2013 (10) TMI 984 - HC - Income Tax

Monetary limits for filing an appeal before High court by the department - Whether penalty can be imposed on the assessee under section 271B of the Income-tax Act, 1961, when it was mandatory to get the accounts audited under section 44AB of the said Act, even if the books of account have not been properly maintained Held that - There is no dispute that Instruction No. 5 of 2008, dated May 15, 2008, imposes a monetary limit of Rs. 4,00,000 for preferring an appeal under section 260A of the Act nor is it in dispute before us that the net tax effect in the case at hand, is less than Rs. 4,00,000 - Instructions issued by the Central Board of Direct Taxes, are binding on the Revenue except where (a) the constitutional validity of the provisions of an Act or Rule is under challenge ; (b) the Board s order, notification, instruction or circular has been held to be illegal or ultra vires ; and (c) a Revenue audit objection in the case has been accepted by the Department. The Memorandum Explaining the Provisions of the Finance Bill, 2008, while highlighting the underlying object of section 268A, clearly reflected the anxiety of Parliament to reduce the litigation in small cases and regulate the right of the Revenue to file or not to file an appeal under section 260A. Consequently, there is an inherent limitation on the Revenue s right to file appeal under section 260A inasmuch as the condition precedent for preferring an appeal is existence of a substantial question of law. Section 260A does not, however, contemplate any monetary limit. This monetary limit has been imposed a indicated above by the Central Board of Direct Taxes in exercise of its power under section 268A - Parliament has nevertheless deemed it necessary to vest in the Central Board of Direct Taxes, by enacting section 268A, the power to regulate appeal by prescribing the monetary limit Decided against the revenue.

Summary

Issues:
1. Maintainability of the appeal under section 260A of the Income-tax Act, 1961 based on the tax effect being less than Rs. 4,00,000.
2. Interpretation of section 268A and the Central Board of Direct Taxes's instructions regarding the monetary limit for filing appeals by the Revenue under section 260A.

Issue 1: Maintainability of the Appeal
The judgment deals with an appeal under section 260A of the Income-tax Act, 1961, against an order passed by the Income-tax Appellate Tribunal. The significant question raised was whether the Tribunal was justified in deleting the penalty imposed on the assessee under section 271B of the Act. The maintainability of the appeal was challenged by the assessee-respondent based on Instruction No. 5 of 2008 by the Central Board of Direct Taxes, which set a monetary limit of Rs. 4,00,000 for filing appeals under section 260A. The tax effect in the present case was less than the prescribed limit, making the appeal seemingly not maintainable.

Issue 2: Interpretation of Section 268A and CBDT's Instructions
The judgment delves into the interpretation of section 268A and the binding nature of the Central Board of Direct Taxes's instructions on the Revenue. The counsel for the respondent argued that the appeal was not maintainable due to the monetary limit set by the CBDT. The court acknowledged that the instructions issued by the CBDT are binding on the Revenue unless certain exceptional circumstances exist. The court referred to a previous case where a similar issue was raised, and it was held that appeals with a tax effect less than Rs. 4,00,000 would not be maintainable as per the CBDT's instructions.

The court emphasized that section 268A was inserted to regulate the right of the Revenue to file appeals under section 260A and reduce litigation in small cases. It highlighted that the CBDT's monetary limit was imposed to restrict the Revenue's right to file appeals. The judgment concluded that in the present case, the appeal could not be sustained due to the tax effect being below the prescribed limit. The court also noted that in exceptional cases involving common principles or cascading effects, the High Court may choose not to apply the CBDT's instructions ipso facto.

In conclusion, the appeal was deemed not maintainable based on the CBDT's instructions and the monetary limit set for filing appeals under section 260A. The judgment highlighted the significance of section 268A in regulating appeals by the Revenue and the binding nature of the CBDT's instructions. It left open the question of an assessee taking different stands before authorities for determination in future cases.