DILIP KOTHARI,BENGALURU vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), BANGALORE

Date of hearing : 20.10.2022 Date of Pronouncement : 31.10.2022 O R D E R Per Padmavathy S., Accountant Member These appeals by the assessee are against the separate orders of the Principal Commissioner of Income Tax (Central), Bengaluru [PCIT] u/s. 263 of the Income-tax Act, 1961 [the Act] dated 24.3.2022 for the assessment years 2014-15 to 2016-17. The appeals were heard together and we deem it appropriate to pass a consolidated order.

2. A search & seizure action u/s. 132 of the Act was conducted in the case of Shri Pramod Bhandari and the premises at No.5, Middle School Road, V V Puram, Bangalore – 560004, belonging to Dilip Kothari (the assessee) was also searched on 2.8.2017. Consequent to the search operation, certain incriminating documents were found and seized at the said premises of the assessee.

3. The AO issued a notice u/s. 153C in response to which the assessee filed the return of income on 9.9.2019 declaring an income of Rs.26,49,310, Rs.38,38,820 and Rs.47,74,730 for the AYs 2014-15 to 2016-17. The AO called for production of documents and evidence based on which he completed the assessment u/s. 153C r.w.s. 143(3) accepting the returned income filed by the assessee.

4. The PCIT noticed from the assessment record that Mr. Pramod Kumar Bhandari, who is a partner along with the assessee in the firm by name M/s Pacific Heights has declared an additional income of Rs.1,05,00,000 being his share of 14% of cash received from Mr. D V Harish, MD of Davanam Constructions with whom a JDA is being entered into by the partnership firm. The PCIT noticed that the AO has not conducted any enquiry with regard to the cash paid and to that extent he treated the assessment order as being erroneous and prejudicial to the interests of the revenue.

6. The assessee has raised common grounds in all these appeals as follows:-

“1. The learned Principle Commissioner of Income Tax (Central), Bangalore (hereinafter referred as "PCIT" for brevity) has erred in passing the Order in the manner passed by him. The Order being bad in law, is liable to be quashed.

2. The learned PCIT has erred in initiating revisionary proceedings u/s 263 without appreciating that the assessment order is not erroneous and all the documents were available on the record of the Assessing Officer; 3. The learned PCIT has erred in initiating revisionary proceedings u/s 263; (i) Merely by placing reliance on the statement of Mr.Pramod Bhandari without appreciating that same was retracted via affidavit and therefore very basis on which proceedings were initiated does not survive; (ii) On the basis of some loose sheets without appreciating that it is not an admissible evidence; and (iii)By relying on the statement of Mr.Harish Davanam without providing. a copy of said statement and an opportunity to cross examine Mr.Harish Davanam;.

4. The learned PCIT has erred in stating that the Assessing officer did not make any enquiry in relation to the JDA transaction without appreciating that the Assessing officer was having complete information/knowledge about the said transaction; 5. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another.

6. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal

, at any time before or at, the time of hearing, of the appeal, so as to enable the income-tax Appellate Tribunal to decide the appeal according to law.”

7. The assessee also made application for admission of additional grounds wherein the issue is contended on legal grounds in all these appeals. The legal grounds relate the validity of the order u/s. 263 for the reason that the order issued is a manual order and does not contain Document Identification Number [DIN] which is not in accordance with the instruction of Central Board of Direct Taxes (CBDT) issued vide circular no.19/2019 dated 14.08.2019. The relevant common additional grounds as in are extracted below:-

1.1 The above referred appeal is in respect of the order passed by the Principal Commissioner of Income Tax (Central), Bangalore (`PCIT') u/s 263 of the Income Tax Act, 1961 (Viet') on 24.03.2022. It is stated therein that the assessment order passed under section 143(3) r.w.s 153D of the Act dated 10.12.2019 is erroneous as it is prejudicial to the interests of the revenue. 1.2 The learned PCIT has referred to the statement of Mr.Pramod Bhandari recorded during the course of search where in it is stated that partnership firm M/s Pacific heights has paid a sum of Rs.15 crores to Mr. Harish Davanam (Land Owner) of M/s Davanam Constructions

Private Limited. It is stated that out of the total consideration of Rs.15 crores, Rs.7.5 crores was paid in cash. The learned PCIT has stated that the Petitioner is also a partner in the said partnership firm with a share of 14% and during the year under consideration a sum of Rs.1.49 crores was paid in cash. It is stated that the share of the Appellant in cash works out to Rs.20,86.000/-. In drawing the said conclusion, the PCIT has also relied on the statement of Mr.Harish Davanam. 1.3 Accordingly, the learned PCIT partly set aside the assessment order and directed the Assessing Officer to pass a fresh assessment order after considering the above. The Appellant filed an appeal before the Hon'ble Tribunal against the order u/s 263 on 20.05.2022. 1.4 The Appellant submits that, the impugned order passed u/s. 263 of the Act does not contain any Document Identification No. (DIN) nor any reason for non issuance of DIN along with the impugned order. The Appellant submits that the order is without any DIN, which is in violation of the very basic object of CBDT Circular No.19/2019 dated 14.08.2019. 1.5 The whole objective of the said CBDT Circular requiring a mandatory quoting of DIN on all the communications of the department is to maintain the audit trail. which otherwise gets lost. At para 4, CBDT circular states that any order without a DIN is "invalid or deemed to have never been issued". 1.6 Para 3 of the said circular provides for certain exceptional circumstances when the communication is issued manually, in which case such manually issued communications should contain the fact that the said communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/Director General of Income-tax for issue of said manual communication in the prescribed format. 1.7 Thus, it is observed from the said circular that all the communications from department have to be either generated and issued electronically with DIN or in certain exceptional circumstances the communication may be issued manually without DIN, fact of which along with its written approval has to be stated in the body of the said communication. Failing which para 4 of the said circular states that such communication shall be treated as 'invalid' and shall be deemed to have never been issued'.

1.8 In the present case, the order has been issued manually. There is no mention about the fact of issuing the present order manually without a DIN by obtaining an approval from prescribed authority in the prescribed format in the body of the impugned order. In terms of para 4 of the CBDT circular, such a lapse renders this impugned order as invalid and deemed to have never been issued. 1.9 The Appellant had not raised the above ground in the grounds of appeal filed. This is a legal ground. All the details to adjudicate the ground are on record and therefore the legal ground should be admitted. 1.10 Subsequent to filing of appeal, the Honourable Kolkata Tribunal in the case of Tata Medical Centre Trust vs CIT 120221 140 taxmann.com 431 (Kolkata-Tribunal) gave decision on similar facts. The Tribunal held that order passed by the Ld. CIT(E) u/s 263 is invalid and deemed to have never been issued as no DIN is mentioned in the body of the Order by adhering to the CBDT Circular no. 19 of 2019. 1.11 The Appellant submits that it is filing an additional ground with the leave of this Honourable Tribunal under Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 (hereinafter referred to as the "ITAT Rules-). The Appellant places reliance on the ratio laid down by the Hon'ble Supreme Court in the case of National Thermal Power CO Ltd vs C1T [19981 97 Taxman 358 (SC). The Appellant submits that this additional ground goes to the root of the matter and permeates from the facts already on record before the lower authorities and this Tribunal. Thus, the Appellant prays for its admission and adjudication in the interest of justice. 1.12 The Appellant therefore humbly prays that the additional grounds be admitted and adjudicated along with the other grounds of appeal in the course of hearing of the appeal.”

8. We have heard both the parties on the admission of additional grounds and following the Hon’ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional grounds are admitted for adjudication.

CIRCULAR NO. 19/ 2019 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, dated the 14th August, 2019. Subject: Generation/Allotment/Quoting of Document Identification Number in Notice/Order/Summons/letter/ correspondence issued by the Income Tax Department – reg. With the launch of various e-governance initiatives, Income- tax Department is moving toward total computerization of its work. This has led to a significant improvement in delivery of services and has also brought greater transparency in the functioning of the tax- administration. Presently, almost all notices and orders are being generated electronically on the Income Tax Business Application (ITBA) platform. However, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that there have been some instances in which the notice, order, summons, letter and any correspondence (hereinafter referred to as communication") were found to have been issued manually, without maintaining a proper audit trail of such communication.

“13. From the above submissions and arguments, we note that it is an undisputed fact that the impugned order u/s. 263 of the Act has been issued manually which does not bear the signature of the authority passing the order. Further, from the perusal of the entire order, in its body, there is no reference to the fact of this order issued manually without a DIN for which the written approval of Chief Commissioner/Director General of Income-tax was required to be obtained in the prescribed format in terms of the CBDT circular. We also note that in terms of para 4 of the CBDT circular, such a lapse renders this impugned order as invalid and deemed to have never been issued. 13.1 It is also important to note about the binding nature of CBDT circular on the Income-tax Authorities for which gainful guidance is taken from the decision of Hon'ble Supreme Court in the case of CIT v. Hero Cycles (P.) Ltd. [1997] 94 Taxman 271/228 ITR 463 wherein it was held that circulars bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. 13.2 In the case of UCO Bank v. CIT [1999] 104 Taxman 547/237 ITR 889 (SC), Hon'ble Supreme Court while dealing with the legal status of such circulars, observed thus (page 896): "Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act, which are binding on the authorities in the administration of the Act. Under section 119(2)(a) , however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. 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."

13.3 In the matter of CIT v. Smt. Nayana P. Dedhia [2004] 141 Taxman 603/270 ITR 572 (AP), the Hon'ble Andhra Pradesh High Court held that the guidelines issued by the Board in exercise of powers in terms of section 119 of the Act relaxing the rigours of law are binding on all the officers responsible for implementation of the Act and, therefore, bound to follow and observe any such orders, instructions and directions of the Board. 13.4 In the decision of Dy. CIT v. Sunita Finlease Ltd. [2011] 11 taxmann.com 241/330 ITR 491 (Chattisgarh) it was held by the Hon'ble High Court of Chhattisgarh in para 16 that the administrative Instruction No. 9/2004 issued by the Central Board of Direct Taxes is binding on administrative officer in view of the statutory provision contained in section 143(2), which provides for limitation of 12 months for issuance of notice under section 143(2). While giving its finding, the Hon'ble High Court of Chhattisgarh placed reliance on the decisions in the case of UCO Bank (supra) and Nayana P. Dedhia (supra). 13.5 Hon'ble jurisdictional High Court of Calcutta in the case of Amal Kumar Ghosh v. Asstt. CIT [2014] 45 taxmann.com 482/225 Taxman 229 (Mag.)/361 ITR 458 dealt with the issue relating to CBDT circular which according to the Department cannot defeat the provisions of law. While giving its observations and finding on the issue, the Hon'ble Court referred to the decision of Hon'ble Chhattisgarh High Court in the case of Sunita Finlease Ltd. (supra), which are as under: 7. We have considered the rival submissions advanced by the learned Advocates. Even assuming that the intention of CBDT was to restrict the time for selection of the cases for scrutiny within a period of three months, it cannot be said that the selection in this case was made within the aforesaid period. Admittedly, the return was filed on 29th October, 2004 and the case was selected for scrutiny on 6th July, 2005. It may be pointed out that Mrs. Gutgutia was, in fact, reiterating the views taken by the learned Tribunal which we also quoted above. By any process of reasoning, it was not open for the learned Tribunal to come to a finding that the department acted within the four corners of Circulars No. 9 and 10 issued by CBDT. The circulars were evidently violated. The circulars are binding upon the department under section 119 of the I.T. Act.

Pronounced in the open court on this 21st day of October, 2022.