2013 (7) TMI 167 - HC - Income Tax

Monetary limit for filing appeal by revenue - Exception to CBDT circular - CBDT in its circular has issued revised instructions for limiting tax appeals involving low tax effect - it is provided that no appeal shall be filed before the High Court in cases where tax effect does not exceed Rs. 10 lakhs, however some exception are laid down - Held that - simply because the Tribunal held that section 40(a)(ia) of the Act is not applicable, would not bring the case within the said exception. Said exception would apply where the issue decided by the Tribunal arises out of a statutory provision whose validity is in question - The very purpose of laying down the limitations of tax appeal permitting the Revenue to carry issues before the higher forum is to save public time and to enable the Tribunal and the Courts to focus on appeals involving larger revenue. The entire purpose would be frustrated if the Revenue were to attempt to by-pass the circular of CBDT by raising artificial contentions to fall within the exceptions - Decided in favour of Assessee.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in deleting the addition under section 40(a)(ia) of the Income Tax Act, 1961?
2. Whether the appeal by the Revenue falls under the exception clause (a) of the circular issued by CBDT regarding limiting tax appeals involving low tax effect?

Analysis:

Issue 1:
The Revenue appealed against the Income Tax Appellate Tribunal's decision to delete the addition under section 40(a)(ia) of the Income Tax Act, 1961. The Tribunal held that the provisions of section 40(a)(ia) were not applicable in the case. The Revenue argued that the appeal falls under an exception clause of a circular issued by CBDT. However, the High Court found the Revenue's understanding flawed. The Court emphasized that the exception clause applies when the validity of statutory provisions is in question, not merely based on a Tribunal's decision. The purpose of limiting tax appeals is to focus on significant revenue issues, and attempting to bypass the circular would defeat this purpose. The Court dismissed the Tax Appeal and warned of potential costs for persisting with such practices.

Issue 2:
The circular by CBDT set a threshold for tax appeals, stating that no appeal shall be filed before the High Court if the tax effect does not exceed Rs. 10 lakhs, with exceptions for specific circumstances. The Revenue contended that the appeal falls under exception clause (a) of the circular, citing the constitutional validity challenge of the Act and Rule. However, the High Court disagreed with this interpretation, emphasizing that the exception applies to challenges to statutory provisions' validity, not decisions made by tribunals. The Court highlighted the importance of adhering to the circular's guidelines to save public time and focus on significant revenue matters. The Court dismissed the appeal and cautioned against persisting with such practices to bypass the circular's limitations.