Case Law Details
PCIT Vs Arvind Dwarkadas Purohit (Bombay High Court)
Core Issue: The principal issue before the Bombay High Court was whether the exceptions to the monetary limits for filing departmental appeals, introduced by the CBDT through its letter dated 20.08.2018 modifying Circular dated 11.07.2018, would apply retrospectively to appeals already instituted before 20.08.2018. The Court also considered whether a Revenue appeal involving alleged bogus purchases could be entertained where the tax effect was below the prescribed monetary limit by invoking the subsequently introduced exceptions.
Facts: The Revenue filed an appeal under section 260A challenging the ITAT’s order deleting additions relating to alleged bogus purchases. The Revenue contended that the assessee had failed to establish the genuineness of purchases from non-existent suppliers identified by the Maharashtra Sales Tax Department and that the entire purchases ought to have been disallowed in view of the decisions in N.K. Industries Ltd. and N.K. Proteins Ltd. Although the tax effect involved in the appeal was only Rs.10,21,276, the Revenue argued that the appeal was maintainable because it fell within the exceptions introduced by the CBDT’s letter dated 20.08.2018 modifying the earlier monetary limit Circular dated 11.07.2018.
Findings of the High Court: The Court examined the CBDT letter dated 20.08.2018 and observed that the language of the modification itself made it clear that the newly introduced exceptions would operate from the date of issuance of the letter. Consequently, while the revised monetary limits prescribed by the CBDT would govern even pending appeals, the exceptions carved out by the subsequent communication could not be given retrospective operation.
The Court relied upon its earlier decision in Commissioner of Income Tax v. V.M. Salgaonkar and Brothers (P.) Ltd., wherein it had held that although enhanced monetary limits are applicable to pending appeals, exceptions introduced subsequently cannot be retrospectively applied. The Court noted that the same principle had subsequently been followed in Pr. CIT v. IPL Loan Trust and Pr. CIT v. Axis AD Print Media (India) Ltd.
Applying these principles, the Court held that since the present appeal had been instituted before 20.08.2018, the Revenue could not invoke the newly introduced exceptions to overcome the monetary limit. As the tax effect was admittedly below the prescribed threshold, the appeal itself was not maintainable.
The Court deliberately refrained from examining the merits of the controversy relating to bogus purchases or the applicability of the decisions in N.K. Industries Ltd. and N.K. Proteins Ltd. It clarified that the substantial questions of law were left open for consideration in an appropriate case involving maintainable proceedings.
Decision: The Revenue’s appeal was disposed of as not maintainable on account of low tax effect. The Bombay High Court held that the exceptions introduced by the CBDT letter dated 20.08.2018 operate prospectively and cannot be invoked in appeals instituted prior to that date. Consequently, the substantial questions of law relating to bogus purchases were kept open and not adjudicated on merits.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This Appeal is filed under Section 260-A of the Income Tax Act, 1961 (‘IT Act’ for short). It assails the Judgment and Order of the Income Tax Appellate Tribunal (‘ITAT’ for short) dated 2nd August 2018 (‘Impugned Order’ for short).
2. The Appeal is preferred on the following formulated substantial questions of law:-
(i) Whether on the facts and circumstances of the case, the ITAT has erred in law by not appreciating the fact that the assessee could not establish the genuineness of the purchases from the non-existent vendor as per information received from Law Enforcement agency of State of Government of Maharashtra i.e. Sales Tax Department and established by the Assessing Officers.
(ii) Whether on the facts and circumstances of the case, the Hon’ble ITAT has erred in law by not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to the purchases made from the non-existent vendor ?
(iii) Whether on the facts and circumstances of the case, the Hon’ble ITAT was justified in not appreciating the law correctly that once the purchases are unverifiable/non genuine/bogus, the same should have been disallowed in entirety, particularly in view of the ratio of the decision of the Hon’ble Gujarat High Court in Tax Appeal No.242 of 2003 dated 20.6.2016 in the case of N.K. Proteins Ltd against which the SLP was dismissed by the Hon’ble Apex Court.
3. Mr. Sharma, learned Counsel for the Appellant/Revenue has contended that though the tax effect in the said Appeal is valued at Rs. 10,21,276/-, it would fall within the exceptions stipulated in the letter issued by the Central Board of Direct Tax (‘CBDT’ for short) dated 20th August 2018 vide which, the earlier Circular dated 11th July 2018 was modified.
4. On perusal of the letter dated 20th August 2018, it appears that the modification introduced therein to the CBDT Circular dated 11th July 2018 shall come into effect on the date of issuance of the same. In view thereof, no retrospective effect can be given to the exceptions stipulated in letter dated 20th August 2018. This means that insofar as the mandatory limits are concerned, they would equally apply to pending appeals. However, when it comes to applying exceptions, the same would be applicable from 20th August 2018 and not earlier.
5. Similar issue arose before the Co-ordinate Bench of this Court in Commissioner of Income Tax Vs. V.M. Salgaonkar and Brothers (P.) Ltd. (2024)169 taxmann.com597 (Bombay).On analysing Circulars i.e. 5 of 2024 and 9 of 2024 issued by CBDT, the Co-ordinate Bench held that the enhanced monetary limits would apply to pending Appeals but when it comes to exceptions specifically introduced, such exceptions cannot be construed retrospectively. The above decision has been followed by the Coordinate Bench of this Court in Pr. Commissioner of Income Tax v. IPL Loan Trust [2025] 171 taxmann.com 725 (Bombay)., and in Principal Commissioner of Income tax v. Axis AD Print Media (I) Ltd. [2025]172 taxmann.com 114 (Bombay).
6. Applying the principles (supra) to the letter dated 20th August 2018 and Circular dated 11th July 2018, involved in the present Appeals, we are satisfied that the Appeals were instituted before 20th August 2018 and would have to be disposed of as the tax effect involved in these Appeals is below mandatory prescribed limit.
7. For the above reasons, we dispose of the Appeal, leaving the question of law open to be appropriately decided as and when the occasion so arises.
Notes:
1 (2024)169 taxmann.com 597 (Bombay)
2 [2025] 171 taxmann.com 725 (Bombay).
3 [2025]172 taxmann.com 114 (Bombay).
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