Introduction
In a recent judgement of Assistant Commissioner of Income-tax v. Pradipkumar Chandulal Bhuva[i], the Income Tax Appellate Tribunal, Rajkot Bench examined the applicability of recent Central Board of Direct Taxes (‘CBDT’) circular no. 5/2024[ii] (‘Circular 2024’) to additions made under s. 69A of the Income-tax Act, 1961 (‘IT Act’). The primary contention of the Revenue was that the scope of exceptions to the monetary limits prescribed under Circular No. 3/2018[iii], dated 11.07.2018 (‘Circular 2018’), had been expanded retrospectively by Circular No. 5/2024. However, the ITAT dismissed the Revenue Department’s miscellaneous applications, emphasizing that the scope of exceptions defined in the circular was prospective and not retrospective.
Brief Facts
The Revenue conducted search and seizure proceedings against the Assessee under s. 132A of the Act on 29.11.2016. The Assessee filed a return of income on 11.12.2017, declaring a total income of Rs. 6,19,810/-.
The Assessing Officer (AO) completed the assessment under s. 143(3) read with s. 153A of the IT Act on 24.12.2018, determining the total income as Rs. 32,69,810/-, including an addition of Rs. 26,50,000/- under s. 69A of the IT Act for unexplained money.
On appeal, the Commissioner of Income-tax (Appeals) [‘CIT (A)’] deleted the addition. The Revenue filed an appeal before the ITAT. However, the ITAT dismissed the appeal, citing the low tax effect as per the monetary limits prescribed by Circular 2018.
The Revenue filed two Miscellaneous Applications (MA Nos. 36 & 37 of 2020) under s. 254(2) of the IT Act, seeking to recall the ITAT’s order and contending that the recently issued Circular 2024 expands the scope of exceptions to the monetary limits under Circular 2018. The Revenue argued that including information received from state police departments under the expanded exceptions makes the Assessee’s case eligible for adjudication on merits, and the ITAT should recall its earlier order.
The Assessee argued that Circular 2024, being prospective in nature as stated in Para 10 of Circular 2024, does not apply to cases finalised prior to its issuance. The Assessee also contended that the ITAT’s order, based on Circular 2018, was valid and binding, as it was applicable at the time of the decision.
Held
The ITAT dismissed both the MAs filed by the Revenue, holding that Circular 2024 was prospective and could not retrospectively apply to the case under consideration.
The ITAT emphasized that Circular 2018, as modified, outlined an exhaustive list of enforcement agencies whose information could trigger exceptions to the monetary limits. The state police department was not included in this list.
The ITAT reiterated the principle that an act legal under the prevailing law cannot be rendered illegal by subsequent legislation or circulars.
The ITAT also confirmed that CBDT circulars are binding on Revenue authorities by relying on the judgment of the Hon’ble Supreme Court in the case of Commissioner of Customs v. Indian Oil Corporation Ltd[iv].
The ITAT observed that the Revenue’s argument for recalling its earlier order was misconceived, as neither Circular 2024 nor modified Circular 2018 were applicable in the present case.
Our Analysis
The judgment reaffirms constitutional principles on the applicability of CBDT Circulars, particularly clarifying their prospective or retrospective nature. By ruling that Circular 2024 is prospective and cannot retrospectively impose new obligations on taxpayers, the ITAT upheld the core legal tenet that no person can be held liable or penalised for actions that were not unlawful at the time they were performed.
Retrospective application of tax laws or circulars undermines legal certainty, creating unpredictability and eroding public confidence in tax administration and fear that could erode public confidence in tax administration and governance. By categorically rejecting the Revenue’s attempt to expand the scope of Circular 2018 to include the state police departments, the ITAT upheld the principle of legislative clarity and certainty, preventing arbitrary or expansive interpretation of fiscal laws.
End Notes
[i] [2024] 167 taxmann.com 741 (Rajkot - Trib.)[08-10-2024].
[ii] Circular No.5.2024 [F.No.279-MISC.142-2007-ITJ(PT.)] dated 15-03-2024.
[iii] Circular No.3-2018 [F.No.279-MISC.142-2007-ITJ(PT)], dated 11-7-2018.
[iv] Commr. of Customs v. Indian Oil Corpn. Ltd., (2004) 3 SCC 488.
Authored by Priyavansh Kaushik, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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