TMI Blog2008 (8) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Appeals Nos. 1402 to 1405 of 2007 with 1322, 1434, 1872 of 2005 with 46 to 51, 701, 702, 1348, 1419, 1496, 1501 of 2006 with 231, 279, 280, 295, 375, 395, 402, 410, 411, 465, 477, 499, 511, 533, 543, 545, 547, 548, 550, 635, 638, 684, 687 to 689, 702 to 704, 743, 744, 747, 798, 835, 893, 899, 909, 946, 950, 958, 978, 1092, 1134, 1135, 1138 to 1147, 1209, 1212, 1240, 1261, 1263, 1360, 1375, 1379, 1409, 1441, 1442, 1472, 1506, 1508, 1514, 1518, 1548, 1559, 1620, 1658, 1637, 1659, 1660, 1664 to 1669, 1677, 1678, 1683, 1648 of 2007 with 65, 68, 203, 217, 218, 242, 244, 256, 257, 258, 261,262,264,267, 275, 276, 279, 290, 322 and 323 of 2008. Manish R. Bhatt, Mrs. Mauna M. Bhatt, B. B. Naik, Pranav G. Desai and Ketan M. Parikh for the appellant. S. N. Soparkar, S. N. Divetia, Raju K. Patel, Manish J. Shah, B. D. Karia, Tuhar P. Hemani, Tanvish Bhatt and Sudhir Mehta for the respondent. JUDGMENT The judgment of the court was delivered by K. A. Puj J. - The Revenue has filed Tax Appeals Nos. 1402 to 1405 of 2007 under section 260A of the Income-tax Act, 1961, for the assessment years 1995-96 and 1996-97 proposing to formulate the following substantial question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground as the Central Board of Direct Taxes Instruction No. 2 of 2005, dated October 24, 2005, on which heavy reliance is placed, is only an administrative instruction and the same does not take away the statutory right to appeal under the Income-tax Act, 1961. It is also contended that the Central Board of Direct Taxes Instruction No.1985, dated June 29, 2000, clarifies Instruction No. 1979/F. No. 279/126/98-ITJ, dated March 27, 2000, and explains that the monetary limit in the context of "each case taken singly" would mean each assessment year for each assessee. In the case of the assessee for the assessment years 1995-96 and 1996-97, the monetary limit as prescribed in Instruction No. 1979 would apply taking together the assessment years 1995-96 and 1996-97. Further, in Instruction No. 2 of 2005, dated October 24, 2005, the Central Board of Direct Taxes, in partial modification of Instruction No.1979, dated March 27, 2000, and Instruction No. 1985, dated June 29, 2000, has stipulated that the Board has also decided that the cases involving a substantial question of law of importance as well as in cases where the same question of law repeatedly arises, either in the case concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of challenge, the learned counsel has referred to and relied upon certain circulars and/or instructions issued by the Central Board of Direct Taxes on the issue in question. Instruction No.1328, dated April 5, 1980, refers to the prevailing practice on that day and observes that the Board is generally reluctant to advise reference unless the tax effect is more than Rs. 10,000 or a general question of law affecting a large number of cases is involved. In supersession of the previous instructions on the subject, the Board has taken a fresh decision, vide Instruction No.1382, dated April 5, 1980. In para 3.1, it is stated that the present monetary limits of Rs. 10,000 for reference to the High Court and of Rs. 30,000 for appeal to the Supreme Court laid down in Instruction No. 284, dated January 10, 1975, will continue. The limit of Rs. 10,000 for reference to the High Court, however, shall be relaxed where the question of law is repetetive and the Cumulative tax effect in a number of cases is bound to be substantial. 7. Instruction No.1777, dated November 4, 1987, states that filing of Departmental appeal/reference should be selective. Guidelines were issued laying down moneta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment appeals/reference before various appellate authorities and certain clarifications were made in respect of Instruction No.1979, dated March 27, 2000. The following clarifications were made by the Board. (i) the monetary limits in the context of "each case taken singly" would mean each assessment year for each assessee. For instance, in the case of XYZ Limited for the assessment years 1995-96 and 1996-97, the monetary limit as prescribed in Instruction No. 1979 would apply taking together the assessment years 1995-96 and 1996-97. (ii) even if the issues involved in an appeal under consideration are already pending in appeal before the appellate authorities, all subsequent appeals will, now, be filed for particular assessment year only as indicated in (i) above, if the tax effect exceeds the prescribed monetary limit. 9. Vide Instruction No. 2 of 2005, dated October 24, 2005, the Board has made partial modification and appeals will be filed only in cases where the tax effect exceeds the revised monetary limits as under: (i) Appeal before the Appellate Tribunal Rs. 2,00,000. (ii) Appeal under section 260A Rs. 4,00,000. (iii) Appeal before the Supreme Court Rs. 10,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court or appellate authority, which involves more than one year, appeal shall be filed in respect of all assessment years even if the "tax effect" is less than the prescribed monetary limits in any of the year, if it is decided to file appeal in respect of the year in which "tax effect" exceeds the monetary limit prescribed. 13. Based on the above instructions issued by the Board from time to time, the learned counsel strongly urged that the tax effect is not the only criteria for deciding the maintainability of appeal. The circular issued by the Board from time to time will have to be read in the light of the exceptions contained in such circulars or instructions. The Tribunal has committed a grave error in blindly applying the monetary limit only without considering the fact as to whether the exceptions are applicable to the facts of each case. It is, therefore, submitted that the orders passed by the Tribunal in all these appeals are required to be quashed and set aside and the matter will have to be sent back to the Tribunal for deciding as to whether matters on hand fall within the scope of exceptions contained in applicable circulars. 14. In support of their subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a judgment of the Supreme Court or of the High Court, the circular will apply and the Revenue would be bound by the circulars and the appeals as filed will have to be rejected, unless they fall within the exceptions as contained in the circular. In all those matters where appeals have been preferred and the issue of law arising therein is covered either by a judgment of the High Court or of the Supreme Court, it will be open to the High Court to exercise its jurisdiction and dispose of the appeals in terms of the law declared by the Supreme Court or by the High Court. (iv) In Rani Paliwal v. CIT reported in [2004] 268 ITR 220 (P H) it was held while dismissing the appeals, (i) that the Board's Circular No. F/279/126/98-IT, dated March 27, 2000, was only an instruction issued to the income-tax authorities not to file appeals where the tax effect is less than Rs. 1,00,000. The Tribunal was not bound by any such instruction and once the Department filed an appeal, the Tribunal was bound to decide the same on the merits. The court, therefore, held that no substantial question of law arose for the admission of the appeal. (v) In CIT v. Kodananad Tea Estates Co. reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal being the last fact finding authority a higher responsibility is cast by the Legislature on it to decide the cases by recording complete facts and assigning cogent reasons. It is the duty of the Tribunal to decide the cases on the basis of the law laid down by the Supreme Court/High Court and not what the Tribunal decides on the particular issue. Every effort must be made by the Tribunal to decide the issue by taking help from the decisions of the Supreme Court and if there is no direct authority of the Supreme Court on the point, then of the jurisdictional High Court and, lastly, of any other High Court. Not taking note of the facts of the case, nor the legal position and not even referring to the facts of the case involved in those decisions on which reliance is placed for deciding the appeal amounts to non-exercise of the appellate powers by the Tribunal. (viii) In Bengal Iron Corporation v. CTO reported in AIR 1993 SC 2414, it was held that clarifications/circulars issued by the Central Government and/or State Government regarding taxability of certain item represent merely their understanding of the statutory provisions. They are not binding upon the courts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Board of Direct Taxes are binding on the Department and the Departmental authorities cannot act nor can they file appeals before the Tribunal contrary to such circulars. The Tribunal is well within its power to dismiss such appeals filed contrary to the circulars issued by the Central Board of Direct Taxes. It is further submitted that whether any particular case is covered by exceptions carved out in the circular, must specifically be pleaded in the appeal memo or at the time of hearing of appeal before the Tribunal. If no such contentions were raised by the Departmental representative before the Tribunal, the same cannot be raised for the first time before this court. It is further submitted that simply because an appeal is filed by the Department contrary to the circulars, it is not obligatory on the part of the Tribunal to dispose of such appeal on the merits Suffice it for the Tribunal to dismiss any of such appeals simply on the ground of low tax effect. There are a catena of judgments laying down the principle that the circulars are binding to the Department. The court's attention is invited to the provisions contained in section 268A of the Act inserted by the Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India has issued office memoranda dated June 5, 2007, pursuant to the order passed by the Bombay High Court. The Bombay High Court in I. T. A. (L) No. 118 of 2003 in the case of CIT v. Vitessee Trading Ltd. dated April 23, 2007, made an observation that the Department has not been following the instructions issued by the Central Board of Direct Taxes while filing appeals and has directed that wherever, the appeals already filed fail to meet the criteria of monetary limits the same should be withdrawn, unless the question of law involved or raised in appeal or referred to the court is of a recurring nature required to be settled by the court. The directions are issued in this office memoranda that all appeals already filed by the Department before the Bombay High Court should be examined case to case basis and in cases where the criteria of monetary limit as per the prevailing instruction is not satisfied, the appeal should be withdrawn unless a question of law involved or raised in appeal or referred to the High Court is of a recurring nature requires to be settled by the court. 18. In support of their submissions the learned counsel relied upon the following judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no jurisdiction to proceed with decades old references having negligible tax effect. (iv) In CIT v. A. Raajendra Prasad reported in [2008] 299 ITR 227 (AP); [2008] 215 CTR (AP) 511, the Andhra Pradesh High Court held that if an interpretation as pleaded by the Revenue is placed on the circulars, then the Department could use these instructions arbitrarily without any reason. They can file an appeal in matters in which they were instructed by the Board not to file appeals and in certain matters, they would not file appeal on the ground that the statutory power could not be limited by the circular and it will give rise to arbitrariness, which, obviously, could not be the purpose of the circular. The selection of the cases in which appeals should be filed and cases in which, appeals should not be filed, cannot be left to the discretion of the concerned authority without any guidelines whatsoever There is no material before the court and no material was placed even before the Tribunal to come to a conclusion, that the circulars, which have been mentioned as " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reduce litigations before the High Courts and the Supreme Court. The circular is binding on the Revenue. An appeal or reference contrary to the instructions issued in the circular will not be considered by the courts. For the purpose of contending that the circular issued by the Central Board of Direct taxes is binding on all the Officers and Commissioners, reliance is placed on the decision of the hon'ble Supreme Court in the case of Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198 (SC), K. P. Varghese v. ITO [1981] 131 ITR 597 (SC). The same principle was reiterated by the Bombay High Court in the case of CIT v. Zoeb Y. Topiwala reported in [2006] 284 ITR 379 (Bom), wherein it is held that the instruction of the Central Board of Direct Taxes dated March 27, 2000, reflects the policy decision taken by the Board not to raise questions of law where the tax effect is less than the amount prescribed in the instructions with a view to reduce litigation before the High Courts and the Supreme Court. The circular is binding on the Revenue. (vi) In CIT v. Blaze Advertising (Delhi) P. Ltd. reported in [2002] 255 ITR 460 (Delhi), wherein it is held that, circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars are illegal or that they are ultra vires section 3(1A), which it is not, it was open to the State to nullify/withdraw the said circular under section 60 of the 1963 Act. If the circular is not withdrawn till this date, it is not open to the officers administering the law working under the Board of Revenue to say that the said circular is not binding on them. The court further held that if such a contention is to be accepted, it would lead to chaos and indiscipline in the administration of tax laws. The court further took the view that whenever such binding circulars are issued by the Board granting administrative relief, as long as circular remains in force it is not open to the subordinate officers to contend that the circular is erroneous and not binding on them. (ix) In CIT v. Vikrant Crimpers reported in [2006] 282 ITR 503 (Guj) this court has held that the Central Board of Direct Taxes has by Circular No. RA/86-87/DIT dated August 26, 1987, directed that no remedial action is necessary in summary cases. The Commissioner being bound by the directions of the Central Board of Direct Taxes cannot exercise powers under section 263 of the Income Act, 1961, in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to a binding circular issued by the Board. When a circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute. (2) despite the decision of this court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board. (3) a show-cause notice and demand contrary to existing circulars of the Board are ab initio bad. (4) it is not open to the Revenue to advance an argument or file an appeal contrary to the circulars. (xiii) In CGT v. Ambalal Sarabhai (Executors and Trustees of the Estate of late) reported in [1988] 170 ITR 144 (Guj), this court while accepting the contention of the Department, that the shares had to be valued on the basis of the dividend or profit method of valuation, but that the valuation made by the Tribunal and approved by the High Court ought not to be disturbed in view of the matter being two-and-a-half decades old and of the smallness of the tax involved. (xiv) In Nandkishore Shantilal Parekh v. CIT reported in [1993] 110 CTR 109 (Guj), this court has held that the Tribunal having omitted to consider the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that many of these cases before the Tribunal are covered by those exceptions, which require the Tribunal to go into the merits of the matter, the Tribunal has straightway dismissed those appeals. There is a cleavage of opinion amongst the different courts on this issue. One view is that while applying the circular issued by the Board, the Tribunal has to take into consideration as to whether the exceptions carved out in the circular apply to the case on hand and if any of those exceptions is applicable in that case the Tribunal will have to ignore the monetary limit and decide the appeal on the merits. In Kodananad Tea Estate Co.'s case [2005] 275 ITR 244 (Mad), before the Tribunal, the applicability of the circular was questioned. The Madras High Court, therefore, took the view that the question comes within the ambit of exception and the Tribunal was directed to hear appeal on the merits. 21. Another view is that if any particular circular is pressed into service seeking dismissal of appeal on the ground of low tax effect and if no objection is raised by the Department either in the appeal memo or at the time of hearing of appeal, the Tribunal is not bound to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok the view that circulars/instructions issued by the Board are applicable only prospectively and if there is no reference to their applicability to the pending matters, such pending Matters cannot be decided on the basis of circulars/instructions. 26. In Pithwa Engg. Works' case [2005] 276 ITR 519 the Bombay High Court took the view that taking judicial notice of the money value having gone down and cost of litigation expenses having gone up as well as huge pendency of cases, the Board should evolve a policy of applying the circulars even to the old references which are still undecided. The Department should not have proceeded with the appeals/references wherein the tax impact is minimal, irrespective of their date of filing. 27. There is no dispute about the fact that where a substantial question of law of importance is involved or where a question of law is repeatedly arising or where the issue is covered by the judgment of territorial High Court or Supreme Court, the Tribunal will have to decide the appeal on the merits and in terms of the law declared by the Supreme Court or by the territorial High Court. However, on this ground the matters cannot be remanded to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss all these tax appeals reserving liberty to the Department only on those cases to apply to the Tribunal to decide the appeal on the merits where the objections were raised before the Tribunal either in the appeal memo or at the time of hearing of appeal raising a specific contention that a particular appeal is covered by an exception and despite this objection the Tribunal has not dealt with the said contention and dismissed the appeal on the ground of low tax effect. It is expected from the Tribunal to consider this broad parameters while applying the relevant circular to the facts of the case at the time of deciding appeals. 30. So far as Tax Appeal Nos. 496, 545, 547, 548, 550 and 704 of 2007 are concerned, this court while admitting all these appeals on October 10, 2007, has also framed one more substantial question of law which is as under: "Whether, in the facts and circumstances of the case, the Tribunal was justified in holding that the excise duty levied on closing stock should not be taken into account for valuation of the closing stock ?" 31. Since the Tribunal has dismissed all these appeals filed by the Department only on the ground of low tax effect and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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