INCOME TAX ACT, 1961

--ReassessmentValidity Proceedings initiated on the basis of CBDT circular--Assessee-company had made payment towards VRS which was allowed as revenue expenditure. According to CBDT Circular dated 23-1-2001, any ex gratia amount which resulted in an enduring benefit to assessee should be treated as capital expenditure. In view of, same, assessing officer disallowed the VRS payment as capital expenditure and initiated proceedings for reassessment as income had escaped assessment. Held: Was not justified, as the circular of CBDT may be a trigger, on the basis of which, assessing officer may himself be satisfied that income chargeable to tax had escaped assessment, same by itself, could not be the tangible material required for assessing officer to hold a belief that income chargeable to tax had escaped assessment. Moreso, the circular only laid down general reference and expected assessing officer to examine the claim of assessee or deduction of expenditure incurred towards retrenchment compensation under VRS on the basis of the principles of enduring benefit. Thus, this was neither the sole test to be applied nor did the CBDT provide so in the circular. Therefore, the assessing officer could not claim to have been in possession of tangible material to hold a belief that income chargeable to tax had escaped assessment.

The CBDT circular thus, only lays down general guidelines for the purpose of guiding the assessing officers while taking up the question of the nature of expenditure incurred by the assessee by way of ex gratia payment towards retrenchment compensation under a voluntary retirement scheme. The assessing officer, in the present case therefore, could not have blindly relied on such circular to hold a belief that income chargeable to tax had escaped assessment. [Para 16] Even otherwise, the assessing officer could not have issued have issued the impugned notice on the basis of CBDT circular. The CBDT, through its circular, could have brought certain aspects to the notice of the AO, insofar as assessment was concerned. It has to be the opinion of the assessing officer alone which would prevail. In that view of the matter, the Circular of CBDT may be a trigger, on the basis of which, the assessing officer may himself be satisfied that income chargeable to tax in a given case had escaped assessment. Such a circular by itself, cannot be the tangible material required for assessing officer to hold a belief that income chargeable to tax had escaped assessment. [Para 17] Such tangible material may be something that the assessing officer did not notice at the time of original assessment either because the material did not form a part of the record itself or was not brought to his notice. In any case, the present circular of the CBDT would not satisfy such a test. As already noted, the circular only lays down general reference and expected the assessing officer to examine the claim of assessees or deduction of expenditure incurred towards retrenchment compensation under Voluntary Retirement Scheme on the basis of the principles of enduring benefit. This is neither the sole test to be applied nor did the CBDT provide so in the circular in question. Thus on the basis of some general observation and discussion on principles for treating an expenditure either revenue or capital in nature, the assessing officer cannot claim to have been in possession of tangible material to hold a belief that income chargeable to tax had escaped assessment. [Para 18]