2022 (7) TMI 1530 - HC - Income Tax

Dismissal of appeal on low tax effect by Tribunal - scope of low tax effect in view of the monetary limit prescribed by the CBDT in Circular No. 17/2019 - According to the department, the respondent assessee is covered by the exception of the revenue audit objection provided in para 10(c) of the CBDT Circular No. 03/2018 issued on 11.07.2018 and the said audit objection also accepted by the department and hence, the appeal is erroneously dismissed as withdrawn applying the circular no. 17/2019 instead of letting the matter to be decided on merits. HELD THAT - As noted, while applying monetary limit to the pending cases, the Commissioner (DR) had urged to the Tribunal that liberty be given upon necessary further verification to seek recall of the dismissal of appeals and restore those appeals in which the appeals are covered by the exception and which are inadvertently included in the bunch of appeals wherein the tax effect in terms of the CBDT circular exceeded 50 lakhs. Nobody has opposed this prayer and it has been accepted. It has also been clarified by the Tribunal that the appellant shall be at liberty to point out the cases which were wrongly included in the appeals so similarly dismissed either owing to wrong computation of tax effect or owing to such cases being covered by permissible exceptions or for such other reasons and appropriate remedial steps would be taken by the Tribunal in this regard. Even if the Misc. Application has been preferred pointing out the error apparent on the face of the record of the order dated 14.08.2019 in the year 2020, this decision itself should be a guiding factor. The department had already taken a specific permission of the Tribunal to allow it to raise this objection whenever it finds the necessity and the respondents have never objected to the same at the relevant point of time, they in fact have admitted to such proposal. Tribunal had also clarified and permitted explicitly and therefore, by way of Misc. Application once the authority has urged the Tribunal to recall its order for having not considered the acceptance of the audit objections by the Revenue and the matter falling within the exceptions of the circular, no objection now could be allowed to be sustained at the end of the assessee- respondents. We find that indulgence is a must. While parting, necessary will be to make a reference of the paragraphs 10 and 11 of the base order dated 14.08.2019 to reflect that the entire exercise was done hurriedly. The circular was issued on Thursday, 08.08.2019 and within two working days in the long weekend on 14.08.2019 all appeals have been disposed of. Although it is held to be remarkable and exceptional step with the cooperation of all stakeholders, the Court cannot help noticing that this was too short a period for the Revenue to point out in each case the acceptance of the audit objections and hence, the request rightly had been made by the Commissioner (DR) seeking the liberty and when the same has been reserved in a subsequent order, the Tribunal ought not to have rejected the same. Resultantly, all the present petitions are allowed, quashing and setting aside the impugned orders of the Tribunal passed in respective misc. applications. We further allow all the misc. applications by restoring the appeals of the department to be heard on merits expeditiously.

Summary

Issues Involved:
1. Application of CBDT Circular No. 17/2019 regarding low tax effect.
2. Exception of revenue audit objection under CBDT Circular No. 03/2018.
3. Tribunal's dismissal of appeals based on low tax effect.
4. Retrospective application of CBDT Circulars.
5. Tribunal's obligation to consider audit objections.
6. Binding nature of CBDT Circulars on the Revenue.

Detailed Analysis:

1. Application of CBDT Circular No. 17/2019 regarding low tax effect:
The Tribunal dismissed 628 appeals, including ITA No. 2772/Ahd/2017, on 14.08.2019, citing the low tax effect as per CBDT Circular No. 17/2019. The circular prescribed a monetary limit below which appeals would not be maintainable. The Tribunal's decision was based on the tax effect being below Rs. 50 lakhs.

2. Exception of revenue audit objection under CBDT Circular No. 03/2018:
The Revenue argued that the appeals fell under the exception of revenue audit objections provided in para 10(c) of CBDT Circular No. 03/2018. The department claimed that the audit objections were accepted, and thus the appeals should not have been dismissed based on the low tax effect.

3. Tribunal's dismissal of appeals based on low tax effect:
The Tribunal dismissed the appeals without considering whether the audit objections had been accepted by the department. The Tribunal relied on its earlier decision and the Bombay High Court's ruling in Principal CIT vs. Nawany Construction Co.(P.) Ltd., which stated that merely raising an audit objection is insufficient for recalling an order without demonstrating its acceptance by the department.

4. Retrospective application of CBDT Circulars:
The Tribunal applied the CBDT Circular No. 17/2019 retrospectively, considering the circular in conjunction with earlier Circular No. 03/2018. The Tribunal dismissed the appeals and cross-objections, emphasizing the government's policy to reduce litigation by not contesting low tax effect cases.

5. Tribunal's obligation to consider audit objections:
The Tribunal failed to examine whether the audit objections were accepted by the department before dismissing the appeals. The High Court noted that the Tribunal should have considered whether the audit objections were evaluated and accepted, as per the guidelines in Instruction No. 07/2017.

6. Binding nature of CBDT Circulars on the Revenue:
The High Court emphasized that CBDT Circulars are binding on the Revenue, as established in various judicial precedents. The Tribunal should have given due weightage to the circulars and considered the exceptions before dismissing the appeals.

Conclusion:
The High Court allowed the petitions, quashing the Tribunal's orders and restoring the department's appeals for fresh consideration on merits. The Tribunal was directed to examine each case, particularly the acceptance of audit objections, and to hear the appeals expeditiously. The court reiterated the binding nature of CBDT Circulars and the necessity for the Tribunal to consider exceptions before dismissing appeals based on low tax effect.