised scope unless the prescribed procedure for expansion is followed. The validity of the initiating notice and the legality of the eventual scope of enquiry remain analytically distinct questions.

Background & Context

The controversy arose from the CBDT Instruction on issue of notices under section 143(2) in revised format. It introduced three distinct templates: Limited Scrutiny under Computer Aided Scrutiny Selection, Complete Scrutiny under Computer Aided Scrutiny Selection, and Compulsory Manual Scrutiny. Paragraph 3 directs that all scrutiny notices under section 143(2) "shall henceforth, be issued in these revised formats only".

The limited-scrutiny template states that the return has been selected for scrutiny and that specified issues have been identified for examination. The complete-scrutiny template states that the return has been selected for Complete Scrutiny. The compulsory-manual-scrutiny template refers to selection on the basis of the applicable manual compulsory guideline. Each format also contemplates an opportunity to provide evidence or information and provides for electronic assessment proceedings.

These formats were intended to standardise departmental communication in an electronic assessment environment. A divergence subsequently emerged in Tribunal decisions: one approach treated non-use of the prescribed format as fatal to the notice and consequential assessment; the other treated it as a curable irregularity where the taxpayer was informed of scrutiny, participated effectively, and could not demonstrate prejudice. The Special Bench resolved this divergence in 2026 (7) TMI 1968 - ITAT BENGALURU (LB) (SB).

Key Issues / Provisions

Statutory content of a scrutiny notice

Section 143(2) applies where a return has been furnished under section 139 or in response to a notice under section 142(1). It authorises the Assessing Officer or prescribed authority, where it considers it necessary or expedient to ensure that income is not understated, loss is not excessively computed, or tax is not underpaid, to serve a notice requiring the assessee, on a specified date, "either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence" relied upon in support of the return.

The proviso is equally material: "no notice under this sub-section shall be served on the assessee after the expiry of three months from the end of the financial year in which the return is furnished." Thus, issuance and service within the statutory time limit, coupled with the statutory requirement to attend or produce evidence in support of the return, form the central requirements under section 143(2).

Board instructions and their administrative force

Section 119(1) permits the Board to issue orders, instructions and directions for the proper administration of the Act, and requires income-tax authorities and persons employed in executing the Act to "observe and follow" them. Section 119(2)(a) further enables directions, not prejudicial to assessees, concerning guidelines, principles or procedures in assessment and collection work.

The 2017 Instruction is therefore binding upon departmental authorities as an administrative direction. The question, however, is not merely whether it binds officers; it is whether its breach converts an otherwise statutorily compliant section 143(2) notice into an invalid assumption of jurisdiction.

Curative and service-related provisions

Section 292B provides that no notice, assessment or other proceeding is invalid merely because of a mistake, defect or omission if it is "in substance and effect in conformity with or according to the intent and purpose of this Act." Circular No. 179/1975 explains that this provision addresses purely technical objections without substance that might otherwise impede assessment proceedings.

Section 292BB operates in a different field. Where an assessee appears or co-operates in an assessment or reassessment inquiry, it deems a notice to have been duly served in time and in accordance with the Act, and precludes objections that it was not served, was not timely served, or was served improperly. This deeming rule is subject to the proviso where the objection is raised before completion of assessment. It concerns service-related objections; Section 292B addresses defects in a notice or proceeding that otherwise meets the substantive statutory test.

Section 282A separately requires a notice to be signed and issued in paper form or communicated electronically as prescribed, and deems authentication where the name and office of a designated income-tax authority is printed, stamped or otherwise written on it.

Detailed Analysis

The Special Bench ruling: form does not displace statutory substance

In 2026 (7) TMI 1968 - ITAT BENGALURU (LB) (SB), the notice had been issued within limitation, duly served, and followed by inquiries under section 142(1). The taxpayer had participated in the proceedings without objecting to the notice format before the Assessing Officer. The challenge was confined to the absence of conformity with the 2017 prescribed format.

The Special Bench held that neither the Act nor the Rules prescribe a statutory format for a section 143(2) notice. Crucially, the expressions "Limited Scrutiny", "Complete Scrutiny" and "Manual Scrutiny" do not occur in section 143(2). They are administrative classifications used for management of scrutiny cases. Accordingly, their omission from the notice does not, by itself, negate the statutory substance of a notice that informs the taxpayer of scrutiny and calls for participation and supporting evidence.

The Bench applied the principle that where the legislature has expressly stipulated particular conditions, further jurisdictional conditions cannot be imported through an administrative instruction. A Board instruction may regulate departmental conduct and may expose non-compliant officers to administrative consequences; nevertheless, invalidation of a proceeding follows only where the breach affects a statutory condition precedent or results in demonstrable prejudice. The referred question was consequently answered in the negative and in favour of the revenue.

The ruling adopts a fact-sensitive test. Participation alone is not treated as a universal cure for every jurisdictional defect. Rather, the relevant enquiry is whether the statutory notice existed, was issued by a competent authority within limitation, identified the taxpayer and assessment year, conveyed scrutiny, afforded the statutory opportunity, and whether any real confusion or prejudice arose from the alleged formal deviation.

Earlier contrary Tribunal decisions on notice format

2024 (11) TMI 970 - ITAT KOLKATA admitted an additional legal ground concerning the section 143(2) notice and treated the prescribed format as significant. Its operative conclusion, however, rested on a finding that additions had been made beyond the limited-scrutiny issue without compliance with conversion safeguards. Its continuing relevance is therefore strongest on unauthorised expansion of limited scrutiny rather than on format non-conformity alone.

2024 (11) TMI 1455 - ITAT KOLKATA treated a notice not falling within any prescribed 2017 format as invalid and quashed the consequential assessment. It proceeded on the view that CBDT instructions are mandatory and binding. That conclusion on the standalone format issue is contrary to the Special Bench's determination that administrative format requirements cannot be elevated into an unstated statutory jurisdictional condition.

2025 (3) TMI 1494 - ITAT KOLKATA similarly held that a notice describing only computer-aided scrutiny selection, without identifying the scrutiny category, was invalid and that the consequential assessment could not survive. The Special Bench specifically considered this line of authority and found that it had not addressed the curative scope of section 292B in the context of a notice that otherwise fulfilled section 143(2).

2025 (4) TMI 1668 - ITAT KOLKATA set aside a notice not in the prescribed format and treated the consequential assessment as void. It also noted the characterisation of the 2017 communication as an internal departmental communication. The Special Bench clarifies the legal consequence of that character: even an instruction binding on officers does not, without more, invalidate statutory proceedings that remain substantively compliant.

2025 (5) TMI 786 - ITAT KOLKATA held that omission to specify limited, complete or compulsory manual scrutiny violated the Board's instruction and invalidated the assessment. This is another contrary format-based conclusion that cannot govern the referred issue after the Special Bench's negative answer.

2025 (7) TMI 1907 - ITAT DELHI likewise treated use of a non-prescribed format as fatal because the format was understood to define the nature and scope of scrutiny. The Special Bench rejected that reasoning to the extent it equates the Board-prescribed format with a statutory condition for assumption of jurisdiction.

Scope of limited scrutiny remains a separate jurisdictional restraint

Instruction on unauthorised expansion of limited scrutiny states that, in limited-scrutiny cases, the Assessing Officer cannot travel beyond the selected issues. It reiterates the purpose of preventing fishing and roving inquiries and records that expansion without recorded reasons and the stipulated approval was viewed seriously.

2023 (10) TMI 921 - CALCUTTA HIGH COURT upheld the conclusion that additions outside the limited-scrutiny mandate were beyond jurisdiction where the conversion safeguards had not been followed. The decision concerns the actual scope of assessment, not a defect in the notice template. It therefore remains consistent with the Special Bench distinction.

2023 (8) TMI 888 - CALCUTTA HIGH COURT similarly affirmed that inquiries beyond the specified limited-scrutiny issues could not begin before the requisite written approval for conversion to complete scrutiny. It reinforces that the statutory assessment process and binding procedural safeguards restrict substantive enlargement of an inquiry, even though mere omission of the scrutiny label in the initial notice is not itself fatal.

Practical Implications

• A challenge based solely on non-mention of Limited Scrutiny, Complete Scrutiny or Compulsory Manual Scrutiny in a section 143(2) notice is insufficient where the statutory requirements are otherwise fulfilled and no actual prejudice is established.

• Notice review should begin with statutory essentials: eligibility of the return for section 143(2), service within the three-month limitation, competence and authentication of the issuing authority, identification of the taxpayer and assessment year, and a requirement to attend or furnish evidence in support of the return.

• Where a taxpayer asserts confusion or prejudice, the assessment record, subsequent notices, questionnaires, replies and order-sheet material become significant. The issue is necessarily fact-dependent.

• A format objection must not be confused with a challenge based on absence of notice, delayed service, notice to an incorrect or non-existent person, lack of authority, or substantive excess beyond the permissible scope of limited scrutiny. Those defects raise different legal questions.

• For limited-scrutiny matters, practitioners should preserve and examine the original selection reason, the issues specified for verification, correspondence initiating additional inquiries, recorded reasons, and approval material for conversion to complete scrutiny. The later section 142(1) notice may communicate specific information requirements, but it cannot legitimise an unauthorised expansion of a limited-scrutiny inquiry.

• Departmental authorities remain bound by the 2017 format instruction under section 119. The ruling concerns the validity of the assessment proceeding; it does not treat non-observance of the instruction as immaterial for administrative accountability.

Key Takeaways

• A section 143(2) notice is not invalid merely because it departs from the CBDT's 2017 revised format.

• The statutory touchstone is substantive conformity with section 143(2), including timely service and a meaningful opportunity to support the return.

• Section 292B protects defects of form where the notice remains in substance and effect consistent with the Act; Section 292BB addresses objections concerning service, timeliness of service and improper service.

• CBDT instructions under section 119 bind departmental authorities, but not every administrative departure results in nullity of an otherwise valid statutory proceeding.

• The restriction on expanding limited scrutiny without prescribed safeguards remains enforceable and must be assessed independently of the format of the initiating notice.

Full Text:

2026 (7) TMI 1968 - ITAT BENGALURU (LB) (SB)