2014 (4) TMI 244 - HC - Income Tax

Validity of notice u/s 143(2) of the Act - scrutiny assessment - whether circular providing issuance of notice within 3 months is binding upon revenue - Notice for scrutiny even after the expiry of the period of three months from the date of filing of the return but withing the period prescribed u/s 143(2) revenue submitted that the circulars are not meant for the purpose of permitting the unscrupulous assessees from evading tax. - Held that - Even assuming that the intention of the CBDT was to restrict the time for selection of the cases for scrutiny within a period of three months, it cannot be said that the selection in the case was made within the period - the return was filed on October 29, 2004, and the case was selected for scrutiny on July 6, 2005 - By any process of reasoning, it was not open for the Tribunal to come to a finding that the Department acted within the four corners of Circulars Nos. 9 and 10 issued by the Central Board of Direct Taxes - The circulars were evidently violated - The circulars are binding upon the Department u/s 119 of the Income-tax Act. It cannot be said that the Department, which is the State, can be permitted to selectively apply the standards set by themselves for their own conduct. If this type of deviation is permitted, the consequences will be that floodgate of corruption will be opened which it is not desirable to encourage. When the Department has set down a standard for itself, the Department is bound by that standard and cannot act with discrimination - In case, it does that, the act of the Department is bound to be struck down under article 14 of the Constitution - it is not necessary to decide whether the intention of the CBDT was to restrict the period of issuance of notice from the date of filing the return laid down u/s 143(2) of the Act Decided in favour of Assessee.

Summary

Issues:
1. Validity of notice under section 143(2) of the Income-tax Act.
2. Interpretation of Circulars issued by the Central Board of Direct Taxes.
3. Applicability and binding nature of Circulars on income-tax authorities.
4. Jurisdiction of the Assessing Officer in issuing notice under section 143(2).

Issue 1: Validity of notice under section 143(2) of the Income-tax Act:
The appeal challenged the judgment upholding the contention of the Revenue that the Assessing Officer was competent to issue a notice under section 143(2) for scrutiny after the expiry of three months from the date of filing the return. The Tribunal held that the notice issued after 12 months was valid. However, the appellant contended that Circular No. 10 by the Central Board of Direct Taxes restricted the time for issuing such notices to three months. The Tribunal's decision in the case of Sunita Finlease Ltd. v. Deputy CIT was cited, emphasizing the binding nature of the Circulars on Revenue authorities. Another judgment in the case of Subhasish Roy v. ITO reiterated the same view, setting aside the Assessing Officer's orders. The Tribunal in the present case differed from these views, asserting that the Circular did not limit the jurisdiction of the Assessing Officer, leading to the appeal.

Issue 2: Interpretation of Circulars issued by the Central Board of Direct Taxes:
The debate centered on whether Circulars issued by the Central Board of Direct Taxes altered the period of limitation provided in section 143(2) of the Income-tax Act. The Revenue argued that the Circular aimed to expedite assessments without altering the notice issuance timeline. The appellant contended that the case was not selected for scrutiny within three months, rendering the Circular applicable. Reference was made to the Tribunal's views in previous cases, emphasizing their binding nature on the present Tribunal. The appellant further highlighted a Division Bench judgment supporting the Tribunal's position, labeling the present Tribunal's views as illegal and advocating for their reversal.

Issue 3: Applicability and binding nature of Circulars on income-tax authorities:
The Circulars issued by the Central Board of Direct Taxes were deemed binding on income-tax authorities under section 119 of the Income-tax Act. The Tribunal's decision to deviate from the Circulars' directives, as highlighted in previous judgments, raised questions about the consistency and binding nature of such directives. The appellant argued that the Tribunal should have followed the precedents set by earlier judgments, or referred the matter to a larger Bench if a different view was held.

Issue 4: Jurisdiction of the Assessing Officer in issuing notice under section 143(2):
The core question revolved around the Assessing Officer's jurisdiction in issuing the notice under section 143(2) of the Income-tax Act. While the Tribunal in previous cases set aside such notices for non-compliance with Circulars, the present Tribunal held that the Circular did not restrict the Assessing Officer's jurisdiction. The appellant contended that the Circulars were violated, emphasizing the need for adherence to standards set by the Central Board of Direct Taxes. The argument highlighted the potential repercussions of selective application of standards by the Department, stressing the importance of upholding consistency and non-discrimination in administrative actions.

In conclusion, the High Court allowed the appeal, emphasizing the binding nature of Circulars issued by the Central Board of Direct Taxes on income-tax authorities. The judgment underscored the importance of adherence to prescribed standards and the potential legal implications of deviating from such directives.