Have you received notice from the office of commissioner of income tax (CIT ) for revision of the assessment order passed in a case which was earlier selected under CASS ? As you know , this power to revise the order vests in CIT under section 263 of the Income Tax Act . But it seen that this provision (that is enacted to protect the interest revenue) is callously invoked by the authorities . More so , when Finance Act 2015 has inserted Explanation 2 in section 263 with effect from 01/06/2015 under which it has been provided that that an order passed by the Assessing Officer shall be deemed to be erroneous and prejudicial to the interests of the revenue, if, the order is passed without making inquiries or verification which should have been made the order is passed without making inquiries or verification which should have been made.
But , in my considered opinion, despite such Explanation , the provision u/ 263 can not be invoked in cases selected for CASS , even if on many points the A.O did not enquire . This post is all about the illegality of the action of CIT in issuing notice u/s 263 if it is issued in large number of cases for CASS selected scrutiny for assessment year 2012-13 onwards.
For Whom This Article is Applicable !
In order to apply the arguments against the action of CIT to initiate action u/ 263 , your case must be satisfying following conditions :[infobox style=”alert-info”]
- Case must be selected under CASS .
- The point for which CASS selection is made , was verified or enquired by the A.O You have proof of supplying all documents or proof related to the point of scrutiny under CASS.
- Case relates to assessment year 2012-13 onwards.
In such case , if the CIT issues notice for action u/s 263 of the Income Tax Act on the ground that
- the A.O has not inquired on any other point or
- A.O has also allowed any exemption or deduction ( which was not the point of selection for CASS) without making any enquiry or
- for any other reason which is not the reason for selection of case for scrutiny under CASS
Then the action of CIT in invoking provision u/s 263 is legally not tenable.
What is the illegality in action of CIT
Let us first understand the reasons for selection of case under CASS . CBDT itself has explained the purpose of such scrutiny vide instruction No 7 dt26.9.2014 as under :
It has come to the notice of the Board that during the scrutiny assessment proceedings some of the AOs are routinely calling for information which is not relevant, for enquiry into the issues to be considered. This has been causing undue harassment to the taxpayers and has also drawn adverse criticism from several quarters. Further, feedback and analysis of such orders indicates that many times the core issues, which formed the basis of selection of the case for scrutiny were not examined properly. Such instances primarily occurred in cases selected for scrutiny under Computer Aided Scrutiny Selection (‘CASS’) for verification of specific information obtained from third party sources which apparently did not match with the details submitted by the tax payer in the return of income.
Therefore, for proper administration of the lncome-tax Act, 1961 (‘Act’), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in suppression of earlier instructions/ guidelines on this subject, ere by directs that the cases selected for scrutiny during the Financial Year 2014-20 5 under CASS, on the basis of either AIR data or CIB information or for non re-conciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer s hall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.
Thus the purpose of selection of a large number of cases under CASS is only limited scrutiny for the point raised in CASS selection . CBDT is aware that in such cases, causing comprehensive scrutiny will give rise to the harassment to the taxpayers. Therefore,CBDT issued further instruction directing that the A.O should not restrict himself to the point which is shown as reason of selection of case for scrutiny under CASS. Specific instruction for cases selected during the FY 2013-14 was issued vide Instruction No. 7 of 2014 dated 26-9-2014
But the spirit of this instruction was extended to all the assessment pending as on 7th November by issue of another instruction vide OFFICE MEMORANDUM [F.NO.279/MISC/52/2014-(ITJ)], DATED 7-11-2014 which directed all assessing officer as under :
On several occasions the Finance Minister has emphasised the need for furthering a non-adversarial tax regime. A non-adversarial tax regime cannot be achieved without concerted endeavour at each level, especially at levels where the public interaction is high. Though the Central Board of Direct Taxes (CBDT) has issued instructions from time to time on some of these issues, there is a need for consolidation of earlier instructions and issuance of further directions in this regard. Accordingly, CBDT hereby directs that the officials of the Income-tax Department must adhere to the following guidelines for achieving such objective:
v. Instruction No. 7 of 2014 dated 26-9-2014 clarifies that ordinarily in scrutiny cases selected on the basis of AIR/CIB/26AS information, the scrutiny shall be limited to that information. Wider scrutiny would be possible only with the sanction of Principal Commissioner of Income-tax/ Commissioner of Income-tax in specified cases and under the monitoring of the Range Head. (Such cases form 25-30% of the total scrutiny basket, thus limiting the cases of full scrutiny)
Instruction of CBDT Binding on IT Authorities
In this regard, your honour’s attention is also drawn to the following judgments of Supreme Court and High Courts which have held that the circulars and instructions are binding on tax authorities. Hon’ble Supreme Court in the case of UCO Bank (1999) 237 ITR 889 on page 896 held 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
There are umpteen number of case laws wherein the Courts have settled the law that the circulars and instructions are issued u/s 119 of the I.T.Act, therefore it is binding on ta x authorities , but not public or court . It is binding on tax authorities even if such instruction may be against the law !
Action u/s 263 for Non Enquiry
Thus , if the A.O has verified and enquired about the point of selection of case for scrutiny , he not only acted bona fide and but completely in the interest of revenue by following the direction of CBDT.A CIT can not accuse him of not acting in interest of Revnue by not inquiring any other point , because he was bound by the instruction of CBDT to do so.
If his adherence to the direction of the CBDT instruction dt 07/11/2014 to confine himself to the examination to the point of selection of scrutiny under CASS is taken as an act against the interest of Revenue , the whole system of governance will fail.
By issue of notice u/s 263 in such cases , what the CIT is doing is overruling the direction or CBDT . Thus , that itself is bad in law because the direction or instruction issued by CBDT is binding on all authorities sub-ordinate to the Board and not just an A.O. Such , notices to initiate action u/s 263 , therefore , will fail the judicial scrutiny .
Conclusion : What to do When That Type of Case is With You ?[infobox style=”alert-success”]
- Check the reasons for selection of CASS.
- A.O mus have enquired on that point and you must have proof of furnishing all details on that point.
- If the CIT , on such a case , issues notice u/s 263 alleging that A.O did not enquiry other point , you should gently point to h that there is no error on part of A,O as he followed the CBDT instruction in this regard.
- In case , CIT despite this , do not dp proceeding u/s 263 , file an appeal in ITAT u/s 263 and raise the point of illegality as described above