2018 (11) TMI 1828 - AT - Income Tax

Maintainability of appeal of revenue on low tax effect - reopening of assessment u/s 147 - CIT(A) quashing the assessment on the basis that the issue of undervaluation of stock is change of opinion even and not adjudicated the case on merits - AO has explicitly stated in the assessment order passed u/s.147 of the I.T Act, 1961 that the assessee has not provided any documentary evidence of expenditure - HELD THAT - In the present case, tax effect on the total income assessed minus the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issue against which appeal is filed, is less than ₹ 20 lakhs. Further, the case of the Revenue does not fall within the ambit of exceptions provided in the Circular. Thus, keeping in view the above CBDT circular and provisions of section 268A of the Income Tax Act, we are of the view that the present appeal of the Revenue deserves to be dismissed. It is accordingly dismissed. However, it is observed that in case on re-verification at the end of the AO it comes to the notice that the tax effect is more or Revenue s case falls within the ambit of exceptions provided in the Circular, then the Department will be at liberty to approach the Tribunal for recall of this order. Appeal of revenue dismissed.

Summary

Issues:
1. Quashing of assessment based on undervaluation of stock as change of opinion.
2. Applicability of recent CBDT Circular restricting appeals by Revenue below a certain tax effect threshold.

Analysis:
1. The appeal before the ITAT Surat concerned the Revenue's grievance regarding the quashing of assessment for A.Y. 2010-11 by the ld. CIT(A) on the grounds of undervaluation of stock, which the Revenue contended was not adjudicated on merits. The AO had highlighted the lack of documentary evidence for a specific expenditure by the assessee. The Tribunal noted that the appeal was filed before the issuance of a CBDT Circular in 2018, which restricted appeals by the Revenue where the tax effect was below a specified threshold. The Tribunal found that the tax effect in this case fell below the prescribed limit and did not qualify for exceptions outlined in the Circular. Consequently, the Tribunal dismissed the Revenue's appeal based on the Circular and provisions of the Income Tax Act.

2. The Tribunal observed that the CBDT Circular issued in 2018 prohibited subordinate authorities from filing appeals to the Tribunal where the tax effect of the relief granted by the CIT(A) was less than a specified amount. The Circular was to be applied retrospectively, including to pending appeals. In this case, the tax effect was below the threshold, and the Revenue's appeal did not meet the exceptions specified in the Circular. Therefore, the Tribunal concluded that the appeal deserved dismissal in accordance with the Circular and statutory provisions. The Tribunal also allowed the Department the opportunity to approach for a recall of the order if the tax effect increased upon re-verification by the AO or if the case fell within the exceptions provided in the Circular.

In conclusion, the ITAT Surat dismissed the Revenue's appeal due to the low tax effect, as per the CBDT Circular and provisions of the Income Tax Act. The Tribunal emphasized the importance of complying with the Circular's restrictions on appeals based on the specified tax effect threshold and provided the Department with the option to seek a recall of the order under certain circumstances.