Assessment Order Without DIN is Invalid and Deemed Never Issued, per CBDT Circular.

ORDER

Aby T. Varkey, Judicial Member. – This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld. CIT(A)”), Delhi, dated 26.06.2024 for the Assessment Year (hereinafter referred to as “AY”) 2014-15.

2. At the outset, the Ld.AR of the assessee drew our attention to additional grounds filed by the assessee and especially Ground No.5, which is a legal issue alleging that the assessment order passed by the AO u/s.147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) is bad in law, since no ‘DIN’ has been quoted in the body of the assessment order. Ground No.5 reads as under:

05. The NFAC, Delhi failed to appreciate that in the absence of incorporation of Document Identification Number in the body of the reassessment order passed under Section 147 of the Act as mandated by Circular No. 19/2019 dated 14.08.2019, the consequential reassessment order passed should be reckoned as bad in law / non erst in law.

3. By raising the aforesaid legal issue, as noted, the assessee is assailing the order of the AO dated 24.10.2019 passed u/s.143(3) r.w.s.147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) as invalid being per se violative of CBDT Circular No.19/2019 dated 14.08.2019, which sets out the manner in which Document Identification Number [in short “DIN”] is required to be generated while communicating a notice, order, summon, letter and a correspondence issued by the Income-tax Department. It is noted that there is a specific requirement under the 2019 Circular to quote the DIN in the body of any such communication. And in the absence of the same i.e. if “DIN” is not quoted in the body of the impugned assessment order dated 24.10.2019, according to the Ld.AR, the assessment order is invalid in the eyes of law. For examining the same, it would be gainful to reproduce CBDT Circular No.19/2019 dated 14.08.2019, which reads as under:

With the launch of various e-governance initiatives, Income-tax Department is moving toward total computerization of its work. This has led to a significant improvement in delivery of services and has also brought greater transparency in the functioning of the taxadministration. Presently, almost all notices and orders are being generated electronically on the Income Tax Business Application (ITBA) platform. However, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that there have been some instances in which the notice, order, summons, letter and any correspondence (hereinafter referred to as “communication”) were found to have been issued manually, without maintaining a proper audit trail of such communication.

2. In order to prevent such instances and to maintain proper audit trail of all communication, the Board in exercise of power under section 119 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), has decided that no communication shall be issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person, on or after the 1 day of October, 2019 unless a computer-generated Document Identification Number (DIN) has been allotted and is duly quoted in the body of such communication.

3. In exceptional circumstances such as, –

the communication may be issued manually but only after recording reasons in writing in the file and with prior written approval of the Chief Commissioner/Director General of income-tax. In cases where manual communication is required to be issued due to delay in PAN migration, the proposal seeking approval for issuance of manual communication shall include the reason for delay in PAN migration. The communication issued under aforesaid circumstances shall state the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/Director General of Income-Tax for issue of manual communication in the following format

4. Any communication which is not in conformity with Para-2 and Para-3 above, shall be treated as invalid and shall be deemed to have never been issued.

5. The communication issued manually in the three situations specified in para 3- (i), (ii) or (iii) above shall have to be regularised within 15 working days of its issuance, by –

6. An intimation of issuance of manual communication for the reasons mentioned in para 3(v) shall be sent to the Principal Director General of Income-tax (Systems) within seven days from the date of its issuance.

7. Further, in all pending assessment proceedings, where notices were issued manually. prior to issuance of this Circular, the income-tax authorities shall identify such cases and shall upload the notices in these cases on the Systems by 31th October, 2019.

4. From a reading of the aforesaid Circular, it is noted that CBDT has issued a Circular, taking note of the fact that even though e-governance initiative has been taken and the Income Tax Department is modifying total computerization of its work, still there are few persons issuing notices, orders etc., manually when the department insists on issuing notices, orders, etc., being generated electronically on the Income Tax Business Application [ITBA Platform]. Therefore, in order to maintain proper audit trail of all communications issued by the Income Tax Authorities, the CBDT in exercise of its power u/s.119 of the Act has decided not to issue any communication by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person, on or after the 1 day of October, 2019 unless a computer generated Document Identification Number (DIN) has been allotted and is duly quoted in the body of such communication.

5. Para No.3 carves out certain exceptions. Insofar as the exceptions given in paragraph 3 (i), (ii) and (iii) are concerned, the specified authority is required to take steps to regularize the failure to quote DIN within fifteen (15) working 6 days. The manner in which regularization is to take place is set out in paragraph 5, which reads as under:

“5. The communication issued manually in the three situations specified in para 3-(i), (ii) or (iii) above shall have to be regularized within 15 working days of its issuance, by –

6. Furthermore, the 2019 circular, in paragraph 6, states that the intimation of issuance of manual communication, for the reasons mentioned in paragraph 3(v), shall be sent to the Principal Director General of Income-Tax (Systems) within seven (7) days from the date of its issuance. In Para No.7 of 2019 Circular mandates alignment of all pending assessment proceedings, where notices were issued manually, prior to the issuance of the said circular, by having them uploaded in the system by the date given therein, i.e., 31-10-2019. At Para No. 4, it is declared that any communication which is not in conformity with the provisions of paragraph 2 and 3 of the 2019 Circular is to be treated as invalid, as if it was never issued.

7. From the plain reading of the Circular reveals that communications issued by the Income Tax Authority would fall in two (2) categories (i) those cases which don’t fall within the exceptions carved out in Para No.3 (i) to 3(iv) & those which do not fall in the exceptions carved out in paragraph 3(i) to (v) and those which fall in the exceptions embedded in paragraph 3(i) to (v), but do not adhere to the regime set forth in the 2019 Circular.

8. Therefore, whenever communications are issued in the circumstances alluded to in paragraph 3(i) to (v), i.e., are issued manually without a DIN, they require to be backed by the approval of the Chief Commissioner/Director General. The manual communication is required to furnish the reference number and the date when the approval was granted by the concerned officer. The formatted endorsement which is required to be engrossed on such a manual communication, should read as follows:

“…… This communication issues manually without a DIN on account of reason/reasons given in para 3(i)/3(il)/3(iii)/3(iv)/3(v) of the CBDT Circular No dated. (strike off those which are not applicable) and with the approval of the Chief Commissioner/Director General of Income-tax vide number. dated.”

9. As indicated hereinabove, insofar as communications falling in circumstances alluded to in paragraph 3(1) to 3(iii) are concerned, the process of regularization in the manner indicated in paragraph 5, should take place within fifteen (15) working days of its issuance. This period of regularization with regard to the circumstance referred to in paragraph 3(v) is reduced to seven (7) days, and is required to be marked to the Principal Director General of Income-Tax (Systems) [See paragraph 6 of the 2019 Circular].

10. In the light of the aforesaid discussion, we have to see whether the action of the AO framing assessment order dated 24.10.2019 is valid or not in absence of DIN quoted in the body of such order. In the instant case, from a perusal of the impugned order dated 24.10.2019 passed u/s.143(3)/147 of the Act shows that there was failure to quote DIN and such an omission was not arising out of “exceptional circumstances which are set forth in Para No. 3 of the Circular”. The only plea of the Ld. DR is that the AO had issued DIN which was intimated vide letter dated 29.10.2019 wherein it was clearly mentioned to the assessee that the impugned order passed on 24.10.2019 u/s.147 of the Act had DIN ITBA/AST/M/147/2019-20/1019539763(1). And therefore, according to the Ld. DR, since the DIN has been intimated to the assessee al beit after five (5) days satisfies the purpose of allocation of DIN which is to ensure maintenance of proper audit trail. Therefore, the Ld. DR wants us to uphold the assessment order. In his rejoinder, the Ld. AR submitted that Circular issued by the CBDT is binding on all the Income Tax Authorities and not following the procedure prescribed therein invalidates the communication and in this case, the assessment itself. According to him, the error is jurisdictional in nature and therefore can’t be corrected by the recourse to Section 292B of the Act. Further, according to the Ld.AR, the Hon’ble Madras High Court in the case of CIT v. Laserwords US Inc.  (Madras) (Division Bench) in similar case has held that unless exempted under Para No. 3 of the Circular by following the procedure stated therein, any communication issued by the Income Tax Authorities has to quote DIN, failing which, the action/communication is invalid in the eyes of law. The Ld.AR also pointed out that in the decided case before the Hon’ble Madras High Court, the Revenue had raised the very same plea that subsequently the DIN was communicated to the assessee and therefore, the purpose of ‘DIN’ i.e. audit trail is fulfilled and therefore, the action of the AO can’t be held to be invalid. However, the Hon’ble High Court repelled such a contention of the department and held that nonquoting of ‘DIN’ invalidates the action of the AO. Therefore, according to the Ld.AR, in the present case, since DIN was not generated electronically for the impugned assessment order while framing it on 24.10.2019, subsequent communication doesn’t satisfy the requirement stipulated in Para No. 3 of the Circular in any manner and therefore consequences stated in Para No. 4 would follow i.e. any communication which is not in conformity with Para Nos. 2 & 3 of the Circular needs to be considered as invalid and deemed to have never been issued. Therefore, he wants us to allow the legal issue raised by him.

11. Having heard both the parties and after perusal of the records, we note that the impugned assessment order dated 24.10.2019 has been passed u/s.143(3)/147 of the Act doesn’t quote DIN in its body. There is nothing on record to show that failure to quote the DIN in the body of the impugned order arose out of the “exceptional circumstances” which are set forth in Para No. 3 of the CBDT Circular of 2019 (supra). The only plea of the Revenue is that the DIN has been subsequently communicated to the assessee and therefore, purpose of issuing DIN in order to maintain audit trail stands satisfied and therefore, failure to communicate the DIN on the body of the impugned order should not be held to be invalid. We find that similar issue cropped up before the Hon’ble jurisdictional High Court in the case of Laserwords US Inc. , (supra) wherein the Revenue had challenged the action of the Tribunal allowing the appeal of the assessee by holding that since the directions issued by the Dispute Resolution Panel (DRP) u/s.144C(5) of the Act didn’t contain DIN as mandated by the CBDT Circular No.19/2019 subsequent communication of ‘DIN’ [for DRP proceedings] didn’t satisfy the conditions prescribed in Para No. 3 of the Circular and therefore, the directions issued by the DRP were held to be invalid in law and as a sequitur, the assessment order which was impugned before the Tribunal was quashed. The Revenue is noted to have challenged the action of the Tribunal before the Hon’ble Madras High Court wherein the Hon’ble High Court is noted to have framed the following question of law:

“1. Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal is correct in holding that that department has not complied with the CBDT Circular No.19/2019 dated 14.08.2019 even when the manual order was communicated with DIN and in addition to that order was also communicated by e-portal and email with intimation letter and that also had DIN and the information of the DIN of the assessment order, all these were done within 15 days as mandated in the said Circular.

2. Whether on the facts and circumstances of the case, the Ld. Income Tax Appellate Tribunal had failed to consider that electronic quoting of DIN is only a procedural issue and the fact that DIN is issued only to keep track of the proceedings for audit trial of the department and to ensure genuineness of the orders passed and that non-mentioning of the DIN in the DRP order electronically which was otherwise generated immediately and informed to the assessee is sufficient compliance of the CBDT Circular No.19/2019 dated 14.08.2019.

3. Whether the Ld. Income Tax Appellate Tribunal is right in not appreciating the fact that the impugned final assessment order had electronically generated valid DIN which order alone is challengable before the ITAT and that the directions of the DRP merged with the final assessment orders serves only as a guidance to the Assessing Officers to pass the final assessment orders.”

12. The Hon’ble High Court is noted to have answered the question of law by holding as under:

8. It is well settled that circulars issued by CBDT in exercise of its powers under Section 119 of the Act are binding on the revenue. The consequences of not following the directions issued in the circular are also provided in the circular.

9. Paragraph No.4 of the circular extracted above would make it clear that any communication which is not in conformity with paragraph Nos.2 and 3 of the circular shall be treated as invalid and shall be deemed to have never been issued.

10. Paragraph No.3 of the circular provides for exceptional requires that if an order/communication is issued without a DIN, it could be done after recording reasons in writing in the file and with prior written approval of the Chief Commissioner / Director General of Income Tax. Paragraph No.3 also states that if DIN is not generated and quoted in the body of the communication, then reasons for not generating and quoting DIN should be mentioned in a specific format set out in paragraph No. 3 of the circular, which is extracted supra.

11. From the third question of law raised by appellant, it could be seen that their stand is that even assuming that the proceedings of DRP did not contain a valid DIN, it would not render the DRP directions invalid. It is their case, that the proceedings of the DRP is not an order of an income tax authority and therefore, the circular requiring the generation of DIN would not be applicable to DRP proceedings. This submission cannot hold water.

12. Firstly, on facts, it is the case of appellant that there was a DIN generated and it was written in hand in the proceedings of DRP and subsequently, communicated to assessee on the same day, i.e., on WEB CO12.02.2021. Therefore, appellant concedes that DIN has to be generated for DRP proceedings.

13. Secondly, the issue is no longer res integra. A Division Bench of Bombay High Court in Ashok Commercial Enterprises v. Assistant Commissioner of Income Taxation in which one of us [the Hon’ble Chief Justice] was a member, held as follows:

14. Thus, even a satisfaction note according to the Division Bench would fall within the scope of paragraph No.2 of the circular and therefore, in our view, there cannot be any doubt that the directions of the DRP which consists of a collegium of three Income Tax Commissioners also would fall within the scope of paragraph No.2 of the circular.

15. Apart from the fact that DRP proceedings did not contain a valid DIN and is invalid for the reasons stated above, we find that the assessment EB COorder also in this case does not contain a DIN. There is no explanation offered by appellant for not generating the DIN in the assessment order. Therefore, the assessment order is invalid for both the reasons and we find no merit in the above appeal. The substantial questions of law are answered accordingly.

16. As a result, the Tax Case Appeal is dismissed. There shall be no order as to costs. Consequently, interim applications stand closed.

13. In the light of the aforesaid decision of the Hon’ble jurisdictional High Court, we find that in this case, impugned assessment order was passed on 24.10.2019 u/s.143(3)/147 of the Act without quoting the DIN in its body and the Revenue’s case is not that its case falls in the “exceptional circumstances” as set forth in Para No. 3 of the CBDT Circular. In such an event, the consequences set forth in Para No. 4 follows i.e. communication/order is invalid and needs to be considered as deemed to have never been issued. The action of the AO communicating a DIN generated al beit after five (5) days [i.e. on 29.10.2019 intimating the DIN in respect of the assessment order u/s.147 of the Act] wouldn’t resurrect the invalid order and therefore, the impugned assessment order is held to be invalid in the eyes of law. Since the assessee succeeds from the legal issue, there is no need for us to examine the grounds of appeal on the merits being academic.

14. In the result, appeal filed by the assessee is partly allowed.