Limited Scrutiny or complete Scrutiny not mentioned in Notice Issued under Section 143(2) – Are they legally valid?

One of the most crucial documents in the scrutiny process under the Income Tax Act, 1961 is the notice issued under Section 143(2). The validity of this notice is not a mere technicality but goes to the very root of jurisdiction. If the notice itself is defective, the entire assessment can collapse.

In this context, the CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017 assumes great significance. The copy of the said instruction is attached herewith for the benefit of the readers.

What the 2017 Instruction Says

The Instruction made it mandatory that every notice issued under Section 143(2) must clearly specify the type of scrutiny. It directed officers to use one of the following three formats:

1.  Limited Scrutiny (Computer Aided Scrutiny Selection)
— “Limited Scrutiny (Computer Aided Scrutiny Selection) Notice under section 143(2) of the Income-tax Act, 1961”

2.  Complete Scrutiny (Computer Aided Scrutiny Selection)

3.  Compulsory Manual Scrutiny

This was not a casual guideline. It was issued under Section 119 of the Act, which makes such directions binding on income-tax authorities.

Judicial Approach – Strict Enforcement

Tribunals across the country have consistently held that failure to comply with this instruction renders the notice invalid ab initio. In several cases, assessments were quashed where the notice did not disclose whether it was limited scrutiny or complete scrutiny.

For instance, the Kolkata Bench in Srimanta Kumar Shit v. ACIT allowed additional grounds and struck down the assessment for non-compliance. The Delhi Bench in Anita Garg v. ITO similarly held that such a notice was invalid. Other rulings—Tapas Kumar Das v. ITO, Shib Nath Ghosh v. ITO, Hind Ceramics v. DCIT—have followed the same reasoning.

The message was clear: without a properly worded notice, the AO cannot assume jurisdiction to scrutinize a case.

Why the Confusion Now?

With the advent of Faceless Assessment (since 2019), the landscape has changed.

1.  Centralised Case Selection – The older system of “Limited” vs. “Complete” scrutiny at the level of the AO has been replaced by centralised automated case selection. The backend system tags the scrutiny type, but this is often not reflected in the notice seen by the taxpayer.

2.  System-Generated Notices – The ITBA module issues a common format:

“Notice under section 143(2) of the Income-tax Act, 1961 – In your case this return has been selected for scrutiny …”
without specifying whether it is Limited, Complete or Manual Scrutiny.

3.  Litigation Fallout – Up to AY 2022-23, ITATs quashed assessments based on the 2017 Instruction. However, for AY 2023-24 and 2024-25, the Department is arguing that the “scope of scrutiny” is communicated later through questionnaires and that the omission in the initial notice does not vitiate proceedings.

Current Position

•  In Law: The 2017 Instruction has not been withdrawn. It continues to be in force and is binding on the Department.

•  In Practice: Notices for AY 2023-24 and 2024-25 no longer carry the mandated formats.

•  In Litigation: Taxpayers are challenging such notices as jurisdictionally defective, while the Department contends that faceless procedures suffice. Final word from higher courts is awaited.

Takeaway for Taxpayers

1.  Ground of Appeal Available: Non-compliance with the 2017 Instruction remains a strong technical ground to challenge a scrutiny notice.

2.  Outcome Uncertain: Success will depend on how courts balance the still-valid 2017 Instruction with the operational realities of the faceless regime.

3.  Practical Strategy: Taxpayers receiving a generic Section 143(2) notice should preserve this objection and raise it at the earliest possible stage.

Conclusion

The CBDT Instruction of 2017 was designed to ensure transparency and fairness by telling the taxpayer exactly what kind of scrutiny they were facing. While faceless assessments may have altered the operational mechanics, the legal force of the instruction has not disappeared. Until clarified otherwise, the Department runs the risk of its assessments being set aside for issuing non-compliant notices.

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