Income Tax Appellate Tribunal, Chandigarh (ITAT) in its recent decision[1] followed the decisions pronounced by the Delhi High Court and the Bombay High Court which had held that quoting DIN in the body of communication issued by the Income Tax Department is mandatory by strictly interpreting CBIC’s Circular. ITAT held that the Income Tax Department cannot take recourse to Section 293B, IT Act, 1961 and argue that the error of not quoting the DIN does not affect the validity of the communication.
Facts
The brief facts of case are: the assessee filed its return of income and the relevant assessment proceedings were completed. But subsequently after search proceedings in the assessee’s premises were completed, the Assessing Officer (‘AO’) stated that some of assessee’s income had escaped assessment due to assessee’s failure to fully and truly disclose certain materials. AO added additional income and passed a reassessment which was challenged by the assessee. One of the grounds of challenge before ITAT was that the AO did not follow the prescribed procedure, the assessment order was not uploaded on the e-filing portal of the assessee and was communicated via courier without mentioning the DIN. The ITAT noted that the ground relating to not mentioning the DIN was the heart of the matter and adjudicated on it on priority. And ITAT’s ruling on the said issue proved crucial to assessee’s success in the case.
Arguments
The arguments on the issue of DIN were simple: the assessee argued that not quoting DIN in the communication issued by the Income Tax Department was contrary to CBIC’s Circular and thus liable to be struck down. The assessee elaborated that DIN was mentioned in the demand notice, but not in the reassessment order. And both the notice and order are required to be issued under different provisions of the statute, are separate communications and thus require their own DIN. In essence, the assessee’s case was that omission to cite DIN in the body of the reassessement order was fatal and in direct contravention of the CBDT’s Circular and thus should be struck down.
The Income Tax Department tried to justify the non-citation of DIN in the body of assessment on various grounds, two of which included: first, that the demand notice and assessment order were not two separate communications and thus the latter did not require a separate DIN; second, that the omission of DIN can be saved by Section 292B, IT Act, 1961. Section 292B states that any return of income, assessment, notice, summons or other proceedings issued or purported to have been issued under the provisions of IT Act, 1961 shall not be invalid merely by reason of any mistake, defect, or omission if such communication is in substance and effect in conformity with or according to the intent and purpose of IT Act, 1961.
ITAT’s Decision
ITAT cited the CBDT Circular and arrived at the prudent conclusion that the CBDT Circular was clear in its mandate that the Income Tax Department shall not issue any communication without generating a DIN and quoting it in the body of the communication. No relaxation is provided in the Circular except when manual communication may be issued with prior approval of the Principal Commissioner. The ITAT also noted that the CBDT Circular clearly provided that in the absence of adherence to the conditions prescribed, it shall be presumed that the communication is invalid and deemed to have never been issued.
The reassessment order, the ITAT held, was issued contrary to the conditions prescribed in the CBDT Circular, i.e., it did not cite the DIN in its body nor did it adhere to the conditions prescribed for issuing manual communication. Thus, it held the impugned communication to be invalid.
ITAT did not accept any of the Income Tax Department’s arguments. It held that while the demand notice and the subsequent assessment order were part of the same assessment proceedings and their close connection cannot be denied. However, the demand notice is passed under Section 156, IT Act, 1961 while an assessment order is passed under Section 143 read with Section 147 of the IT Act, 1961. And more importantly it noted that no exception was provided in the CBDT Circular regarding issuance of successive communications to the same assessee, on the same date and regarding the same assessment year. ITAT concluded that:
Therefore, in the instant case, we find that assessment order and notice of demand are two separate communications qua the assessee and carry separate physical existence and identity, even though issued on the same date by the same Assessing officer pertaining to same assessment year and therefore, necessarily have to carry separate DIN on the body of the said communications. In view of the admitted position that there is no DIN on body of the assessment order (even though there is DIN on body of the notice of demand), the same will continue to be non- compliant with paragraph 2 of the CBDT Circular no. 19/2019 and carry the same consequences in terms of paragraph 4 of the CBDT Circular and will be held as invalid and never been issued. (para 21)
The Income Department was not allowed to take recourse to Section 292B as the ITAT relied on the relevant precedents to state that the language used in the CBDT Circular did not leave room for any alternate view or leeway and the said Circular is binding on the revenue as per Section 119, IT Act, 1961. The ‘phraseology’ used in paragraph 4 of the CBDT Circular which states that a communication shall be treated as never issued was relied on to conclude that Section 292B was inapplicable to the impugned case.
Conclusion
The ITAT’s decisions follow what is now a growing body of jurisprudence on the issue with several High Courts and ITATs deciding that not quoting DIN in the body of communication is fatal to the communication and contrary to CBDT’s Circular. The ITAT in this decision reiterates the earlier decisions with the additional input that demand notices and assessment orders cannot be treated as a single communication and are separate orders requiring their own DIN. As I stated in my recent post on ITAT Chennai’s decision on the same issue, decisions that strictly interpret CBDT’s Circular are welcome and hold them the Income Tax Department to standards that itself has prescribed for its officers.
[1] M/s SPS Structures Ltd v The DCIT Central Circle-1, Chandigarh TS-791-ITAT-2023.