2025 (7) TMI 1374 - AT - Income Tax

Revision u/s 263 - revise the assessment order passed u/s 143(3) - HELD THAT - We note that in this case the notice u/s 143(2) of the Act was issued on 26.08.2022 which apparently is not in accordance with the C.B.D.T. Instruction F. No. 225/157/2017/ITA-II Dated 23-06-2017. We note that in terms of the above CBDT instruction the notice u/s 143(2) has to be in any of the three formats namely; (i) Limited Scrutiny (Computer Aided Scrutiny Selection) (ii) Complete Scrutiny (computer Aided Scrutiny Selection) and (iii) Compulsory Manual Scrutiny. Since the notice has been issued in an invalid format which is obviously invalid and therefore any assessment based on the said notice is also invalid and bad in law. We note that the assessee has not challenged the assessment proceedings on this issue before any higher appellate forum however the assessee is within its legitimate and legal right to challenge the validity of the assessment in the collateral proceedings meaning thereby even during the appeal proceedings before the Tribunal against the revisionary order passed u/s 263 by the ld. PCIT the validity of the assessment passed u/s 143(3) could be challenged. Therefore we hold that the assessment passed u/s 143(3) is invalid and nullity in the eyes of law. We also hold that the revisionary proceedings based upon an invalid order is also invalid and bad in law. The case of the assessee find support from the decision of this Tribunal in case of Nadia District Central Co-operative Bank Ltd 2025 (6) TMI 286 - ITAT KOLKATA We are inclined to held that the revisionary proceedings u/s 263 of the Act is invalid and accordingly the order passed u/s 263 of the Act is quashed.

Summary

ISSUES:

Whether an assessment order framed under section 143(3) of the Income Tax Act, 1961, based on a notice issued under section 143(2) in an invalid format not conforming to CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017, is valid in law.Whether revisionary proceedings under section 263 of the Income Tax Act, 1961, can be validly initiated against an assessment order that is itself invalid due to the defective issuance of notice under section 143(2).Whether the validity of an assessment order can be challenged for the first time during revisionary proceedings under section 263 before the Tribunal.

RULINGS / HOLDINGS:

The assessment order framed under section 143(3) based on a notice issued under section 143(2) which is "not in accordance with the C.B.D.T. Instruction F. No. 225/157/2017/ITA-II Dated 23-06-2017" is "invalid and bad in law" and is a "nullity in the eyes of law."Revisionary proceedings under section 263 initiated on the basis of such an invalid assessment order are also "invalid and bad in law" and lack jurisdiction.The assessee is entitled to challenge the validity of the assessment order in collateral proceedings, including during appeal against the revisionary order under section 263, even if the validity was not challenged earlier before the Commissioner (Appeals) or the Tribunal.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, particularly sections 143(2), 143(3), and 263, alongside the mandatory CBDT Instruction F. No. 225/157/2017/ITA-II dated 23-06-2017, which prescribes the formats for notices under section 143(2) to ensure proper scrutiny procedures.The Court relied on precedents from coordinate Benches and High Courts emphasizing that notices under section 143(2) must strictly comply with the prescribed formats, and failure to do so renders the assessment invalid, referencing decisions such as those in Nadia District Central Co-operative Bank Ltd. and others.The Court noted the binding nature of CBDT circulars and instructions under section 119 of the Act, as upheld by the Supreme Court, which mandate compliance by tax authorities to avoid invalidation of proceedings.The Court recognized a doctrinal position that an invalid assessment order cannot be the foundation for valid revisionary proceedings under section 263, thereby quashing the revisionary order as lacking jurisdiction.The Court acknowledged that the issue of validity of the assessment order can be raised at any stage, including collateral proceedings before the Tribunal, even if not previously challenged, thus protecting the assessee's legitimate rights.