PCIT-1 & Another Vs Pashupati Castings Ltd. (Allahabad High Court)
Revenue appeal below ₹2 crore dismissed- interest and penalty cannot be added to tax effect for determining the monetary limit under CBDT Circular No. 5 of 2024.
Case Summary The Allahabad High Court examined whether the Revenue could maintain an appeal by invoking the exceptions under Clause 3.1(e) and (f) of CBDT Circular No. 5 of 2024, despite the net tax liability being below the prescribed monetary limit of ₹2 crore. The Revenue contended that observations made by the ITAT regarding non-compliance with reassessment procedures amounted to adverse comments against tax officers and that the tax effect was unquantifiable because the entire reassessment had been quashed on jurisdictional grounds. The Court rejected both contentions. It held that observations identifying procedural errors in an assessment order do not constitute strictures or adverse comments against the officer who passed it. Further, tax effect remains quantifiable even where reassessment is annulled on jurisdictional grounds, and interest and penalty cannot be included while determining the monetary limit. Since the net tax liability was only ₹1,23,07,705, below the prescribed limit of ₹2 crore, the Revenue’s appeal was dismissed.
Citation Pr. Commissioner of Income Tax-1 & Another v. Pashupati Castings Ltd., Income Tax Appeal No. 183 of 2026, Allahabad High Court, dated 02.11.2026.
Core Issue Whether the Revenue can invoke the exceptions under Clause 3.1(e) and (f) of CBDT Circular No. 5 of 2024 to maintain an appeal below the monetary limit on the grounds that the ITAT made adverse observations against tax officers or that tax effect was unquantifiable due to annulment of reassessment on jurisdictional grounds; and whether interest and penalty can be included while computing tax effect.
Fact The ITAT Agra, by order dated 17.03.2026 in ITA No. 19/AGR/2026 for AY 2017-18, allowed the assessee’s appeal and quashed the entire reassessment proceedings initiated under Section 147. Before the High Court, the assessee raised a preliminary objection that the Revenue’s appeal was not maintainable as the tax effect was below ₹2 crore.
The Revenue contended that the total tax payable was ₹2,09,62,403, including interest, and relied upon Clause 3.1(e) read with Clause 3.1(f) of CBDT Circular No. 5 of 2024. It alternatively argued that observations in paragraph 3 of the ITAT order attracted the exception relating to strictures or adverse comments against tax officers. It was also submitted that since the entire reassessment had been quashed on jurisdictional grounds without examination of the merits, the tax effect was not quantifiable.
AO / CIT(A) Finding The supplied judgment does not discuss separate findings of the Assessing Officer or CIT(A) on the underlying additions. The controversy before the High Court concerned the maintainability of the Revenue’s appeal under the CBDT monetary-limit circular following annulment of reassessment by the ITAT.
High Court Finding
Strictures or adverse comments against tax officers: The High Court examined the relevant observation in paragraph 3 of the ITAT order and found that it merely reproduced the assessee’s submissions regarding non-compliance with the amended provisions of Sections 148A and 151. The ITAT had followed the coordinate Bench decision in Aseem Sehgal v. ITO without recording independent reasoning. The Court held that Clause 3.1(e) of CBDT Circular No. 5 of 2024 applies only where strictures or adverse comments are specifically directed against an officer. Observations identifying procedural errors or legal infirmities in an assessment order are not, by themselves, adverse comments against the officer who passed that order. Accordingly, this exception was not attracted.
Tax effect and exclusion of interest: The Court rejected the Revenue’s contention that annulment of the entire reassessment on jurisdictional grounds made the tax effect unquantifiable. It observed that the net tax liability was ascertainable at ₹1,23,07,705, whereas the aggregate figure of ₹2,09,62,403 included interest. For determining maintainability under the monetary-limit policy, interest and penalty liabilities cannot be included in the computation of tax effect. Therefore, the Revenue could not rely on the higher aggregate amount to cross the prescribed monetary threshold.
The Court accordingly held that the appeal was below the binding monetary limit prescribed under the CBDT circular.
Outcome The Allahabad High Court dismissed the Revenue’s appeal as not maintainable, holding that the net tax liability of ₹1,23,07,705 was below the prescribed monetary limit of ₹2 crore. Procedural observations against an assessment order did not attract the exception for strictures against tax officers, and interest and penalty could not be included to establish maintainability.
Cases Discussed
1. Aseem Sehgal Vs ITO (ITAT Delhi); ITA Nos. 154 to 156/Del/2025; 30/07/2025.
The ITAT Delhi considered the validity of reassessment proceedings where notice under Section 148 was issued on or after 01.04.2021 but the Assessing Officer proceeded under the earlier statutory regime without following the amended procedures under Sections 148A and 151. The coordinate Bench decision was followed by the ITAT Agra while quashing reassessment proceedings against Pashupati Castings Ltd. The Allahabad High Court referred to this reliance only for examining whether the Tribunal’s observations constituted adverse strictures against departmental officers. The High Court did not independently determine the merits of the reassessment issue in the present appeal.
2. Pashupati Castings Ltd. Vs ITO (ITAT Agra); ITA No. 19/AGR/2026; 17/03/2026; Assessment Year 2017-18.
This was the underlying Tribunal order challenged by the Revenue before the Allahabad High Court. The ITAT Agra had allowed the assessee’s appeal on jurisdictional grounds and quashed the reassessment proceedings initiated under Section 147. The High Court examined the Tribunal’s order only to determine the maintainability of the Revenue’s appeal under the CBDT monetary-limit circular and the applicability of the exceptions relating to adverse strictures and unquantifiable tax effect. It held that neither exception applied and dismissed the Revenue’s appeal without deciding the merits of the underlying reassessment.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
1. Heard Shri Amit Mahajan, Learned Senior Standing Counsel for the revenue and Shri Suyash Agarwal, learned counsel for the assessee.
2. Present appeal has arisen against the order of the Income Tax Appellate Tribunal, Agra Bench “DB”:Agra, dated 17.03.2026 whereby the assessee’s appeal ITA No. 19/AGR/2026 for AY 2017-18, Pashupati Castings Ltd. vs ITO, has been allowed on jurisdictional ground. Thus, the entire reassessment proceedings initiated against the assessee under Section 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act) for the A.Y. 2017-18 has been dropped.
3. At the outset, preliminary objection has been raised that the present appeal has been filed below the threshold monetary limit Rs. 2 crores.
4. The above preliminary objection has been met on the strength of Clause 3.1 (e) read with (f) of Circular No. 5 of 2024 dated 15.03.2024 and computation sheet of tax. Thus, it has been submitted on behalf of the revenue that the total tax payable is Rs. 2,09,62,403/-.
5. Alternatively, in view of observation made in paragraph 3 of the order of the Tribunal, it has been submitted, by virtue of Clause 3.1 (e) of the Circular dated 15.03.2024, the present appeal is maintainable.
6. Still, alternatively, it has been submitted, since the entire reassessment order has been set aside on jurisdictional ground, the merit issues have not been examined. Therefore, the tax effect is not quantifiable.
7. Having heard counsel for the parties and having perused the record, we find, the present appeal is not maintainable. In the first place, as to the observation made in paragraph 3 of the order of the Tribunal, we find, only this much has been observed by the Tribunal:
“Since the notice is issued on 1-4-2021, the provisions of new section 148A and amended section 151 of the Act kicks in. Admittedly, the Learned AO had not followed any of the procedures prescribed under the new regime and the amended provisions of section 148A and amended provisions of section 151 of the Act. Accordingly, it was submitted that the entire reassessment framed under section 147 of the Act deserves to be quashed.”
8. That part of the order is recital of the submissions advanced by the assessee. As to the finding, the Tribunal has only followed the order of its coordinate bench in Aseem Sehgal v. ITO, in ITA Nos. 154 to 156/Del/2025 dated 30.07.2025. No independent reasoning has been recorded. Even otherwise, by merely stating that no procedure of law may have been followed while framing the assessment order, it may not be inferred that any stricture/adverse comment has been made. Clause 3.1(e) is referable only to strictures or adverse comments passed specifically with reference to any officer and not to the reasoning disapproved. It is in the nature of proceedings that the appeal authority may make such observations to support its conclusion that the order appealed against is contrary to the procedure established or has been passed in disregard to the procedure established or is violative of the procedure established. Those observations or reasoning are not adverse to the author of the order impugned before the appeal authority but are referable only to the error noted in the order.
9. Similarly, where the entire order is quashed or set aside on jurisdictional ground, it may not involve a case where tax effect is not quantifiable. Here, the net tax liability is Rs. 1,23,07,705/-. Thereon, interest has been added leading to the total tax liability together with interest is Rs. 2,09,62,403/-.
10. It is fundamental in this branch that where under the litigation policy, the maintainability of the appeal hinges on tax effect, interest and penalty liabilities are not to be examined for the purposes of ascertaining the maintainability of the appeal as per the litigation policy of the Union of India.
11. Consequently the appeal is found to be below the monetary limit specified under the binding Circular. It is accordingly dismissed.
