Aug 31, 2023

Document Identification Number Saga Continues – Bizarre Attempt to Read Equity in Tax!

The binding nature of orders, instructions and directions issued by the Central Board of Direct Taxes (‘CBDT’) under Section 119 of the Income-tax Act, 1961 (‘IT Act’) has been a point of much deliberation and has been considered by the Constitutional Courts on multiple occasions. What is strange is the fact that even after numerous authoritative pronouncements, there is no dearth of instances where such orders, instructions and directions have been flouted by the Income-tax/revenue authorities. At the outset, one may appreciate that in terms of Section 119 of the IT Act, it is incumbent upon the Income-tax authorities tasked with the execution of the IT Act to observe and follow orders, instructions and directions issued by the CBDT. In terms of the clear legislative mandate there is not a sliver of doubt that such directions are binding on them.

This position has been reiterated by the Hon’ble Supreme Court of India (‘SC’) to hold that in so far as a circular remains in operation, the Income-tax authorities are bound by it and cannot be allowed to plea against it.[1] Thus, a circular issued by the CBDT retains its binding force as long as it is not contrary to the provisions of the statute or the decision of the Court, in which case the circular will become non est.[2] Circulars are further not binding upon the Courts as they are tools for administrative convenience and Courts are to interpret the statute[3] independent of the circular.

Recently, the CBDT Circular dated August 14, 2019[4] (‘2019 Circular’) has garnered a lot of attention as it mandates Income-tax authorities to affix a computer-generated Document Identification Number (‘DIN’) on all communication with the assesses. The 2019 Circular is a step in the right direction as there have been various instances where skullduggery has been employed by the Income-tax authorities and back dated orders/notices have been passed with gay abandon. Thus, to curb such instances and in order to maintain a proper audit trail, the 2019 Circular was notified by the CBDT. Needless to say, the 2019 Circular itself provides consequences for non-adherence, and in cases where the 2019 Circular is not followed, the underlying orders/notices are to be rendered non-est. Having been in effect since 2019 and considering the statutory mandate and judicial interpretation, the 2019 Circular is binding upon all authorities and all communication (including assessment and re-assessment orders) are bound to be affixed with a DIN failing which the document would be bad in law.[5]

In a stark deviation from the settled position of law, the Hon’ble Allahabad High Court[6] has held that a re-assessment order passed manually and without affixing a DIN would not be invalid, as ‘no prejudice’ is caused to the assessee and non-issuance of DIN is not a ground to entertain the writ petition. The focus on prejudice to the assessee rather than non-adherence of a CBDT Circular by Income-tax authorities is bewildering in the sense that the same is in the teeth of Section 119 of the IT Act as well as the decision of the Hon’ble SC.

In another development, the Jharkhand High Court had similarly upheld the limitation period of an assessment order issued without a DIN, noting it is not necessary from the perspective of determining limitation under Section 153(3) of the IT Act, which uses the term ‘making of an order’ and not ‘communication of an order’.

While in the aforementioned cases, the High Courts have attempted to sidestep the issue of the binding nature of circulars issued under Section 119 of the IT Act, what has been lost sight of is the fact that these decisions are not only against the doctrine of judicial discipline but can also be seen as an affront to the principle of stare decisis enshrined in Article 141 of the Constitution of India, 1950.

[1] CCE v. Ratan Melting & Melting Wire Industries, (2008) 13 SCC 1 (SC).

[2] UCO Bank Calcutta v. CIT, (1999) 4 SCC 599 (SC).

[3] ACIT v. Ahmedabad Urban Development Authority, [2022] 449 ITR 1 (SC).

[4] Circular 19 of 2019, dated August 14, 2019 issued by the Central Board of Direct Taxes (CBDT).

[5] CIT v. Brandix Mauritius Holdings Ltd., [2023] 293 Taxman 385 (Delhi HC).

[6] Chandra Bhan v. Union of India, 2023:AHC:142867-DB (Allahabad HC).




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