2011 (5) TMI 825 - HC - Income Tax

Admissibility of appeal where tax effect is less than monetary limit prescribed - appeal of the revenue in respect of assessment made under the Interest Tax Act, 1974 - Held that - Circular dated 24.10.2005 issued by CBDT carves out only one exception with regard to the permissibility of filing of appeals, only in cases involving substantial question of law of importance as well as cases where the same question of law will repeatedly arise either in the case concerned or in similar cases that the Department will not be hindered by the monetary limits. We are, however, of the view, where tax liability of the assessee is below the monetary limit prescribed, Revenue cannot file an appeal in transgression of the Circular by which it is bound. However, we may add 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 Clause 3 of the Circular dated 24.10.2005 as modified by the Instruction No.5 of 2007 dated 16.7.2007, the same deserves to be considered by the Superior Forum, the Circular of the CBDT notwithstanding.

Summary

Issues:
Whether the ITAT was justified in summarily dismissing the appeal of the revenue under the Interest Tax Act, 1974 based on the monetary limit prescribed by the CBDT instructions without considering the merits of the case and the interpretation of the CBDT circular.

Analysis:
The Circular dated 24.10.2005 by the Central Board of Direct Taxes set monetary limits for filing appeals, emphasizing that if the tax effect was below the prescribed limits, the Department should not file any appeal. However, exceptions were made for cases of recurring nature or importance. Instruction No. 5 of 2007 modified the Circular to include cases with substantial questions of law or recurring legal issues, exempting them from the monetary limits.

The appeal in question was against the ITAT's decision to dismiss the appeal on the grounds that the tax effect was below Rs. 2,00,000, contrary to the CBDT instructions. The Tribunal referred to the decision of the Bombay High Court, stating that the Circular applies to pending cases. However, the Revenue cited the Rajasthan High Court's decision that dismissal based on pecuniary limits is not valid. The Supreme Court's stance that Circulars are not binding on Appellate Authorities, Courts, Tribunals, or Assessees was also mentioned.

A Division Bench of the High Court previously ruled that Revenue cannot file appeals below Rs. 2,00,000 against the Circular's terms. The Circular only allows exceptions for cases involving substantial questions of law or recurring legal issues. The Court questioned whether the Revenue can bypass the Circular by claiming a case falls under the exception without proper procedure. The Court referred to decisions from other High Courts but maintained that Revenue cannot appeal below the monetary limit unless falling under the Circular's exceptions.

The Court emphasized that if a case falls within the excepted category, the Revenue can bring it to the attention of the Forum and insist on consideration despite the monetary limits. The Court answered the questions against the Department but allowed the Revenue to present cases falling within the exceptions for further consideration by the appropriate Forum, citing previous similar judgments by the Court.

Therefore, the appeal was disposed of with the above considerations, maintaining the importance of adherence to the Circular's monetary limits unless falling within the exceptions specified.