Circulars adverse to The IT Dept. are also binding on officers

A circular can be adverse to the Income Tax Department, but still are binding on the authorities of the IT Department, but cannot be binding on the assessee if they are adverse to the assessee. This is a settled position after the judgement of The Hon’ble the Supreme Court in the case of UCO Bank vs. CIT (1999 (5) TMI 3 - SUPREME COURT. Hence, the authorities cannot select any case for detailed scrutiny against the circulars issued by the Board. The CBDT’s Instruction NO. 1935/1996 dated: March 12, 1996, It was decided that the norms of exclusion from sample scrutiny could be extended for the assessment year 1996-97 in the cases where the following criteria are satisfied: -

Those assesses who declared a total income for the assessment year 1995-96 that was more by 30 per cent of the total income returned for the assessment year 1994-95 subject to the conditions that:

(i) the total income for the assessment years 1995-96 and 1996-97 exceed the basic exemption limit.

(ii) the total income for the assessment year 1995-96 does not exceed Rs. 5 lakhs; and

(iii) taxes for the assessment year 1996-97 are fully paid before the return is filed for that year.

If, however, the case falls under the compulsory scrutiny basket, the above norms of exclusion from scrutiny would not apply.
If the above requirements were fulfilled by the assesses, the case could not be taken up for sample scrutiny even in case the other balance sheet items were of high financial value and where the revenue would have doubts.

If these criteria were fulfilled, then even if genuineness of Share application money, loans and advances taken or made, etc are prevalent, the case cannot be taken up for sample scrutiny as was held in the case of COMMISSIONER OF INCOME TAX, ROHTAK Vs M/s CRYSTAL PHOSPHATES LTD. 2023 (4) TMI 817 - PUNJAB AND HARYANA HIGH COURT.

The CBDT, could issue such orders, instructions, and directions to other IT authorities as it may deem fit for the proper administration of the Act and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board. The power is given to the Board the purpose of proper and efficient management of the work of assessment. 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.

To the same effect is the judgment passed by the Calcutta High Court in Amal Kumar Ghosh vs. Assistant Commissioner of Income Tax & others, 2014 (4) TMI 244 - CALCUTTA HIGH COURT, wherein it has been held that during the financial year 2004-05, the selection of case for scrutiny had to be completed within 3 months of the date of filing of return. In that case, return was filed on 29.10.2004 and selection of case for scrutiny was done on 06.07.2005 i.e., the beyond the period of three months. It was held that instructions of CBDT were violated, as the circulars were binding upon the department. The Department was bound by that standard and could not act with discrimination. Finally, the appeal was allowed.