HIGH COURT OF GUJARAT
Sureshchandra Durgaprasad Khatod (HUF)
Tax Appeal No. 1404 of 2010
AUGUST 24, 2012
V.M. Sahai, J.
We have heard Mr. Pranav G. Desai, learned counsel appearing for the appellant and Mr. Bandish Soparkar, holding brief of Ms. Swati Soparkar, learned counsel appearing for the respondent.
2. This Tax Appeal has been admitted on 29.8.2011 on the following substantial question of law.
“Whether in the circumstances and facts of the case and in law, the Appellate Tribunal is right in deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961, particularly when the additions made by the Assessing Officer during the assessment proceedings had been confirmed by the Appellate Tribunal itself holding it to be unaccounted income of the assessee ?”
3. Mr. Bandish Soparkar, learned counsel appearing for the respondent has raised a preliminary objection that in view of the Instruction No.3 of 2011 dated 9.2.2011 issued by the Central Board of Direct Taxes (for short “CBDT”) under section 268A(1) of the Income Tax Act, 1961 (for short ‘the Act’), this Tax Appeal filed under section 260A of the Act would not be maintainable as Instruction No.3 of 2011 issued by CBDT would also apply to pending Appeals.
4. It is necessary to reproduce Instruction No.3 of 2011 dated 9.2.2011 as under:
“INSTRUCTION NO. 3/2011(F.No.279/MISC.142/2007-ITJ, DATED 9-2-2011.
Reference is invited to Board’s instruction No.5/2008 dated 15.5.2008 wherein monetary limits and other conditions for filing departmental appeals (In Income-tax matters) before Appellate Tribunal, High Courts and Supreme Court were specified.
2. In supersession of the above instruction, it has been decided by the Board that departmental appeals may be filed on merits before Appellate Tribunal, High Courts and Supreme Court keeping in view the monetary limits and conditions specified below.
3. Henceforth appeals shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder:-
Appeals in Income-tax matters
Monetary Limit (In Rs.)
|Appeals before Appellate Tribunal|
|Appeals u/s 260A before High Court|
|Appeal before Supreme Court|
It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.
4. For this purpose, “tax effect” means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as “disputed Issues”). However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.
5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the ‘tax effect’ is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which ‘tax effect’ exceeds the monetary limit prescribed. In case where a composite order/judgment involves more than one assessee, each assessee shall be dealt with separately.
6. In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Commissioner of Income-tax shall specifically record that “even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction.” Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits.
7. In the past, a number of instances have come to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for the reason of the tax effect being less than the specified monetary limit and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any a precedent value. As the evidence of not filing appeal due to this instruction may have to be produced in courts, the judicial folders in the office of CIT must be maintained in a Systemic manner for easy retrieval.
8. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect.
(a) Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or
(b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or
(c) Where Revenue Audit objection in the case has been accepted by the Department.
9. The proposal for filing Special Leave Petition under Article 136 of the Constitution before the Supreme Court should, in all cases, be sent to the Directorate of Income-tax (Legal and Research), New Delhi and the decision to file Special Leave Petition shall be in consultation with the Ministry of Law and Justice.
10. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax matters other than Income-tax, filing of appeals in other direct tax matters shall continue to be governed by relevant provisions of statute and rules. Further, filing of appeal in cases of Income-tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A of the IT Act,1961, shall not be governed by the limits specified in para 3 above and decision to file appeal in such cases may be taken on merits of a particular case.
11. This instruction will apply to appeals filed on or after…………2011. However, the cases where appeals have been filed before…….2011 will be governed by the instructions on this subject, operative at the time when such appeal was filed.
12. This issues under section 268A(1) of the Income-tax Act, 1961.”
5. In reply to the preliminary objection the learned counsel for the appellant has urged that the instruction will apply to only those Appeals which are filed after the Instruction has come into force and it will not be applicable to the pending appeals. He placed reliance on an order in CIT v. Anil Chanana  350 ITR 247 wherein a Division Bench of Delhi High Court, has made observation on the question of applicability of Instruction No.3 of 2011, but the question had not been finally decided by the Delhi High Court.
6. The question about applicability of Instruction No.3 of 2011 had been considered and decided by the Aurangabad Bench of the Bombay High Court in CIT v. Smt. Vijaya V. Kavekar  350 ITR 237. The Division Bench, after considering earlier Instructions and various decisions of the Courts on Instructions, relying on the decision in CIT v. Madhukar K. Inamdar (HUF)  185 Taxman 101 (Bom.) has held in paragraphs 9, 10, 11, 14 and 17 as under:
“9. As stated earlier, the Income Tax Act was amended and Section 268A has been introduced on the Statute book with retrospective effect. Section 268A carves out an exception for filing of appeals and References under Section 260 A of the Act. The legislature has prescribed that the CBDT is empowered to issue circulars and instructions from time to time, with regard to filing of appeals depending on the tax effect involved. Thereafter, in 2008, CBDT Instruction No. 5 of 2008 dated 15th May, 2008 was issued. This Court in the case of “Commissioner of Income Tax v. Madhukar K. Inamdar (HUF) reported in”  229 CTR (Bom) 77, interpreted the aforesaid Circular. The Circular was issued in supersession of all earlier instructions issued by the Board. The monetary limit was increased and appeals were to be filed under Section 260A, thereafter, only in cases where the tax effect exceeded Rs. 4 Lacs. Paragraph 11 of that instruction stipulated that it was applicable to appeals filed on or after 15th May, 2008. It was further provided that in cases, where appeals were filed before 15th May, 2008, they would be governed by the instructions on this subject which were operative at the time when such appeals were filed. The instruction was issued under Section 268A(1) of the Act. The argument of the learned Counsel for the revenue in that case was, that the instruction issued on 15th May, 2008 did not preclude the department from continuing with the appeals and/or Petitions filed prior to 15th May, 2008, if they involved a substantial question of law of a recurring nature, notwithstanding the fact that the total cumulative tax effect involved in the appeals was less than Rs. 4 Lacs. It was submitted, such appeals which were filed prior to the issuance of Instruction and where substantial questions of law were raised, were required to be decided on merits. The Court, while considering the issue observed that paragraph 5 of the Circular made it clear that no appeals would be filed in the cases involving tax effect less than Rs. 4 Lacs notwithstanding the issue being of recurring nature. Relying on the judgement in CIT v. Polycott Corporation, the Court observed as follows :
“6 The aforesaid judicial verdict makes it clear that the circular dt. 15th May, 2008 in general and para (5) thereof in particular lay down that even if the same issue, in respect of same assessee, for other assessment years is involved, even then the Department should not file appeal, if the tax effect is less than Rs. 4 Lakhs. In other words, even if the question of law is of recurring nature even then, the Revenue is not expected to file appeals in such cases, if the tax impact is less than the monetary limit fixed by the CBDT.”
7. One fails to understand how the Revenue, on the face of the above clear instructions of the CBDT, can contend that the circular dt. 15th May, 2008 issued by the CBDT is applicable to the cases filed after 15th May, 2008 and in compliance thereof, they do not file appeals, if the tax effect is less than Rs. 4 Lakhs; but the said circular is not applicable to the cases filed prior to 15th May, 2008 i.e. to the old pending appeals, even if the tax effect is less than Rs. 4 Lakhs. In our view, there is no logic behind this belief entertained by the Revenue.”
The Court has further held that the prevailing instructions fixing the monetary limit for the tax effect would hold good even for pending cases. Accordingly, the Court dismissed all the appeals having a tax effect of less than Rs. 4 Lacs.
10. The new CBDT instructions have been issued on 9th February, 2011, being Instruction no. 3 of 2011. The monetary limit has been raised again and clause 3 of the instructions provides that appeals shall not be filed in cases where the tax effect does not exceed the monetary limits prescribed, henceforth. The monetary limits prescribed for filing an appeal under Section 260A before the High Court has been raised to Rs. 10 Lacs. This instruction is identical to the CBDT Instruction no. 5 of 2008. Clause 10 of this circular indicates that monetary limits would not apply to writ matters and direct tax matters other than income tax. It further provides that where the tax effect is not quantifiable, the Department should take a decision to file appeals on merits of each case. Clause 11, again provides that the instruction would apply to appeals filed on or after ….2011 and appeals filed before ……….. 2011 would be governed by the instructions on this subject, operative at the time when such appeals were filed.
11. In our opinion, when a similar clause has been interpreted by the Division Bench of this Court in CIT v. Madhukar Inamdar (Supra), the same principles must apply in the present cases also, as we have found that the instructions of 15th May, 2008 is para-material with the instruction of 9th February, 2011.
14. Similarly, the Delhi High Court in the case of “Commissioner of Income Tax v. Delhi Race Club Ltd.”, decided on March 03, 2011, by relying on its earlier Judgement “Commissioner Income Tax Delhi-III v. M/s P.S. Jain and Co. decided on 2nd August, 2010 has held that the CBDT circular raising the monetary limit of the tax effect to Rs. 10 Lacs would be applicable to pending cases also.
17. It is true that this judgement in Chhajer’s case (supra) was not brought to the notice of the Division Bench, while deciding either Madhukar’s case (supra) or the case of Polycot Corporation (supra). However, the instruction of 2005 which was considered in Chhajer’s case has also been interpreted in Polycot Corporation (supra). The consistent view of the Court has been that the CBDT instruction would apply to pending cases as well. The main objective of such instructions is to reduce the pending litigation where the tax effect is considerably small. Therefore, in our opinion, the tax appeals are required to be dismissed, as they are not maintainable in view of the provisions of Section 268A of the Income Tax Act, and the CBDT Instruction No. 3 of 2011.”
7. The same view has been taken by the Karnataka High Court in CIT v. Ranka & Ranka  206 Taxman 322 wherein the Division Bench has considered Instruction No.3 and the National Litigation, Policy, had held as under:
“(i) Instruction No.3/11 is also applicable to the pending appeals. (ii) As the tax effect in the instant case is less than Rs.10 lakhs, the appeal stands dismissed on the ground of monetary limit, without expressing any opinion on the merits of the claim, making it clear that the Department is at liberty to proceed against the assessee in future, if there any amount due from the assessee, on similar issue and if it is above the monetary limit prescribed.”
8. In view of the aforesaid decisions, we find ourselves in agreement with the view taken by the Bombay High Court and Karnataka High Court that Instruction No.3 of 2011 dated 9.2.2011 would also apply to pending Appeals. Tax Appeals below the tax effect of Rs.10 lakhs is not maintainable.
9. For the reasons given above, since in this Appeal the tax effect on the quantum of penalty deleted by the Income Tax Appellate Tribunal is Rs. 5,21,530/-, which is less than Rs.10 lakhs fixed under Instruction No.3 of 2011, therefore, this Tax Appeal filed under section 260A of the Income Tax Act, 1961, is dismissed as not maintainable on the ground of monetary limit, without expressing any opinion on merits of the case, leaving the question open to be decided in an appropriate case. This Tax Appeal is accordingly dismissed.