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Income Tax Appellate Tribunal, D BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: December 12, 2025 ORDER
Per Pradip Kumar Choubey, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 25.08.2025 of the National Faceless Appeal Centre [hereinafter referred to as the “ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as the “Act”].
Facts in brief are that the assessee company was engaged in the construction activities and filed return of income for AY 2018-19 on 29/09/2018 declaring total income of Rs. 28,69,880/-. The case of the assessee was selected for complete scrutiny through CASS and notices u/s 143(2) & 142(1) of the Act were issued calling for various information. During the course of the assessment proceedings, the Assessing Officer observed from the audit report of the assessee-firm that there was substantial reduction of profit due to the application of the Income Computation & Disclosure Standards and the assessee claimed that the reduction of profit was due to the difference in input of output tax credits. However, the Assessing Officer was not convinced with the claim of the assessee as it failed to justify the reduction of profit i.e. the net effect of Rs. 49,66,397/- and added the same to the total income of the assessee.
3. Aggrieved by the said order, the assessee preferred appeal before the ld. CIT(A), wherein, the appeal of the assessee has been dismissed.
Being aggrieved and dissatisfied, the assessee preferred appeal before us. The assessee has challenged by raising ground no.2 that notice u/s 143(2) of the Act dated 22.09.2019 is not in terms of the Instruction issued by CBDT vide F.No.225/157/2017/ITA-II dated 23.06.2017. His submission is that since the notice issued u/s 143(2) is defective, the assessment framed u/s 143(3) is void and fit to be quashed. The ld. AR filed a copy of the notice issued under section 143(2) of the Act dated 22.08.2019, the contents of which are as under:
4.1 The ld. AR referring the above notice contends that the said notice u/s 143(2) of the Act was not issued as per three formats propounded by the CBDT i.e (i)Limited Scrutiny (Computer Aided Scrutiny System) (ii)Complete Scrutiny (Computer Aided Scrutiny System) (iii)Compulsory Manual Scrutiny rather it has been mentioned Scrutiny (Computer Aided Scrutiny Selection System). The ld. AR placed reliance on the various judicial pronouncements as under: i. Coordinate Kolkata Bench of the Tribunal in the case of Sajal Biswas vs. ITO in iii. Hon’ble Punjab and Haryana High Court in the case of Crystal Phosphates Ltd., reported in [2023] 152 taxmann.com 232(P&H)/[2024] 461 ITR 289 (Punjab & Haryana)
5. On the other hand, ld. D.R. relied upon the order of Assessing Officer and submits that no expression exhibiting the limited scrutiny is being used by the Assessing Officer and the notice would indicate that the case was selected for scrutiny assessment. The ld. DR has filed the following submission:
“2.7. Hence, it can be seen from the above, that section 282A specifically speaks about 'authentication of notices and other documents" and Section 292B holds that "a notice should not be held as invalid on certain grounds, if that notice, was in substance and effect in conformity with or according to the intent and purpose of this Act. 2.8. It is very clear that the above sections grant sufficient immunity to the Assessing Officer and the Hon'ble Bench should not hold that the Notices were invalid, because the Notice was in substance and effect in conformity with or according to the intent and purpose of this Act. 2.9 In an Analogues case, recently the Hon'ble ITAT Bangalore in the decision of Sri Veeranna Murthy, vide for the A.Y. 2017-18 was held that in para 13.6 and 13.7 pages 16 and 17 of the order has observed we have strong opinion that notice even though not in the prescribed format if it serves the intent and purpose of the act, that is to inform the assessee and when there is no confusion in his mind about initiation of proceedings under the act, the defective notice is protected u/s 2928. In the present case, we found that no prejudice/ confusion was caused to the assessee and the assessee filed explanation/ submission and cooperated during the course of assessment proceedings and therefore, merely because of the procedural irregularities, we cannot accept the plea of the assessee that notice not served as per format prescribed by the CBDT's instruction cited supra, the entire consequential assessment proceedings including the assessment order have to be rendered bad in law and accordingly dismissed." Thus, the Hon'ble ITAT, Bangalore has decided the issue in favour of Revenue. 2.10. Taking into consideration, the observation of the Courts that (i) procedural errors would not vitiate initiation of proceedings for issuance of notice, since when there no procedural irregularity to establish legal malice with reference to actions such errors were curable in nature and (1) is initiated by Assessing Officer, is squarely applicable in respect of the impugned Notice u/s.143(2) issued by the AO which was valid and conforming within the contours of the law and the prescribed guidelines and procedures. 2.11. It is the settled position of law that whenever there is conflict between the substantial justice' and 'hyper technicality, then the substantial justice should be preferred to avoid the defeat for the end of justice. The Hon'ble Supreme Court in the case "M.C Mehta Vs Union of India (1986)" has not taken a hyper technical approach because adoption of hyper technical approach would have defeated the ends of justice. 2.12. Hence, it is requested that the assessee's submission citing an old CBDT letter dated 23.06.2017 that the Notice u/s.143(2) was invalid, is absolutely incorrect and void ab initio, given the recent developments and circumstances leading to the present Notices u/s.143(2), which are issued electronically to the assessees and for the sake of uniformity, these Notices u/s.143(2) have been issued as per the guidelines prescribed in Rule 127A.
It is a humble plea to the Hon'ble Bench, that the matter may solely be decided on merits, rejecting the appellants above ground which questions the format of notice, which was well within the contours of law.
4. Hence, in view of the above facts and circumstances of the case, the assessment order passed by the Ld. AO under section 143(3) is valid as per law and is required to be upheld.”
Upon hearing the submissions of the counsels of the respective parties and we have considered the legal ground taken by the assessee for validity of issuance of the notice and also considered the cited decision of the Coordinate Bench of the Tribunal in the case of Sajal Biswas vs. ITO (supra). We note that the ld. AR has also filed the copy of the notice issued under section 143(2) of the Act dated 22.09.2019 wherein it has been mentioned Scrutiny (Computer Aided Scrutiny Selection System) without conforming the three formats specified by the CBDT as (i)Limited Scrutiny (Computer Aided Scrutiny System) (ii)Complete Scrutiny (Computer Aided Scrutiny System) (iii)Compulsory Manual Scrutiny. We find that the notice was issued on 22.09.2019 i.e. after the Board Circular dated 23.06.2017, whereby a format was laid down by the Board to be used by the Assessing Officer. We also note that in the case of the assessee, there is no mention of the type of scrutiny under which the case of the assessee has been selected. We further note that if scope of limited scrutiny is required to be extended, then appropriate approval from the competent authority was required to be taken by the Assessing Officer, otherwise he cannot enlarge the scope of the assessment. We have gone through the cited decision and find that under similar circumstances, the Hon’ble Coordinate Bench of the Tribunal in the case of Sajal Biswas vs. ITO (supra) quashed the notice issued u/s 143(2) of the Act by holding as under:
“09. After hearing the rival contentions and perusing the materials available on record, we find that undisputedly the notice u/s 143(2) of the Act dated 10.08.2018, 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 proceedings 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 in for A.Y. 2017-18, wherein a similar issue has been decided in favour of the assessee. The operative part of the same is extracted below:-
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 Dated 23.06.2017. The said notice is extracted below for the sake of ready reference:- ““आमकरअिधिनयम 1961 कीधारा 143(2) केअधीननोिटस Notice under section 143(2) of the Income-tax Act, 1961 संवी�ा (कं�ूटरआधा�रतसंवी�ाचयन Scrutiny (Computer Alded Scrutiny Selection) महोदय/महोदया/ भेसस�, Sir/Madam/ M/s, आपकोसूिचतिकयाजाताहैिकिनधा�रणवष� केपावतीसं�ा 2017-18 269322761301017 केअनुसारआपके�ारािदनांक 30/10/2017 कोदा�खलकीगईआयकरिववरणीकोसंवी�ाकेिलएचुनागयाहै। This is for your kind information that the return of income filed by you for assessment year 2017-18 vide ack, no. 269322761301017 on 30/10/2017 has been selected for Scrutiny. 2. इससंबंधम�, आपकोिदनीक 16/11/2018 को 01:00 PM तकसा���ुतकरनेअथवासा���ुतकरानेकाअवसर�दानिकयाजारहाहै िजसपरआपउ�आयकरिववरणीकेसमथ�नम�िनभ�रह�/ रह�गे। 2. In this regard, an opportunity is being given to you to produce or cause to produce any evidence on which you may like to rely in support of the said return of income by 16/11/2018 at 01:00 PM. उपयु� िनिद��माण 3. / सूचनाकोआपकोऑनलाइनमा�मसेइले��ॉिनक�पम� परअपनेई- Incometaxindiaefiling.gov.in फाईिलंगखाता�ारा��ुतिकयाजानाहै।बादकीिनधा�रणकाय�वाहीभीआयकर िवभागकी 'ई-काय�वाही' सुिवधा�ाराकीजायेगी। 'ई-काय�बाही' परएकसंि��नोटआपकेसंदभ�केिलएसंल�है। 3. The evidence/information specified above has to be furnished online electronically through your E-filing account in incometaxindiaefiling.gov.in. Subsequent assessment proceedings shall also be conducted electronically through the 'E-Proceeding' facility of Income- tax Department. A brief note on 'E-Proceeding' is enclosed for your kind reference. िनधा�रणकाय�वाहीकेदौरान, यिदआव�कहोगातोसूचना 4. / द�ावेजहेतुिवशेष��ावली (यों) याअिधयाचना (याँ) कोबादम�जारीिकयाजाएगा। 4. In course of assessment proceedings, if required, specific questionnaire(s) or requisition(s) for information/document shall be issued subsequently. 5. कृपया�ानद�िकयिदआपकेपासई-फाइिलंगखाताहैतोआपकेिलएपैरा 3 लागूहै।आपके�ारा�यंअपनाखातानबनालेनेतकिनधा�रणकाय�वाहीआपके�ा राविण�तकीगईई-मे is created by you, assessment proceedings shall be carried out either through your specified e-mail account or manually (if e-mail is not available). संल�क : यचौध�र Enclosure as above
7. 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:- “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. 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.”
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.”
It is pertinent to mention here that the CBDT had issued a direction on 11.07.2016 stating that the statutory notice u/s.143(2) of the Act has been modified and henceforth there will be three formats and all scrutiny notices shall henceforth be issued in the new format. Earlier, there was another Instruction in similar nature in regard to the issue of notice u/s.143(2) of the Act. This was a subject matter of an appeal before the ITAT Delhi Benches in the case of Crystal Phosphates Ltd. The coordinate bench of the Tribunal had, in its order dated 02.11.2012 in held as follows :-
7.5. Thus, once the CBDT has issued instructions for assumption of jurisdiction for selection of cases of corporate assesses for scrutiny and assessment thereof, the same have to be followed in letter and spirit by the AO. The burden lies on the authority assuming jurisdiction to show and establish that such instructions have duly been complied and satisfied in letter and spirit. However, in the instant case, for the reasons stated above, instructions issued by the CBDT are not shown to have been satisfied for assumption of jurisdiction. Thus, we are in agreement with the contention raised by the appellant that notice issued u/s 143(2) of the Act for assumption of jurisdiction was not in terms of the instructions of the CBDT. Hence, both the notice and the assessment framed are held to be without valid jurisdiction and stand quashed as such.
We also find that in the above decision, the coordinate bench has quashed the assessment and the notice u/s.143(2) of the Act issued as the same was not in compliance with the Instruction issued by the CBDT and the said decision of the coordinate bench of the Tribunal was challenged before the Hon’ble Punjab and Haryana High Court in the case of Crystal Phosphates Ltd., reported in [2023] 152 taxmann.com 232(P&H)/[2024] 461 ITR 289 (Punjab & Haryana), wherein the Hon’ble High Court has categorically held as follows :-
10. All the conditions of the circular were fulfilled by the assessee and as per CBDT circular, the case of the assessee could not be re-opened for scrutiny. The appeal filed by the revenue was dismissed by the High Court by referring to the judgment passed by Hon'ble the Supreme Court in UCO Bank's case (supra).
To the same effect is the judgment passed by the Calcutta High Court in Amal Kumar Ghosh v. Asstt. CIT [2014] 45 taxmann.com 482/225 Taxman 229 (Mag.)/361 ITR 458/[2014] 105 DTR 351, wherein it has been held that during the financial year 2004-05, the selection of case for scrutiny had to be completed within 3 months of the date of filing of return. In that case, return was filed on 29-10- 2004 and selection of case for scrutiny was done on 6-7-2005 i.e. the beyond the period of three months. It was held that instructions of CBDT were violated, as the circulars were binding upon the department. The Department was bound by that standard and could not act with discrimination. Finally, the appeal was allowed.
In the facts of the present case, the Tribunal has followed the guidelines issued by Hon'ble the Supreme Court as stated above and has observed that with respect to the notice dated 27-11-2007. The appellant submitted reply on 18-1-2008 and had taken up the issue with regard to jurisdiction of the assessing authority to issue such notice. Hence, the Tribunal has rightly observed that it cannot be held that the appellant had acquiesced to the jurisdiction. As per CBDT instructions, the burden was on the authority assuming jurisdiction to show and establish that such instructions have been duly complied and satisfied in letter and spirit. Since notice under section 143 (2) of the Act was not in terms of the instructions of the CBDT, both the notice and the assessment framed were held to be without valid jurisdiction and were accordingly, quashed.
Respectfully following the law laid down by the various judicial forum, we hold that since the notice u/s.143(2) of the Act was not in the term of Instruction of the CBDT, hence the notice issued u/s 143(2) of the Act dated 22.09.2019 is invalid and accordingly, the consequent assessment framed is also invalid and is hereby quashed.
In the result, the appeal of the assessee is allowed.
Kolkata, the 12th December, 2025.