CIT Vs V. M. Salgaonkar And Brothers Private Limited (Bombay High Court)
Bombay High Court recently addressed the maintainability of two income tax appeals filed by the Commissioner of Income Tax (CIT) against V. M. Salgaonkar And Brothers Private Limited for the Assessment Years 2006-07 and 2007-08. The core issue revolved around the applicability of monetary thresholds for filing appeals, as revised by recent circulars issued by the Central Board of Direct Taxes (CBDT), specifically Circular No. 5/2024 and Circular No. 9/2024. While the tax effect in both appeals (Rs. 1.99 crore and Rs. 1.97 crore respectively) fell below the revised threshold of Rs. 2 crore for High Court appeals set by Circular 9/2024, the Revenue argued for their continued prosecution based on exceptions outlined in Circular 5/2024.
The Revenue contended that Circular 5/2024, which introduced several new exceptions allowing appeals below monetary limits, and Circular 9/2024, which enhanced the limits while retaining these exceptions, should be read together and applied retrospectively to pending appeals. They argued that the specific issue in the appeals – concerning Tax Deducted at Source (TDS) on payments for overseas services and interpretation of tax treaties (DTAA) – fell within the exceptions listed in paragraph 3.1(l) of Circular 5/2024. The Revenue cited the legal principle of “supersession,” referencing Supreme Court judgments like State of Orissa vs. Titaghur Paper Mills, arguing that the latest circulars replace earlier ones entirely, making both the revised limits and new exceptions applicable to pending cases.
The assessee countered that while Circular 9/2024 explicitly made the enhanced monetary limits applicable retrospectively to pending appeals (requiring withdrawal of cases below the threshold), Circular 5/2024, which introduced the new exceptions, clearly stated its prospective application (Paragraph 10: “apply to SLPs/appeals to be filed henceforth”). Therefore, the assessee argued, the Revenue could not rely on exceptions introduced in 2024 to save appeals filed in 2014, which were now below the retrospectively applied higher monetary limit. Furthermore, the assessee contended that the specific exception cited (3.1(l)) pertains to proceedings initiated against a deductor for failure to deduct tax (e.g., under Section 201), not to the disallowance of expenditure in a regular assessment (under Section 143(3) read with Section 40(a)(i)) due to non-deduction of TDS, which was the issue in the present appeals.
The Bombay High Court accepted the assessee’s arguments and dismissed the Revenue’s appeals. The court held that the plain language of the circulars indicated that only the enhancement of monetary limits (Circular 9/2024) was intended to apply retrospectively to pending appeals, promoting the CBDT’s goal of reducing litigation. The new exceptions introduced by Circular 5/2024 were prospective. Consequently, the appeals, falling below the revised monetary threshold, had to be withdrawn as the exceptions introduced post-filing were not applicable. The court further opined that, in any event, the exception in paragraph 3.1(l) concerning TDS litigation did not cover the disallowance of expenditure during regular assessment proceedings under Section 143(3), noting the distinct nature of proceedings, calculation of tax effect, and specific appeal provisions (Section 246A) for assessment orders versus orders under Section 201 related to TDS defaults. The court acknowledged the Rajasthan High Court’s decision in CIT vs. Satish Kumar Agarwal but reached its independent conclusion based on its interpretation of the CBDT circulars.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
