DISPUTED AMOUNT OF TAX / PENALTY IS TO BE CONSIDERED FOR MAINTAINABILITY OF APPEAL

[DEV KUMAR KOTHARI]

Case referred:

LATE SHRI GYAN CHAND JAIN THROUGH LR VERSUS COMMISSIONER OF INCOME TAX-I [2022 (4) TMI 913 - SUPREME COURT] 

(Note- order of ITAT and High Court could not be found on websites so full discussion and outcome at those stages  is not known therefore, this article has been restricted only about issue of disputed amount in appeal for consideration of filing of appeal by revenue).

In this case AO had levied penalty us 271.1.c amounting to Rs. 29,02,743/-

In first appeal CIT(A) reduced penalty to about Rs.6 lakh

Revenue and Assessee both preferred appeal before Tribunal. Revenue disputed order of CIT(A) reducing penalty and contended that  Rs. 29,02,743/-  should be  penalty so tax effect in dispute by revenue was for Rs. 29,02,743/-  and dispute by assesse was for  amount of penalty sustained by CIT(A) the is about Rs. six lakh.

Against order of Tribunal revenue preferred appeal before High Court and the amount of penalty disputed was Rs. 29,02,743/-  .

On behalf of assesse it was contended that reduced amount of penalty that is about Rs.six lakh is to be considered, for maintainability of appeal before High Court in view of Boards Circular prescribing minimum amount of disputed tax/ penalty. However, High Court held that the disputed amount was more than Rs.20 lakh so appeal was maintainable.

Against this order of High Court assesse preferred appeal before the Supreme Court contending that the High Court was not correct in admitting appeal because the amount reduced in appeal that is about Rs. six lakh  which is less than minimum amount fixed for appeal to be filed by revenue.

The Supreme Court confirmed order of high Court on this issue.

Relevant part of order / judgment of Supreme Court on this issue is  reproduced below with highlights added for analysis and easy understanding.

     “2.2 Now so far as the primary submission on behalf of the appellant assessee that as the penalty amount was substantially reduced to ₹ 6 lakhs and even the subsequent demand notice was for an amount of ₹ 6 lakhs (approximately) only and therefore in view of the CBDT Circular dated 10.12.2015 the tax effect being lower than the permissible limit to prefer the appeal before the High Court and therefore the appeal before the High Court was not maintainable is concerned, at the outset it is required to be noted that what was assailed by the Revenue was the penalty amounting to ₹ 29,02,743/and not the penalty reduced by the CIT(A).  Before the Tribunal, both the Revenue, as well as the assessee, preferred the appeals and the entire penalty amounting to ₹ 29,02,743/was an issue before the Tribunal as well as before the High Court.

The subsequent reduction in penalty in view of the subsequent order cannot oust the jurisdiction. What is required to be considered is what was under challenge before the Tribunal as well as the High Court. At the cost of repetition, it is observed that what was challenged by the Revenue was the penalty amounting to ₹ 29,02,743/and not the subsequent reduction of penalty by the CIT(A). The aforesaid aspect has been dealt with by the High Court in paragraph 17 of the impugned judgment and order. We are in complete agreement with the view taken by the High Court. Therefore, it cannot be said that the appeal before the High Court at the instance of the Revenue challenging the order passed by the ITAT was not maintainable in view of CBDT circular dated 10.12.2015.

4. In view of the above and for the reasons stated above there is no substance in the present appeal and the same deserves to be dismissed and is accordingly dismissed. No costs.

Unquote:

The contention raised on behalf of assesse was really devoid of any merit. When Revenue has challenged order of CIT(A) and then of Tribunal before High Court , entire amount of penalty charged by the AO was in dispute and not the amount reduced by CIT(A). Assesse had challenged order of CIT(A) and sought relief of about Rs. six lakh whereas revenue has contended that entire amount of penalty, originally levied by AO is to be levied. So disputed amount of tax/ penalty before tribunal and High Court was in dispute and that was to be considered for maintainability of appeal.

With due respect to the counsels of assesse, author feel that in this case filing of appeal before the Supreme Court was not advisable. Rather attempt should have been to contest levy of penalty on merit. It appears that CIT(A) has reduced penalty to Rs. six lakh ,on merit. Therefore, contesting on merit instead of maintainability of appeal was more important and advisable course of action.

Costs:

This is a fit case  in which imposing costs and damages on assesse / his counsels could be imposed as un-necessary and unwarranted litigation was preferred and pursued and a contention was raised which had no merit at all. Counsels also need to change their mind set and should not suggest filing of appeal on such issues which lack merit.

In this case, there was no merit on the above contention raised by assesse/ appellant before High Court and then before the Supreme Court. Therefore, it was a fit case for imposing costs on assesse and even on counsels who advised and approved filing of appeal before the Supreme Court. In fact assesse can also explore possibilities and  ask his  counsel to reimburse costs , because it was only due to advice or approval of counsel that appeal was preferred before the Supreme Court.

The rule will apply to other appeals also:

The above case was on issue of penalty u.s. 271.1.c however the  Principal will be applicable in case of appeals on other issues also. In those cases  disputed amount of tax  will have to be worked out in relation to amount of tax on  relief allowed which is challenged. For example suppose a relief of deduction of Rs. one core is challenged by revenue, then tax will have to be computed according to rate of tax applicable in case of assesse whose case is in dispute and rates applicable for relevant year.  

Appeal before ITAT and SC:

The rule will also apply in case of appeal before Tribunal and High Court for which different minimum tax effect amount is prescribed for filing of appeals by revenue.

Rule will apply in case of other tax laws also:

In case of other tax laws also where policy decision about minimum tax effect is taken by revenue, for filing of appeals, this rule will apply.

The rule is applicable by intent and spirit:

Prescribing a minimum tax effect for departmental appeals is based on policy to reduce unnecessary litigation on petty matters. However, it can be subject to exceptions like in case of repetitive matters. In some circulars different language can be found which can be source of litigation on other aspects. However, for assesse opposing filing of appeal by department/ revenue issue of “tax effect” should be reasonably considered by assesse also. Genuine litigation, which are covered by exception, from minimum tax limit, should not be opposed by assesse also.

Different rate of tax will impact differently case of assesses:

Now we have different rates of even terminal tax widely ranging in case various types of assesse like different companies and also for individuals and some other assesses in view of options provided and availed. Therefore, in case of reduction of Rs. one crore, in assessed income in some cases appeal can be maintainable and in some other cases where tax rate is low appeal will not be maintainable.  In fact many times we come across border line cases where due to few thousand rupees more or less there can be different decisions.