Gujarat High Court
The Principal Commissioner Of Income ... vs Hanubhai R Sangani on 30 July, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 13034 of 2020
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ? No
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy
of the judgment ? No
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution No
of India or any order made thereunder ?
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THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL)
Versus
HANUBHAI R SANGANI
==========================================================
Appearance:
MR.VARUN K.PATEL(3802) for the Petitioner(s) No. 1
MRS KALPANA K RAVAL(1046) for the Petitioner(s) No. 1
MR KETAN H SHAH(2705) for the Respondent(s) No. 1
MR. AMAN K SHAH(9992) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 30/07/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr.Dev Patel for learned senior standing counsel Mr.Varun Patel for the petitioner and Page 1 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined learned advocate Mr.Ketan Shah for the respondent.
2. Issue Rule, returnable forthwith. Learned advocate Mr.Ketan Shah waives service of notice of Rule on behalf of the respondent.
2.1 Since the issue involved is in narrow compass, with the request and consent of learned advocates appearing for the respective parties, the matter is taken up for final consideration today itself.
3. This petition is filed challenging order dated 06 th January, 2020 passed by Income Tax Appellate Tribunal, "A"
Bench, Ahmedabad (for short 'the Tribunal') in MA No.220/Ahd/2019 for Assessment Year 2010-11.
3.1 The assessment order under Section 143(3) of the Income Tax Act, 1961 (for short 'the Act') was finalised in case of the respondent by determining the total income at Rs.87,10,080/- as against the return of income at Rs.83,40,540/-.
3.2 It appears that thereafter the Revenue Audit under letter dated 27th January, 2014 raised objection with regard to Page 2 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined disallowance of proportionate expenditure under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (for short 'the Rules').
3.3 The Assessing Officer accepted the audit objection and case was reopened under Section 147 of the Act by observing that the assessee has earned exempt income and claimed interest expenses of Rs.69,60,614/-, however the assessee did not show any expenditure separately which was incurred for earning exempt income.
3.4 The Assessing Officer passed order under Section 143(3) read with Section 147 of the Act by making proportionate disallowance of Rs.44,35,176/- under Section 14A of the Act read with Rule 8D of the Rules.
3.5 Being aggrieved with the re-assessment order, the assessee preferred appeal before the CIT (A), who confirms disallowance of Rs.04,61,744/- made under Rule 8D(2)(iii) of the Rules and deleted addition of Rs.39,73,432/- made under Rule 8D(2)(ii) of the Rules.
3.6 Being aggrieved by the order passed by the CIT (A), Revenue preferred appeal being ITA No.69/Ahd/2019 Page 3 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined before the Tribunal. The Tribunal dismissed the appeal by order dated 29th January, 2019 on the ground of low tax effect as per CBDT Circular No.3/2018 dated 11 th July, 2018, with liberty to the Revenue to recall of dismissal of appeal if the matter is covered by the permissible exceptions mentioned in the said Circular.
3.7 It appears that thereafter MA No.220/Ahd/2019 in ITA No.69/Ahd/2019 was preferred before the Tribunal to recall order dated 29th January, 2019 by submitting that the Appellate Tribunal ought to have considered the appeal filed by the Revenue on merits though tax effect was less than Rs.20,00,000/-, as the audit objection was accepted by the department as per Para-10 of the aforesaid Circular as amended by CBDT directive dated 20th August, 2018 which provides that adverse judgments relating to issues enumerated in the said para should be contested on merits notwithstanding that the tax effect entitled is less than the monetary limits specified in Para-3 thereof or there is no tax effect.
3.7.1 Reliance was placed on Para-10(c) of the said Circular which reads as under.
Page 4 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined "(c) Where Revenue Audit Objection in the case has been accepted by the Department, or"
3.8 The Tribunal, however, relying upon CBDT Circular No.5/2017 dated 23rd January, 2017 passed the impugned order and dismissed Miscellaneous Application by observing as under.
"7. On due consideration of all these facts and Circular of the Board, i.e. Circular No.5 of 2017 in the light of Hon'ble Bombay High Court decision, we are of the view that Department has not brought any substantial material on the record pointing out that appeal was filed after evaluation of merit on the issues involved. It sought to recall the order of the Tribunal merely on the basis of audit objection, which is not sufficient for recalling the Tribunal order. Therefore, we do not find any error in the order of the Tribunal. Thus the miscellaneous application is rejected."
4. Being aggrieved, the present petition is filed by the Revenue.
5. At the outset, learned advocate Mr.Dev Patel for the petitioner referred to and rely upon the decision of the coordinate Bench of this Court in case of Principal Page 5 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined Commissioner of Income Tax, Vadodara v M/s Emtici Engineering Ltd. in Special Civil Application No.9995 of 2021 rendered on 08th July, 2022, to submit that the issue is squarely covered by the said judgment and order, as in similar facts, this Court has quashed and set aside the order of dismissal of appeal by the Tribunal on low tax effect and remanded the matter back to the Tribunal so as to enable the Revenue to point out before the Tribunal about the audit objections.
6. On the other hand, learned advocate Mr.Ketan Shah for the respondent - assessee submitted that the petitioner, at no point of time, has placed on record the audit objections or drawn attention of the Tribunal with regard to the audit objections which was accepted and which was the basis of the re-opening of the assessment. It was, therefore, submitted that the Tribunal has rightly relied on the Circular No.5/2017 to dismiss the Miscellaneous Application filed by the Revenue as well as in light of the decision of the Bombay High Court in case of Principal CIT v Nawany Construction Co. (P.) Ltd. reported in [98 taxmann.com 294 (Bombay)] wherein it is held that mere raising of the audit objection is Page 6 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined not sufficient for recall of the order.
7. Having heard learned advocates for the respective parties, it appears that the coordinate Bench of this Court, by judgment and order dated 08 th July, 2022, in similar facts where appeals have been dismissed by the Tribunal, allowed the Special Civil Applications filed by the Revenue by quashing and setting aside the order passed by the Tribunal and remanding the matter back to the Tribunal; has held as under.
"7. We have heard learned Senior Advocate Mr. M.R.Bhatt on behalf of the Revenue Department. On the part of the Revenue, it has been argued that there was a mad rush on the part of the Tribunal. The Revenue has statutory right to prefer the appeal. According to him, the CBDT circular would require the interpretation. It is not the statute which provides the guiding factor only. Once, there is an audit objection, the merit need not be seen and the appeal needs to be filed. The filing could be mechanical and the contest has to be on merit. Once in a circular, there are certain exceptions pleaded in relation to the low tax effect, they shall need to be contested. He in the alternative has urged that the grounds of appeal would justify the merit in a given case.
7.1. According to learned Senior Advocate Mr. M.R.Bhatt, when animus disposal has been made, the assessee had never questioned on the ground of lack of satisfaction on merit. It is further urged that there could not be any shortcut to be adopted by the Tribunal. The merit aspect to be agitated at the time of filing appeal and not when the Misc. Application was filed. According to him, the entire exercise of application of mind is carried out and this has been done in each matter, however, that was not placed before the Tribunal at the relevant time as there was no opportunity made available so even if the judgment of Bombay High Court was to be followed, the question also was with relation to the retrospectivity and even if that aspect was not to be considered in Misc. Application preferred under Section 254, the Tribunal could not have Page 7 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined dismissed them without considering the recommendation of range head on the scrutiny report by the Assessing Officer.
7.2. According to learned Senior Standing Counsel Mr. Nikunt Raval, the circular is of the year 2015 being the Circular No. 21/2015 dated 10.12.2015 and the appeal is of the year 2014. The Revenue cannot be non-suited for the circular which was not even in the existence.
7.3. Learned Senior Advocate Mr. Bhatt has also relied on the decision rendered in case of Commissioner of Income Tax, Chennai vs. Acurus Solutions (P.) Ltd. [[2020] 120 taxmann.com 206 (Madras)], where it was a case where the Tribunal by an order dismissed the appeal of Revenue on account of low tax effect. The Court held that if the case fell within the exception pointed out under para 10(c) of the Circular No. 03/2018 dated 11.07.2018 the Tribunal, as held by the Madras High Court, erred in dismissing the appeal of the Revenue on the ground of low tax effect. The Substantial question of law raised before the Court was as follows: -
"1. Whether on the facts and circumstances of the case the Tribunal was right in dismissing the departmental appeal on the ground of low tax effect without taking note of the fact that the case is covered by exceptions provided under clause (10)(c) of Circular No.3 of 2018 wherein it has been clearly stated that the cases involving revenue audit objection which had been accepted by the department are to be disposed off on merits?
2. Is not the finding of the Tribunal bad, especially the last fact finding authority should have disposed off the matter on merits especially in cases where the Revenue audit objections had been accepted by the department?"
2. The first Substantial Question of Law raised by the Revenue is whether the Tribunal was right in dismissing the appeal filed by the Revenue on the ground that the appeal is hit by the Circular No.3 of 2018 dated 11.07.2018 issued by the Central Board of Direct Tax ('CBDT') fixing the monetary limit with regard to the appeals filed by the Revenue. It is the argument of Ms.R.Hemalatha, learned Senior Standing Counsel that the Tribunal erred in applying the Circular, since the assessee's case falls within Clause 10(c) of the Circular which deals with exceptional circumstances in which though the tax effect is low, within the threshold limit, the Revenue would be able to pursue the appeal before the Tribunal or before this Court.
3. Upon perusal of the relevant papers, we find that there is an audit objection which has been raised and if this is so, the case would fall within the exception pointed out Page 8 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined under Section 10(c) of the Circular No.3 of 2018 dated 11.07.2018. Subsequent circular issued in the year 2019 also contains the very same exceptional clauses and even in the new Circular, the Revenue would be entitled to pursue the remedy.
4. In the light of the above, we have no hesitation to hold that the Tribunal erred in dismissing the Revenue's appeal on the ground of low tax effect. For the above reason, the Substantial Question of Law No.1 is answered in favour of the Revenue and consequently the order passed by the Tribunal is set aside. The natural consequence that will follow, when such orders are passed by the Courts, is to remit the matter to the Tribunal for fresh consideration.
7.4. This Court in case of The Principal Commissioner of Income Tax, Vadodara-1 vs. M/s. Fine Line Circuits Company [Misc.Civil Application No. 01/2019 in Tax Appeal No. 465/2019, decided on 03.09.2021], before this Court the Revenue had sought the recall of the order passed by this Court on 01.10.2019 while disposing of the Tax Appeal No. 465/2019 on the ground that the tax effect involved was below the prescribed monetary limit of Rs. 1 Crore as per the CBDT Circular No. 17/2019 dated 08.08.2019. Since the audit objection had been accepted by the department, it was a case of the Revenue that the matter would fall under the exceptional clause (c) of para 10 of the amended circular of Board Circular no. 03/2018 dated 20.08.2018 as modified by the Circular No. 17/2019 dated 08.08.2019. The objection raised by the respondent was to an effect that when the Revenue was seeking to recall the order, it could not have not placed the audit objection on record. This Court held thus: -
"3.2 According to the respondent, this request of seeking to recall of the order is on account of the audit objection, which has not been placed on record. If the audit objections pertained to the original assessment and as a consequence to such audit objection, a notice under Section 148 of the I.T.Act was issued, then such audit objections cannot become an exception to the present Tax Appeal, which have originated out of the notice under Section 263 of the I.T.Act and not as a consequence to the audit objection. It is further contended that a mere reliance on the exceptional clause of the CBDT's circular may not substantiate the stand of the applicant and the applicant will have to show that it is the audit objection that has given a rise to the notice under Section 263 of the I.T.Act and the present litigation. 3.3 Reliance is also placed on the decision of the Bombay Page 9 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined High Court rendered in case of Principal Commissioner of Income Tax, Mumbai vs. Nawany Construction Private Limited, reported in (2018) taxman.com 294 (Bombay), where the Bombay High Court had not permitted a mere reliance on the circular without any adequate material on the record.
4. We have heard the learned advocate, Mr.Varun Patel and learned advocate, Mr.B.S.Soparkar. At the outset, we need to make a note that in Tax Appeal No.460 of 2019 and allied matters decided by this Court (Coram:Justice J.B.Pardiwala and Justice A.C.Rao), the Court has upheld the order of the ITAT and has not disturbed the same. This was in relation to the assessment under Section 143 (3) of the I.T.Act finalised in the year 2006 for the assessment year 2004-2005. The matter was reopened under Section 147 of the I.T.Act by issuance of the notice under Section 148 of the I.T.Act and the assessment under Section 143(3) read with Section 147 of the I.T.Act was finalized on 14.12.2011 at a total income of Rs.82,63,600/- restricting the deduction under Section 10B of the I.T.Act at Rs.2,21,19,603/- as against Rs.2,83,46,239/- claimed by the assessee in his return of income. With these facts, the order of the ITAT had been upheld.
5. The department is before this Court seeking to reopen the assessment of the respondent based on the audit objections raised at the relevant point of time. While noticing that the Assessment Order passed under Section 143 (3) read with Section 148 of the I.T.Act has already been decided by this Court in Tax Appeal No.460 of 2019 and allied matters on 16.09.2019, the notice had been issued under Section 263 (1) of the I.T.Act on 17.10.2013 for the same assessment year seeking the dis-allowance of the incremental subsidy from exemption available under Section 10 B of the I.T.Act. On the part of the respondent, we could notice the objections essentially since the recall of the order dated 01.10.2019 passed by this Court if is if has arisen due to audit objections, the same ought to be placed on the record and without placing that material on record, no order of recall can be sought.
6. So as not to curtail the rights of the parties in raising all the contentions including that of the audit objections, more particularly, when raised keeping in mind the decision of the Bombay High Court, we have chosen to examine the material which has been placed before us and on satisfying ourselves on this issue, we are of the opinion that the request of the department to permit the recall of the order dated 01.10.2019 passed in Tax Appeal No. 465 of 2019 should be allowed. It is necessary to make a mention of the fact that the decision of the Bombay High Court in case of Principal Commissioner of Income Tax, Mumbai vs.Nawany Construction Private Limited, there was an attempt to get over the binding circular without placing any material before the Court, which is not the case here. Therefore, without further Page 10 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined elaborating on this aspect so as not to curtail the rights of the parties while recalling the order, we permit the Tax Appeal No.465 of 2019 to be revived and to be placed before the Bench as per the roster."
8. The other side has contested it by placing reliance on the Instruction No. 07/2017 which are general instructions laying down standard procedure for prescribing receipt/revenue audit objections in supersession of Instruction No. 09/2006 dated 07.11.2006, Instruction No. 16/2013 dated 31.10.2013 and Circular No. 08/2016 dated 17.03.2016. In supersession of all existing instructions on this subject, the instructions have been issued for strict compliance by all concerned who has defined the role and responsibilities of each functionary in the hierarchy. The timeline for each step to be executed by the officer concerned also has been laid down. It provides that the Comptroller and Auditor General of India ('CAG' for short) carry out normal audit of assessment referred to as compliance audit. With the technological assistance in Income Tax Business Application ('ITBA' for short) the CAG portal in place, the Standard Operating Procedure ('SOP' for short) have been aligned to workflow in ITBA with defined roles and responsibilities and timeline so as to achieve the desired goal. It provides for the detailed guidelines and it also reveals that the PCIT after calling for the report from the Assessing Officer and Range Head, if needed, take a decision as to whether the objection is acceptable or not.
8.1. Where the Revenue Audit objection is accepted, the PCIT shall decide if the relevant order under audit requires revision under Section 263 as remedial action. If yes, he can call for the relevant records and proceed accordingly. In all other cases, the PCIT shall communicate its decision not to invoke Section 263 to the Assessing Officer who shall need to examine the facts of each case and take a suitable action as per his independent application of mind on the facts of each case. In case the Assessing Officer decides to choose as per Section 154 as the appropriate remedial measure, he shall initiate the action after approval of the Range head. The remedial action in case of accepted audit objection shall be initiated within three months and shall be completed within further period of six months from initiation. The objection shall be treated as settled once the intimation of completion of remedial action and issue of demand notice is given to concerned CAG officer.
8.2. Where the audit objection is not accepted, the PCIT also will send a reply to the concerned CAG officer specifying reasons for non-acceptance of objection within two months of receiving LAR. A copy of this also to be Page 11 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined marked to the CIT(Audit). Once the view of PCIT is accepted, the objection will be dropped and no further action would be required, but, where the view of PCIT is not accepted and a rejoinder is received from concerned CAG officer with reasons for disagreement, the PCIT shall first get the contents of rejoinder entered in ITBA system. He shall then reconsider the objection in the light of points raised in the CAG rejoinder and if the PCIT agrees with the views of the ITRA, the procedure as provided at para 5.3 to 5.6, when the objection is acceptable, shall be followed. However, if the PCIT does not accept the objection, he shall take up such cases of disagreement, in inter-departmental meeting with Director General of Audit or Principal Director of Audit (Central), along with cases where there is no response to PCIT's replies from the CAG officer after lapse of two months. The CIT(Audit) also is invited to the meeting and he shall play an active role for maintaining consistency of approach on a particular issue. The reasons for this reference was a must so as to bring home the point that there is a detailed mechanism provided in the lastly issued instruction on 21.07.2017 for accepting or not accepting the audit objections. Once accepted in case of a particular person, it falls within the exception to the circular issued for withdrawal of the matters which would have a low tax effect.
9. Learned Senior Advocate Mr. Tushar Hemani has urged that the Tribunal's earlier order was of 16.12.2015. The department had 5 years before the application has been moved. According to him, in Circular No. 03/2018 filing of appeal shall need to be read with para 10 "contested on merit". It is thus not of contest but filing of appeal assumes importance. All circulars are within the public domain and are binding to the Revenue.
9.1. According to him, the Instruction No. 07/2017 clarifies that there also, on merit, it should be regulated. It provides that adverse order of the first appellate authority in cases involving revenue audit objections should be carefully scrutinized by the Principal CIT. The appeal to the ITAT shall be filed only if the appeal order is not acceptable on merits. Thus, the emphasis is on preferring the appeal only if the appellate order is not acceptable on merits. There was nothing before the ITAT at the time when it had dismissed the appeal on the low tax effect. That ought to have been base before filing the appeal itself.
9.2. He has relied on the decision rendered in case of Commissioner of Income-Tax-1 vs. Concord Pharmaceuticals [[2009] 317 ITR 395], where this Court has laid down that appeal is a statutory right but it can Page 12 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined certainly be regulated by the Board by issuance of orders, instructions or circulars which would not amount to taking away right to file appeal or that such right is prohibited by executive instructions. The Court however held that when no objection has been raised by the departmental representatives at the time of hearing of the appeal against the applicability of the circular despite there being an exception and the Tribunal dismisses the appeal by applying that circular, matter cannot be remanded to the Tribunal for deciding the appeal on merits. However, in matters where such objections are raised and despite those objections or without dealing with them, Tribunal has dismissed the appeals only on the ground of low tax effect, an indulgence is required to be shown by the Court and the department can be permitted to move an appropriate application before the Tribunal for deciding the appeals on merit. Based on this judicial pronouncement and on the strength of the ambit of the circular, learned counsel has strenuously argued that no interference is desirable on the part of the Court. The relevant observations made by the Court are reproduced below:-
"17. Having heard learned counsels appearing for the respective parties and having gone through the relevant statutory provisions, judgments of various Courts and Circulars issued by the Board from time to time, we are of the view that subject to certain directions, which are issued hereinafter, all these Tax Appeals deserve to be dismissed and they are accordingly dismissed as no question of law, much less, any substantial question of law arises out of the order of the Tribunal. In almost all cases the Tribunal has dismissed the appeals only on the ground of low tax effect, without entering into merits of the matter. While dismissing the appeals, the Tribunal has referred to the Circular issued by the Central Board of Direct Taxes prescribing the monetary limit. The appeals filed by the Department in contravention of such Circulars prescribing the monetary limit were ordered to be dismissed. Almost all Courts are agreeable on this issue.
18. The real controversy arose when certain exceptions are carved out in the Circulars and despite the fact that many of these cases before the Tribunal are covered by those exceptions, which require the Tribunal to go into the merits of the matter, the Tribunal has straightway dismissed those appeals. There is a cleavage of opinion amongst the different Courts on this issue. One view is that while applying the Circular issued by the Board, the Tribunal has to take into consideration as to whether the exceptions carved out in the Circular apply to the case on hand and if any of those Page 13 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined exceptions is applicable in that case the Tribunal will have to ignore the monetary limit and decide the appeal on merits. In Kodanand Tea Estate Co's case (Supra), before the Tribunal, the applicability of the circular was questioned. The Madras High Court, therefore, took the view that the question comes within the ambit of exception and the Tribunal was directed to hear appeal on the merits.
19. Another view is that if any particular Circular is pressed into service seeking dismissal of appeal on the ground of low tax effect and if no objection is raised by the Department either in the appeal memo or at the time of hearing of appeal, the Tribunal is not bound to consider as to whether exceptions are applicable or not. In Smt. Madhu Bai Lodha's case (Supra) the M.P. High Court took the view that in a case which falls within the excepted category, it would always be open to the Department to bring it to the notice of the forum approached and to insist that the question being covered by the exceptions contained in the circular, the same deserves to be considered.
In A Rajendra Prasad & Ors., case (Supra), the A.P. High Court took the view that in case the Department finds a certain matter to be agitated by way of an appeal although it falls within the monetary limits of the circulars, the department should clearly plead in the memo of appeal itself that the appeal falls under the exceptions. In absence of such a pleading in the memo of appeal, normally appeal should not be entertained.
In Kurian Abraham Pvt. Ltd.'s case (Supra) the Hon'ble Supreme Court took the view that whenever any binding circular is issued by the Board granting administrative relief, as long as such circular remains in force, it is not open to the subordinate officers to contend that the circular is erroneous and not binding on them. If such a contention is to be accepted, it would lead to chaos and indiscipline in the administration of tax laws.
In Indian Oil Corporation case (Supra) the Hon'ble Supreme Court laid down certain propositions of law in relation to the binding nature of circulars issued by the Board. The Court held that despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board and that it is not open to the Revenue to advance an argument or file an appeal contrary to the circulars.
22. We are of the view that simply because the appeal is filed by the Department in contravention Page 14 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined of the Circular the Tribunal is not bound to decide the appeal on merits. Due weightage should invariably be given by the Tribunal to the Circular issued by the Board. Even otherwise, the newly inserted provisions contained in Section 268A(4) make it obligatory for the Tribunal to consider such Circular. It is not open for the Department to contend that Circulars are internal matters of the Department and assessee cannot object to filing of an appeal on the basis of such Circular. It is true that filing of an appeal is a statutory right but it can certainly be regulated by the Board by issuance of orders, instructions or Circulars. This would not amount to taking away the right of filing of appeal or that such right is prohibited by executive instructions. Section 268A(1) of the Act now recognizes such right of the Board to regulate the filing of appeal or application before the Tribunal or the Court. It is also true that when the Hon'ble Supreme Court or the territorial High Court have declared the law on a question, it is not open to the Tribunal to direct that the Circular issued by the Board prescribing the monetary limit should be given effect to and not the decision of Hon'ble Supreme Court or the territorial High Court. It is, however, equally true that the Tribunal's attention must be drawn by the departmental representative to such decision of the Hon'ble Supreme Court or the High Court. An objection must be raised by the Departmental representative.
23. Considering all the aforesaid issues we dismiss all these Tax Appeals reserving liberty to the Department only on those cases to apply to the Tribunal to decide the appeal on merits where the objections were raised before the Tribunal either in the appeal memo or at the time of hearing of appeal raising a specific contention that a particular appeal is covered by an exception and despite this objection the Tribunal has not dealt with the said contention and dismissed the appeal on the ground of low tax effect. It is expected from the Tribunal to consider this broad parameters while applying the relevant Circular to the facts of the case at the time of deciding appeals."
9.3. In our opinion, this decision on the contrary recognizes the obligation of the Tribunal to consider the circular as per the newly inserted provision contained in Section 268(A)(4). Due weightage is required to be given by the Tribunal to the circular issued by the Board. The circulars are not the merely internal matter of the department. At the same time, filing of the appeal though is a statutory right, but it can certainly be regulated by the Board by issuance of the orders, instructions or circulars. The Board can regulate the filing of the appeal or application before the Tribunal. However, it was obligatory Page 15 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined on the part of the Tribunal also to consider as to whether once the Misc. Application was moved before it, that there was an audit objection raised in these matters. Considering the long-drawn procedure prescribed in the Instruction No. 07/2017 dated 21.07.2017 superseding many of other instructions, once accepted by the department, the aspect of low tax effect will pale into insignificance.
10. The Principal CIT(Appeals) of course while filing the appeal to the ITAT would file it only if the appeal order is not acceptable on merits, in cases involving revenue audit objections and these cases are to be carefully scrutinized. It has presumed, since not gone into detail by the Tribunal at this stage, once appeal is preferred before the ITAT, that scrutiny at the end of the PCIT has been made. Therefore, once it was brought to the notice of the Tribunal that the disposal of all the appeals in a group on account of low tax effect was an exercise which required reconsideration since the audit objections raised had been raised by the Revenue, the least the Tribunal could have done was to consider this aspect.
11. The reason of non-acceptance of this rectification application is not on the ground of non-existence of such material, once the Tribunal overlooks Clause 10 of the said Circular which carves out the exception to the withdrawal of appeal on low tax effect. Disregard of the same would fall under the error apparent on the face of the record, therefore, seeking invocation of the powers under Section 254 was also not misplaced.
11.1. Rejection of these Misc. Applications on the strength of the earlier order without any whisper on individual case, more particularly, relying on the order of the Bombay High Court which was essentially because the Revenue never pointed out such audit objections,having been accepted by the department and in absence of the record, the Bombay High Court passed the order. There is nothing to point out that such record was missing before the Tribunal when it dismissed the appeal in each case. That examination will be a must, hence, we deem it appropriate to interfere and allow the Misc. Applications. Let the Tribunal examine each case and remand the matter back to the Tribunal for it to examine every matter. We remit the matter to the Tribunal for fresh consideration. Each matter shall be looked into examining the acceptance of the audit objections.
12. We noticed that clause 10(c) of the Circular No. 03/2018 dated 11.08.2018 and the subsequent circulars issued in the year 2019 carrying the same exceptional Page 16 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined clause. Hence, the Revenue will be entitled to point out to the Tribunal as to how the audit objection has been accepted for it to pursue the remedy on merit.
13. Following authorities have been replied upon by the respondents which are necessary to be discussed at this stage.
13.1. In Improvement Trust, Ludhiana vs. Ujagar Singh and Others [(2010) 6 SCC 786], it was a case where considering the conduct, behavior and attitude of appellant, the Court found that it was not so callous and negligent in prosecuting the matter. The delay was also not huge and the Court however while condoning the delay directed the payment of cost of Rs. 50,000/-.
13.2. Before the Punjab and Haryana High Court in case of Commissioner of Income Tax vs. Oscar Laboratories (P) Ltd. [2009 LawSuit (P&H) 85], dealing with the Civil Misc. Application filed by the assessee against the order passed by the Tribunal approached before the Tribunal itself requiring the recall of the Tribunal's order on the ground that the assessee had not been served in the proceedings. On the issue of maintainability of the appeal, the objection had been raised. After the detailed discussion on Section 260(A) and Section 268(A), the Court held that the instructions issued by the CBDT laying down monetary limits for filing of appeals are mandatory and binding on the Revenue. Here also for revising the monetary limit for filing appeal before the Tribunal, the High Court as well as the Supreme Court, the arguments on the part of the assessee was that under the latest instructions issued by the CBDT, the latest revised monetary limit shall need to be borne in mind. The Court held thus:-
"29. We have given our thoughtful consideration to the submissions advanced by the learned counsel for the respondent - assessee on the basis of the instruction dated 15.5.2008. We are, however, satisfied that the aforesaid instruction is irrelevant for the purpose of determination of the present controversy, on account of the fact that paragraph 11 of the aforesaid instruction, makes the same applicable only in respect of appeals filed on or after 15.5.2008. The instant appeal was filed in the year 2002 i.e. well before 15.5.2008. Be that as it may, it is possible for us to draw yet another inference in favour of the respondent - assessee, namely, that the instruction prevalent prior to the instruction dated 15.5.2008, has expressly been made applicable to appeals preferred before 15.5.2008. We, therefore, must inevitably revert back to the instruction dated 27.3.2000, for determining the veracity of the filing of the instant appeal.Page 17 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024
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30. While disposing of the instant controversy, we would like to expressly notice, that it is not a matter of dispute at the hands of the learned counsel for the rival parties, that the tax effect in the present appeal is below the monetary limits prescribed, for preferring an appeal under the instruction dated 27.3.2000. It would also be pertinent to mention, that it is not the case of the appellant - revenue, that inspite of the tax effect, the instant appeal could have been preferred under one of the four exceptions recorded in paragraph 3 of the instruction dated 27.3.2000. Thus viewed, we are satisfied that, even though, the instant appeal was filed when Section 268-A of the 1961 Act had not been inserted into the 1961 Act, yet since Section 268-A was inserted therein with retrospective effect from 1.4.1999, by a deeming fiction of law, the same must be deemed to have been filed when Section 268-A was already a part of the 1961 Act."
13.3. The Bombay High Court in the case of Commissioner of Income Tax vs. Pithwa Engg Works [2005 LawSuit(Bom) 682], held that instructions issued by the CBDT setting the monetary limit for department for filing references to the High Court would be binding on the department. The Court observed as under:-
"4. The above instructions dated 27th March, 2000 reflect the policy decision taken by the Board not to raise questions of law where the tax effect is less than the amount prescribed in the above circular with a view to reduce litigations before High Courts and Supreme Court. The said circular is binding on the Revenue though learned Counsel tried to contend that the said circular is not applicable to the old referred cases. However, he could not take his submission to a logical end.
5. One fails to understand how Revenue can contend that so far as new cases are concerned, circular issued by the Board is binding on them and in compliance with the said instructions, they do not file references if the tax effect is less than Rs.2 lakhs. But the same approach is not adopted with respect to the old referred cases even if the tax effect is less than Rs.2 lakhs. In our view, there is no logic behind this approach.
6. This Court can very well take judicial notice of the fact that by passage of time money value has gone down, cost of litigation expenses has gone up, the assessees on the file of the departments have increased; consequently, burden on the department has also increased to a tremendous extent. The corridors of the superior courts are chocked with huge pendency of cases. In this view of the matter, the Board has rightly taken decision not to file references if the tax effect is less than Rs.2 lakhs. The Page 18 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined same policy for old matters needs to be adopted by the department. In our view, the Board's circular dated 27th March, 2000 is very much applicable even to the old references which are still undecided. The department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with the decades old references having negligible tax effect."
The Court thus has made the Board Circular applicable to those matters which were still undecided. With money value having gone down and cost of litigation expenses having gone up, the Court held that there was no justification to proceed with the decades old references having negligible tax effect.
13.4. The Guahati High Court in case of Commissioner of Income-Tax vs. Kironmoy Roy Choudhury [[2011] 330 ITR 316 (Gauhati)], was considering the CBDT Instruction No. 05/2008, the Court examined Section 268(A) which empowered the Board to issue orders/instructions/directions to income-tax authority and fix monetary limits as may be deemed fit for the purpose of regulating the filing of appeal or application with reference by income-tax authority under the provision of that chapter. It enjoys the same legislative status as Section 260(A) designed by parliament. According to the Guahati High Court, the CBDT Circular issued in exercise of the powers conferred can neither be undermined nor rendered ineffective and all orders/instructions/directions are binding on the Revenue.
13.5. The Rajasthan High Court in the case of Commissioner of Income Tax, Jaipur-II, Jaipur vs. GAD Fashion, G-152, RIICO Sanganer Industrial Area Jaipur [2017 LawSuit(Raj) 2039], was considering the tax effect and the circulars relating to the tax effect which does not exceed a particular monetary limit. On detailed examination, it has held that the circular issued by the CBDT under Section 268(A) is binding on the department and the appeal cannot be filed if it is barred.
"31. Accordingly, the Circular issued by the CBDT under Section 268A of the Act of 1961 is held binding on the Department thus appeal cannot be filed, if it is barred. It is, however, with a clarification that if the issue decided by the CIT (Appeals) or Tribunal is contrary to the judgments of the Supreme Court, the Department can prefer an appeal, however, care would be taken to file it only in those cases where the order passed by the CIT (Appeals) or the Tribunal is contrary to the ratio propounded by the Supreme Court on the same issue. In Page 19 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined doing so, sanctity of Article 141 of the Constitution of India would be maintained, thereby, serious consequences of taking different view would also be avoided."
13.6. This Court decided the case of Commissioner of Income-Tax vs. Concord Pharmaceuticals [2008 LawSuit(Guj) 2755], where the question before this Court was as to whether the Tribunal had rightly dismissed the appeals filed by the Revenue without adjudicating the same on merits on the ground of low tax effect. In view of the instructions of the CBDT, the Court after detailed examination of law on the point has held that subject to certain directions, all the Tax Appeals deserve to be dismissed as no question of law much less any substantial question of law arose out of the order of the Tribunal. The appeals had been dismissed on the ground of low tax effect without entering into the merits relying on the CBDT Circular prescribing the monetary limit. The question was whether certain exceptions carved out in the circulars were applied to the cases before the Tribunal and whether they were covered by those exceptions. The Tribunal straightway dismissed this appeal.
"16. The real controversy arose when certain exceptions are carved out in the Circulars and despite the fact that many of these cases before the Tribunal are covered by those exceptions, which require the Tribunal to go into the merits of the matter, the Tribunal has straightway dismissed those appeals. There is a cleavage of opinion amongst the different Courts on this issue. One view is that while applying the Circular issued by the Board, the Tribunal has to take into consideration as to whether the exceptions carved out in the Circular apply to the case on hand and if any of those exceptions is applicable in that case the Tribunal will have to ignore the monetary limit and decide the appeal on merits. In Kodanand Tea Estate Co's case (Supra), before the Tribunal, the applicability of the circular was questioned. The Madras High Court, therefore, took the view that the question comes within the ambit of exception and the Tribunal was directed to hear appeal on the merits.
17. Another view is that if any particular Circular is pressed into service seeking dismissal of appeal on the ground of low tax effect and if no objection is raised by the Department either in the appeal memo or at the time of hearing of appeal, the Tribunal is not bound to consider as to whether exceptions are applicable or not. In Smt. Madhu Bai Lodha's case (Supra) the M.P. High Court took the view that in a case which falls within the excepted Page 20 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined category, it would always be open to the Department to bring it to the notice of the forum approached and to insist that the question being covered by the exceptions contained in the circular, the same deserves to be considered. In A Rajendra Prasad & Ors., case (Supra), the A.P. High Court took the view that in case the Department finds a certain matter to be agitated by way of an appeal although it falls within the monetary limits of the circulars, the department should clearly plead in the memo of appeal itself that the appeal falls under the exceptions. In absence of such a pleading in the memo of appeal, normally appeal should not be entertained.
In Kurian Abraham Pvt. Ltd.'s case (Supra) the Hon'ble Supreme Court took the view that whenever any binding circular is issued by the Board granting administrative relief, as long as such circular remains in force, it is not open to the subordinate officers to contend that the circular is erroneous and not binding on them. If such a contention is to be accepted, it would lead to chaos and indiscipline in the administration of tax laws. In Indian Oil Corporation case (Supra) the Hon'ble Supreme Court laid down certain propositions of law in relation to the binding nature of circulars issued by the Board. The Court held that despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board and that it is not open to the Revenue to advance an argument or file an appeal contrary to the circulars.
18. There is also difference of opinion amongst the Courts with regard to the applicability of the Circular. If, on the date of filing of an appeal, a Circular is not in force or certain exceptions are not there or monetary limit is less than what was there at the time of deciding this appeal, in such cases, the Tribunal will have to give due weightage to the provisions contained in the circular prevalent on the date of filing of appeal and not on the date of the decision of the appeal. In Chhager Packaging & Plastics (P) Ltd.'s case (Supra) the Bombay High Court took the view that circulars/instructions issued by the Board are applicable only prospectively and if there is no reference to their applicability to the pending matters, such pending matters cannot be decided on the basis of circulars/instructions. In Pithwa Engineering Works' case (Supra) the Bombay High Court took the view that taking judicial notice of the money value having gone down and cost of litigation expenses having gone up as well as huge pendency of cases, the Board should evolve a policy of applying the circulars even to the old references which are still undivided. The Department should not have proceeded with the appeals/references wherein the Page 21 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined tax impact is minimal, irrespective of their date of filing.
19. There is no dispute about the fact that where substantial question of law of importance is involved or where question of law is repeatedly arising or where the issue is covered by the judgment of territorial High Court or Supreme Court, the Tribunal will have to decide the appeal on merits and in terms of the law declared by the Supreme Court or by the territorial High Court. However, on this ground the matters cannot be remanded to the Tribunal directing the Tribunal to decide the same afresh. If no objections are raised by the departmental representative at the time of hearing of the appeal against the applicability of the Circular despite there being an exception, the Department has missed the bus and second inning cannot be granted for that purpose. However, in matters where such objections are raised and despite those objections or without dealing with those objections if the Tribunal has dismissed the appeal only on the ground of low tax effect, in such matter, an indulgence is required to be shown by this Court and for this limited purpose, the Department is permitted to move an appropriate application before the Tribunal for deciding the appeal on merits.
20. We are of the view that simply because the appeal is filed by the Department in contravention of the Circular the Tribunal is not bound to decide the appeal on merits. Due weightage should invariably be given by the Tribunal to the Circular issued by the Board. Even otherwise, the newly inserted provisions contained in Section 268A(4) make it obligatory for the Tribunal to consider such Circular. It is not open for the Department to contend that Circulars are internal matters of the Department and assessee cannot object to filing of an appeal on the basis of such Circular. It is true that filing of an appeal is a statutory right but it can certainly be regulated by the Board by issuance of orders, instructions or Circulars. This would not amount to taking away the right of filing of appeal or that such right is prohibited by executive instructions. Section 268A(1) of the Act now recognizes such right of the Board to regulate the filing of appeal or application before the Tribunal or the Court. It is also true that when the Hon'ble Supreme Court or the territorial High Court have declared the law on a question, it is not open to the Tribunal to direct that the Circular issued by the Board prescribing the monetary limit should be given effect to and not the decision of Hon'ble Supreme Court or the territorial High Court. It is, however, equally true that the Tribunal's attention must be drawn by the departmental representative to such Page 22 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined decision of the Hon'ble Supreme Court or the High Court. An objection must be raised by the Departmental representative.
21. Considering all the aforesaid issues we dismiss all these Tax Appeals reserving liberty to the Department only on those cases to apply to the Tribunal to decide the appeal on merits where the objections were raised before the Tribunal either in the appeal memo or at the time of hearing of appeal raising a specific contention that a particular appeal is covered by an exception and despite this objection the Tribunal has not dealt with the said contention and dismissed the appeal on the ground of low tax effect. It is expected from the Tribunal to consider this broad parameters while applying the relevant Circular to the facts of the case at the time of deciding appeals."
The Court has kept the window open in this decision that where the department has missed the bus and has not drawn the attention of the Tribunal at the time of hearing of the appeal against the applicability of the circular, no second inning can be given however, where the objections have been raised and without dealing with such objections, the Tribunal has dismissed the appeal on the ground of low tax effect, the indulgence is required to be shown by the Court.
14. As noted, while applying monetary limit to the pending cases, the Commissioner (DR) had urged to the Tribunal that liberty be given upon necessary further verification to seek recall of the dismissal of appeals and restore those appeals in which the appeals are covered by the exception and which are inadvertently included in the bunch of appeals wherein the tax effect in terms of the CBDT circular exceeded 50 lakhs. Nobody has opposed this prayer and it has been accepted. It has also been clarified by the Tribunal that the appellant shall be at liberty to point out the cases which were wrongly included in the appeals so similarly dismissed either owing to wrong computation of tax effect or owing to such cases being covered by permissible exceptions or for such other reasons and appropriate remedial steps would be taken by the Tribunal in this regard.
15. Even if the Misc. Application has been preferred pointing out the error apparent on the face of the record of the order dated 14.08.2019 in the year 2020, this decision itself should be a guiding factor. The department had already taken a specific permission of the Tribunal to allow it to raise this objection whenever it finds the necessity and the respondents have never objected to the same at the relevant point of time, they in fact have admitted to such Page 23 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024 NEUTRAL CITATION C/SCA/13034/2020 JUDGMENT DATED: 30/07/2024 undefined proposal. The Tribunal had also clarified and permitted explicitly and therefore, by way of Misc. Application once the authority has urged the Tribunal to recall its order for having not considered the acceptance of the audit objections by the Revenue and the matter falling within the exceptions of the circular, no objection now could be allowed to be sustained at the end of the assessee- respondents. We find that indulgence is a must.
16. While parting, necessary will be to make a reference of the paragraphs 10 and 11 of the base order dated 14.08.2019 to reflect that the entire exercise was done hurriedly. The circular was issued on Thursday, 08.08.2019 and within two working days in the long weekend on 14.08.2019 all appeals have been disposed of. Although it is held to be remarkable and exceptional step with the cooperation of all stakeholders, the Court cannot help noticing that this was too short a period for the Revenue to point out in each case the acceptance of the audit objections and hence, the request rightly had been made by the Commissioner (DR) seeking the liberty and when the same has been reserved in a subsequent order, the Tribunal ought not to have rejected the same."
8. In view of the above, this petition also succeeds and is accordingly allowed. The impugned order dated 29 th January, 2019 passed by the Income Tax Appellate Tribunal, "A" Bench, Ahmedabad in ITA No.69/Ahd/2019 is hereby quashed and set aside and the matter is remanded back to the Tribunal so as to enable the Revenue to point out the fact about the audit objection which was accepted by the Revenue.
Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) (NIRAL R. MEHTA,J) ANUP Page 24 of 24 Downloaded on : Fri Aug 02 23:41:35 IST 2024