Background

Issuance and service of statutory notices/orders constitutes an integral part of all the proceedings under the Income-tax Act, 1961 (‘IT Act’). The proceedings are initiated by proper issuance and valid service of a notice and culminate into a proper service of an order. Any deficiencies in the issuance or service of notices/orders, enables an assessee to get such notices/orders vacated on technical grounds without going into the merits of such notices/orders. Section 282 of the IT Act, along with Rule 127 of the Income-tax Rules, 1962 (‘IT Rules’) sets out the rules of service, to be followed by the Income Tax Authorities (‘ITA’) whilst issuing notices, orders, summons to an assessee. However, it was a common practice of the ITAs to issue antedated orders so as to circumvent the limitations for issuing the notices/ passing the orders provided in the IT Act, and unfortunately there was no mechanism in the IT Act which could curtail such practices.

In order to curb such practices, the Legislature, vide Finance Act of 2009, introduced Section 282B[1] in the IT Act, whereby it was mandated that every communication issued to an assessee shall contain a unique computer-generated Document Identification Number (“DIN”), which would serve as a safeguard against illegitimate and unauthorized communications that could potentially harm the interest of an assessee. Mandating DIN for every communication was required to ensure that the authenticity of notices/orders and other correspondences could be verified.

Thereafter, the Central Board of Direct Taxes (“CBDT”), in light of various instances of communications being issued without a proper audit trail, introduced Circular No. 19 dated August 14, 2019[2](‘Circular’), whereby the condition for allotting a DIN on every communication was revived and made mandatory, w.e.f., 01.10.2019. Whilst emphasizing on the importance of DIN, the Circular also prescribes certain exceptions whereby manual communication without a DIN could be issued, which includes, technical difficulties in affixing of DIN, unavailability of assessee’s PAN, etc. However, such exceptions are subjected to certain pre-requisites such as, prior approval of Chief Commissioner (“CCIT”), Director General Of Income Tax (“DGIT”), and regularization of failure to quote a DIN within 15 days of issuance of such manual communication.

Post issuance of the Circular, the validity of communications issued in contravention of the guidelines has been a subject matter of scrutiny by various courts of the country, whereby the Hon’ble Courts have consistently quashed such communications whilst observing that the circulars issued by CBDT were binding on the ITAs under Section 119 of the IT Act, and hence, such issuance/ communication of any notices/orders summons etc. in contravention of such guidelines would render the same non est.[3]

Jharkhand High Court’s Decision.

The Jharkhand High Court in a recent decision[4], has interpreted this Circular. In the said case, the Assessing Officer (“AO”) had to make an order of fresh assessment pursuant to directions of the Income Tax Appellate Tribunal (“Tribunal”) u/s 254 of the IT Act. Some relevant facts noted in this order are as under:

• The case of the individual assessee was heard by the Tribunal and the Tribunal remanded the matter for fresh consideration vide order dated 02.03.2020. Admittedly, the said order was received by the PCIT on 24.06.2020.
• That in terms of section 153(3) of the IT Act, the limitation for making a fresh assessment order was to expire on 31.03.2022. That the AO vide communication dated 08.07.2021 informed the assessee that the order in the said case was to be passed by National Faceless Assessment Centre. However, on 31.03.2022 the AO drafted the order on a plain paper without any digital signatures and such reply was uploaded on the assessee’s account on 01.04.2022 along with DIN and was served on the assessee vide an intimation dated 03.04.2022. In order to cover-up anomalies and defect in the order, a corrigendum was also issued on 11.04.2022.

The said order was challenged by the assessee before the High Court in a writ petition, alleging that the order made by the AO was barred by limitation, as the same was uploaded along with DIN (01.04.2022), a day after the limitation had expired. In response, the Department contended that the order made by the AO was within the limitation, as the provision dealing with the limitation of the said order i.e., Section 153(3) only refers to “may make an order” and hence the order made on 31.03.2022 is within limitation. It was also observed that the section does not talk about “communication of order” and thus generation of DIN would not have a bearing on the said limitation.

The High Court accepted the revenue’s contentions whilst holding that a delay of one day (as the order was uploaded on 01.04.2022)[5] in generation of DIN & uploading of an order was not fatal to such assessment. Additionally, the High Court made a distinction between the terms such as ‘making of an order’, ‘issue of an order’, ‘uploading of an order’ and ‘communication of an order’, etc., (which prior to this judgment were often used interchangeably) and held that quoting of DIN is mandatory only qua communication of an order and as section 153(3) of the IT Act deals with ‘making of an order’ and not it’s communication, the generation of DIN would not have a bearing on the said limitation. Importantly, the High Court in the instant case relying on the word “may” as appearing in Section 153(3) of the IT Act, observed that the said provision ought not be interpreted too strictly, so as to give the same effect of being directory in nature.

Our Analysis

With all due respect, it is important to state here that, while rendering the said judgement, the Jharkhand High Court has overlooked certain vital aspects, which could have had a bearing on the final outcome of the Court’s decision. Firstly, on the facts of the present case, the AO vide a communication dated 08.07.2021 informed the assessee that order in the said case was to be passed by National Faceless Assessment Centre.  In that view of the matter, it was incumbent for the NFAC to follow the procedure enshrined in section 144B of the IT Act.  Since the proceedings were carried out prior to the amendment of section 144B (which was amended w.e.f. 01.04.2022), the unamended provisions would be applicable.  Sub-section (7) of section 144B provided that for the purposes of a faceless assessment, NFAC should authenticate “an electronic record” by affixing its digital signature.  From the facts recorded in the order of the Court, it seems that the assessment order dated 31.03.2022 was not passed by NFAC as it was issued on a plain paper without any digital signature.   This is in itself was sufficient to establish that the assessment order dated 31.03.2022 was invalid in the eyes of law.  Whether such order was served or “could be made” by 31.03.2022 would be of no consequence, as that was a subject matter of limitation.

Secondly, since the order was uploaded along with DIN on 01.04.2022, it cannot be said to have made within the limitation prescribed under section 153 of the IT Act.  This also contradicts the provision of section 282A of the IT Act and settled judicial dictum rendered by the Supreme Court in catena of decisions[6].  Another aspect that seems to have been overlooked by the Court is that a corrigendum was passed on 11.04.2022.  Apart from mentioning this fact, the Court seems to have overlooked the significance of the same as it has not even been discussed in the conclusions.

Be that as it may, much emphasis has been placed by the High Court on the term “may”, as used in section 153(3) of the IT Act so as to treat the limitation therein, as recommendatory in nature. The High Court seems to have been persuaded that since the term used is “may” the limitation contained in the said provision would not have to be strictly adhered to.  This interpretation would render the objective of setting limitations nugatory and would make the provisions otiose.[7] Therefore, the word “may” has to be construed as “shall” and the time period fixed therein has to be followed by the authority[8]. The word “may” used under section 153(3) of the IT Act implies that an order could have been passed any day before or on 31.03.2022[9] and not as per the discretion of authority. Hence, the impact of the said provision is mandatory in nature and the limitation prescribed under the statute cannot be treated as merely recommendatory. If the converse were true then that interpretation would create a conflict in situations /exclusions envisaged in Explanation 1 to section 153 of the IT Act, which would then be left meaningless.

Further, on the issue pertaining to quoting of DIN, the Delhi High Court in a recent decision[10] while dealing with the mandate of presence of DIN upon an order issued to the assessee, has held that an assessment order, which is not in conformity with the guidelines prescribed in para 2 & 3 of the Circular, shall be non-est in law.  Further the Court also observed that non-quoting of DIN on such communication is not a mistake/defect, which can be corrected by the authorities, while taking recourse to section 292B of the IT Act. It is also pertinent to state here that, the High Court also sternly observed that the language employed in the Circular is clear and unambiguous and thus there is neither any scope for debate, nor there is any leeway for an alternate view.

In the judgment of the Jharkhand High Court, while dealing with the issues of limitation and communication of the order (for the purposes of quoting the DIN) the Court also seems to have missed the point that under the faceless regime, time and place of dispatch and receipt of electronic record has to be in compliance with the provision of section 13 of the Information Technology Act, 2000, which provides that, the point at which an electronic record enters the designated computer resource or the point at which an electronic record is retrieved by the addressee, will be the date at which such notice would be served to the assessee’s account. At this juncture, it is important to highlight here that, Jharkhand High Court completely overlooked this fact that, the impugned order was uploaded along with DIN on 01.04.2022. Thus, as per section 13 of the Information Technology Act, 2000 the said order was served to the assessee on 01.04.2022, which is beyond the limitation prescribed under section 153(3) of the IT Act. The authors have already opined that the limitation prescribed under section 153(3) of the IT Act is mandatory and not directory in nature.

While the decision of the Court has to be respected but the endeavor of the author(s) is to bring out the distinguishing factors, so that the decision of this Court is not erroneously relied upon as a precedent.

Footnotes:

[1]         Omitted by Finance Act, 2011, w.e.f. 1.04.2011.
[2]         Circular No. 19, dated August 14, 2019, issued by Central Board of Direct Taxes.
[3]         Tata Medical Centre Trust v. CIT [2022] 140 taxmann.com 431 (Kolkata – Trib.); Dilip Kothari v. PCIT [2023] 146 taxmann.com 442 (Bangalore – Trib.).
[4]         Prakash Lal Khandelwal v. CIT & Ors.; WP (T) No. 1901/2022 (Jharkhand HC).
[5]          CBDT Circular itself provides that, no communication shall be issued by the income tax authority unless a computer-generated DIN has been allotted and is duly quoted in the body of such communication.
[6]         Kalyankumar Ray v. CIT, [1991] 191 ITR 634 (SC); Kilasho Devi Burman v. CIT, [1996] 219 ITR 214 (SC).
[7]          Bachahan Devi and Another v. Nagar Nigam, Gorakhpur and Another, [2008] 12 SCC 372 (SC).
[8]          DCIT v. Saint Gobain India (P.) Ltd, [2022] 444 ITR 636 (Madras HC).
[9]          TE Connectivity India Pvt. Ltd. v. DCIT, [2022] 138 taxmann.com 148 (Karnataka High Court). In this decision, the Court remarked that as per the limitation provided for in section 153(3) of the ITA, the order was required to be passed within such time as provided therein. Nokia India Pvt. Ltd. v. DCIT, [2017] 85 taxmann.com 291 (Delhi High Court).
[10]        CIT v. Brandix Mauritius Holdings Ltd., [ITA No. 163/2023, judgment dated 20.03.2023 (Delhi HC)]