2017 (12) TMI 1791 - AT - Income Tax

Maintainability of appeal by revenue - low tax effect - addition u/s 40A assessee purchased agricultural land and payments towards such purchases were made in cash - CIT-A deleted the addition - HELD THAT - The CIT's have to record their decision issue-wise and also notice tax effect and forward relevant authorisation letter and grounds of appeal to the concerned. Since the grounds have to be specified by the Commissioner, if the tax effect is low, reasons as to why an appeal is to be preferred even on matters concerning appreciation of facts, such as the present matter, needs to be recorded. The AO relied upon CBDT Instruction 21/2015 dated 10.12.2015, whereas in the subsequent circulars i.e. Circular No.5/2017 dated 23.01.2017, the Board clarified that filing of appeals in cases where there is revenue audit objection should not be a matter of routine. No evidence whatsoever is placed even before us to prove that the facts determined by Ld.CIT(A) are perverse. AO is bound by the Circular issued by CBDT and he could not have preferred appeal in a case whether the tax effect is less than the specified limit and that too in the routine manner. It is also doubtful as to whether the Commissioner concerned has directed the AO to raise this ground. It does not emanate from the authorisation issued by the Commissioner. Even on merits we do not find any infirmity in the finding of CIT(A) that the disallowance is not permissible in this year. Appeal filed by the revenue is dismissed as unadmitted.

Summary

Issues: Disallowance of expenditure under section 40A(3) of the Income Tax Act for A.Y. 2006-07; Authorization for appeal based on tax effect and grounds specified by the Commissioner.

Issue 1: Disallowance of expenditure under section 40A(3) of the Income Tax Act for A.Y. 2006-07.
The appeal pertains to the disallowance of expenditure under section 40A(3) of the Income Tax Act amounting to ?2,28,600. The assessee purchased agricultural land in 2004-05, paid in cash, and later converted it into non-agricultural land for real estate business. The assessing officer disallowed the expenditure, but the Ld.CIT(A) accepted the claim, stating that section 40A(3) was not applicable as the cash payment was not made during the relevant financial year. The Tribunal noted that the AO was bound by CBDT Circulars, and without evidence of perversity in Ld.CIT(A)'s findings, dismissed the revenue's appeal, upholding the decision that the disallowance was not permissible for that year.

Issue 2: Authorization for appeal based on tax effect and grounds specified by the Commissioner.
The Tribunal highlighted the importance of the Commissioner recording decisions issue-wise and considering the tax effect before authorizing appeals. The CBDT Instruction 21/2015 emphasized that appeals should not be filed routinely based on revenue audit objections. The Tribunal observed that the AO's appeal, with tax effect below the limit, lacked justification and doubted if the Commissioner directed raising the ground for appeal. The Tribunal emphasized that reasons for preferring appeals, even on factual matters, must be recorded, and dismissed the revenue's appeal as unadmitted, finding no infirmity in Ld.CIT(A)'s decision regarding the disallowance.

In conclusion, the Tribunal upheld the Ld.CIT(A)'s decision on the disallowance of expenditure under section 40A(3) for A.Y. 2006-07. Additionally, the Tribunal stressed the necessity for proper authorization of appeals based on tax effect and specified grounds by the Commissioner, emphasizing the importance of recording justifiable reasons for preferring appeals, even on factual issues, and adherence to CBDT Circulars to avoid routine filing of appeals.