Landmark Cases on Assessment Procedure

A decision of a Co-ordinate Bench confirmed by the Hon'ble Third Member has higher precedence than another decision of a Co-ordinate Bench. The case was decided after vividly analyzing the facts and judicial precedents.

Taxing statutes do not have all provisions as mandatory; some can be directory, and strict interpretation primarily applies to the levy of tax, not necessarily to procedural provisions. No tax can be levied on the principle of estoppel, as Article 265 mandates that tax must be authorized by law.

An assessee cannot challenge the jurisdiction of the Assessing Officer if an objection is not filed within the prescribed one-month period from the date of receiving a notice. Failure to raise a timely objection under Section 124 before the AO waives the right to dispute jurisdiction later.

Protective assessments should not be deleted or disposed of by lower authorities, but rather allowed to remain in effect until the related substantive assessment proceedings attain finality before the High Court or Supreme Court.

The Supreme Court defined the scope of judicial review of administrative actions, holding that courts must confine themselves to the question of legality. This includes examining if the authority exceeded its powers, committed an error of law, breached natural justice, reached an unreasonable decision, or abused its powers, rather than re-evaluating policy.

Section 145 of the Income-tax Act, 1961 (corresponding to Section 13 of the 1922 Act), which mandates computing income based on the assessee's regularly employed method of accounting, is a mandatory provision. The tax department cannot object to such a method unless it fails to reflect the true income.

The requirement to furnish an auditor's report (e.g., under Section 80J(6A), 80-IA(7), or Form 10B/10IC) along with the return of income is directory, not mandatory. Such a report can be filed at a later stage, provided it is submitted before the completion of the assessment proceedings.

The requirement of statutory approval for an assessment order mandates the approving authority to apply its mind through proper and thorough scrutiny. This process presupposes a diligent application of mind and adheres to principles of natural justice.

Issuance of a notice under Section 143(2) within the prescribed period of limitation is mandatory for completing an assessment under Section 143(3) of the Income-tax Act. Section 292BB does not cure the failure to issue such a mandatory notice within the limitation period.

Failure to issue an assessment order through the designated ITBA portal, or issuance of an order without a valid pre-existing Document Identification Number (DIN), renders such an order invalid and non est in the eyes of law. A subsequent intimation or post-dated DIN does not cure this substantive breach.

The Assessing Officer is bound by the rule of consistency and cannot take a contrary or different stand on an issue in a subsequent assessment year if the factual position remains identical to previous years where a deduction was allowed.

An approval under section 153D of the Income-tax Act, 1961, obtained commonly for multiple assessees and assessment years, vitiates the assessment proceedings. The approval must be obtained separately for each assessee for each assessment year.

Taxing provisions imposing new liabilities or affecting substantive rights are presumed to operate prospectively unless the statute expressly or necessarily implies retrospective application. Retrospective operation is generally not given if it impairs existing rights, creates new obligations, or imposes new liabilities, except for procedural matters.

Guidelines issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the Income Tax Act, which relax the rigour of law, are binding on all income tax officers responsible for implementing the Act, who must follow these orders and instructions.

Income cannot be taxed twice unless expressly provided by law. Income accrued in a particular year must be included in that year's total income and cannot be ignored to be taxed in a subsequent year based on receipt.

When a statutory authority issues an order, its validity must be judged solely by the reasons stated within that order, and no new or additional grounds can be introduced later to support or validate it.

Satisfaction of the Assessing Officer is a mandatory condition precedent for making additions or disallowances under section 153C of the Income-tax Act, 1961. Without such satisfaction, assessments framed under section 153C are liable to be quashed.

When interpreting statutes, courts strive to avoid conflicting provisions and interpret the law in a manner that is not absurd, unworkable, illogical, futile, pointless, artificial, or disproportionate.

The strict rule of construction applies only to taxing provisions that create a charge for tax liability. It does not apply to machinery provisions that facilitate the assessment, collection, and recovery of tax.

A decree passed by a court or authority without inherent jurisdiction over the subject matter is a nullity, can be challenged at any stage including execution, and does not operate as res judicata, as such a fundamental defect cannot be cured by consent.

A statute prescribing a procedure using negative language (e.g., 'in no other manner') imposes absolute requirements, and failure to comply will invalidate the entire proceeding.

The assessee must consistently follow one method of accounting and cannot arbitrarily change it, particularly in contravention of Section 145 of the Income Tax Act. This principle prohibits changes in accounting methods that are not in conformity with the law.

Service of notice through the ITBA portal is not a valid method of service under section 282(1) of the Income-tax Act, 1961, and Rule 127(1) of the Income-tax Rules, 1962. Consequently, matters where notice was deemed invalidly served via ITBA portal are remanded to the Assessing Officer for a de novo disposal to uphold principles of natural justice.

Procedural amendments do not create a vested right and therefore apply to pending matters, including those related to periods prior to the amendment's effective date.

Circulars issued by statutory authorities are binding on tax administrators and cannot be disregarded in a manner that prejudices the assessee.

Circulars issued by the Central Board of Direct Taxes under Section 119 of the Income Tax Act are binding on all officers and persons employed in the execution of the Act, even if such circulars deviate from the provisions of the Act.

An Income Tax Officer assessing income must determine the assessee's system of accountancy and, for the mercantile system, ascertain when the right to receive the income legally accrued.

A contrary view to the Gujarat High Court's decision in Saumya Construction is taken by the Allahabad High Court in Pr. CIT v. Mehndipur Balaji, concerning the interpretation of Section 153A of the Income Tax Act, 1961.

An assessee is entitled to raise additional grounds of appeal before the appellate authorities, including the Tribunal or High Court, provided such grounds are purely legal in nature and arise from facts already available on record.

The failure to issue a draft assessment order under Section 144C(1) of the Income-tax Act is a mandatory procedural requirement, and its non-compliance renders the final assessment order invalid, not merely a curable defect.

The Assessing Officer, while not acting as a court of law, functions in a quasi-judicial capacity when framing an assessment. Therefore, the AO must conform to elementary rules of judicial procedure and conduct the case independently, without interference from superior officers.

Assessment is an integrated process that encompasses the determination of both income and tax. Therefore, any statutory approval required for an assessment, such as under Section 153D, must cover both the income computation and the tax computation, not merely one aspect.

The Assessing Officer is duty-bound to grant all admissible benefits and reliefs to an assessee during assessment proceedings, even if such claims were not specifically made in the original return of income or a revised return.

Under Indian income-tax law, the Income-tax Officer must compute income and profits according to the method of accounting regularly employed by the assessee, such as the cash or mercantile system. This distinguishes Indian law from English legislation where the tax authority is not bound by the assessee's chosen method.

Income becomes taxable only when the assessee acquires a right to receive it. This fundamental principle applies to various forms of income, including interest income.

Assessing Officers and appellate authorities must consider and grant correct deductions for fresh legal claims or revised computations made during assessment or appellate proceedings, subject to due verification.

Section 292B of the Income Tax Act applies only to procedural irregularities and cannot cure fundamental jurisdictional defects, such as the non-issue of a mandatory Section 148 notice for reassessment or framing an assessment against a non-existing or dead person.

The issuance of a notice under Section 143(2) is mandatory, and its non-service or invalidity is not a curable procedural irregularity, rendering subsequent assessment proceedings void. Objections regarding non-service of notice, being a jurisdictional issue, can be raised for the first time before the Tribunal.

The books of account cannot be rejected under Section 145(3) of the Income-tax Act, 1961, without the Assessing Officer pointing out specific material defects. A mere fall in the Gross Profit rate or the non-maintenance of a stock register, by itself, is not a sufficient ground for rejection if complete and quantitative details are furnished.

The principle of res judicata or estoppel does not apply to income tax proceedings, as each assessment year is a distinct unit. Mere entries in the accounts of a third party are not sufficient proof to make additions to an assessee's income.

The law declared by a High Court is binding on all subordinate authorities and tribunals within its territorial jurisdiction.

Income tax authorities cannot deduce the nature of a document from purported intention, go behind the document, consider the substance over form, or rewrite it merely to suit the revenue's purpose.

Additions made in assessment proceedings cannot be based solely on computations provided by external agencies like the police, without independent application of mind by the Assessing Officer.

Best judgment assessments under Section 144 must be a fair and rational estimation of income by the Assessing Officer, not capricious or arbitrary. Appellate authorities should accept clarificatory evidence to test the fairness of such assessments, even if produced for the first time.

CBDT circulars, instructions, or directions issued under Section 119 cannot override or detract from the provisions of the Income-tax Act, as a delegated authority lacks the power to amend law enacted by Parliament.

The Assessing Officer must genuinely record satisfaction or receive proper approval before passing an assessment order, as mechanical or perfunctory approval invalidates the assessment.

A deduction under Section 80P can be claimed by an assessee even if the return of income is filed belatedly under Section 139(4), provided a return has been filed.

The purpose of income tax assessment is to correctly determine the taxable income of the assessee in accordance with the provisions of the Act. An admission made by an assessee, if based on an incorrect or erroneous impression, is relevant but not conclusive and can be clarified or withdrawn later.

An intimation issued under Section 143(1)(a) cannot make adjustments for debatable issues that require detailed scrutiny, such as the disallowance of delayed employee contributions to ESI/PF. Appellate authorities also have the power to entertain fresh claims made by an assessee, even if these were not raised in the original or revised return of income.

Each assessment year constitutes a separate unit of assessment under the Income-tax Act, and findings or decisions for one assessment year do not operate as res judicata for subsequent assessment years.