Amal Kumar Ghosh vs Assistant Commissioner of Income Tax and Others

This appeal is directed against the judgment and order dated July 30, 2010, passed by the learned income tax Appellate Tribunal upholding the contention of the Revenue that the Assessing Officer was competent to issue notice u/s 143(2) of the income tax Act, 1961 for scrutiny even after the expiry of the period of three months from the date of filing of the return. The admitted fact is that the Central Board of Direct Taxes issued Circulars Nos. 9 and 10, i.e., for corporate assessee and for non-corporate assessee, respectively. The relevant provision appearing from Circular No. 10 reads as follows:

The process of selection of cases for scrutiny of returns filed up to March 31, 2004, must be completed by October 15, 2004. For returns filed during the current financial year 2004-2005, the selection of cases for scrutiny will have to he completed within three months of the date of filing of the return.

In this case, the return was filed by the assessee on October 29, 2004, and the notice u/s 143(2) of the income tax Act was issued on July 14, 2005. Evidently, the notice was not issued within a period of three months. The contention of the Revenue was that such a notice u/s 143(2) of the income tax Act could have been issued within 12 months from the date of filing of the return and, therefore, the notice was well within time. The assessee contended that the time for the purpose of issuance of such a notice has been restricted by three months by Circular No. 10 issued by the Central Board of Direct Taxes which is binding on the income tax authorities u/s 119 of the income tax Act and, therefore, they could not have deviated therefrom. The learned income tax Appellate Tribunal in the case of (2009) 30 SOT 41 held that, "the selection of scrutiny of case has been done in violation of the Central Board of Direct Taxes Instruction No. 9 of 2004, dated September 20, 2004. It further held that the Central Board of Direct Taxes instructions are binding on the Revenue authorities and, therefore, the selection of the scrutiny of the case has not been done in accordance with the Board''s instructions. The Tribunal also held that the Assessing Officer erred in assuming the jurisdiction u/s 143(2) in contravention of the Central Board of Direct Taxes instructions and in completing the assessment order u/s 144 which is bad in law and that the Commissioner of income tax (Appeals) erred in confirming the order of the Assessing Officer".

The self-same Bench of the income tax Appellate Tribunal in its judgment and order dated January 23, 2009, in the case of Subhasish Roy v. ITO followed the judgment in the case of Sunita Finlease Ltd. v. Deputy CIT and held as follows:

After hearing the rival submissions and on careful perusal of the materials available on record and keeping in view of the decision of the co-ordinate Bench in the case of (2009) 30 SOT 41 dated February 15, 2008, wherein it was held that scrutiny of the case having been done in violation of the Central Board of Direct Taxes Instruction No. 9 of 2004, dated September 20, 2004, the Assessing Officer erred in assuming the jurisdiction and completing the assessment. Therefore, respectfully following the same, we set aside the orders of the Assessing Officer on this issue itself.

But, in the present case, the learned Tribunal took the view as follows:

The hon''ble Tribunal in the case of Sunita Finlease (supra) has equated the expression ''selection of the cases for scrutiny with issue of notice u/s 143(2)''. We are unable to accept this view for the reasons elaborated hereinabove. Thus, we hold that the impugned instruction did not take away the jurisdiction of the Assessing Officer to issue notice u/s 143(2) of the Act as per the proviso to the said section. Jurisdiction to scrutinise the case was rightly invoked by the Assessing Officer. We, therefore, set aside the order of the learned Commissioner of income tax (Appeals) on this issue and hold that assessment was a valid one.

Therefore, the following questions arise for determination.

(a) Whether the learned Tribunal being a co-ordinate Bench was entitled to differ from the views expressed in the case of Sunita Finlease Ltd. v. Deputy CIT and also in the case of Subhasish Roy v. ITO?

(b) Whether the notice u/s 143(2) of the income tax Act was in legal exercise of jurisdiction?

In so far as the second question formulated above is concerned, Mrs. Gutgutia, learned advocate for the Revenue, submitted that the circular issued by the Central Board of Direct Taxes cannot be construed to mean to have altered the period of limitation provided in section 143(2) of the income tax Act. She added that the circular was issued for the purpose of expediting the process of assessment. The object was to achieve the target laid down in the Central Action Plan. The object, according to her, by no means, was to permit evasion of tax by the unscrupulous assessees. She added that the Central Board of Direct Taxes has provided the time for selection of cases for scrutiny. The Central Board of Direct Taxes did not restrict the time for issuance of a notice. She has produced official records to show that the case was selected for scrutiny on July 6, 2005. She has also given inspection of the aforesaid notes in the file to Mr. Bharadwaj.

Mr. Bharadwaj, learned advocate appearing for the assessee, submitted that even assuming that the Central Board of Direct Taxes has prescribed a time limit for selection of cases for scrutiny, the admitted case of the Department is that the case was not even selected for scrutiny within a period of three months. Therefore, the applicability of the circular cannot be wished away. He added that the views taken by the learned Tribunal in the cases of Sunita Finlease Ltd. v. Deputy CIT and Subhasish Roy v. ITO were binding on the co-ordinate Bench of the Tribunal and it was not open to them to have deviated from the views expressed therein. In case they are of a different view, they should have referred the matter to a larger Bench, which they did not. On the top of that, he drew our attention to a Division Bench judgment in the case of Dy. Commissioner of Income Tax Vs. Sunita Finlease Ltd. . He submitted that the Revenue had preferred an appeal against an order passed in the case of Sunita Finlease Ltd. v. Deputy CIT but the challenge failed and the order passed by the Tribunal was upheld. He also submitted that the views taken by the learned Tribunal are altogether illegal and should be set aside.

We have considered the rival submissions advanced by the learned advocates. Even assuming that the intention of the Central Board of Direct Taxes 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 this case was made within the aforesaid period. Admittedly, the return was filed on October 29, 2004, and the case was selected for scrutiny on July 6, 2005. It may be pointed out that Mrs. Gutgutia was, in fact, reiterating the views taken by the learned Tribunal which we also quoted above. By any process of reasoning, it was not open for the learned 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.

Mrs. Gutgutia, learned advocate submitted that the circulars are not meant for the purpose of permitting the unscrupulous assessees from evading tax. Even assuming, that to be so, 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. In the facts of the case, it is not necessary for us to decide whether the intention of the Central Board of Direct Taxes was to restrict the period of issuance of notice from the date of filing the return laid down u/s 143(2) of the income tax Act. Considering the view we have taken it is not necessary for us to answer the questions formulated above for the purpose of disposal of this appeal. The appeal is thus allowed.