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TMI BlogBoard's circular on guidelines on selection of returns for scrutiny are beneficial circulars- should be strictly adhered to scrutiny can be restricted.X X X X Extracts X X X X X X X X Extracts X X X X ..... Board's circular on guidelines on selection of returns for scrutiny are beneficial circulars- should be strictly adhered to scrutiny can be restricted. - By: - C.A. DEV KUMAR KOTHARI - Income Tax - Dated:- 15-12-2008 - - Central Board of Direct Taxes issues guidelines by way of circulars / instructions for lower authorities providing therein detailed guidelines which needs to be followed for selection of a return for scrutiny of the case by issuance of notice u/s 143(2). Such circulars are binding on the authorities below the Board. Beneficial Circular The circular of the Board which directs the authorities that only certain type of income tax returns, should be selected for scrutiny is for the purpose of achieving objectivity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd result orientation by way of selection of certain returns which deserves scrutiny as per policy decision of the Board. The other assessees who are not covered by the criteria for selection of return for a scrutiny can consider the instruction as beneficial to them because they consider that their return has to be accepted as per the policy decision of the Board and they are not required to go through any scrutiny by the assessing officer. Therefore, the circular on such issue is definitely a beneficial circular for such assesses. Beneficial circulars must be followed It is well settled legal position that circulars issued by higher administrative authority are binding on the officers below and particularly when the circular is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficial to the assessee, it has to be applied to grant full benefit to the assessee. Any action taken contrary to the circular, can be considered as invalid, if it destroy any benefit, advantage or assurance is covered by the circular. Selection of return for scrutiny contrary to Board's circular Sometimes, it can be that return is selected for scrutiny and such selection is not in conformity with the Board's circular. In other words a return which should not have been selected, has been wrongly selected. This can be due to several reasons like:- a) ignorance of the assessing officer about the circular. b) wrong application of the circular by the assessing officer. c) selection due to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice of the assessing officer. If a return is wrongly selected for scrutiny then the assessing can reasonably pray that the issuance of notice u/s 143(2) is contrary to the Board's circular and therefore, either it should be withdrawn or the proceedings can be dropped in view of the circular or the assessing officer can take a summary hearing and note that since the case does not deserve scrutiny in view of the circular, the assessment is completed as per the return. However, we find that there is no such clear provision or instruction in this regard and once the notice u/s 143(2) is issued, the A.O. take up the matter for full fledged scrutiny. Selection of return under Computer added selection system (CASS): Under CASS c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain returns are selected for scrutiny if certain as per return or other information the return falls into some of specified criterion. The selection is made only because of any one or more criterion are satisfied. Many returns are selected on the basis of Annual Information Return(AIR). In such cases, unless there is application of mind by the A.O. and he finds that it is necessary or expedient to scrutinize the return, then the scope of scrutiny should be restricted to the reasons for which the return was selected for scrutiny under CASS. However, in this regard there is no clarity and people have different views and matter may involve litigation. A case before court: The Punjab and Haryana High Court decided the issue again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st assessee in Pirthi Ram Labour Contractor v. Commissioner of Income-tax, Bhathinda, [2006] 156 Taxman 457(Punj. Har.) - in this case notice u/s 143(2) was issued to the assessee on 10.6.1999. The assessee relied upon the circular about the scrutiny of cases relevant for the assessment year 1988-89. The circular was issued on 7.6.1999 but it was received in the office of Additional Commissioner on 17.6.1999. Therefore, in this case , a notice u/s 143(2) was issued after the issue of the circular but before it was received in the officer of the AO. The assessee took view that the issuance of notice itself was wrong and therefore, the case should not be scrutinized. The authorities rejected plea of the assessee holding that since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory process had already been initiated by issuance of notice u/s 143(2), the same could not be set aside. This plea was rejected by the Tribunal also and therefore, assessee approached the High Court by way of an appeal. Besides, technical issue the Tribunal has also remitted back the matter about the addition of Rs.4,38,000 to the assessing officer. High Court's view Regarding issuance of notice u/s 143(2), the court noted the concurrent findings of the assessing officer, the Commissioner(Appeals) and the Tribunal that once the notice u/s 143(2) was issued the proceedings can not be withdrawn and the notice could not cancelled. Therefore, the High Court did not find any infirmity in the orders of the lower authorities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this point and the High Court also held that there is no substantial question of law. Proper way in the above case: In this case the assessee should have requested the A.O. to close the file or drop proceedings by way of completing assessment as per return since it was not a fit case for scrutiny. However, once complete scrutiny started and tool place, it is difficult to say that the notice was not maintainable or void ab initio or illegal. In case the A.O. did not drop proceedings or complete assessment , in the above case, it could have been proper way for the assessee to challenge the notice u/s 143(2) before the High Court at the initial stage itself. However, once the assessee took steps in response to notice u/s 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) though it may be under protest and also adopted the appeal procedure for filing of appeal before the CIT(A) and on the substantial matter about addition, the Tribunal had merely remitted back the issue for fresh examination by the AO. Therefore, there was not a substantial question of law. However, if the issuance of notice was challenged at initial stage in the court, it was likely that court could set aside the same by holding that the circular is not in conformity with the instruction and therefore, it should not have been issued. Clear provisions are required It is well known that as and when a matter is taken up for scrutiny as a general rule, the assessing officers make substantial additions and disallowances, most of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are deleted by the first appellate authority. Therefore, to avoid such futile exercises, the Board can issues circulars restricting the scope of scrutiny according to the reasons for which scrutiny exercise is undertaken. Therefore, if a notice is issued contrary to such instructions then there should be provision to drop the proceeding or complete the proceedings by taking a hearing and noting the fact that since notice was issued contrary to the circular, the return is assessed as per return though technically u/s 143(3). This will avoid unnecessary litigation as we can find in the case before the Punjab and Haryana High Court discussed above. It may be that ultimately the income assessed will be as per return. Therefore, the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercises of assessment u/s 143(3) appeal before CIT(A) by the assessee then appeal by the revenue before the Tribunal and then appeal by the assessee before the court became purposeless. Dropping of proceedings: The A.O. can be provided guidelines and authority to drop proceedings or complete assessment as per return though a notice u/s 143(2) was issued, if he finds that the case is not suitable for proceeding in detailed scrutiny in any given case. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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