2025 (6) TMI 1750 - AT - Income Tax

Validity of the notice issued u/s 143(2) being in an invalid format - HELD THAT - We find that undisputedly the notice issued u/s 143(2) of the Act dated 28.08.2016 specifies only computer aided scrutiny selection which neither mentioned it either to be a limited or a complete scrutiny nor compulsory manual scrutiny. Thus the said notice has been issued in violation of the instruction issued by CBDT as noted above. In our opinion the revenue authorities have to follow the instruction issued by CBDT and violation thereto would certainly render the notice as invalid with the result all the consequential proceeding would also be invalid. The case of the assessee find support from the decision of Tapas Kumar Das 2025 (3) TMI 1481 - ITAT KOLKATA wherein a similar issue has been decided in favour of the assessee. Notice issued u/s 143(2) of the Act is invalid notice and accordingly the assessment framed consequentially is also invalid. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the notice issued under section 143(2) of the Income Tax Act, 1961 (the Act) dated 28.08.2016 was valid, given that it did not specify the type of scrutiny (limited scrutiny, complete scrutiny, or compulsory manual scrutiny) as mandated by the Central Board of Direct Taxes (CBDT) Instruction No. F. No. 225/157/2017/ITA-II dated 23.06.2017;

(b) Whether non-compliance with the prescribed format and mandatory instructions issued by the CBDT renders the notice under section 143(2) invalid and consequently, the assessment order passed thereon void ab initio;

(c) Whether the assessee can raise a legal ground challenging the validity of the notice at the appellate stage even if such ground was not raised before the lower authorities;

(d) Treatment of the delay in filing the appeal and the condonation thereof.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of the Notice under section 143(2) of the Act and consequences of non-compliance with CBDT instructions

Relevant legal framework and precedents: Section 143(2) of the Income Tax Act empowers the Assessing Officer (A.O.) to issue a notice for scrutiny assessment. The CBDT issued a specific instruction (F. No. 225/157/2017/ITA-II dated 23.06.2017) prescribing the formats in which such notices must be issued, mandating that the notice specify the type of scrutiny-whether limited scrutiny, complete scrutiny, or compulsory manual scrutiny. The instruction is issued under section 119 of the Act, which empowers the CBDT to issue binding directions to ensure proper administration of fiscal laws.

Precedents relied upon include:

• Jute Corporation of India Ltd. vs. CIT (187 ITR 688),
• National Thermal Power Co. Ltd vs. CIT (229 ITR 383),
• PCIT vs. Britannia Industries Ltd. (396 ITR 677, Calcutta High Court),
• Tapas Kumar Das vs. ITO (ITA No. 1660/KOL/2024),
• Shib Nath Ghosh vs. ITO (ITA No. 1812/KOL/2024),
• UCO Bank case (Apex Court decision on binding nature of CBDT circulars under section 119 of the Act).

Court's interpretation and reasoning: The Tribunal observed that the notice issued to the assessee did not specify the nature of scrutiny as required by the CBDT instruction. The notice merely stated "computer aided scrutiny selection" without clarifying whether it was a limited scrutiny, complete scrutiny, or compulsory manual scrutiny. This omission constitutes a violation of the mandatory CBDT instruction.

The Tribunal emphasized that instructions issued by the CBDT under section 119 are binding on the income tax authorities. The Apex Court in the UCO Bank case clarified that such instructions are intended to ensure just, proper, and efficient management of assessment proceedings and are not to be disregarded. Non-compliance with these instructions results in invalidity of the notice and all consequential proceedings.

Key evidence and findings: The notice issued was computer-generated and did not conform to any of the three prescribed formats mandated by the CBDT instruction. The Tribunal also examined similar precedents where co-ordinate Benches held identical notices invalid due to non-compliance with the prescribed format.

Application of law to facts: Applying the legal standards and precedents, the Tribunal held that the notice under section 143(2) was invalid. Since the assessment order was passed pursuant to this invalid notice, it was also rendered void ab initio.

Treatment of competing arguments: The Revenue contended that the notice being computer-generated and lacking specification of scrutiny type did not invalidate the notice. The Tribunal rejected this argument, stressing the mandatory nature of the CBDT instruction and the binding effect of such instructions on the authorities.

Conclusions: The Tribunal concluded that the notice under section 143(2) was invalid for non-compliance with the CBDT instruction and accordingly quashed the assessment order framed based on such notice.

Issue (c): Admissibility of raising legal grounds at appellate stage not raised earlier

Relevant legal framework and precedents: The Tribunal relied on the decisions of the Apex Court and the Calcutta High Court which establish that a legal issue can be raised for the first time before any appellate authority, even if not raised before the lower authorities, provided it is a pure question of law and no further factual verification is required.

Court's interpretation and reasoning: The Tribunal noted that the additional ground raised by the assessee challenging the validity of the notice was purely legal in nature and all facts necessary for adjudication were available on record.

Key evidence and findings: The assessee had filed a condonation petition for delay and submitted an affidavit supporting the additional ground. The Tribunal found the reason for delay to be genuine and bonafide and condoned the delay.

Application of law to facts: The Tribunal admitted the additional ground for adjudication, following the principle that legal grounds can be raised at any stage.

Treatment of competing arguments: The Revenue argued that the issue should be remanded to the lower authorities since it was not raised earlier. The Tribunal rejected this, holding that the legal issue could be directly adjudicated by the appellate authority.

Conclusions: The Tribunal allowed the additional ground to be heard and adjudicated.

Issue (d): Condonation of delay in filing appeal

The Tribunal found a delay of 35 days in filing the appeal. Upon hearing both parties and perusing the condonation petition and affidavit filed by the assessee, the Tribunal held the reason for delay to be genuine and bonafide and accordingly condoned the delay.

3. SIGNIFICANT HOLDINGS

The Tribunal held as follows:

"In our opinion, the notice issued u/s 143(2) of the Act which is not in the prescribed format as provided under the Act is an invalid notice and accordingly, all the subsequent proceedings thereto would be invalid and void ab initio."

"The instruction issued by the CBDT are mandatory and binding on the Income tax authorities failing which the proceedings would be rendered as invalid."

"The assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities."

"The notice issued u/s 143(2) of the Act dated 28.08.2016, specifies only computer aided scrutiny selection which neither mentioned it either to be a limited or a complete scrutiny nor compulsory manual scrutiny. Thus, the said notice has been issued in violation of the instruction issued by CBDT. The assessment framed consequentially to that is also invalid and is hereby quashed."

"The other grounds raised on merit are not being decided at this stage and are being left open to be decided if need arises for the same at later stage."

"The appeal of the assessee is allowed."