Any communication by the Income Tax Authority without DIN will be Invalid and shall be deemed to have never been issued – Delhi High Court

Facts of the Case:

• The Assessee (Brandix Mauritius Holdings Ltd.) is a company against which draft assessment order was passed by the by the Assessing Officer (AO/Revenue) on 30.12.2018. The Assessee had filed its objections before Dispute Resolution Panel (DRP) which were disposed of by the DRP via order dated 20.09.2019. Thereafter, the final assessment order was passed by the AO on 15.10.2019 u/s 147/144(C)(13)/143(3) of the Income Tax Act, 1961 (the Act).
• The major issue which has been originated in the final assessment order was, that it was issued by the AO without quoting Document Identification Number (DIN) in body of such communication. As per circular 19/2019 dated 14.08.2019 issued by the Central Board of Direct Taxes (CBDT) it has been strictly mentioned that any communication issued by any Income Tax Authority (ITA) without DIN shall be treated as invalid and shall be deemed to never have been issued.
• Further, in the circular 19/2019 the CBDT has also prescribed some exceptional circumstances wherein the ITA can issue any manual communication without DIN but there will be proper recording of reasons in the specified format and prior approval of designated authorities has to be taken before issuance of such communication. Thereafter, such manual communication has to be regularized within 15 days of its issuance.
• Aggrieved by the order of AO the Assessee preferred an appeal before the Income Tax Appellate Tribunal (ITAT) wherein the Hon’ble ITAT simply applied the guidelines of circular 19/2019 and held that assessment order dated 15.10.2019 framed u/s 147/144C(13)/143(3) of the Act is invalid and deemed to have never been issued as it fails to mention the DIN in its body by adhering to circular 19/2019.
• Thereafter, the revenue filed an Appeal u/s 260A of the Act before the Hon’ble High Court of Delhi with the supporting that circular 19/2019 only applies to the communications emanating from the revenue, not to the substantive orders passed to the Assessee. Further, it is also submitted by the revenue that failure to generate and allocate DIN in this case is a mistake or at best, a defect and/or an omission (which can be covered or cured u/s 292B of the Act), which ought not to invalidate the assessment proceedings.
• In response to the contention of the revenue, the Assessee submitted that circular 19/2019 is binding on the revenue and error (i.e., not quoting DIN in order) is jurisdictional in nature and therefore, cannot be corrected by taking recourse to Section 292B of the Act. In support of their contentions the Assessee relied on various case laws1 of Hon’ble Supreme Court which have similar facts/issues.

Issue before the Hon’ble High Court:

• Whether the order of the ITAT to not sustain the final assessment order dated 15.10.2019 in compliance with the circular 19/2019 passed by the AO call for the interference of the Hon’ble High Court i.e., whether any substantial question of law arises for consideration, which, inter alia, would require the Hon’ble High Court to examine whether the issue is debatable or if there is an alternate view possible?

Decision of the Hon’ble High Court:

• The Hon’ble court observed that it is well established that circulars issued by the CBDT in exercise of its powers u/s 119 of the Act are binding on the revenue and this principle stands enunciated in a long line of judgements including the judgements of Hon’ble Supreme Court in various cases2.
• It has been further observed that the argument advanced on behalf the revenue, that recourse can be taken to Section 292B of the Act, is untenable, having regard to the phraseology used in paragraph 4 of the circular 19/2019. The object and purpose of the issuance of the 2019 Circular was to create an audit trail. Therefore, the communication relating to assessments, appeals, orders, etc. which find mention in paragraph 2 of the 2019 Circular, without DIN, can have no standing in law, having regard to the provisions of paragraph 4 of the 2019 Circular.
• Thereafter, the Hon’ble court held that given the language employed in the 2019 Circular, there is neither any scope for debate nor is there any leeway for an alternate view which is different than the view which has been taken by ITAT.
• Hence, the Hon’ble Court has dismissed the appeal of the revenue by mentioning that “we find no error in the view adopted by the Tribunal. The Tribunal has simply applied the provisions of the 2019 Circular and thus, reached a conclusion in favour of the Assessee”.

SW Point of View: Vide this order the Hon’ble High Court had reaffirmed the standing of law that circular 19/2019 shall be binding on the revenue irrespective of the document issued by them. Further, it has been also confirmed that issuance of any document without a valid DIN in body of such communication will not tantamount to errors which have been committed u/s 292B of the Act.

¹ UCO Bank v. CIT, [1999] 237 ITR 889 (SC), Ellerman Lines Ltd. v. CIT, [1971] 182 ITR 913 (SC), DCIT v. Sunita Finlease Ltd., [2011] 330 ITR 491 PCIT v. Maruti Suzuki India Ltd. v. CIT, ITA No. 475 of 2011 (Del), and Spice Entertainment Ltd. v. CIT, ITA No. 475 of 2011 (Del)

² K.P. Varghese v. Income Tax Officer, Ernakulam and Anr., (1981) 4 SCC 173 and Back Office IT Solutions Pvt. Ltd. v. Union of India, 2021 SCC OnLine Del 2742

In High Court of Delhi
The Commissioner of Income Tax (International Taxation)
v.
Brandix Mauritius Holdings Ltd.

Virendra Vikram, Tax Associate, SW India