2004 (8) TMI 99 - HC - Income Tax

High Court Upholds Circular's Authority in Income-tax Appeal, Affirming Tribunal Decision

The High Court dismissed the appeal by the Commissioner of Income-tax, emphasizing the binding nature of the circular issued by the Central Board of ... Scrutiny assessment - Whether, Tribunal is correct in holding that the assessee's case falls under the instructions issued by the Department in Instruction No. 1935 dated March 12, 1996? - Department issued a circular by way of press release on March 12, 1996. These guidelines were regarding 'scrutiny assessment guidelines for assessment year 1996-97'. By these guidelines, it was notified that the Income-tax Department had decided not to select returns for the AY 1996-97 for detailed scrutiny, if the total income declared is at least 30 per cent, more than the total income declared for the assessment year 1995-96 – Held that the circulars can be adverse to the Income-tax Department, but still, are binding on the authorities of the Income-tax Department – Revenue’s submission that these instructions were not binding on the Tribunal or court or were not available for execution to any judicial authority, not acceptable – Revenue’s appeal dismissed Issues:1. Interpretation of scrutiny assessment guidelines for assessment year 1996-97.2. Validity of the circular issued by the Central Board of Direct Taxes under section 119(1) of the Income-tax Act.Issue 1: Interpretation of scrutiny assessment guidelines for assessment year 1996-97The case involved an appeal by the Commissioner of Income-tax against an order passed by the Tribunal, questioning whether the Tribunal was correct in holding that the assessee's case falls under the instructions issued by the Department in Instruction No. 1935 dated March 12, 1996. The respondent, engaged in construction business, had constructed a complex during assessment years 1993-94 to 1996-97. The Assessing Officer rejected the books of account maintained by the assessee and referred the matter to the Departmental Valuation Cell. The Valuation Cell determined the property value, leading to an addition in the assessment. The Tribunal allowed the appeal, stating that the Department had decided not to select returns for detailed scrutiny if the income declared was at least 30% more than the previous year, as per the circular issued. The Tribunal accepted this contention, emphasizing the binding nature of the circular on income-tax authorities.Issue 2: Validity of the circular issued by the Central Board of Direct Taxes under section 119(1) of the Income-tax ActThe circular issued by the Central Board of Direct Taxes under section 119(1) of the Income-tax Act provided guidelines for scrutiny assessment for the assessment year 1996-97. The circular specified conditions under which returns would not be selected for detailed scrutiny. The Supreme Court's interpretation of section 119(1) highlighted that the Board has the power to issue orders, instructions, and directions for the proper administration of the Act, which are binding on income-tax authorities. The Court emphasized that such circulars can tone down the rigour of the law and ensure fair enforcement, benefiting the assessee. The judgment clarified that circulars issued under section 119 are binding on taxing authorities, even if adverse to the Income-tax Department. The Tribunal's decision to rely on the circular for not selecting the case for detailed scrutiny was upheld by the Court, citing the binding nature of circulars issued by the Board.In conclusion, the High Court dismissed the appeal by the Commissioner of Income-tax, emphasizing the binding nature of the circular issued by the Central Board of Direct Taxes under section 119(1) of the Income-tax Act. The judgment highlighted the authority of such circulars in guiding income-tax authorities and ensuring fair enforcement of provisions, ultimately upholding the Tribunal's decision based on the circular's guidelines.