PCIT Vs Siddhesh Mahendra Khara (Bombay High Court)
Summary: The High Court considered whether the Income Tax Appellate Tribunal was justified in holding that the Revenue should not have filed an appeal because the tax effect involved was below the prescribed monetary threshold. The disputed tax effect was ₹2,32,129, whereas the applicable monetary limit referred to in the judgment was ₹2 crore. The Revenue nevertheless contended that its appeal was maintainable under clause 10(e) of the CBDT Circular dated 20 August 2018, as amended, which provided exceptions permitting appeals involving specified issues irrespective of the monetary limits.
The Revenue argued that the addition was based on information obtained from an external source and consequently fell within clause 10(e). The provision referred to information received from external sources in the nature of law enforcement agencies, including the CBI, Enforcement Directorate, Directorate of Revenue Intelligence, Serious Fraud Investigation Office and Directorate General of GST Intelligence. According to the Revenue, the information received from the Sales Tax Department was sufficient to bring the case within this exception, thereby permitting an appeal despite the comparatively low tax effect.
The High Court rejected this contention. It observed that clause 10(e) required information from external sources in the nature of law enforcement agencies. In the present case, the information had been received from the Sales Tax Department, which the Court held was not a law enforcement agency of the kind contemplated by the circular. Consequently, the Revenue could not invoke the exception merely because the information originated outside the Income Tax Department. The Court interpreted the provision according to the nature of the specified external agencies rather than treating every government department supplying information as falling within its scope.
The High Court also relied upon the Chhattisgarh High Court’s decision in Deputy Commissioner of Income Tax v. Bhojraj Lal Chand Nawani, MCC No. 621/2019. In that case, the information had similarly been obtained from the Sales Tax Department of Maharashtra, and the Court had held that clause 10(e) was inapplicable. Finding the circumstances comparable, the High Court agreed that the Tribunal had correctly applied the monetary-limit restriction. It concluded that no substantial question of law arose because the issue was already settled. Accordingly, the Revenue’s appeal was dismissed.
Cases Discussed
- Deputy Commissioner of Income Tax 1, Bhilai, Dist. Durg, Chhattisgarh Vs. Bhojraj Lal Chand Nawani — MCC No. 621/2019, Chhattisgarh High Court. The Court held that information received from the Maharashtra Sales Tax Department did not fall within the law-enforcement-agency exception under clause 10(e) of the CBDT circular.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
1. The question that falls for consideration is whether the Income Tax Appellate Tribunal was correct in holding that tax effect under question is below permissible limit and, therefore, the appeal ought not to have been filed by the Revenue.
2. Undisputedly, tax effect in issue is Rs.2,32,129/-, which is below permissible limit of Rs.2,00,00,000/-. The argument, however, is that the appeal is maintainable in terms of clause 10(e) of the Circular dated 20.08.2018. Clause 10(e) of circular provides that adverse judgments relating to the issues enumerated in the said clause should be contested on merits notwithstanding the tax effect entailed is less than the monetary limits. Clause 10(c) was inserted by way of amendment. It reads thus:
“10. 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 is under challenge, or
(b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra wires, or
(c) Where Revenue Audit objection in the case has been accepted by the Department, or
(d) Where addition relates to undisclosed foreign income/undisclosed foreign assets (including financial assets)/undisclosed foreign bank account (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).
(e) Cases where prosecution has been filed by the Department and is pending in the Court.
(f) Cases where prosecution has been filed by the Department and is pending in the Court.”
3. Learned counsel for the revenue submits that the present case falls under clause (e), which provides that where information is received from external source in the nature of law enforcement agencies such as CBI/ED/DRI/SFIO/Directorate General of GST Intelligence (DGGI), the Revenue should file appeal.
4. Thus, additional information should be received from the external sources in the nature of law enforcement agency.
5. In the present matter, additional information is received from Sales Tax Department, which admittedly is not law enforcement agency and, therefore, in our view, it will be impermissible to the Revenue to rely on the said clause to contend that the appeal could have been filed.
6. We also find that the issue involved has been considered by the High Court of Chhattisgarh, Bilaspur in the case of Deputy Commissioner of Income Tax 1, Bhilai, Dist. Durg, Chhattisgarh .Vs. Bhojraj Lal Chand Nawani [MCC No. 621/2019 decided on 09.2019], wherein in identical situation the petition was dismissed assessing following reasons.
“3. Having heard learned counsel for revenue and having seen the subject clause 10(e), it appears the same would apply 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). In the case at hand the information on the basis of which this MCC has been filed was received from the Department of Sales Tax of the State of Maharashtra. Thus, the said information having not emanated from the CBI/ED/DRI/SFIO/DGGI, clause 10(e) would have no application.”
7. As could be seen, in the said appeal also information was received from Department of Sales Tax of the State of Maharashtra. Similar is the situation here and, therefore, information is not covered by clause 10(e) of the Circular dated 20.08.2018. The Income Tax Appellate Tribunal was thus right in holding that the revenue ought not to have filed the appeal.
8. That being so, we do not find any substantial question of law is involved. The issue is already settled. The appeal is accordingly dismissed.
