ITAT Special Bench clarifies procedural lapses in Section 143(2) notices are curable

The Bengaluru Income Tax Appellate Tribunal’s Special Bench rules that notices under Section 143(2) lacking specific scrutiny category information are procedural lapses that can be remedied, potentially impacting ongoing assessments challenged on technical grounds.

The Income Tax Appellate Tribunal’s Special Bench in Bengaluru has brought clarity to a long-running tax dispute, holding that a notice under Section 143(2) does not become invalid merely because it fails to state whether a case has been picked for limited scrutiny, complete scrutiny or manual scrutiny. According to the ruling in MD Sons v. Income Tax Officer, the omission is a procedural lapse, not a jurisdictional flaw, and can be cured under Section 292B. The decision is likely to weigh heavily in pending cases where taxpayers have challenged scrutiny assessments on technical grounds.

The dispute arose after a partnership firm, which traded in cigarettes and food items, filed a return showing a loss that was processed under Section 143(1). The case was then selected for scrutiny through the computer-assisted selection system, a notice under Section 143(2) was issued within the limitation period and subsequent notices under Section 142(1) were complied with before the assessment was completed under Section 143(3). The assessee later argued that the Section 143(2) notice was defective because it did not specify the scrutiny category required by the Central Board of Direct Taxes’ instruction of June 23, 2017.

The tribunal rejected that argument. It said the validity of a scrutiny notice must be judged against the Income Tax Act itself, which requires timely issuance of the notice and a direction to the taxpayer to support the return, but does not prescribe any statutory format naming the scrutiny category. The Special Bench also said administrative instructions cannot add jurisdictional conditions that the law does not contain. Even if the omission is treated as a defect, the bench found it to be curable because the notice still substantially served the purpose of the statute and caused no prejudice.

The ruling cuts against some earlier tribunal decisions, including a Kolkata Bench view reported by The Tax Talk that treated non-compliance with the CBDT’s prescribed format as fatal to the assessment. It also sits alongside other cases where tribunals have drawn a sharper line between curable procedural defects and true jurisdictional errors, such as situations involving a notice issued by the wrong assessing officer or no notice at all. For tax professionals, the practical lesson is clear: objections based solely on the absence of the scrutiny label in a validly issued notice are now likely to face an uphill battle.