Monetary limit also applicable to section 263 proceedings: Bombay HC

PCIT Vs Jayesh V. Sheth (Bombay High Court)

Bombay High Court addressed an appeal filed by the Principal Commissioner of Income Tax (PCIT) against Jayesh V. Sheth, challenging an Income Tax Appellate Tribunal (ITAT) order for the assessment years 2010-11, 2011-12, and 2012-13. A related appeal for AY 2012-13 (ITXA No. 2172 of 2018) had already been withdrawn due to a lower tax effect as per the CBDT circular dated September 17, 2024. The key issue in the present appeal (ITXA No. 1906 of 2018 for AY 2011-12) was whether the Commissioner of Income Tax (CIT) could direct the assessing officer to initiate a concealment penalty under Section 263 of the Income Tax Act when it had not been originally levied. The revenue’s counsel relied on an Allahabad High Court ruling (CIT Vs. Surendra Prasad Agrawal) to support the contention that such a direction was valid. However, the respondent’s counsel referred to a Gujarat High Court decision (PCIT Vs. Vinodbhai Parekh), which held that the CBDT circular on tax effect also applied to orders under Section 263.

The court, assuming the Allahabad High Court’s interpretation was correct, noted that the potential penalty on the surrendered income of ₹1.3 crore could range from ₹42.9 lakh to ₹1.28 crore, which was below the ₹2 crore threshold prescribed in the CBDT circular. Given this, the court determined that adjudication was unnecessary and declined to admit the appeal, keeping the substantial question of law open. Consequently, another appeal (ITXA No. 2713 of 2018 for AY 2010-11) was also disposed of. The judgment reaffirmed the applicability of CBDT circulars on tax effect in deciding whether appeals should proceed.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. ITXA Appeal 2713 of 2018 Not on board. Upon mentioning taken on board.

2. This appeal, ITXA 1906 of 2018, is instituted by the appellant-revenue for the assessment year 2011-12, challenging the common order of the Tribunal dated 20 September 2017 for the Assessment Years (AY) 2010-11, 2011-12, and 2012-13.

3. In so far as the Tribunal’s order for AY 2012-13 is concerned, the appellant-revenue filed an appeal before this Court, ITXA No.2172 of 2018. The said appeal (ITXA No. 2172 of 2018) was withdrawn because the tax effect involved is less than what is prescribed in the CBDT circular dated 17 September 2024.

4. In the appeal listed today i.e. ITXA No.1906 of 2018 for AY 2011-12, in the appeal memo the tax effect mentioned is NIL. However, the issue involved is whether the CIT under Section 263 of the Act can direct the assessing officer to initiate a concealment penalty, which the assessing officer had not initiated in the assessment order.

5. Mr. Suresh Kumar learned counsel for the appellant- revenue relied upon decision of the Allahabad High Court in the case of CIT Vs Surendra Prasad Agrawal¹ in support of his submission that such a direction can be given under Section However, both counsels submit that this Court has not decided on this issue.

6. Assuming we accept the decision of the Allahabad High Court has laying down the correct law, the penalty which could be levied for AY 2011-12 would be tax calculated on Rs.1,30,00,000/-, being the amount surrendered by the assessee during the course of the survey. The tax on this Rs.1.30 crore, assuming rate to tax is 33%, will work out to Rs.42,90,000/-. The minimum penalty which could be levied would be 100% of such tax i.e. Rs.42,90,000/- and the maximum would be 300% would be 1,28,70,000/-. In either case, the penalty amount will not exceed Rs.2 Crore, which is the amount prescribed in the CBDT circular dated 17 September 2024.

7. Therefore, adjudication of the question raised in this appeal would become In the light of this fact and the CBDT Circular dated 17 September 2024, and order passed by this Court in ITXA No.2172 of 2018, the present appeal would not be required to be entertained. We, therefore, decline to admit this appeal. However the substantial questions of law is kept open.

8. Ms. Neelam Jadhav learned counsel for the respondent- assessee relied upon decision of the Gujrat High Court in the case of PCIT Vs Vinodbhai Parekh² in support of her submission that CBDT circular on tax effect are also applicable to the orders passed under Section 263 of the Act.

9. For the reasons stated above, appeal No.2713 of 2018 for AY 2010-11, which is not on board but taken on board on mentioning, is also disposed of.

10. Both the appeals are disposed of.

Notes:

¹ (2005) 142 Taxman 653 (Allahabad)