2018 (10) TMI 930 - AT - Income Tax

Monetary limit - tax effect - cumulative tax effect - Held that - Paragraph 5 of CBDT Circular No.3/2012 had come up for consideration before the Hon ble Karnataka High Court in the case of CIT, Central Circular Vs. PSI Hydraulics 2012 (10) TMI 1184 - KARNATAKA HIGH COURT wherein held merely because the order of the CIT(A) is consolidated order passed for several years tax effect should not be seen for each AY separately. The Hon ble Karnataka High Court held that paragraph 5 of Circular No.3/2013 was discriminatory and offended Article 14 of the Constitution of India. The Hon ble High Court finally held that even though the cumulative tax effect in a common order passed by CIT(A) for several years is more than 10 lakhs but if the individual tax effect in each assessment year is less than the monetary limit prescribed in Circular No.3/2011, the same should be held to be not maintainable.

Summary

Issues:
Appeal maintainability based on tax effect below monetary limit specified in Circular No. 3/2018 for AY 2009-10 & 2011-12.

Analysis:
The judgment dealt with the issue of appeal maintainability based on the tax effect in appeals for AY 2009-10 & 2011-12 being less than ?20 lakhs, as per CBDT Circular No. 3/2018. The Circular specified that appeals to the Tribunal should not be filed where the tax effect is less than ?20 lakhs in one assessment year. However, the learned DR referred to para-5 of the Circular, emphasizing that if the tax effect exceeds the monetary limit specified in para 3 for any assessment year with disputed issues, the appeal can be filed for all such years. In this case, the tax effect for AY 2010-11 exceeded the limit, making the appeal maintainable for AY 2009-10 & 2011-12 as well.

The counsel for the Assessee highlighted that the Circular was similar to Circular No. 3/2012, which had been considered by the Hon'ble Karnataka High Court in a previous case. The High Court had held that tax effect should not be seen for each assessment year separately in a consolidated order. The Court found the Circular discriminatory and in violation of Article 14 of the Constitution, stating that even if the cumulative tax effect in a common order exceeded the limit, individual tax effects below the prescribed limit should render the appeal not maintainable.

The judgment further included excerpts from the Hon'ble Karnataka High Court's decision on the issue, emphasizing that in cases of a common order involving multiple assessment years, the revenue could appeal even if the tax effect in some years was below the limit. However, for solitary orders with tax effects below the limit, the assessee was entitled to exemption, and the revenue could not file an appeal. The Court criticized the discriminatory nature of the Circular, stating that the assessee should benefit from the prescribed tax effect limit regardless of whether the order was common or solitary.

Considering the precedent set by the Hon'ble Karnataka High Court, the Tribunal concluded that the revenue could not rely on cumulative tax effect arguments. Therefore, the appeals by the revenue for AY 2009-10 & 2011-12 were deemed not maintainable and were dismissed accordingly.

In conclusion, the Tribunal dismissed the appeals based on the tax effect criteria, following the principles established by the Hon'ble Karnataka High Court regarding the discriminatory nature of considering cumulative tax effects in common orders. The judgment emphasized the importance of upholding the prescribed monetary limits for filing appeals, regardless of the nature of the order, to ensure fairness and consistency in appeal proceedings.