Revenue should withdraw appeals in cases of tax effect below present prescribed limits for filing of appeals

[CA DEV KUMAR KOTHARI]

ALEXANDER GEORGE Versus COMMISSIONER OF INCOME-TAX  2015 (8)TMI 519 - SUPREME COURT 

COMMISSIONER OF INCOME-TAX AND ANOTHER Versus CENTURY PARK 2015 (8) TMI 522 - SUPREME COURT

Article -Honourable  Supreme Court refused to entertain the appeal of assessee due to low tax effect-  with due respect, author feels the urgent  need of reconsideration to render justice.

https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=6393 Limits for filing of appeal:

From time to time the Board has increased minimum limit for revenue effect, for taking a decision as to filing of appeal. When revenue impact on disputed issue is lower, the view adopted by the Board is that appeal should not be filed.

The recent Circular is reproduced in this article with highlights. As per Circular being. Instruction No. 5/2014 F No 279/Misc. 142/2007-ITJ (Pt) dated 10.07.2014 revised limit for filing appeals is for each year. As per Circular tax effect for each year is to be considered. Even if appeals are being filed for more than one year and in one year tax effect is higher than for only that year appeal is required to be filed and not for other years in which revenue effect is less than applicable limit.

In view of the author each year is separate and for each year separate appeal is required to be filed before CIT (A)/ ITAT/ High Court and the Supreme Court, as the case may be.  For each year time and cost are to be spent to handle all aspects from filing of appeals to the ultimate appeal effect, by revenue and assessee both. Therefore, revenue impact of each year is required to be considered, to avoid litigation on petty matters.

The Board has however, taken view that in case of a composite order, in case of same assessee, cumulative tax effect may be considered. There seems no logic for this view. Because as discussed earlier each year involves separate appeal, even in case of Composite order , each year will entail time and costs. The concerned Court and counsel of revenue and assessee both will have to go through all orders beginning from assessment order in respect of all years.

In view of author,  even if more than one appeal is being filed and / or considered at the same time, tax effect for each year should be considered and not total figure for all years.

One more reason is for this view, because for different years different monetary limit may be applicable.  

Smaller appeals- less interest:

It is quite natural that in case revenue effect is less, even assesses are not very diligent in attending them. For this reason assessee remains absent and many times cases are adjourned. Even counsels of revenue may not be interested in small cases as compared to cases involving larger amount.

Unproductive work can be reduced:

Withdrawal of appeal by revenue, in cases where tax effect is less than present prescribed limit, will lead to reduce unproductive work and avoid spending of public money. With withdrawal of such appeals, courts will be relieved of many pending cases.

Withdrawal of such smaller appeals will lead to more objectivity in litigation management and Courts will be able to devote more time on appeals involving larger amount.

Even appeal of assessee was dismissed as revenue effect was low:

In case of ALEXANDER GEORGE (supra.) appeal of assessee was dismissed without considering because tax effect was low. However in case of Century Park (supra.) though the Supreme Court  impliedly affirmed that monetary limit should be considered retrospectively. However, it was held that appeal should not be dismissed ipso facto, for reason of low revenue effect and restored the matter to High Court to consider other aspects like cascading effect in case of assessee and other assesses.

Withdrawal of appeal should be discretion of appellant:

In view of author, withdrawal of appeal should be in discretion of appellant and Courts should not dismiss appeal of appellant whether appellant be revenue or tax payer. This is because Courts are to render justice. Once an appeal is filed, the Court must decide the appeal based on merits of the case. Even in absence of appellant and / or respondents, to render justice, Court can decide the appeal based on material available.

Approach should be forward looking:

There is no objectivity and purpose in continuing litigation involving smaller issues and smaller implications. Objective assessment and reappraisal should be made to consider withdrawal of appeals of revenue to avoid costly time and money spending  on smaller matters that causes lot of attention and therefore, hampers working for matters and issues involving larger monetary consideration.

Current Limits must be considered and appeals involving

Lower tax effect should be withdrawn:

For all practical purposes for fixing the monetary limit, it can be said that even if appeal was filed in past, the maintainability of appeal should  be considered in view of present limit. This is because limits have been increased due to reasons like (a) inflation (b) increasing costs in handling appeals and (c) increased exemption limit or reduced tax rates and (d) passage of long time between previous year and consideration of appeal.

However, as stated earlier, the Courts should not dismiss appeals due to lower tax effect it should be discretion of appellant to  withdraw  appeals.

Therefore, CBDT / CBEC can consider the matter, and take a policy decision to withdraw appeals which have low revenue impact as per present limits and which do not have major cascading impact.

Present circular fixing monetary limit is analysed below with highlights added by author:

Order-Instruction - Income Tax

Instruction No. 5/2014

F No 279/Misc. 142/2007-ITJ (Pt)

Government of India

Ministry of Finance

Department of Revenue

Central Board Direct Taxes

New Delhi the 10th July, 2014

To

All Chief Commissioners of Income-tax and

All Directors General of Income-tax

Subject: Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal, High Courts and Supreme Court - measures for reducing litigation - Reg -

Sir/Madam,

    Reference is invited to Board's instruction No 3/2011 dated 09/02/2011 wherein monetary limits and other conditions for filing departmental appeals (in Income-tax matters) before Appellate Tribunal, High Courts and Supreme Court were specified.

2.    In supersession of the above instruction, it has been decided by the Board that departmental appeals may be filed on merits before Appellate Tribunal, High Courts and Supreme Court keeping in view the monetary limits and conditions specified below.

3.    Henceforth appeals shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder: -

S. No.	Appeals in Income-tax matters	Monetary Limit (in Rs.)
1.	Before Appellate Tribunal	4,00,000/-
2.	U/s 260 A before High Court	10,00,000/-
3.	Before Supreme Court	25,00,000/-

 

It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.

4. For this purpose, "tax effect" means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as "disputed issues"). However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against

5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the 'tax effect' is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which 'tax effect' exceeds the monetary limit prescribed. In case where a composite order / judgement involves more than one assessee, each assessee shall be dealt with separately.

6. In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Commissioner of Income-tax shall specifically record that "even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction". Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits.

7. In the past, a number of instances have come to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for the reason of the tax effect being less than the specified monetary limit and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value. As the evidence of not filing appeal due to this instruction may have to be produced in courts, the judicial folders in the office of CsIT must be maintained in a systemic manner for easy retrieval.

8. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect.

(a)  Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or

(b)  Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or

(c) .Where Revenue Audit objection in the case has been accepted by the Department.

9. The proposal for filing Special Leave Petition under Article 136 of the Constitution before the Supreme Court should, in all cases, be sent to the Directorate of Income-tax (Legal & Research), New Delhi and the decision to file Special Leave Petition shall be in consultation with the Ministry of Law and Justice.

10. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute & rules. Further, filing of appeal in cases of Income Tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12 A of the IT Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file -appeal in such cases may be taken on merits of a particular case.

11. This instruction will apply to appeals filed on or after 10th July, 2014 However, the cases where appeals have been filed before 10th July, 2014 will be governed by the instructions on this subject, operative at the time when such appeal was filed.

12. This issues under Section 268A (1) of the Income-tax Act 1961.

Yours faithfully

(Priyanka Singh)

(OSD), ITJ, CBDT