2018 (5) TMI 1914 - AT - Income Tax

Monetary limit - Low tax effect - disallowance of cash payment towards legal fees invoking provisions of section 40A(3) - HELD THAT - There is no dispute that the net tax effect in the instant appeal is less than 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dated 10-12-2015 clearly envisaging therein that department s pending appeals before the tribunal/high courts are to be withdrawn/not pressed as per the above stated circular.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. This Revenue s appeal is dismissed as having low tax effect.

Summary

Issues:
Appeal challenging deletion of addition for cash payment of legal fees under section 40A(3) of the Income Tax Act, 1961.

Analysis:
The judgment by the Appellate Tribunal ITAT Ahmedabad involved an appeal for the assessment year 2010-11, arising from the order of the CIT(A)-2, Ahmedabad dated 22-08-2016. The sole substantive ground of the Revenue's appeal was the deletion of the addition made on account of the disallowance of cash payment of ?4,35,000 towards legal fees, invoking the provisions of section 40A(3) of the Income Tax Act. It was noted that the net tax effect in the appeal was less than ?10 lakhs. The Tribunal considered Circular No. 21/2015 dated 10-12-2015 issued by the Central Board of Direct Taxes, which directed the withdrawal or non-pressing of department's pending appeals before the tribunal/high courts. The circular was declared to have retrospective effect. Taking into account this circular, the Tribunal dismissed the appeal accordingly.

The Tribunal's decision to dismiss the Revenue's appeal was primarily based on the low tax effect involved in the case. The judgment highlighted the significance of the Circular issued by the Central Board of Direct Taxes, which mandated the withdrawal or non-pressing of certain appeals, including the one in question. By considering the retrospective effect of the circular and the specific tax impact of the case, the Tribunal concluded that the appeal should be dismissed. The order was pronounced in the open court on 11-05-2018, thereby concluding the matter.