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TMI Blog2016 (5) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the Assessee under Section 143(2) of the Act. If the legislative intent was that the return would not be processed at all once a notice is issued under Section 143 (2) of the Act, then the legislature ought to have used express language and not the expression “shall not be necessary”. By the device of issuing an instruction in purported exercise of its power under Section 119 of the Act, the CBDT cannot proceed to interpret or instruct the income tax department to "prevent" the issue of refund. In the event that a notice is issued to the Assessee under Section 143 (2) of the Act, it will be a matter the discretion of the concerned AO whether he should process the return. Consequently, the Court is of the view that the impugned Instruction No.1 of 2015 dated 13th January 2015 issued by the CBDT is unsustainable in law and it is hereby quashed. It is directed that the said instruction shall not hereafter be relied upon to deny refunds to the Assessees in whose cases notices might have been issued under Section 143(2) of the Act. The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of Section 143 (1D) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial services and 30% of its profit for next consecutive five years. However, on account of the enormous losses incurred by the Petitioner, it had no occasion to claim the Section 80IA deduction. It is further pointed out that the Petitioner is not expected to have any tax liability even if it is assessed at profits in any of the AYs in question. 4. Section 143(1) of the Act states that every return made under Section 139 of the Act or filed in response to a notice under Section 142 (1) of the Act, would be processed in the following manner: "143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) the total income or loss shall be computed after making the following adjustments, namely:- (i) any arithmetical error in the return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (b) the tax and interest, if any, shall be computed on the basis of the total income computed under clause (a); (c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This amendment will take effect from the 1st day of July, 2012." 8. It is evident that Section 143 (1D) in the manner it is worded gives a discretion to the Assessing Officer ("AO") to decide whether the return of income has to be processed where a notice has been issued under Section 143 (2) of the Act. It is significant that sub-section (1D) was inserted in Section 143 subsequent to the insertion of sub-section (1A) which provides for centralised processing of returns. Under the Scheme framed by the CBDT in 2011 in terms of Section 143(1A), there is a computerized random selection of returns which might be taken up for scrutiny. Thus the discretion regarding picking up a return for scrutiny is no longer left with the AO. Section 143(1D), however, continues the element of discretion in the AO when it states that the processing of return "shall not be necessary". In other words, it does not expressly state that the return shall not be processed where a notice has been issued to the Assessee under Section 143(2) of the Act. 9. However, despite terming the language of Section 143(1D) to be "unambiguous" the CBDT felt that it required clarification. This led to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the following order was passed by the Supreme Court on 9th March 2016: "We do not find any ground to interfere with the interim order passed by the High Court. The special leave petition is, accordingly, dismissed. However, we request the High Court to dispose of the writ petition expeditiously, preferably with a period of three months from the date of production of copy of this order before the High Court. The time stipulated by the High Court for completing the assessments, as directed by the High Court, for the years for which notices under Section 143 (2) of the Income Tax Act, 1961 (in short 'the Act') have already been issued, is extended by a month from today. Needless to say that in case the time for issuing notice under Section 143 (2) of the Act has not expired; it will be open for the Revenue to decide whether notice should be issued at all. Pending applications, if any, stand disposed of." 13. Further directions were issued by the Court regarding completion of the assessment for the remaining AYs. 14. Today Mr. Tarun Gulati, learned counsel for the Petitioner, informs the Court that the assessments have been completed for AYs 2012-13, 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambiguities in the practice and procedure may get clarified. At the same time it has to be ensured that such instructions or orders do not add to the difficulties of the tax payers. Circulars, orders and instructions issued by the CBDT under Section 119 of the Act, to the extent they are beneficial to the Assessees are binding on the Department. If they are prejudicial to the tax payer, then they cannot prevail over the statute, which does not envisage such harsher measure. 18. In UCO Bank v. Commissioner of Income Tax (1999) 237 ITR 889 (SC), the Supreme Court interpreted one such circular issued by the CBDT regarding inclusion of the interest accruing on 'sticky' loans, the recovery of which was doubtful, in the Assessee‟s taxable income. The Supreme Court clarified the legal position as regards the nature of such circular issued in terms of Section 119(1) of the Act as under: "In Keshavji Ravji and Co. v. Commissioner of Income Tax (1990) 183 ITR 1 (SC), a Bench of three judges of this Court has also taken the view that circulars beneficial to the assessee which tone town the rigour of the law and are issued in exercise of the statutory powers under Section 119 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law." 21. It is sought to be explained by Mr. Ashok K. Manchanda, learned Senior Standing counsel for the Revenue, that what has been issued by the CBDT on 13th January 2015 is only an 'instruction' and not a 'circular' and that the impugned instruction was only for the internal guidance of the officers of the Department. 22. The Court finds that it is this very impugned instruction which is being relied upon by the Department to deny refund, where notice has been issued under Section 143(2) of the Act. This is evident from the impugned letter dated 8th September 2015, addressed to the Petitioner. The power of the CBDT to issue such instructions can be traced only to Section 119 of the Act. Therefore, such 'instruction' also has to adhere to the discipline of Section 119 of the Act. 23. The real effect of the instruction is to curtail the discretion of the AO by 'preventing' him from processing the return, where notice has been issued to the Assessee under Section 143(2) of the Act. If the legislative intent was that th ..... 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