Kerala High Court Halts Income Tax Assessments Over Flawed Notice Format
The Kerala High Court has temporarily stopped income tax assessment proceedings in several cases after finding faults in the format of scrutiny notices issued by the Income Tax Department.
The order was passed by Justice Ziyad Rahman AA in a batch of petitions, including Sreedhanya Construction Company v The Assistant Commissioner of Income Tax & Anr. The Court has stayed the proceedings until November 18, giving time to the Department’s Standing Counsel to obtain further instructions.
The petitions, filed under Article 226 of the Constitution, challenged the validity of notices issued under Section 143(2) of the Income-tax Act, 1961.
The main argument made by the petitioners was that these notices were issued without proper authority, violating the CBDT Circular No. F. No. 225/157/2017/ITA-II dated June 23, 2017.
According to the circular, every notice under Section 143(2) must clearly mention the type of scrutiny — whether limited scrutiny, complete scrutiny, or compulsory manual scrutiny — and must follow the prescribed format.
However, the petitioners claimed that the notices they received did not comply with these mandatory requirements. They described the notices as illegal and void from the beginning, as they failed to meet the standards laid down by the Central Board of Direct Taxation (CBDT).
Citing the Supreme Court ruling in UCO Bank, Calcutta v. CIT, the petitioners argued that all circulars issued by the CBDT under Section 119 of the Income-tax Act are binding on income tax authorities.
They further submitted that failing to follow such binding instructions amounts to a jurisdictional defect, making the scrutiny process itself invalid.
The petitioners requested the Court to quash the defective notices and all proceedings initiated on their basis.
The High Court will next hear the matter on November 18.
Advocates Chandapillai Abraham PG, Isaac Thomas, and John Vithayathil represented the petitioners, while Standing Counsel Jose Joseph appeared for the Income Tax Department.
