2008 (8) TMI 344 - HC - Income Tax

Appeal before ITAT binding nature of CBDT circular held that - that simply because the appeal is filed by the Department in contravention of the circular, the Tribunal is not bound to decide the appeal on the merits. Due weightage should invariably be given by the Tribunal to the circular issued by the Board. Even otherwise, the newly inserted provisions contained in section 268A(4) make it obligatory for the Tribunal to consider such circular. It is not open for the Department to contend that circulars are internal matters of the Department and the assessee cannot object to filing of an appeal on the basis of such circular. - It is also true that when the hon ble Supreme Court or the territorial High Court have declared the law on a question, it is not open to the Tribunal to direct that the circular issued by the Board prescribing the monetary limit should be given effect to and not the decision of the hon ble Supreme Court or the territorial High Court.

Issues Involved:
1. Maintainability of appeals by the Revenue based on low tax effect.
2. Applicability and binding nature of the Central Board of Direct Taxes (CBDT) circulars.
3. Exceptions to the monetary limits prescribed by CBDT circulars.
4. Prospective vs. retrospective application of CBDT circulars.
5. Tribunal's obligation to consider CBDT circulars.

Issue-wise Detailed Analysis:

1. Maintainability of Appeals by the Revenue Based on Low Tax Effect:
The primary issue is whether the Appellate Tribunal was right in dismissing the appeals filed by the Revenue on the grounds that the tax effect was below Rs. 2 lakhs, as per the CBDT instructions. The Tribunal dismissed the appeals in limine, relying on the decision in Joint CIT v. Peerless Developers Ltd., which held that appeals with nil tax effect due to losses are not maintainable.

2. Applicability and Binding Nature of CBDT Circulars:
The Revenue argued that the CBDT Instruction No. 2 of 2005, which prescribes monetary limits for filing appeals, is merely an administrative instruction and does not take away the statutory right to appeal under the Income-tax Act, 1961. The Tribunal is required to examine whether the circular is applicable in each case. The court considered various circulars issued by the CBDT, including Instruction Nos. 1328, 1382, 1777, 1985, and 2 of 2005, which set monetary limits for filing appeals and provided exceptions for cases involving substantial questions of law or repetitive issues.

3. Exceptions to the Monetary Limits Prescribed by CBDT Circulars:
The Revenue contended that the instructions contained in the circulars are not absolute and that the Tribunal must consider exceptions such as cases involving substantial questions of law or repetitive issues. The Tribunal must examine whether the exceptions apply to the facts of each case. The court referred to several judgments, including CIT v. Hero Cycles P. Ltd., CIT v. Rajasthan Patrika Ltd., and CIT v. Shivaji Works Ltd., which held that circulars can bind the Income-tax Officer but not the appellate authority or the court.

4. Prospective vs. Retrospective Application of CBDT Circulars:
The court discussed the prospective application of CBDT circulars and whether they apply to pending matters. The Bombay High Court in CIT v. Chhajer Packaging and Plastics P. Ltd. held that Instruction No. 2 of 2005 is applicable only prospectively. However, in CIT v. Pithwa Engg. Works, the court took judicial notice of the need to apply the circulars to old references still undecided.

5. Tribunal's Obligation to Consider CBDT Circulars:
The court emphasized that the Tribunal must give due weightage to the CBDT circulars and consider them while deciding appeals. Section 268A of the Income-tax Act, 1961, inserted by the Finance Act, 2008, makes it obligatory for the Tribunal to consider such circulars. The court held that the Tribunal is not bound to decide appeals on the merits if they are filed in contravention of the circulars. However, if objections are raised by the Departmental representative regarding the applicability of exceptions, the Tribunal must address these objections.

Conclusion:
The court dismissed all the tax appeals, holding that no substantial question of law arises from the Tribunal's orders dismissing the appeals on the ground of low tax effect. The court reserved liberty for the Department to apply to the Tribunal to decide the appeals on the merits in cases where objections regarding exceptions were raised but not addressed by the Tribunal. The court emphasized that the Tribunal must consider the broad parameters and exceptions outlined in the CBDT circulars while deciding appeals.

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