2019 (8) TMI 654 - HC - Income Tax

Maintainability of appeal - low tax effect - HELD THAT - Tribunal relying upon the Circular No.21/2015 dated 10th December 2015 dismissed the appeal on the ground of low tax effect without going into the merits of the matter. Revenue pointed out that the case was reopened on the basis of revenue audit objection and in such circumstances, the same would be covered under the exception mentioned in the Circular No.3/2018 of the C.B.D.T. The Circular No.3/2018 issued by the Government of India, Ministry of Finance dated 11th July, 2018 is with respect to the revision of monetary limits for filing of the appeals by the department in the Income Tax Appellate Tribunal, High Courts and appeals before the Supreme Court. In such circumstances referred to above, the Appellate Tribunal ought to have decided the issue on merits rather than dismissing the appeal on the ground of low tax effect. This appeal succeeds and is hereby allowed. The impugned order passed by the Appellate Tribunal is quashed and set aside. The question of law is answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Dismissal of appeal by the Income Tax Appellate Tribunal based on low tax effect.
2. Interpretation and application of Circular No.21/2015 dated 10th December 2015.
3. Exception mentioned in Circular No.3/2018 of the C.B.D.T regarding reopening cases based on revenue audit objections.

Issue 1: Dismissal of appeal based on low tax effect
The High Court considered a tax appeal under Section 260A of the Income Tax Act, 1961, filed by the Revenue against an order of the Income Tax Appellate Tribunal. The Tribunal had dismissed the appeal citing low tax effect, as the net tax effect in the case was less than ?10 lakhs. The High Court noted that the Tribunal relied on Circular No.21/2015 dated 10th December 2015, which directed the withdrawal or non-pursuance of department's pending appeals before tribunals/high courts. The High Court found that the Tribunal dismissed the appeal solely based on low tax effect without delving into the merits of the case.

Issue 2: Interpretation and application of Circular No.21/2015
Circular No.21/2015 dated 10th December 2015 by the Central Board of Direct Taxes (CBDT) was pivotal in the Tribunal's decision to dismiss the appeal due to low tax effect. The Circular instructed the withdrawal or non-pursuance of department's pending appeals before tribunals/high courts. The High Court observed that the Tribunal's reliance on this Circular led to the dismissal of the appeal without considering the substantive grounds raised by the Revenue.

Issue 3: Exception in Circular No.3/2018 of the C.B.D.T
The High Court analyzed the exception mentioned in Circular No.3/2018 of the CBDT, dated 11th July 2018, regarding the revision of monetary limits for filing appeals by the department. The Circular specified that adverse judgments on certain issues should be contested on merits irrespective of the tax effect. These issues included challenges to the constitutional validity of provisions, illegality of Board's orders, acceptance of Revenue Audit objections, and undisclosed foreign assets/bank accounts. The High Court emphasized that in cases covered by these exceptions, the Tribunal should decide on the merits rather than dismissing the appeal based on low tax effect.

In conclusion, the High Court allowed the appeal filed by the Revenue, quashed the Tribunal's order, and remitted the matter back to the Income Tax Appellate Tribunal for fresh consideration on merits. The judgment highlighted the importance of considering substantive issues and exceptions specified in relevant Circulars while deciding tax appeals, rather than solely focusing on the tax effect.