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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-20, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-20/9(2)(2)/IT-454/2013-14 dated 30-04-2014. The original assessment was framed by the Income Tax Officer, Ward- 9(2)(2), Mumbai (in short ITO) for the assessment year 2004-05 order dated 28- 12-2006 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’). The impugned order of the AO is dated 16-10-2012 under section 153(2A) r.w.s. 254 of the Act.
The first issue raised by assessee in this appeal is regards to the assessment order is that the proceedings initiated under section 143(2) of the Act is barred by limitation by virtue of CBDT instructions No. 9 of 2004 dated 20-09-2004. For this assessee has raised the following ground NO. 4: -
“(4) Both the authorities erred by not adjudicating the grounds that;
(a) the proceeding initiated was barred by limitation by virtue of CBDT’s instruction.
(b) The proceeding completed is barred by the limitation."
At the outset, the learned Counsel for the assessee stated that the relevant assessment order for AY 2004-05 was passed on 28-12-2006 on the return of income filed on 31-10-2004 under section 139(1) of the Act. The AO issued notice under section 143(2) of the Act on 21-10-2005, whereas return was processed under section 143(1) of the Act dated 12- 01-2005. It means that the case was selected for scrutiny assessment by issuing notice under section 143(2) only on 21-10-2005. The learned Counsel stated that the assessment under section 143(3) of the Act was completed vide assessment order dated 28-12-2006. In view of these facts, the learned Counsel for the assessee drew our attention to the instruction No. 09/2004 dated 20-09-2004 clause 4 which reads as under: -
“4. The process of selection of case for scrutiny for returns filed up to 31-03-2004 must be completed by 15-10-2004. For returns filed during the current financial year 2004-2005, the selection of cases for scrutiny will have to be completed within 3 months of the date of filing of the return.
5. All the returns filed in response to notice under section 148 will be selected for scrutiny.
In addition to the above, returns processed on AST will be selected through a Computer Assisted Scrutiny System (CASS). The selection criteria will be determined by the Board and the process, which will be run by the Central system. Will be completed in the first week of October 2004. Separate Instructions in this regard will be issued by the Directorate of Income tax (Systems). Instruction 9/2004, dated 20-9-2004.”
The learned Counsel for the assessee stated that no case can be selected for scrutiny after three months from the date of filing of return in view of the clause 4 of the instruction No. 4 of 2004 as reproduced above. According to the learned Counsel, selection of assessment for scrutiny was mandatorily to be completed by 28-01-2005, whereas the assessee’s case was selected for scrutiny as on 21-10-2005 by issuing notice under section 143(2) of the Act. According to AO, this assessment is barred by limitation and assessment initiated beyond the period set out the board vide instruction no. 09 of 2004 and according to him, subordinate authorities are bound by the instruction under section 119 of the Act as held by Hon’ble Chhattisgarh High Court in the case of DCIT Vs. Sunita Finlease Ltd. (2011) 330 ITR 491 (Chh). On the other hand, the learned Sr. DR heavily relied on the orders of the lower authorities.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the Hon’ble Chhatishgarh High Court in the case of DCIT Vs. Sunita Finlease Ltd. (2011) 330 ITR 491 (Chh) has considered the same Instruction No. 9/2004 dated 20.09.2004 which are applicable in the present case also and quash the selection of scrutiny and completion of assessment by holding as invalid. Hon’ble Chattishgarh High Court in Sunita Finlease Ltd.’s case (supra) has considered section 119 of the Act by stating that Section 119 of the Act, empowers the Central Board of Direct Taxes to issue orders, instructions or directions for the proper administration of the Act or for such other purposes specified in sub-section (2) of the section. Hon’ble High Court further held that such an order, instruction or direction cannot override the provisions of the Act. Direction by issuing instructions to the officers for the process of selection of cases for scrutiny for returns for a particular financial year and allowing time of three months for completion of the same cannot be considered to override or detract from the provisions of the Act. It only directs that the above exercise should be completed within three months of the date of filing of return by the assessee, which amounts to an assurance to the assessee that the return filed by him can be scrutinised by the Assessing Officer within three months of filing of the return. The Hon’ble High Court, dismissing the appeal held that Instruction No. 9 of 2004 dated September 20, 2004, was applicable in the present case, in view of the specific stipulation in the circular that “for returns filed during the current financial year 2004- 05, the selection of cases for scrutiny will have to be completed within three months of the date of filing the returns” and considering that the return had admittedly, been filed by the assessee on October 29, 2004, i.e., during the current financial year 2004-05. The selection for scrutiny of the assessee’s case and completion of the assessment was not valid.
6. We find that the Hon’ble Chhatishgarh High Court in Sunita Finlease Ltd.’s case (supra) has also considered the decision of Hon’ble Supreme Court in the case of UCO Bank (1999) 237 ITR 889 and quoted from page 896 as under:
“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, iter 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.”
The facts and circumstances in the present case are that the selection of scrutiny in this case is also completed beyond the prescribed period as prescribed in Instruction No. 9/2004 dated 20.09.2004. The assessee’s case was selected for scrutiny first time on 21.10.2005 by issuing notice under section 143(2) of the Act. As per Instruction No. 9/2004 dated 20.09.2004, the process of selection of cases for scrutiny for returns filed during financial year 2004-05, the selection of cases for scrutiny will have be completed within 3 months of the date of filing of return of income. In the present case assessee filed its return of income on 31.10.2004, the scrutiny selection can be done upto 31-01-2005. We find from the assessment order which clearly reveals that factually notice u/s. 143(2) was first time issued on 21.10.2005, which is beyond the prescribed time for selection of scrutiny i.e. upto 31.01.2005. Hence, respectfully following the decision of Hon’ble Chhatisgarh High Court in the case of Sunita Finlease Ltd. (supra), we quash the issuance of notice u/s. 143(2) of the Act and subsequent assessment framed u/s. 143(3) of the Act.
As we have already adjudicated the issue of jurisdiction and quashed the notice under section 143(2) of the Act, the issues on merits need no adjudication because the same have become academic.
In the Result, the appeal of the assessee is allowed.
Order pronounced in the open court on 28-02-2018.