Notice issued u/s. 143(2) to initiate proceedings for scrutiny assessment needs to be quashed if the said notice does not comply with the instructions issued by CBDT for selection of cases for scrutiny. Instructions so issued have to be followed in letter and spirit.
Facts: The assessee filed its return of income for AY 2006-07 on 28-11-2006 declaring the income of Rs. 3,97,17,920. The case was selected for scrutiny by notice dated 17-10-2007 issued u/s. 143(2) of the Act. The CBDT had issued instructions for selection of cases for corporate assessee in FY 2007-08. Clause 2(v)(b) of the Scrutiny Guidelines provided as under:
“2. The following categories of cases shall be compulsorily scrutinised:-
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(vb) All cases in which an appeal is pending before the CIT(Appeals) against an addition/ disallowance of Rs. 5 lakh or above, or the Department has filed an appeal before the ITAT against the order of the CIT(Appeals) deleting such an addition/disallowance and an identical issue is arising in the current year. However, as in (i) above, the quantum ceiling may not be taken into account if a substantial question of law is involved.”
The assessee vide its letter dated 07-12-2007 challenged the assumption of jurisdiction on the ground that no addition/disallowance exceeding Rs. 5 lakh was made in an earlier year, which was pending in appeal before the CIT(A). Further, there was no identical issue arising in the current year as arising in the earlier year.
The Additional CIT and CIT vide orders dated 25- 11-2008 and 15-12-2008 respectively rejected the contention of the assessee and held that the notice issued was in accoundance with law on the ground that the aggregate of additions made in AY 2004-05 was Rs. 5,60,207 which was pending before CIT(A).
The CIT(A) held that the notice was valid.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted from the assessment order for AY 2004-05 that no disallowance was made in excess of Rs. 5 lakh though aggregate of all the disallowances was Rs. 5,60,207. It noted that the AO had considered the aggregate of disallowances. It held that there has to be an addition or disallowance of Rs. 5 lakh or more against which an appeal is pending and such an issue must also arise in the year under consideration. All these facts must be available to the AO on the date of assumption of jurisdiction. The burden is on the assessing authority to establish that jurisdiction was assumed in accordance with the instructions of the Board. It held that the notice issued u/s. 143(2) was not in terms of the instructions issued by the CBDT.
As regards the question whether jurisdiction assumed, by issue of a notice which is not in terms of instructions issued by CBDT, was illegal so as to hold the entire proceedings as invalid. Relying on the decision of the Andhra Pradesh High Court in the case of CIT vs. Smt. Nayana P. Dedhia 270 ITR 572 (AP) it held that once the CBDT has issued instructions for assumption of jurisdiction for selection of cases of corporate assessees for scrutiny and assessment thereof, the same have to be followed in letter and spirit by the AO. The Tribunal quashed the notice issued u/s. 143(2) of the Act since assumption of jurisdiction was not in terms of the instructions of CBDT. The notice and the assessment framed were held to be without valid jurisdiction and were quashed.
The appeal filed by the assessee was allowed.
