2012 (9) TMI 20 - HC - Income Tax

Rejection of tax appeal against penalty levied u/s 271(1)(c) - total cumulative tax effect involved in the appeals was less than Rs. 4 Lacs - Held that - CBDT Instruction No. 5 of 2008 dated 15th May, 2008 states that monetary limit was increased and appeals were to be filed under Section 260A, thereafter, only in cases where the tax effect exceeded Rs. 4 Lacs applicable to appeals filed on or after 15th May, 2008. It was further provided that in cases, where appeals were filed before 15th May, 2008, they would be governed by the instructions on this subject which were operative at the time when such appeals were filed - 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. One fails to understand how the Revenue, on the face of the above clear instructions of the CBDT, can contend that the circular dt. 15th May, 2008 issued by the CBDT is applicable to the cases filed after 15th May, 2008 and in compliance thereof, they do not file appeals, if the tax effect is less than Rs. 4 Lakhs, but the said circular is not applicable to the cases filed prior to 15th May, 2008 i.e. to the old pending appeals, even if the tax effect is less than Rs. 4 Lakhs. Thus there is no logic behind this belief entertained by the Revenue - Since in this Appeal the tax effect on the quantum of penalty deleted by the ITAT is Rs.5,21,530/-, which is less than Rs.10 lakhs fixed under Instruction No.3 of 2011 as operative at the time when such appeals were filed, therefore, this Tax Appeal filed under section 260A is dismissed as not maintainable on the ground of monetary limit, without expressing any opinion on merits of the case.

Summary

Issues Involved:
1. Maintainability of the Tax Appeal under section 260A of the Income Tax Act, 1961, in light of Instruction No.3 of 2011 issued by the Central Board of Direct Taxes (CBDT).
2. Applicability of Instruction No.3 of 2011 to pending appeals.
3. Deletion of penalty levied under section 271(1)(c) of the Income-tax Act, 1961, by the Appellate Tribunal.

Detailed Analysis:

1. Maintainability of the Tax Appeal under section 260A of the Income Tax Act, 1961, in light of Instruction No.3 of 2011 issued by the Central Board of Direct Taxes (CBDT):

The primary issue revolves around whether the Tax Appeal filed under section 260A of the Income Tax Act, 1961, is maintainable given the monetary limits set by Instruction No.3 of 2011 issued by the CBDT. According to this instruction, appeals should not be filed where the tax effect does not exceed Rs. 10,00,000 for appeals before the High Court. The instruction aims to reduce litigation where the tax effect is minimal. The court noted that the tax effect in the present case was Rs. 5,21,530, which is below the Rs. 10,00,000 threshold.

2. Applicability of Instruction No.3 of 2011 to pending appeals:

The court examined whether Instruction No.3 of 2011 applies to appeals that were pending at the time the instruction was issued. The respondent's counsel argued that the instruction applies to pending appeals, thereby rendering the current appeal non-maintainable. The appellant's counsel contended that the instruction should only apply to appeals filed after the instruction came into force. The court referenced several judgments, including decisions from the Bombay High Court and Karnataka High Court, which held that the instruction applies to pending appeals. The court agreed with these views, concluding that Instruction No.3 of 2011 does indeed apply to pending appeals, thus affecting the maintainability of the current appeal.

3. Deletion of penalty levied under section 271(1)(c) of the Income-tax Act, 1961, by the Appellate Tribunal:

The substantial question of law admitted for consideration was whether the Appellate Tribunal was right in deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961, particularly when the additions made by the Assessing Officer were confirmed by the Tribunal as unaccounted income of the assessee. However, the court did not delve into the merits of this issue due to the preliminary finding on the maintainability of the appeal based on the monetary limits set by Instruction No.3 of 2011.

Conclusion:

The court concluded that the appeal was not maintainable due to the tax effect being less than the Rs. 10,00,000 threshold set by Instruction No.3 of 2011. The court dismissed the appeal on the ground of monetary limit without expressing any opinion on the merits of the case, leaving the substantial question of law open to be decided in an appropriate case.