U.P. State Industrial Development Corp (UPSIDC) vs. DCIT (ITAT Lucknow)

S. 143(2)(ii): Fact that case is selected for scrutiny under CASS does not mean s. 143(2) notice & assessment order are void for non-application of mind by AO

The assessee’s case was picked up for scrutiny under CASS (“Computer assisted Scrutiny Selection”) and the requisite notice u/s 143(2)(ii) was issued. The assessee claimed that u/s 143(2)(ii) it was incumbent upon the AO to apply his own mind and form “reason to believe” before issuing the notice and as this had not been done, the notice and the resultant assessment order were void. The CIT(A) rejected the claim. On further appeal to the Tribunal HELD by the Tribunal dismissing the ground.

The entire jurisprudence in respect of tax administration such as principle of natural justice etc. are with the sole object of ensuring that the tax payer is not unduly harassed by the tax department having almighty power of state. In order to make tax administration and collection friendly to tax payer, some steps have been taken by the tax administration/Government although much work is still to be done in this regard. Some of these steps are that it is made a rule that tax returns can be filed in a paper less manner in order to improve voluntary compliance by the tax payer and also to reduce the burden of filing voluminous documents along with the tax return. This is a big relief to the tax payer but this has to be ensured that there are some deterring measures so that no undue advantage is taken by any tax payer of this liberal policy of the Government. Even these deterring measures are to be such that they cause minimum harassment to the tax payer. Therefore, scheme had been devised that only very small percentage of total tax returns will be scrutinized by the department and generally it is about 2% to 3% of the total tax returns filed in a year. When it is seen that the return is to be filed by the assessee in paperless manner and still there has to be some deterring measure to prohibit the taxpayer from adopting the habit of tax evasion/avoidance, it was decided that there should be scrutiny in a small number of cases. Since the returns filed are paper less, some system has to be devised for selecting the case for scrutiny. When the return is filed without any paper, certain guidelines have to be formed for selecting some cases for scrutiny as deterring measure. These guidelines may be such that the person having income above a prescribed limit will be scrutinized in larger percentage compared to small tax payers. It may be a policy that very small tax payers will not be scrutinized at all. If such a system is devised by the Department in a general manner without targeting a particular assessee, it cannot be said that such system of selecting a case for scrutiny is interfering with the independent decision of the Assessing Officer who is to select the case for scrutiny. Inspite of such guidelines, the ultimate decision is of the AO that a particular case is falling in such guideline and in this process, if the AO is taking help of computer in analyzing data disclosed by the tax payer in the return of income then it cannot be said that the decision for selecting the case for scrutiny is not independent decision of the AO. This is not the case of the assessee that there is any specific direction of any higher authority to select the case of this particular assessee for scrutiny. The guideline may be this as to what should be percentage of the cases to be selected for scrutiny in several different type of tax payers. The guideline may be that where search or survey has taken place, the number of cases to be selected should be high in percentage. Similarly, the guideline may be that if the assessee is claiming exemption/deduction of certain amount then also the percentage may be higher compared to those assesses who are not claiming any exemption/deduction. Such guidelines formed by the Department as a whole in general manner for the assesses all over the country, it cannot be said that such guideline is interfering with the independent decision of the AO for deciding the cases to be selected for scrutiny. If this view is taken then the departmental administration will be forced to adopt old system of selecting almost all cases for scrutiny which was causing very undue harassment to all the tax payers and wastage of the energy and efforts of the Department also. In the present system, the thrust is on voluntary compliance of the tax payer and by ensuring that some deterring measures are taken that too in a taxpayer friendly manner of promoting the assessee to file returns without attaching any paper and then selecting only very small number of cases for scrutiny with the aid of computer and certain generally formed guidelines. In our considered opinion, it cannot be said that the decision of the AO to select the case for scrutiny in this system is not an independent decision of the AO.