CBDT revised Monetary Limits For Filing Appeals By tax authorities and direct to withdraw old appeals also: – the question is whether subordinates of CBDT will follow instructions? It is doubtful considering past experience.

[CA DEV KUMAR KOTHARI]

Earlier article:

The last article on this issue by the same author was “Revenue should withdraw appeals in cases of tax effect below present prescribed limits for filing of appeals” was webhosted on September 22, 2015 on the following link:

https://www.taxmanagementindia.com/print/print_Article.asp?ID=6453

Latest circular:

In latest circular no. 21/ 2015, dated 10.12.2015  which is mostly on similar lines as was in earlier circular the CBDT has revised limits and has also instructed to withdraw old appeals if the issue involved has less than revised tax effect limit.

Whether tax authorities always follow board’s instructions?

We find many cases in which tax authorities filed appeals even though they should not have filed because tax effect was not only below the prescribed limits and in many cases tax effect was insignificant.

Cases of insubordination:

Based on ground realities and past experience, we find that tax authorities are not in habit of following binding circulars and judgments which are in favour of tax payer. We find many cases of insubordination by tax authorities who do not follow instructions of higher authorities. The board is also of view that binding judgments must be followed, however, unfortunately even judgments of the Supreme Court are not followed by many tax authorities, including appellate authorities. What they do, they just do not mention relevant submissions and references in the order and decided case in a manner contrary to binding precedence.

Action must be taken against such insubordination:

An appeal before ITAT is filed with sanction of Commissioner, and in case of appeal before High Court and the Supreme Court with approval of concerned authorities and also on opinion of counsel.

 The scrutiny of orders under appeal involves working from inspectors to higher authorities  and CCIT and / or counsels.

However, it is experienced that whenever there is substantial addition made by the AO, the departmental authorities and counsels are ready to fight case up to the Supreme Court, even if there is no merit at all in the case.

This practice should come to an end, and this can only be if action of insubordination are reported, enquired and concerned officers are penalised.

Tribunal and Courts must award substantial costs:

When a tax authority files an appeal contrary to binding law/ precedence and instructions of highest authority like CBDT, the Tribunal and Courts must award substantial costs in favour of tax payer. This can put a check on filing of frivolous appeals. 

The recent Circular is reproduced in this article with highlights. As per Circular 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.

Separate orders vis a vis combined order for many years- there should be no different approach

The Board has again adopted old view that in case of a composite order, in case of same assessee, cumulative tax effect may be considered.  And if it exceeds limit then appeal has to be filed for each year. 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.

Example:

Suppose a CIT(A) hears appeals of same assessee for six years involving some issues common in all years.  He passes separate orders for each of appeal and the tax effect is less than prescribed limit in each of years.

As per Board , revenue need not to file / cannot file for any year.

 

Cases where limit is not applicable (paragraph 8 and 9 of circular)

The monetary limit for filing of appeal shall not apply to the following cases:

Adverse judgments relating to the Writ and other  matters  involving  Constitutional validity of the provisions of an Act or Rule are under challenge, Board's order, Notification, Instruction or Circular has been held to be  illegal or ultra vires, where Revenue Audit objection in the case has been accepted by the Department, Where the addition relates to undisclosed foreign assets/ bank accounts.

Justified exemption: The exception about constitutional validity of any provision of IT Act, IT Rules, notification and circulars is justified because these have impact all over India.

However, in such cases also merits must be considered and counsels should not routinely advise to file appeals or review petitions.

Not justified: where Revenue Audit objection in the case has been accepted by the Department should not get blanket permission to file appeal. The audit objection, it self should be reviewed in view of change in law, if any and merits of decision against such objection. This is because as per ground reality, any audit objection having substantial revenue effect is accepted and action is taken by way of rectification, revision or reassessment, as may be found suitable. The objections are accepted with a view to avoid criticism and for shirking responsibility.

Ground reality and experience shows that large portion of action taken based on revenue audit objections fails due to lack of merits and other reasons. Therefore, in such cases also filing of subsequent appeals [(after order of  CIT(A)] should be based on merit and not only because audit objection was accepted. 

 Appeal where the addition relates to undisclosed foreign assets/ bank accounts – should also be based on merit after order of CIT(A) / first appellate authority has been passed. It should not be automatic to file appeal before ITAT/High Court or the Supreme Court.

Assessee must take initiative in disposal of withdrawal of appeals:

As per past experience we cannot expect any tax authority or counsel of revenue to take initiative for withdrawal or  dismissal of appeals which involves lower tax effect than recently revised. Therefore, in such cases assessee can take initiative and approach Tribunal / Court and point out that such appeals be withdrawn.

In fact, CBDT should have directed in clear terms to withdraw such appeals. However, from the language used in the circular it appears to have been left to the discretion of concerned authority /   committee or counsels as the case may be.

 

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

Circular - Income Tax

Circular No. 21/2015

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

Government of India

Ministry of Finance

Department of Revenue

Central Board Direct Taxes

New Delhi the 10^th December, 2015

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

Reference is invited to Board's instruction No 5/2014 dated 10.07.2014 wherein monetary limits and other conditions for filing departmental appeals (in Income-tax matters) before Appellate Tribunal and High Courts and SLP before the 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 and High Courts and SLP before the Supreme Court keeping in view the monetary limits and conditions specified below.

3. Henceforth, appeals/ SLPs 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	10,00,000/-
2	Before High Court	20,00,000/-
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, or

(d)   Where the addition relates to undisclosed foreign assets/ bank accounts.

9.  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 12A 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.

10.  This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/ Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/ not pressed. Appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.

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

(D. S. Chaudhry)

CIT (A&J), CBDT,

New Delhi