[Opinion] Pre-Budget 2024-25 | Wishlist of 15 Critical Grey Areas in Direct Tax Domain

Mayank Mohanka – [2024] 158 taxmann.com 563 (Article)

Friends, as the final countdown to the Interim Union Budget 2024-25 begins, so does the customary ritual of penning down pre-budget wish lists. But for me, this writing exercise is not merely a customary ritual but instead an opportunity to highlight some critical and relevant grey areas and gaps currently being experienced by all of us in the direct tax domain, and which require timely redressal by the Legislature in the upcoming Interim Union Budget 2024.

Based on my practical experience, the 15 basic yet critical issues are being discussed below, and I sincerely hope that all of you will relate to these real and ground-level problematic areas.

1. Resolve of the DIN Controversy by Re-insertion of Section 282B in the Income Tax Act

With a view to bring greater transparency in the functioning of the tax-administration and improvement in service delivery and to maintain proper audit trail of all communication, the CBDT in pursuance of the hon’ble FM announcement, has, vide Circular No.19/2019 dated 14.08.2019, laid down parameters specifying the manner in which any communication 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 will be dealt with. All such communication issued on or after the 1st of October, 2019 shall carry a computer- generated Document Identification Number (DIN) duly quoted in the body of such communication.

The CBDT Circular, in clear and unambiguous terms, mandates that any communication which is not in conformity with the prescribed guidelines shall be treated as invalid and shall be deemed to have never been issued.

Relying upon this CBDT Circular, the hon’ble Delhi High Court in the case of CIT (International Taxation) v. Brandix Mauritius Holdings Ltd. [2023] 149 taxmann.com 238/293 Taxman 385/456 ITR 34, has quashed the DIN- less assessment order. However, the revenue had challenged this order before the hon’ble Supreme Court and the learned ASG representing the revenue had argued before the SC that the said DIN Circular is merely an internal circular and can’t be used against the Parliament’s mandate. The hon’ble SC has granted an interim stay on the said Delhi High Court judgement in the Brandix case observing that non mentioning of DIN in the order, may be an irregularity but not an illegality CIT v. Brandix Mauritius Holdings Ltd. [2024] 158 taxmann.com 247 (SC).

It is pertinent to mention here that the hon’ble FM had earlier gone on record and stated that any Income tax or GST communication, notice or order issued on or after 1.10.2019, without mentioning DIN, is invalid and can be thrown in the dustbin, as if it never existed. The respected Revenue Secretary has also reiterated the said formal stand of the CBDT w.r.t. the invalidity of any DIN-less communication from the Income tax department.

However, the learned ASG representing the revenue before the hon’ble SC has undermined such assurance of our hon’ble FM and the respected Revenue Secretary and also the binding nature and sanctity of the said CBDT Circular No. 19/2019 dated 14.8.2019, u/s 119 of the Income Tax Act. The learned ASG has argued before the hon’ble SC that the Delhi HC judgment has ramifications on assessments conducted in past 3 years or so and spreads into GST regime also. Its impact has already exceeded Rs. One Lac Crore of revenue. The CBDT Circular enforced by the ITAT and Delhi HC is an administrative circular which cannot override the statute and the judgments. The impugned judgment is spreading like a pandemic and deserves to be stayed.

It is interesting to note that the objective and the language of the said CBDT Circular No. 19/2019 mandating mentioning of DIN in all income tax communications, has been adopted and replicated from the erstwhile Section 282B of the Income Tax Act, which was omitted by the Finance Act 2011 w.e.f. 1.4.2011. The said section 282B contained the exact same language as has been used in the said CBDT Circular No. 19/2019, and mandated that any DIN-less order, notice or any communication from the Income Tax department shall be treated as invalid and shall be deemed never to have been issued.

Therefore, in order to sanctify the legislative intent of the Ministry of Finance in bringing the said DIN mandate and the binding nature of the said CBDT Circular No 19/2019, in real and effective terms and not just as a mere lip service, it is desirable that the erstwhile section 282B, is being re-inserted in the Income Tax Act, with retrospective effect from 1.10.2019, and the CBDT own Circulars are not being undermined, contested and challenged by the learned standing counsels of the CBDT in the Courts.

2. Doing Away with the Automated Refund Withholding Intimations generated by AI used by CPC under the pretext of refund withholding by the AO in section 241A can go a long way in ensuring speedy refunds and can produce better results to inject liquidity in the economy than the fiscal packages

It has been practically witnessed, that in many cases of the corporates returns being processed by CPC for the AY 2023-24, refunds have been processed u/s 143(1) but at the same time have been withheld, by a mere online communication issued by the CPC, that the refund is withheld by AO not on account of any discrepancy, but due to the pendency of assessment proceedings of earlier assessment year u/s 241A of the Act. The ironical fact is that when such taxpayers approach their jurisdictional AOs, they simply claim their ignorance of any such withholding of refunds by them. Thus, ironically the jurisdictional AOs themselves are ignorant that they have withheld the refunds of their assessees and as such, the assessees have nowhere to go to seek their refunds as the CPC is faceless and the AOs claim ignorance. Indeed, the AI and ML tools of the CPC have become smart enough to withheld refunds on the pretext of section 241A of the Act.

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