tax confusion...plz explain me ...

                   Rules are derived from the sections of the Income Tax Act and are always mentioned in the section itself. For e.g. Sec 14A r.w. Rule 8D, Sec 40A(3) r.w. Rule 6DD. These rules are subservient to the sections with whom they are quoted and are to be followed in the strictest sense as the sections of the Income Tax.

                     For notifications and circulars, I agree with Mr. Praveen Kumar.

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Circulars are binding on the AO, but not on the assessee?

YES, i AGREE, CIRCULARS ARE BINDING ONLY ON ASSEESING OFFICER.

circulars/notifications are issued for proper understanding of scope and meaning of income tax law. these are binding on assessing officer not on assesee means assessee can take benefit from circulars

rules are framed by CBDT for proper adminstration of income tax act

Not necessarily , that board circulars are binding on the AO , if there is some court judgement against the circular , AO cannot be binded by the circular

There was some case considered by ITAT special bench ( delhi ) in Oct 2007 , where it was held that AO is not binded by board circular in case if there is some  court  judgement against the circular . Sorry i dont remember the citation , it was some case of AOP/trust