Kerala High Court Halts Income Tax Assessment Proceedings Over Notice Discrepancies

The Kerala High Court, in a significant order, has put a hold on income tax assessment proceedings for multiple petitioners, including Sreedhanya Construction Company. The court's decision, presided over by Justice Ziyad Rahman AA, was based on discrepancies in the scrutiny notices issued under Section 143(2) of the Income-tax Act, 1961. The petitioners argued that these notices violated a crucial CBDT circular (No. F. No. 225/157/2017/ITA-II dated June 23, 2017) which mandates that notices must clearly state the type of scrutiny, such as limited, complete, or compulsory manual scrutiny.

Petitioners contended that the failure to adhere to this procedural requirement rendered the notices illegal and void from the beginning, constituting a fundamental jurisdictional defect, a point supported by Supreme Court judgments on the binding nature of CBDT circulars. The court has granted time until November 18 for the Income Tax Department's Standing Counsel to provide instructions.

Impact This ruling could provide relief to numerous taxpayers who have received similar notices, potentially delaying or invalidating assessments based on procedural flaws. It emphasizes the stringent adherence required by tax authorities to prescribed formats and circulars, impacting tax administration processes and taxpayer confidence. Indian businesses and tax professionals must remain vigilant about procedural compliances in tax matters. Rating: 7/10

Difficult terms: Income tax assessment proceedings: The process by which tax authorities determine the correct tax liability of a taxpayer. Scrutiny notices: Official letters from the tax department requesting detailed information or an audit of a taxpayer's financial records. Article 226 of the Constitution of India: A constitutional provision allowing High Courts to issue writs for enforcing fundamental rights and for other purposes, including judicial review of administrative actions. Section 143(2) of the Income-tax Act, 1961: A section of the Income Tax Act that empowers the tax officer to issue a notice for scrutiny assessment if they are satisfied that a return requires verification. Central Board of Direct Taxes (CBDT): The apex direct tax body in India, responsible for policy formulation and administration of direct taxes. Limited scrutiny, complete scrutiny, compulsory manual scrutiny: Different levels or types of examination the Income Tax Department can conduct on a tax return. Void ab initio: A Latin term meaning 'void from the beginning,' indicating something is invalid from its inception. Jurisdictional defect: A flaw in the legal authority or power of a court or tribunal to hear a case or issue an order.