Supreme Court Quashes Prosecution, Fines IT Department Rs 2 Lakh for Ignoring CBDT Circulars

The Supreme Court has imposed a ₹2 lakh fine on the Income Tax Department for its failure to adhere to CBDT circulars. The court quashed the department's prosecution, stating that the action was taken without following the established guidelines for initiating prosecution, which require specific conditions to be met. The court emphasized that circulars issued by the CBDT are binding on the tax authorities and cannot be disregarded. This landmark ruling reinforces the principle that government departments must operate within the framework of their own rules and guidelines. The court's decision is a significant relief for taxpayers, as it prevents the arbitrary and unjustifiable initiation of prosecution by tax authorities.