2017 (3) TMI 1057 - HC - Income Tax

Review petition - notional tax effect - Held that - We are inclined to dispose of the present review petition, basically in view of the order passed in Commissioner of Income Tax, G vs. Meghalaya Steels Ltd. 2015 (8) TMI 525 - SUPREME COURT and the subsequent circular which was admittedly issued on 10th December, 2015, prior to the date of order passed by the Supreme Court 12/August/2016. There is no issue now that review is available under the Act. Admittedly, the review is maintainable and no further discussion is required on the maintainability of the review. However, the effect of Circular No.21/2015 just cannot be overlooked at the time of hearing of the review and even the appeal. The Circulars and the position of law on the date of hearing of this review petition and/or even otherwise, as clear and we are inclined to dispose of the present review petition, solely on the ground and the reasons so provided in Commissioner of Income Tax vs. Sunny Sounds P. Ltd. (2016 (5) TMI 112 - BOMBAY HIGH COURT ) which is based upon Circular No. 21/2015. Based on the law and the facts so referred above, we have no option, but to dispose of this review application, solely on the foundation of the above circular as even the notional tax effect is not more than ₹ 20.00 lakhs.

Summary

Issues Involved:
1. Maintainability of the review petition under the Income Tax Act, 1961.
2. Applicability of CBDT Circulars regarding monetary limits for filing appeals.
3. Classification of income and deductions under the Income Tax Act, 1961.
4. Tax effect and its implications on pending appeals.

Issue-wise Detailed Analysis:

1. Maintainability of the Review Petition under the Income Tax Act, 1961:
The Supreme Court, in its order dated 12th August 2016, concluded that a review is available in respect of orders passed under Section 260A of the Income Tax Act, 1961. This decision was based on the precedent set in Commissioner of Income Tax, G vs. Meghalaya Steels Ltd. The Supreme Court allowed the appeals, set aside previous High Court orders, and directed the High Court to decide the review petition and the appeal on merits if required. This established that the review petition was maintainable under the Act.

2. Applicability of CBDT Circulars Regarding Monetary Limits for Filing Appeals:
The High Court considered the CBDT Circular No. 21/2015, which set monetary limits for filing departmental appeals to reduce litigation. The circular specified that appeals should not be filed if the tax effect does not exceed Rs. 20,00,000/- for High Court cases. The High Court noted that this circular was in effect before the Supreme Court's order and should be applied retrospectively to pending appeals. The court referenced Commissioner of Income Tax vs. Sunny Sounds P. Ltd., which supported the application of such circulars to pending cases to focus on substantial financial stakes.

3. Classification of Income and Deductions under the Income Tax Act, 1961:
The case involved the classification of income and deductions claimed by the respondent. The respondent had filed a return declaring a net loss in the mining division and a profit in the EOU Division, claiming deductions under Section 10B of the Act. The Assessing Officer (AO) initially accepted the returns but later issued a notice under Section 148, alleging escaped income. The AO's reassessment included mandatory depreciation under Section 32(1) and reclassified bank interest as income from other sources. The respondent's appeal to the Commissioner of Income Tax (Appeals) was dismissed, but the Income Tax Appellate Tribunal later allowed the appeal, accepting the respondent's contentions.

4. Tax Effect and Its Implications on Pending Appeals:
The High Court initially dismissed the Revenue's appeal based on the CBDT Circular No. 5/2008, which set a lower monetary limit for filing appeals. The Revenue sought a review, arguing a higher notional tax effect, but the High Court dismissed the review petition, considering it not maintainable. The Supreme Court directed the High Court to reconsider the review petition. The High Court, upon reevaluation, noted the tax effect, including notional value, was within the ceiling of Rs. 20,00,000/- as per Circular No. 21/2015. The court concluded that the review and appeal should be disposed of based on the current circular and legal position, emphasizing the importance of reducing litigation and focusing on substantial cases.

Conclusion:
The High Court dismissed the review application and the appeal, noting that the tax effect, including notional value, did not exceed the monetary limit set by CBDT Circular No. 21/2015. The court's decision was influenced by the need to reduce litigation and focus on cases with substantial financial stakes, aligning with the circular's objectives. The judgment highlighted the retrospective application of such circulars to pending appeals and maintained the position that review petitions are maintainable under the Income Tax Act, 1961.