2022 (11) TMI 33 - AT - Income Tax

Tax Orders Invalidated for Non-Compliance with DIN Requirement; Appeals Partly Allowed for 2014-16 Tax Years.

The Tribunal held that the orders passed under Section 263 for the assessment years 2014-15 to 2016-17 were invalid due to non-compliance with the CBDT ... Validity of communication issued without Document Identification Number (DIN) under CBDT Circular No.19/2019 - Consequences of non-conformity with mandatory procedural requirements - communication deemed to have never been issued - Binding nature of CBDT circulars in administration of the Income-tax Act - Revisionary power under section 263 - procedural validity of the revision orderValidity of communication issued without Document Identification Number (DIN) under CBDT Circular No.19/2019 - Consequences of non-conformity with mandatory procedural requirements - communication deemed to have never been issued - Revisionary power under section 263 - procedural validity of the revision order - Binding nature of CBDT circulars in administration of the Income-tax Act - The order passed under section 263 dated 24.3.2022 is invalid and shall be deemed to have never been issued for the assessment years 2014-15 to 2016-17 for non compliance with CBDT Circular No.19/2019. - HELD THAT: - The Tribunal examined CBDT Circular No.19/2019 which mandates that, with effect from 1 October 2019, communications shall quote a computer generated DIN in their body except in specified exceptional circumstances for which the manual communication must record the reason and prior written approval in a prescribed format. Para 4 of the Circular treats any communication not in conformity with Para 2 and Para 3 as invalid and deemed never to have been issued. The impugned section 263 order was issued manually and does not quote a DIN in its body nor does it record, in the prescribed format, that the communication was issued manually with the requisite prior approval. While separate intimations containing DINs were generated on the same and the following date, the Circular permits such regularisation only where the manual order was issued in accordance with Para 3; the generation of a DIN by separate intimation does not cure the defect where the manual order itself fails to comply with the procedural requirements. The Tribunal followed precedents of co ordinate Benches which have held that non compliance with the Circular renders the communication invalid under Para 4, and, applying the Circular and judicial authority, concluded that the revision orders are non conforming and therefore invalid. Having decided the legal issue in favour of the assessee, the Tribunal treated the merits as academic. [Paras 14, 15, 17, 18]The section 263 orders for AYs 2014-15 to 2016-17 are invalid and deemed never to have been issued for non compliance with CBDT Circular No.19/2019; consequential merits issues are academic.Final Conclusion: The Tribunal allowed the appeals partly by holding the revisionary orders passed under section 263 (dated 24.3.2022) to be invalid and deemed never to have been issued for AYs 2014-15 to 2016-17 for failure to comply with the procedural requirements of CBDT Circular No.19/2019; the merits were dismissed as academic. Issues Involved:1. Legality of the order passed under Section 263 of the Income-tax Act, 1961.2. Compliance with the CBDT Circular No.19/2019 regarding Document Identification Number (DIN).3. Validity of the assessment order based on retracted statements and loose sheets.Issue-wise Detailed Analysis:1. Legality of the Order Passed Under Section 263:The appeals by the assessee challenge the orders of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income-tax Act for the assessment years 2014-15 to 2016-17. The PCIT deemed the assessment orders erroneous and prejudicial to the interests of the revenue because the Assessing Officer (AO) did not conduct an enquiry into the cash payments related to a Joint Development Agreement (JDA). The PCIT set aside the AO's order and directed a fresh assessment after verification. The assessee contended that the PCIT's reliance on a retracted statement and loose sheets was not tenable and that the AO had complete information about the JDA transaction.2. Compliance with the CBDT Circular No.19/2019 Regarding DIN:The assessee raised additional legal grounds regarding the validity of the order under Section 263 due to non-compliance with CBDT Circular No.19/2019, which mandates quoting a DIN in all communications. The assessee argued that the order did not contain a DIN or mention the exceptional circumstances under which it was issued manually. The PCIT had issued two separate intimations with different DINs for the same order, which the assessee claimed was not in conformity with the Circular. The Tribunal admitted the additional grounds for adjudication, following the Supreme Court judgment in the case of National Thermal Power Co. Ltd. vs. CIT.3. Validity of the Assessment Order Based on Retracted Statements and Loose Sheets:The PCIT's order under Section 263 was based on statements and documents found during a search operation, including a retracted statement from Mr. Pramod Bhandari and loose sheets. The assessee argued that these were not admissible evidence and that the AO had already considered and accepted the submissions without making any additions. The Tribunal noted that the PCIT did not provide a copy of the statement from Mr. Harish Davanam or an opportunity to cross-examine him, which further questioned the validity of the PCIT's order.Tribunal's Findings:The Tribunal first addressed the legal issue regarding the DIN. It found that the order under Section 263 was issued manually without quoting a DIN in the body of the order, and there was no mention of the exceptional circumstances or necessary approvals as required by the CBDT Circular. The Tribunal cited similar cases, including Tata Medical Centre Trust vs. CIT and M/s. Brandix Mauritius Holdings Ltd. vs. DCIT, where orders without DIN were deemed invalid. The Tribunal concluded that the impugned orders were not in conformity with the Circular and thus invalid.Conclusion:The Tribunal held that the orders passed under Section 263 for the assessment years 2014-15 to 2016-17 were invalid due to non-compliance with the CBDT Circular regarding DIN. Consequently, the other issues on merits became academic and were dismissed. The appeals were partly allowed, and the orders under Section 263 were deemed to have never been issued.Pronouncement:The judgment was pronounced in the open court on October 21, 2022.