CBDT Circular: Binding on Revenue: S/s. 119 and 143(2): A. Y. 2004-05: Circular prescribing time limit of three months from date of filing of return for issuing notice u/s. 143(2): Return filed on 29-10-2004: Notice u/s. 143(2) issued on 14-07-2005: Not valid

For the A. Y. 2004-05, the assessee had filed return of income on 29-10-2004. The Assessing Officer issued the notice u/s. 143(2) of the Income-tax Act, 1961 on 14-07-2005. The assessee claimed that the notice u/s. 143(2) was not valid since it has been issued beyond the period of three months of date of filing of the return as prescribed by the CBDT Circulars Nos. 9 and 10. The Tribunal rejected the assessee’s contention and dismissed the appeal filed by the assessee. The Tribunal accepted the contention of the Revenue that the Assessing Officer was competent to issue notice u/s. 143(2) after the expiry of period of three months from the date of filing of the return.

In the appeal by the asessee before the High Court, the Revenue contended that such a notice u/s. 143(2) could have been issued within 12 months from the date of filing of the return and, therefore, the notice was well within time. The Calcutta High Court allowed the assessee’s appeal, reversed the decision of the Tribunal and held as under:

“i) Even assuming that the intention of the CBDT was to restrict the time for selection of the cases for scrutiny to a period of three months, it could not be said that the selection in the case of the assessee was made within the period. The return was filed on 29-10-2004, and the case was selected for scrutiny on 06-07-2005. By any process of reasoning, it was not open to the Tribunal to come to the finding that the Department acted within the four corners of Circular No.s 9 and 10 issued by the CBDT. The Circulars were evidently violated. The Circulars were binding upon the Department u/s. 119.

 ii) Even assuming that the circulars were not meant for the purpose of permitting unscrupulous assessees from evading tax, it could not be said that the Department, which is the State, can be permitted to selectively apply the standards set by itself for its own conduct. When the Department has set down a standard for itself, the Department is bound by that standard and cannot act with discrimination. If it does that, the act of the Department is bound to be struck down under Article 14 of the Constitution. In the facts of the case, it was not necessary to decide whether the intention of the CBDT was to restrict the period of issuance of the notice from the date of filing of the return laid down u/s. 143(2).

 iii) Thus, the notice u/s. 143(2) was not in legal exercise of jurisdiction.”