CBDT Monetary Limit Exception Held Prospective; Low Tax Effect Appeals Disposed: Bombay HC

PCIT Vs Axis AD Print Media (India) Ltd. (Bombay High Court)

The Bombay High Court considered four income tax appeals in which the assessees contended that the tax effect in each appeal was below ₹50,00,000 and that the appeals, having been instituted before 28 August 2018, were liable to be dismissed in view of CBDT Circular No. 21 of 2015 dated 10 December 2015 and CBDT Circular No. 3 of 2018 dated 11 July 2018. The Revenue opposed the contention, submitting that when the appeals were filed, the applicable monetary limit under Circular No. 21 of 2015 was ₹20,00,000 and that Circular No. 3 of 2018 had subsequently been modified by a letter dated 20 August 2018.

The Revenue argued that, on a combined reading of the Circular dated 11 July 2018 and the amendment dated 20 August 2018, appeals involving additions based on information received from external law enforcement agencies such as the CBI, ED, DRI, SFIO and the Directorate General of GST Intelligence (DGGI) could be filed and pursued on merits irrespective of the monetary limit. It was further contended that any contrary interpretation would disadvantage appeals filed within limitation as compared to delayed appeals.

The Court examined the relevant CBDT circulars and noted that all four appeals were filed between April and August 2018 with tax effects ranging from ₹16.80 lakh to ₹29.92 lakh. At the time of filing, Circular No. 21 of 2015 prescribed a monetary limit of ₹20 lakh for High Court appeals, and it was undisputed that the appeals did not fall within any of the exceptions contained in that circular.

The Court further noted that Circular No. 3 of 2018, issued on 11 July 2018, enhanced the monetary limit for High Court appeals to ₹50 lakh and expressly provided that the revised monetary limits would apply retrospectively to pending appeals, which could be withdrawn or not pressed if they fell below the specified limit. Accordingly, as of 11 July 2018, the Revenue ought to have withdrawn or not pressed the pending appeals since the CBDT circulars are binding on the Department.

The Court observed that the CBDT letter dated 20 August 2018 amended paragraph 10 of Circular No. 3 of 2018 by introducing two additional exceptions, including cases where additions were based on information received from external law enforcement agencies. However, the amendment expressly stated that it would come into effect from the date of its issue. Therefore, the newly inserted exceptions were prospective in operation and did not have retrospective effect. The Court also noted that paragraph 13 of the Circular dated 11 July 2018, which applied the enhanced monetary limits retrospectively to pending appeals, remained unchanged.

The High Court relied on an earlier coordinate bench decision, which had interpreted later CBDT circulars in a similar manner and held that enhanced monetary limits apply retrospectively to pending appeals, whereas subsequently introduced exceptions operate only prospectively. The Court also referred to its own subsequent decision applying the same principle.

Applying these principles, the Court held that the four appeals, all instituted before 20 August 2018 and involving tax effects below ₹50 lakh, were liable to be disposed of. The Court declined to apply the subsequently introduced exception relating to information received from external law enforcement agencies to these pending appeals, as the amendment had only prospective effect.

Accordingly, the Bombay High Court disposed of all four appeals while leaving the questions of law raised in the appeals open for consideration in an appropriate case.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Heard learned counsel for the parties.

2. Learned counsel for the assessees submit that the tax effect in these appeals is less than Rs. 50,00,000/-. They point out that these tax appeals were instituted before 28 August 2018 and, therefore, should be dismissed based, inter alia, on circulars dated 10 December 2015 and 11 July 2018.

3. Learned counsel for the respondent- Revenue, however, contest the above submission. They pointed out that when these appeals were instituted, the tax effect was beyond the monetary limits specified in Circular No. 21 of 2015 dated 10 December 2015. They submitted that even circular No. 3 of 2018 dated 11 July 2018 was modified/amended on 20 August 2018.

4. Mr Sharma contended that on a conjoint reading of the circular dated 11 July 2018 and letter dated 20 August 2018, it is clear that the appeals involving the issue of addition based on the information received from external sources like law enforcement agencies such as CBI/ED/DRI/SFIO/ Directorate General of GST Intelligence (DGGI) can be filed and even context on merits notwithstanding the tax effect being below the monetary limit of Rs. 50,00,000/-.

5. Mr Sharma contended that if any other view is taken, then the appeals filed within the prescribed period of limitation would be at a disadvantage compared to appeals filed after seeking condonation of delay. He submitted that a holistic construction of CBDT circulars is in order and based upon the same, the objections raised on behalf of the assessee may not be entertained.

6. We have considered the rival contentions and evaluated the circulars and precedents on the subject.

7. A chart indicating the appeal number, date of filing and the tax effect involved is set out hereunder: –

8. Initially, the appeals were filed by reference to the circular No. 21 of 2015 dated 10 December 2015. At that time, the monetary limit for appeals before the High Court was Rs . 20,00,000/-. Certain exceptions were provided in paragraph 8 of the circular dated 10 December 2015, and it is agreed that these appeals do not fall within these exceptions.

9. Circular No. 3 of 2018 dated 11 July 2018 increased the monetary limits to Rs. 50,00,000/-. The exceptions were set out in paragraph 10. Again, it is not Revenue’s case that these appeals fell within exceptions set out in paragraph 10 of the circular dated 11 July 2018.

10. Paragraph 13 of the circular dated 11 July 2108 is significant and is transcribed below for the convenience of reference:-

“13. This Circular will apply to SLPs/appeals/ cross objections/ references to be filed henceforth in SC/HCs/ Tribunal and it shall also apply retrospectively to pending SLPs/ appeals/ cross objections/ references. Pending appeals below the specified tax limits in para 3 above may be withdrawn/not pressed.”

11. Thus, as of 11 July 2018, the Revenue should have either withdrawn or not pressed these appeals. This is because the CBDT circulars bind the department. On 20 August 2018, the CBDT modified paragraph 10 of the circular dated 11 July 2018. To the four exceptions in paragraph 10, two more were added, including the following:-

“(e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI/ED/DRI/SFIO/Directorate General of GST Intelligence (DGGI).”

12. Learned counsel for the Revenue submitted that all four appeals fall within the above-added exception in paragraph 10(e).

13. The letter dated 20 August 2018 categorically states that the modification introduced thereby to the CBDT circular dated 11 July 2018 shall come into effect on the date of issue of this letter. Thus, no retrospective effect is given to the two added exceptions by letter dated 20 August 2018. Paragraph 13 of the CBDT circular dated 11 July 2018 remains unamended. This means that, insofar as the increased monetary limits are concerned, they would apply even to the pending appeals. However, when it comes to applying the exceptions, the same would apply from 20 August 2018 and not earlier.

14. A similar issue arose before the co-ordinate bench in the case of Commissioner of Income Tax Vs. V. M. Salgaonkar and Brothers (P.) Ltd.¹. On analysing circulars 5 of 2024 and 9 of 2024, the coordinate bench held that the monetary limits would apply to the pending appeals, but when it comes to the exceptions subsequently introduced, such exceptions could not be construed retrospectively.

15. The above decision was followed by us in Income Tax Appeal No. 643 of 2018 and connected matters disposed of on 05 February 2025 (The Principal Commissioner of Income Tax-23, Mumbai Vs. M/s IPL Loan Trust). Applying the same principles to the circulars and amending letters involved in the present appeals, we are satisfied that these four appeals which were instituted before 20 August 2018 would have to be disposed of as the tax effect involved in these appeals is below the monetary limits of Rs.50,00,000/-.

16. For all the above reasons, we dispose of these appeals, leaving the questions of law raised therein open.

¹[2024] 169 taxmann.com 597 (Bombay)