The Income Tax Appellate Tribunal (ITAT) Special Bench, Bengaluru, has held that an assessment cannot be quashed merely because the notice issued under Section 143(2) of the Income Tax Act, 1961 was not in the format prescribed by the CBDT.
The bench of Justice (Retd.) C.V. Bhadang (President), George George K (Vice President), and S. Padmavathy (Accountant Member) ruled that the defect is only procedural and is curable under Section 292B, provided the notice substantially complies with the statutory requirements and no prejudice is caused to the taxpayer.
The lead case involved MD Sons, a Bengaluru-based partnership firm engaged in the business of trading cigarettes and food items. For Assessment Year 2017-18, the firm filed its income tax return declaring a loss. The case was subsequently selected for scrutiny under the Computer Aided Scrutiny Selection (CASS), and the Assessing Officer issued a notice under Section 143(2), followed by notices under Section 142(1). After considering the material produced by the assessee, the Assessing Officer completed the scrutiny assessment making substantial additions.
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Before the Tribunal, the assessee raised an additional legal ground contending that the Section 143(2) notice was invalid because it was not issued in the format prescribed by the CBDT through its communication dated 23 June 2017. According to the assessee, the prescribed format required the Department to specify whether the scrutiny was Limited Scrutiny, Complete Scrutiny, or Manual Scrutiny, and failure to do so rendered the entire assessment void.
The issue had assumed considerable significance because different benches of the ITAT had taken contradictory views on whether such defective notices invalidated assessment proceedings.
The Special Bench was constituted specifically to decide the following legal question:
Whether notices issued under Section 143(2) on or after 23 June 2017 which are not in the format prescribed by the CBDT, despite Section 292B of the Income Tax Act, render the consequential assessment orders invalid?
The assessees and interveners argued that the CBDT’s 2017 instructions mandating standardized notice formats were binding under Section 119 of the Act. According to them, the prescribed format was introduced to ensure transparency regarding the nature and scope of scrutiny and to prevent arbitrary expansion of enquiries.
It was submitted that specifying whether scrutiny was “Limited” or “Complete” was not a mere procedural requirement but a jurisdictional safeguard because the scope of enquiry in Limited Scrutiny cases is statutorily restricted. Consequently, failure to issue notices in the prescribed format amounted to a jurisdictional defect incapable of being cured under Section 292B.
The assessees also relied upon several Tribunal decisions which had quashed assessments on identical grounds and argued that Section 292B saves only technical defects and not jurisdictional defects.
The Income Tax Department argued that Section 143(2) itself does not prescribe any statutory format for issuing notices. The CBDT instructions were merely administrative guidelines intended for internal departmental functioning and could not create additional jurisdictional requirements beyond those contained in the statute.
The Revenue further submitted that the essential statutory requirement under Section 143(2) is only that the assessee should be informed that the return has been selected for scrutiny and be given an opportunity to participate in assessment proceedings. Since the notices fulfilled these statutory objectives and the assessees had fully participated in the assessments without objection, any defect in format stood cured under Section 292B.
The Special Bench accepted the Revenue’s contentions.
The Tribunal observed that neither the Income Tax Act nor the Income Tax Rules prescribe any statutory format for notices under Section 143(2). The requirement regarding different scrutiny categories originates only from administrative instructions issued by the CBDT and cannot be elevated to the level of a statutory jurisdictional condition.
It held that the fundamental statutory purpose of a Section 143(2) notice is to inform the assessee that the return has been selected for scrutiny and to require production of supporting evidence. In the present cases, these objectives had been fully achieved because the notices were issued within limitation, properly served, and acted upon by the assessees.
The Special Bench emphasized that while CBDT instructions issued under Section 119 are binding on departmental officers, every breach of such instructions does not automatically invalidate proceedings otherwise validly initiated under the Act.
According to the Tribunal, an executive instruction cannot create jurisdictional requirements which Parliament itself has not incorporated into the statute. If Parliament intended the notice to specify the category of scrutiny as a condition precedent, it would have expressly provided so in Section 143(2).
The Tribunal held that omission to mention whether scrutiny was “Limited” or “Complete” is only a defect of form and not one affecting the Assessing Officer’s jurisdiction.
Referring to Section 292B, the Special Bench observed that the provision was enacted precisely to ensure that proceedings are not invalidated on account of technical mistakes, defects or omissions, provided the notice is substantially in conformity with the intent and purpose of the Act.
Since the assessees had participated throughout the assessment proceedings and failed to establish any actual prejudice resulting from the notice format, the Tribunal concluded that the alleged defect stood cured under Section 292B.
The Tribunal distinguished landmark Supreme Court rulings such as Hotel Blue Moon, Laxman Das Khandelwal, and Maruti Suzuki, observing that those cases involved complete absence of mandatory notices or foundational jurisdictional defects, unlike the present dispute where valid notices had admittedly been issued within time.
Similarly, the Tribunal held that judgments concerning defective penalty notices under Section 274, including Manjunatha Cotton & Ginning Factory and Mohd. Farhan A. Shaikh, were inapplicable because those decisions dealt with statutory requirements expressly contained in the penalty provisions, whereas the present dispute concerned only an administrative format prescribed by the CBDT.
The Special Bench examined earlier conflicting Tribunal rulings that had quashed assessments because the notices were not issued in the prescribed format. It observed that those decisions had not adequately considered the scope of Section 292B.
Instead, the Special Bench approved the earlier Bengaluru Bench decision in Shri Veeranna Murthy Raghavendra Dikshit, which had held that such defects are procedural and protected by Section 292B in the absence of prejudice to the assessee.
The ITAT Special Bench held that a notice issued under Section 143(2) does not become invalid merely because it is not in the format prescribed by the CBDT. The CBDT’s prescribed notice formats are administrative instructions and do not constitute statutory jurisdictional requirements. Failure to specify the scrutiny category amounts only to a procedural irregularity. Such defects are curable under Section 292B where the notice substantially satisfies the statutory purpose and no prejudice is demonstrated. Consequently, assessments based on such notices cannot be annulled solely on the ground of deviation from the prescribed format.
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