Dy. Commissioner of Income Tax vs Sunita Finlease Ltd.

The revenues appeal u/s 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Bilaspur Bench, Bilaspur (in short "the Tribunal") has been admitted on the following substantial question of law:

Whether the Income Tax Appellate Tribunal was justified in holding that the administrative Instruction No. 9/2004 issued by the Central Board of Direct Taxes is binding on the administrative officer in view of the statutory provision contained in Section 143(2) of the Income Tax Act, 1961, which provided for limitation of 12 months for issuance of notice u/s 143(2) of the Act?

Briefly stated, the facts of the case as projected in the memo of appeal, are that the Assessee filed his return of income on 29-10-2004 declaring total income at Rs. nil. The return was processed/assessed u/s 143(1) of the Income Tax Act, 1961 (in short "the Act, 1961") and the same was selected for scrutiny and assessment was completed on 15-12-2006, on a total income of Rs. 41,26,844. A total sum of Rs. 27,12,120 was disallowed on the ground of excessive premium paid to key-man insurance policy out of an amount of Rs. 90,40,402.

The appeal preferred by the Assessee was further dismissed by the Commissioner of income tax (Appeals). However, the Tribunal accepting the submission of the Assessee that scrutiny of the case has been done in violation of Instruction No. 9/2004 dated 20-9-2004 issued by the Central Board of Direct Taxes (for brevity "the Board") allowed the appeal. It has been further held that the Boards instructions are binding on all the revenue authorities and therefore, selection for scrutiny of the case has not been done as per the Boards instructions referred to, and the assessing officer erred in assuming the jurisdiction u/s 143(2) of the Act in contravention of the Boards instructions in completing the assessment u/s 144, which is bad in law.

Shri Rajeev Shrivastava, learned Counsel for the revenue, would argue that the directions contained in Instruction No. 9/2004 dated 20-9-2004 shall not defeat the provisions of law, which provides limitation of one year for scrutiny u/s 143(2) of the Act. Any guideline or instruction cannot supersede the provisions of the Act.

Placing reliance on the decision of the High Court of Kerala in the matter of Commissioner of Income Tax Vs. Malayala Manorama and Co. Ltd., it is argued that the Boards circulars though binding on all revenue officers, cannot go against the provisions of the Act.

Further relying on the decision of the honble Supreme Court in the matter of Kerala Financial Corporation Vs. Commissioner of Income Tax, it is submitted that the circular of the Board, relied upon by the Tribunal, was applicable to the returns for the current financial year 2004-05. The referred circular was applicable to selection of the cases for scrutiny of the returns for the financial year 2004-05 and the same was not applicable to scrutiny of the returns filed by the Assessee on 29-10-2004.

On the other hand, Ms. Smiti Sharma, learned Counsel for the Assessee, submits that it is settled law that the circulars issued by the Board u/s 119 of the Act are binding on all officers and employees employed in execution of the Act, even if they deviate from the provisions of the Act. The powers of the Board are wide enough to enable it to grant relaxation from the provisions of several sections enumerated in Chapter VIII. The only bar on the exercise of power is that it is not prejudicial to the Assessee.

Reliance is placed on the decisions of the honble Supreme Court in UCO Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal, , Union of India and Another Vs. Azadi Bachao Andolan and Another, and the decision of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. Smt. Nayana P. Dedhia,

We have heard learned Counsel for the parties and perused the impugned order.

In Commissioner of Income Tax Vs. Malayala Manorama and Co. Ltd., the Kerala High Court while considering the scope of the Central Board of Direct Taxes circulars issued u/s 119 of the Act, held that certainly a circular issued by the Board would be binding on all officers and persons employed u/s 119 but no instruction or circular can go against the provisions of the Act. While the Board can relax the rigours of the law or grant relief which is not to be found in the terms of the statute, such circulars making for a just and fair administration of the law, no instruction which will be ultra vires the provisions of the statute could be issued.

In the matter of Kerala Financial Corporation Vs. Commissioner of Income Tax, the Supreme Court while dealing with the circulars issued by the Board u/s 119, observed that Section 119 empowers the Board to issue orders, instructions or directions for the proper administration of the Act or for such other purposes specified in Sub-section (2) of the section. Such an order, instruction or direction cannot override the provisions of the Act, that would be destructive of all the known principles of law as the same would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament. Such a contention cannot seriously be even raised.

In the case of UCO Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal, the Supreme Court dealing with the legal status of such circulars, observed thus (page 896):

Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers u/s 119 of the Income Tax Act, which are binding on the authorities in the administration of the Act. u/s 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the Assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in Section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the Assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities.

In the matter of Commissioner of Income Tax Vs. Smt. Nayana P. Dedhia, the Andhra Pradesh court held that these guidelines issued by the Board in exercise of powers in terms of Section 119 of the Act relaxing the rigours of law are binding on all the officers responsible for implementation of the Act and, therefore, bound to follow and observe any such orders, instructions and directions of the Board.

Direction by issuing instructions to the officers for the process of selection of cases for scrutiny of returns for a particular financial year and allowing time of three months for completion of the same can, by no stretch of imagination, be considered that it overrides or detracts from the provisions of the Act. It only directs that the above exercise should be completed within three months of the date of filing of return by the Assessee, which amounts to relaxation to the Assessee that the return filed by him can be scrutinized by the assessing officer within three months of filing of the return.

So far as contention of the revenue that Instruction No. 9/2004 dated 20-9-2004, is not applicable in the present case is concerned in view of the specific stipulation in the circular that "for returns filed during the current financial year 2004-05, the selection of cases for scrutiny will have to be completed within three months of the date of filing the returns" and considering that in the present case, the return has admittedly, been filed by the Assessee on 29-10-2004, i.e., during the current financial year 2004-05, we find no substance in the above contention.

For the aforesaid reasons, we decide the substantial question of law in favour of the Assessee and against the revenue. Accordingly, the appeal is dismissed.