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Facts
The assessee's appeal is against an order of the Addl./JCIT(A). The primary ground was that the Assessing Officer (AO) erred in assuming jurisdiction to frame the assessment under section 143(3) because the scrutiny notice dated 14.08.2018 was not issued in the mandatory revised formats prescribed by CBDT Instruction F.No.225/157/2017/ITA-II dated 23.06.2017, and failed to specify the nature of scrutiny (Limited, Complete, or Manual).
Held
The Tribunal held that the additional grounds challenging the validity of the notice issued under section 143(2) were legal in nature and therefore admissible. Following the Delhi Bench of the Tribunal in Anita Garg vs. ITO and other co-ordinate benches, it was held that the notice issued without specifying the scope of scrutiny as per CBDT instructions is invalid and vitiates the assessment order.
Key Issues
Whether a notice issued under section 143(2) without specifying the nature of scrutiny (limited, complete, or manual) as per CBDT instructions is invalid, thereby vitiating the subsequent assessment order under section 143(3).
Sections Cited
143(2), 143(3), 119
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘SMC’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO
ORDER This appeal by the Assessee is directed against the Order dated 08.10.2025 of the learned Addl./JCIT(A)-1, Nashik, for the assessment year 2017-2018.
The assessee has raised the following grounds of appeal:
1. 1. 1. 1. 1. 1. “The learned Assessing Officer ("AO") erred in law in assuming jurisdiction to frame the assessment u/s 143(3), as the scrutiny notice dated 14.08.2018 was not issued in the mandatory revised formats prescribed by CBDT Instruction
2 ITA.No.2174/Hyd./2025 F.No.225/157/2017/ITA-II dated 23.06.2017, and failed to specify whether the case was selected for Limited, Complete or Manual Scrutiny. The notice being invalid, the consequential assessment is void ab initio and liable to be quashed. 2. The Ld. AO acted contrary to binding CBDT instructions u/s 119, which mandatorily require issuance of scrutiny notices only in the revised formats. The defect being jurisdictional goes to the root of the assessment and is not curable.
3. This ground, though not raised before Ld. AO and CIT(A), is a pure question of law fully arising from the assessment record and is, therefore, admissible under NTPC v. CIT (229 ITR 383) and the principle affirmed in Anita Garg v. ITO, ITA 4053/Del/2024.
4. That both the Ld. AO and Ld. CIT(A) erred in rejecting the books of account without identifying specific defects and in estimating income at 3% of cost of goods put to sale, resulting in an unwarranted addition of ₹.8,27,378. The estimation is arbitrary, excessive, and not supported by comparable cases or cogent material.
5. That both the Ld. AO and Ld. CIT(A) erred in making addition of ₹.9,54,000 u/s 69A, even though: the entire SBN cash of ₹.31,54,000 was recorded in the cash book, the AO accepted closing cash balance of ₹34,90,297 as on 08.11.2016, deposits were made in stages only because banks refused large deposits in go. Deposits made in tranches due to 3 ITA.No.2174/Hyd./2025 banking constraints cannot be treated as unexplained. The addition is contrary to facts and law.
6. Without prejudice, once Ld. AO having rejected the books of account for estimating income, the AO could not legally rely on the same books to conclude that deposits of ₹9,54,000 were "unexplained." And the Ld. CIT(A) erred in ignoring facts placed before him. It is settled law that estimation of profits and specific additions based on the rejected books cannot co- exist.
7. That the AO erred in treating staggered deposits as suspicious, ignoring that RBI permitted deposits until 30.12.2016 and no evidence was brought to contradict the appellant's explanation. That both the Ld. AO and Ld. CIT(A) erred in not considering the appellant's detailed submissions, bank statements, cash book, and cash-flow analysis, rendering the findings perverse and unsustainable.
8. Without prejudice, even if estimation is upheld, no separate addition u/s 69A is legally permissible, as the estimation subsumes all alleged discrepancies.
9. That the appellant craves leave to add, alter, modify, or withdraw any of the above grounds at the time of hearing in the interest of justice.”
3. Ground nos.1 to 3 are regarding validity of the notice issued by the Assessing Officer u/sec.143(2) of the 4 ITA.No.2174/Hyd./2025 Income Tax Act [in short "the Act"], 1961 and consequently, the assessment order passed by the Assessing Officer.
The learned Authorised Representative of the Assessee has submitted that this issue raised by the assessee in ground nos.1 to 3 is purely legal in nature and does not require any investigation or verification of any new facts or material. Therefore, he has submitted that these grounds raised by the assessee for the first time before the Tribunal may be admitted for adjudication. In support of his contention, he has relied upon the Order of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT [1998] 229 ITR 383 (SC).
On the other hand, the learned DR has objected to the admission of the additional grounds raised by the assessee.
I have considered the rival submissions as well as the relevant material on record. The assessee has raised the additional grounds and challenged the validity of the notice issued u/sec.143(2) of the Act on the ground that the 5 ITA.No.2174/Hyd./2025 Assessing Officer has failed to specify the scope of scrutiny and nature of scrutiny whether it is for limited or complete scrutiny or manual scrutiny. The issue raised by the assessee in the additional grounds challenging the validity of notice issued u/sec.143(2) of the Act by the Assessing Officer being not in accordance with the CBDT Instruction in File No.225/ 157/2017, dated 23.06.2017 whereby the CBDT has issued specific directions and also prescribed the Format of the notice to be issued u/sec.143(2) of the Act in respect of the cases selected for scrutiny under CASS as well as compulsory manual scrutiny. Therefore, the legal issue raised by the assessee is purely legal in nature and adjudicated on the basis of the material available on record and no fresh facts or material is required to be verified or scrutinised. Hence, the additional grounds raised by the assessee are admitted for adjudication. Since the issue raised by the assessee in the additional grounds is legal in nature and goes to the root of the matter, therefore, the additional grounds are taken up for adjudication.
6 ITA.No.2174/Hyd./2025 7. The learned Authorised Representative of the Assessee has submitted that the Assessing Officer taken up the case of the assessee for scrutiny by issuing notice u/sec.143(2) of the Act dated 14.08.2018. However, in the said notice, the Assessing Officer has not specified whether the scrutiny is for limited scrutiny or complete scrutiny. Thus, the learned Authorised Representative of the Assessee has submitted that the notice issued by the Assessing Officer without specifying the scope of scrutiny is invalid as against the CBDT’s Instruction dated 23.06.2017. The learned Authorised Representative of the Assessee has pointed out that the Instructions of the CBDT are binding on the Tax Authorities as per sec. 119 of the Act and therefore, not following the Instruction of the CBDT renders the notice issued u/sec.143(2) of the Act as invalid and also vitiates the assessment order passed by the Assessing Officer. In support of his contention, he has relied upon the following decisions: i. Order of ITAT, Delhi Bench in the case of Anita Garg vs. ITO ITA.No.4053/Del./2024, dated 30.07.2025.
7 ITA.No.2174/Hyd./2025 ii. Order of ITAT, Delhi Bench in the case of Agson Global Pvt. Ltd., New Delhi vs. ACIT, Central Circle-28, New Delhi in ITA.Nos.3741/Del./2019 etc. batch, dated 31.10.2019.
On the other hand, the learned DR has submitted that the Assessing Officer has specified the selection of scrutiny under CASS in the notice issued u/sec.143(2) of the Act and since it is complete scrutiny, therefore, there was no need to write limited scrutiny. This fact is also stated by the Assessing Officer in the assessment order. Thus, the learned DR has submitted that once the Assessing Officer has stated in the notice u/sec.143(2) of the Act as scrutiny under CASS, then it is clear that the case was selected for complete scrutiny and not for limited scrutiny. Therefore, there is no illegality in the notice issued u/sec.143(2) of the Act.
9. I have considered the rival submissions as well as relevant material on record. The case of the assessee was selected for scrutiny for issuing notice u/sec.143(2) of the Act dated 14.08.2018 as under:
8 ITA.No.2174/Hyd./2025
9 ITA.No.2174/Hyd./2025 9.1. Thus, it is clear that the Assessing Officer has not specified the scope of the scrutiny in the notice issued u/sec.143(2) of the Act. The only information shared by the Assessing Officer with the assessee vide this notice is that the case is selected for scrutiny under CASS. Therefore, the assessee was not informed/intimated about the scope of the scrutiny whether it is for limited or complete scrutiny. Though in the assessment order the Assessing Officer has stated that the case was selected under CASS for complete scrutiny but the said information was not confronted/ communicated to the assessee prior to the Order passed by the Assessing Officer and therefore, the assessee was not made known about the scope of the scrutiny undertaken by the Assessing Officer. The CBDT vide F.No.225/157/2017/ 10 ITA.No.2174/Hyd./2025 ITA.II, dated 23.06.2017 has issued Instructions regarding the notice in the Format specified for a particular type of scrutiny. For ready reference, the CBDT instruction dated 23.06.2017 and the Format for notice u/sec.143(2) of the Act in case of limited scrutiny [CASS] and complete scrutiny [CASS] are prescribed as under:
11 ITA.No.2174/Hyd./2025 12 ITA.No.2174/Hyd./2025 13 ITA.No.2174/Hyd./2025 9.2. Thus, the CBDT has specifically provided the Format in which the Assessing Officer has to mention the scope of scrutiny and the issues identified for examination if the scrutiny is taken up for limited scrutiny. In case of complete scrutiny, the Assessing Officer has to specifically mention in the notice u/sec.143(2) of the Act as selected for complete scrutiny. Therefore, the notice issued by the Assessing Officer u/sec.143(2) of the Act in the case of the assessee is not in accordance with the Instruction and Format provided by the CBDT which has resulted in mis- information/non-communication of the correct information to the assessee. The assessee was not made aware about the scope of scrutiny undertaken by the Assessing Officer by issuing the said notice u/sec.143(2) of the Act. The Delhi Bench of the Tribunal in the case of Anita Garg vs. ITO (supra) has considered an identical issue in Para nos.7 to 9 as under: “7. Heard rival contentions, perused the materials placed before us and the case laws relied on. The contention of the assessee that the notice issued u/s 143(2) dated 22.09.2018 by the AO is in violation of the CBDT instruction dated 23.06.2017 as it is not in the specified format. This fact was not controverted by the Revenue before us.
14 ITA.No.2174/Hyd./2025 8. We observed that on identical situation the Kolkata Bench of the Tribunal in the case of Hind Cyramics Pvt. Ltd. vs. DCIT in 608 & 610/Kol/ 2024 dated 06.05.2025 quashed the assessment framed pursuant to the notice issued u/s 143(2) which was not in the prescribed format as per the CBDT instructions observing as under: "011. After hearing the rival contentions and perusing the material on record, we find that the assessee has raised an additional grounds of appeal challenging the validity of the notice issued u/s 143(2) of the Act being in an invalid format and in our opinion the issued raised in the additional grounds is a purely a legal issue qua which all the facts are available in the appeal folder and no further verification of facts is required from any quarter whatsoever. In our considered view 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 case of the assessee is squarely covered by the decisions of the Apex court in the case of i) Jute Corporation of India Ltd. Vs CIT (supra) ii) National Thermal Power Co. Ltd v. CIT (supra) and also by the decision of Hon'ble Calcutta High Court in PCIT vs. Britannia Industries Ltd. (supra). Therefore, we are inclined to admit the same for adjudication.
The Id. AR vehemently submitted that the notice u/s 143(2) of the Act issued to the assessee did not specify whether it was a limited scrutiny or a complete scrutiny or a compulsory manual scrutiny. The Id. AR submitted that the CBDT has issued specifically provided vide instruction nо. F.No.225/157/2017/TA- II Dated 23-06-2017, that the notice u/s 143(2) can be issued in 15 ITA.No.2174/Hyd./2025 one of the three format which have specifically prescribed but the present notice issued is not in accordance with such said instruction and therefore, the assessment framed consequently is invalid and void ab initio.
The Id. DR on the other hand submitted that this is a computer-generated notice and the non-mentioning of the fact of either limited or complete scrutiny or compulsory manual scrutiny would not render the issuance of notice u/s 143(2) of the Act as invalid. Therefore, additional ground raised by the assessee may kindly be dismissed.
After hearing the rival contentions and perusing the materials available on record, we find that undisputedly the notice issued uls 143(2) of the Act dated 09.08.2018, 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 the co-ordinate Bench in the case of Tapas Kumar Das Vs. ITO (supra), wherein a similar issue has been decided in favour of the assessee. The operative part of the same is extracted below:- "6. After hearing the rival contentions and perusing the materials available on record, we find that particularly the notice was issued u/s 143(2) of the Act, a copy of which is available at page no. 25 of the Paper Book. We note that the said notice has not been issued in consonance with the CBDT Instruction F No. 225/157/2017/ITA-II 16 ITA.No.2174/Hyd./2025 Dated 23.06.2017. The said notice is extracted below for the sake of ready reference:-
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 case of the assessee find support from the decision of Shib Nath Ghosh Vs. ITO in for A.Y. 2018-19 vide order dated 29.11.2024, wherein the co-ordinate Bench has held as under:-
17 ITA.No.2174/Hyd./2025 “10. After hearing both the sides and the materials available on record, we find that the notice issued u/s 143(2) dated 9th August, 2017 was not in any of the formats as provided in the CBDT instruction F.No. 225/157/2017/ITA-II dated 23.06.2017. We have examined the notice, copy of which is available at page no. 1 of the Paper Book and find that the same is not as per the format of CBDT Instruction F.No. 225/157/2017/ITA-II dated 23.06.2017 as stated above. In our opinion, the instruction issued by the CBDT are mandatory and binding on the Income tax authorities failing which the proceedings would be rendered as invalid. Hon'ble Apex Court in case of UCO Bank (supra) held that the circular issued by CBDT in exercise of its statutory powers u/s 119 of the Act, are binding on the authorities. The Hon'ble Apex court held as under:
The Central Board of Direct Taxes under section 119 of the Income-tax Act, 1961, has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Act which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases Which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by Issuing circulars binding on the taxing authorities.
18 ITA.No.2174/Hyd./2025 In order to aid proper determination of the income of money lenders and banks, the Central Board of Direct Taxes issued a circular dated October 6, 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, It need not be included in the assessee's taxable income, provided the Income-tax Officer is satisfied that recovery is practically improbable. Twenty-six years later, on June 20, 1978, in view of the judgment of the Kerala High Court In STATE BANK OF TRAVANCORE v. CIT [1977] 110 ITR 336, the Board by another circular, withdrew with immediate effect the earlier circular. However, by circular dated October 9, 1984, the Board decided that Interest in respect of doubtful debts credited to suspense account by banking companies would be subjected to tax but Interest charged in an account where there has been no recovery for three consecutive accounting years would not be subjected to tax in the fourth year and onwards. The circular also stated that if there is any recovery in the fourth year or later, the actual amount recovered only would be subjected to tax in the respective years. This procedure would apply to assessment year 1979-80 and onwards."
8. Considering the facts of the instant case in the light of the decision of the co-ordinate bench, we are inclined to hold that notice issued u/s 143(2) of the Act is invalid notice and accordingly, the assessment framed consequentially to that is also invalid and is hereby quashed.
9. 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.
10. In the result, the appeal of the assessee is allowed."
19 ITA.No.2174/Hyd./2025 015. Since the facts of the assessee's case are similar to one as decided by the co-ordinate Bench, we therefore, respectfully following the same hold that the notice issued u/s 143(2) of the Act is invalid notice and accordingly, the assessment framed consequentially is also invalid and is hereby quashed. The additional ground raised by the assessee is allowed."
Similar view has been taken by the Kolkata Bench of the Tribunal in the case of Sajal Biswas vs. ITO in dated 26.03.2025, Srimanta Kumar Shit vs. ACIT in dated 19.11.2024, Tapas Kumar vs. ITO in dated 11.3.2025. Therefore, facts being identical respectfully following the above said decisions, we hold that the assessment framed by the Assessing Officer u/s 143(3) dated 27.12.2019 pursuant to the notice issued u/s 143(2) dated 22.09.2018 which was not in the prescribed format as notified by the CBDT, is bad in law and void ab initio and the same is hereby quashed. The additional ground no.2 raised by the Assessee is allowed.”
9.3. Accordingly, in the facts and circumstances of the case and following the earlier decisions of this Tribunal, this issue is decided in favour of the assessee and consequently, the notice issued by the Assessing Officer u/sec.143(2) of the Act dated 14.08.2018 is held as invalid and consequently vitiates the assessment order passed by the Assessing Officer. Hence, the assessment order passed by the Assessing Officer 20 ITA.No.2174/Hyd./2025 is set aside. Since, the assessment order is set aside as invalid therefore, the other grounds raised by the assessee in this appeal become infructuous and not taken up for adjudication.