Tax Insights

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1 PwC pwc.in

Tax Insights

17 April 2023

Delhi High Court upholds Tribunal’s ruling that TO’s assessment order passed without DIN is invalid and deemed to have never been issued as per CBDT Circular No.

19/2019 dated 14 August 2019

In brief

The Delhi High Court¹, in its recent decision, upheld the ruling of the Delhi bench of the Income-tax Appellate Tribunal² (Tribunal) that the f inal assessment order dated 15 October 2019 passed by the Tax Officer (TO) without mentioning the Document Identification Number (DIN) in it, is invalid and deemed to have never been issued as per Circular No. 19/2019 dated 14 August 2019 (circular).

In detail

Facts

• The taxpayer, a company incorporated in Mauritius, was subject to reassessment proceedings under section 147 of the Income-tax Act, 1961 (the Act) for assessment year (AY) 2011–12.

• Subsequently, the TO passed the assessment order on 15 October 2019 under sections 147, 144C(13) and 143(3) of the Act (f inal assessment order).

• Neither did the final assessment order quote a DIN in the order nor was the DIN communicated in any subsequent communication or intimation letter to the taxpayer.

Issue before High Court

• Whether the Tribunal was correct in holding the final assessment order passed without a DIN as invalid?

Revenue’s contentions

• The circular only applies to communications emanating from the Revenue, and not vis-à-vis substantive orders passed qua the taxpayer.

• Failure to allocate DIN was a mere mistake or at best, a defect or omission which can be corrected by

1 ITA No. 163/ 2023

2 ITA No. 1542/DEL/2020

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taking recourse to section 292B of the Act (which provides that no assessment proceedings will be invalid merely by reason of any mistake, defect or omission in such assessment proceedings if the assessment otherwise is in substance and effect in conformity with the intent and purpose of the Act). Such a failure ought not to invalidate the assessment proceedings.

• Revenue placed reliance in the case of Jagat Novel Executives Private Limited³, wherein it was held that the object and purpose behind section 292B of the Act is to ensure that technical pleas on the ground of mistake, defect or omission should not invalidate the assessment proceedings (when no confusion or prejudice is caused otherwise).

High Court’s decision

• The object and purpose of allocating DIN to communications, such as notices, orders, summons, letters and/ or any correspondence emanating from the Revenue is to maintain a proper audit trail.

• Theref ore, the Central Board of Direct Taxes (CBDT) has mandated that no communication will be issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the taxpayer or any other person, on or after 1 October 2019 unless it is allotted a computer-generated DIN.

• Moreover, there is a specific requirement under the circular to quote the DIN in such communication.

• The circular also sets out certain circumstances in which exceptions can be made. For the said exceptions, the specified authority is required to take steps to regularise the failure to quote DIN within 15 days in the manner set out in the circular.

• Any communication which is not in conformity with the provisions of the circular is to be treated as invalid, as if it were never issued.

• Theref ore, whenever communications are issued in the exceptional circumstances alluded to in the circular, i.e. are issued manually without a DIN, they are required to be backed by the approval of the Chi ef

Commissioner, Commissioner or Director General. The manual communication is required to furnish the ref erence number and the date when the approval was granted by the concerned officer in the specified f ormat.

• Concededly, the final assessment order in case of the taxpayer does not bear a DIN. There is nothing on record to show that the Revenue took steps to demonstrate before the Tribunal that there were exceptional circumstances, as referred to in the circular, which would sustain the communication of the final

assessment order passed manually without a DIN.

• Given this situation, the relevant part of the circular will apply to provide that any communication which is not in conformity with the circular will be treated as invalid and will be deemed to have never been issued.

The phrasing of the circular fairly puts such communication, including communication of the assessment order, as non-est in law.

• It is well-established that circulars issued by the CBDT in exercise of the powers under section 119 of the Act are binding on the Revenue. The aforesaid principle stands enunciated in multiple judgments, including K.P. Varghese⁴ and Back Office IT Solutions Private Limited⁵.

• The argument advanced by Revenue that recourse can be taken to section 292B of the Act (where an assessment proceeding can be validated despite a mistake, error or omission in such assessment proceeding) is untenable with regard to the phrasing used in the circular.

• The communication relating to assessments, appeals, orders, etc. issued without DIN can have no standing in law having regard to the provisions of the circular.

• The logical conclusion of the aforesaid reasoning is that no interference is required by the High Court in the Tribunal’s ruling to hold the final assessment order dated 15 October 2019 as invalid.

3 CIT v. Jagat Novel Executives Private Limited [2013] 356 ITR 562 (Delhi)

4 K.P. Varghese v. Income Tax Officer, Ernakulam and Anr [1981] 4 SCC 173

5 Back Office IT Solutions Private Limited v. Union of India [2021] SCC OnLine Del 2742

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• Given the language employed in the circular, there is neither any scope for debate nor any leeway for an alternate view in the view adopted by the Tribunal. There is no error in the view adopted by the Tribunal.

The takeaways

• The decision of the Delhi High Court is particularly relevant and critical in cases where any notice or order has been issued manually without a DIN and the said communication is made without any intimation letter providing DIN of the manual notice, order, etc. The Delhi High Court, in the instant case, has passed a detailed order on the applicability of the circular wherein a series of contentions raised by the Revenue (including applicability of section 292B of the Act) have been categorically negated by the Delhi High Court.

Thus, the taxpayers should carefully peruse and retain all relevant orders and supporting cover letters to examine the valid application of the circular.

• In two other decisions⁶, where the manual order was followed by a subsequent letter intimating the DIN of the manual order to the taxpayer, the High Courts have upheld its validity.

• Practically, Revenue has been issuing manual communications along with an intimation letter containing DIN of the relevant communication (i.e. the order, notice etc.).

• In the instant case, the Revenue issued an assessment order manually without quoting a DIN. Neither did it bring on record the exceptional circumstance under which the case is covered as per the circular nor did it regularise the communication of this assessment order with a subsequent intimation letter. In f act, the DIN was not generated at all in the taxpayer’s case by the Revenue. The Tribunal held that such an order is hit by the mandate of the CBDT and is invalid and deemed to have never been issued as per the circular.

Upon Revenue’s further appeal, the Delhi High Court also concurred with the favourable findings of the Tribunal.

6 Madras High Court in W.P. No. 12310 of 2021 and Jharkhand High Court in W.P.(T) No. 1901 of 2022

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pwc.in

In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corpora te Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

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