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Re-opening of assessment based on audit objection cannot be dismissed for low tax effect & without delving into merits of the case: HC

2019-TIOL-1768-HC-AHM-IT

IN THE HIGH COURT OF GUJARAT

AT AHMEDABAD

R/Tax Appeal No. 1314 Of 2018

PRINCIPAL COMMISSIOER OF INCOME TAX-2

Vs

M/s KUNJ INFRASTRUCTURE PVT LTD

J B Pardiwala & A C Rao, JJ

Dated: August 05, 2019

Appellant Rep by: Mrs Mauna M Bhatt(174)
Respondent Rep by: 
None

Income tax – low tax effect – exceptions of CBDT Circular – merits of case – revision of monetary limits

THE Revenue Department preferred the present appeal challenging the action of ITAT in dismissing the appeal on the ground of low tax effect despite the fact that the case falls under the exceptions laid out in the CBDT’s Circular.

On appeal, the HC held that,

Whether a case which was reopened on the basis of revenue audit objection, needs not be dismissed on ground of low tax effect without going into the merits of the case – YES: HC

++ it appears that the Tribunal relying upon the Circular No.21/2015 dated Dec 10, 2015 dismissed the appeal on the ground of low tax effect without going into the merits of the matter. The counsel for Revenue pointed out that the case was reopened on the basis of revenue audit objection and in such circumstances, the same would be covered under the exception mentioned in the Circular No.3/2018 of the CBDT. The Circular No.3/2018 issued by the Government of India, Ministry of Finance dated July 11, 2018 is with respect to the revision of monetary limits for filing of the appeals by the department in the Income Tax Appellate Tribunal, High Courts and appeals before the Supreme Court. In such circumstances, the Appellate Tribunal ought to have decided the issue on merits rather than dismissing the appeal on the ground of low tax effect.

Case remanded

JUDGEMENT

Per: J B Pardiwala:

1. The respondent – assessee although served with the notice issued by this Court, yet has chosen not to appear before this Court either in person or through an advocate and oppose this tax appeal at the instance of the Revenue.

2. This tax appeal under Section 260A of the Income Tax Act, 1961 [for short ‘the Act, 1961’] is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal in the ITA No.2891/AHD/2016, dated 11/05/2018 for the A.Y 2010-11.

3. The Revenue has proposed the following substantial question of law for the consideration of this Court:-

“Whether the Appellate Tribunal has erred in law and on facts in dismissing the appeal on the ground of low tax effect despite the fact that case falls under the exceptions laid out in the CBDT’s Circular?”

4. The impugned order passed by the Income Tax Appellate Tribunal reads as follow:-

“This Revenue’s appeal for A.Y. 2010-11, arises from order of the CIT(A)2, Ahmedabad dated 22.08.2016, in proceedings under section 143(3) r.w.s. Of the Income Tax Act, 1961; in short “the Act”.

2. The Revenue’s sole substantive ground challenges the lower appellate order deleting the addition made on account of disallowance of cash payment of Rs.4,35,000/- toward legal fees invoking provisions of section 40A(3) of the Act. There is no dispute that the net tax effect in the instant appeal is less than Rs.10 lacs. We find that the Central Board of Direct Taxes; hereafter the ‘Board’ has issued the circular no.21/2015 dated 10.12.2015 clearly envisaging therein that department’s pending appeals before the tribunal/ high courts are to be withdrawn/not pressed as per the above stated circular. The same has been declared to be having retrospective effect in other words. We take into consideration the above stated Board’s circular and dismiss the instant appeal accordingly.

3. This Revenue’s appeal is dismissed as having low tax effect.”

5. Thus, it appears that the Tribunal relying upon the Circular No.21/2015 dated 10th December 2015 dismissed the appeal on the ground of low tax effect without going into the merits of the matter.

6. Mrs. Mauna Bhatt, the learned senior standing counsel appearing for the Revenue pointed out that the case was reopened on the basis of revenue audit objection and in such circumstances, the same would be covered under the exception mentioned in the Circular No.3/2018 of the C.B.D.T.

7. The Circular No.3/2018 issued by the Government of India, Ministry of Finance dated 11th July, 2018 is with respect to the revision of monetary limits for filing of the appeals by the department in the Income Tax Appellate Tribunal, High Courts and appeals before the Supreme Court. The Clause-10 of the Circular 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 vires, or

(c) Where Revenue Audit objection in the case has been accepted by the Department, or

(d) Where the addition relates to undisclosed foreign assets/ bank accounts.”

8. In such circumstances referred to above, the Appellate Tribunal ought to have decided the issue on merits rather than dismissing the appeal on the ground of low tax effect.

9. This appeal succeeds and is hereby allowed. The impugned order passed by the Appellate Tribunal is quashed and set aside. The question of law is answered in favour of the Revenue and against the assessee.

The matter is remitted to the Income Tax Appellate Tribunal for fresh consideration on merits.

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