Directions to modify tax department software set aside; assessing officers must verify TDS claims and follow CBDT instructions.

Supreme Court set aside High Court directions requiring modification of tax-department software and held that assessing officers must verify and adjudicate claims of tax deducted at source; consequently software and automated processes cannot substitute for factual verification, manual examination, or issuance of show cause notices where necessary. The Court affirmed that CBDT instructions are binding on departmental officers and that technology may assist data processing but cannot cause denial of statutory protections or automatically extinguish liabilities; operative effect is that mandated software changes are vacated and verification by competent authority remains necessary.

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Issues: (i) Whether the High Court's directions (paragraphs 10 and 11) requiring changes to the Central Board of Direct Taxes' software so that no demand is raised in future in similar cases are permissible and can be sustained.

Analysis: The Court examined whether administrative changes to software can substitute for adjudicatory functions performed by the Assessing Officer, and whether such a direction would obviate the need for factual verification by the Assessing Officer regarding TDS and related records. The Court noted that credit for TDS and waiver of liability depend on verification of facts, including whether TDS was actually deducted and, where necessary, whether the person responsible deposited the tax with the Department. The Court observed that technological tools and software are instruments for assistance and data processing and cannot replace the requirement of manual examination and adjudication, including issuance of show cause notices where factual issues arise. It concluded that blanket software changes directing non-raising of demands could overlook genuine cases requiring adjudication and therefore intrude upon the Assessing Officer's statutory role.

Conclusion: The direction issued by the High Court in paragraph Nos. 10 and 11 of the impugned order directing changes to the CBIT software is set aside; the High Court's administrative direction to alter the software is not sustained and is removed.

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