Principles of estoppel do not apply to Income Tax proceedings

The ITAT, New Delhi in the matter of Bipin Singh Rana v. ACIT [I.T.A. No. 15/DDN/2019 dated January 9, 2023] has held that, principles of estoppel do not apply to Income Tax proceedings and the Revenue Department must keep in mind that the correct income of the assessee must be taxed in the proper Assessment Year and within the limitation prescribed by the Income Tax Act, 1961 ("the IT Act"). Further held that, the Revenue Department must decide matters on merit in accordance with law and not based on the admission or refusal made by the assessee. Remanded the matter back to the Assessing Officer ("AO") with a direction to ignore the surrender made during the assessment proceedings and decide the matter on merit.

Facts

This appeal has been filed by Bipin Singh Rana ("the Appellant") challenging the assessment order dated December 30, 2016 ("the Impugned Order") passed by the Revenue Department ("the Respondent") under Section 143(3) of the IT Act after carrying out the compulsory scrutiny, wherein, the total income of the Appellant was assessed to be INR 48,21,376/- as against the returned income of INR 25,06,020/-, contending that, the Impugned Order was passed based on the admission/surrender made by the counsel of the Appellant without its consent. Further, the Appellate Authority did not go into the facts while sustaining the Impugned Order and that opportunity of hearing was not given to the Appellant as the Appellate Authority sustained the addition made, even though the Appellant had not agreed for the same and as the case was dismissed on the grounds of limitation.

However, the Respondent contended that the Appellant cannot retract the admission made by its representative before the Revenue Department.

Issue

Whether the Impugned Order passed by the Respondent merely on the basis of admission/surrender sustainable?

Held

The ITAT, New Delhi in I.T.A. No. 15/DDN/2019 held as under:

• Stated that, the allegation made by the Appellant against its counsel who had represented the Appellant before the Respondentcould not be believed merely based on an affidavit filed by the Appellant, that too when nothing was brought on record regarding the action taken against the said counsel for alleged professional misconduct.
• Observed that, the Respondent has not decided the issues on its merit and passed the Impugned Order only based on the admissions/surrender made by the counsel of the Appellant.
• Noted that, the Respondent ought to have decided the matter on merits in accordance with law,not based on theadmission or refusal of the Appellant. 
• Held that, the principle of estoppel is notapplicable to income tax proceedings and the Respondent should bear in mind that the right income of the Appellant should be taxed in the right assessment year and well within the limitation as prescribed in the IT Act.
• Remanded the matter back to the Respondent for fresh consideration.
• Directed the Respondent to ignore the surrender made during the assessment proceedings and decide the matter on merit.

Relevant Provisions

Section 143(3) of the IT Act

"Assessment-

3) On the day specified in the notice issued under] sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment:

Provided that in the case of a-

(a) research association referred to in clause (21) of section 10;
(b) news agency referred to in clause (22B) of section 10;
(c) association or institution referred to in clause (23A) of section 10;
(d) institution referred to in clause (23B) of section 10,

which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such research association, news agency, association or institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless-

(i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B), as the case may be, by such research association, news agency, association or institution, where in his view such contravention has taken place; and

(ii) the approval granted to such research association or other association or institution has been withdrawn or notification issued in respect of such news agency or association or institution has been rescinded:

Provided further that where the Assessing Officer is satisfied that any fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), of clause (23C) of section 10, or any trust or institution referred to in section 11, has committed any specified violation as defined in Explanation 2 to the fifteenth proviso to clause (23C) of section 10 or the Explanation to sub-section (4) of section 12AB, as the case may be, he shall-

(a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and

(b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the

Principal Commissioner or Commissioner under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB:

Provided also that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (ii) and clause (iii) of sub-section (1) of section 35 are not being carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer."