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TMI Blog2024 (8) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Appellate Tribunal, "A" Bench, Ahmedabad (for short 'the Tribunal') in MA No.220/Ahd/2019 for Assessment Year 2010-11. 3.1 The assessment order under Section 143(3) of the Income Tax Act, 1961 (for short 'the Act') was finalised in case of the respondent by determining the total income at Rs.87,10,080/- as against the return of income at Rs.83,40,540/-. 3.2 It appears that thereafter the Revenue Audit under letter dated 27th January, 2014 raised objection with regard to disallowance of proportionate expenditure under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (for short 'the Rules'). 3.3 The Assessing Officer accepted the audit objection and case was reopened under Section 147 of the Act by observing that the assessee has earned exempt income and claimed interest expenses of Rs.69,60,614/-, however the assessee did not show any expenditure separately which was incurred for earning exempt income. 3.4 The Assessing Officer passed order under Section 143(3) read with Section 147 of the Act by making proportionate disallowance of Rs.44,35,176/- under Section 14A of the Act read with Rule 8D of the Rules. 3.5 Being aggrieved with the re-assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atel for the petitioner referred to and rely upon the decision of the coordinate Bench of this Court in case of Principal Commissioner of Income Tax, Vadodara v M/s Emtici Engineering Ltd. in Special Civil Application No.9995 of 2021 rendered on 08th July, 2022, to submit that the issue is squarely covered by the said judgment and order, as in similar facts, this Court has quashed and set aside the order of dismissal of appeal by the Tribunal on low tax effect and remanded the matter back to the Tribunal so as to enable the Revenue to point out before the Tribunal about the audit objections. 6. On the other hand, learned advocate Mr.Ketan Shah for the respondent - assessee submitted that the petitioner, at no point of time, has placed on record the audit objections or drawn attention of the Tribunal with regard to the audit objections which was accepted and which was the basis of the re-opening of the assessment. It was, therefore, submitted that the Tribunal has rightly relied on the Circular No.5/2017 to dismiss the Miscellaneous Application filed by the Revenue as well as in light of the decision of the Bombay High Court in case of Principal CIT v Nawany Construction Co. (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2015 being the Circular No. 21/2015 dated 10.12.2015 and the appeal is of the year 2014. The Revenue cannot be non-suited for the circular which was not even in the existence. 7.3. Learned Senior Advocate Mr. Bhatt has also relied on the decision rendered in case of Commissioner of Income Tax, Chennai vs. Acurus Solutions (P.) Ltd. [[2020] 120 taxmann.com 206 (Madras)], where it was a case where the Tribunal by an order dismissed the appeal of Revenue on account of low tax effect. The Court held that if the case fell within the exception pointed out under para 10(c) of the Circular No. 03/2018 dated 11.07.2018 the Tribunal, as held by the Madras High Court, erred in dismissing the appeal of the Revenue on the ground of low tax effect. The Substantial question of law raised before the Court was as follows: - "1. Whether on the facts and circumstances of the case the Tribunal was right in dismissing the departmental appeal on the ground of low tax effect without taking note of the fact that the case is covered by exceptions provided under clause (10)(c) of Circular No.3 of 2018 wherein it has been clearly stated that the cases involving revenue audit objection which had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular No. 17/2019 dated 08.08.2019. Since the audit objection had been accepted by the department, it was a case of the Revenue that the matter would fall under the exceptional clause (c) of para 10 of the amended circular of Board Circular no. 03/2018 dated 20.08.2018 as modified by the Circular No. 17/2019 dated 08.08.2019. The objection raised by the respondent was to an effect that when the Revenue was seeking to recall the order, it could not have not placed the audit objection on record. This Court held thus : - "3.2 According to the respondent, this request of seeking to recall of the order is on account of the audit objection, which has not been placed on record. If the audit objections pertained to the original assessment and as a consequence to such audit objection, a notice under Section 148 of the I.T.Act was issued, then such audit objections cannot become an exception to the present Tax Appeal, which have originated out of the notice under Section 263 of the I.T.Act and not as a consequence to the audit objection. It is further contended that a mere reliance on the exceptional clause of the CBDT's circular may not substantiate the stand of the applicant and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aising all the contentions including that of the audit objections, more particularly, when raised keeping in mind the decision of the Bombay High Court, we have chosen to examine the material which has been placed before us and on satisfying ourselves on this issue, we are of the opinion that the request of the department to permit the recall of the order dated 01.10.2019 passed in Tax Appeal No. 465 of 2019 should be allowed. It is necessary to make a mention of the fact that the decision of the Bombay High Court in case of Principal Commissioner of Income Tax, Mumbai vs.Nawany Construction Private Limited, there was an attempt to get over the binding circular without placing any material before the Court, which is not the case here. Therefore, without further elaborating on this aspect so as not to curtail the rights of the parties while recalling the order, we permit the Tax Appeal No.465 of 2019 to be revived and to be placed before the Bench as per the roster." 8. The other side has contested it by placing reliance on the Instruction No. 07/2017 which are general instructions laying down standard procedure for prescribing receipt/revenue audit objections in supersession of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pped and no further action would be required, but, where the view of PCIT is not accepted and a rejoinder is received from concerned CAG officer with reasons for disagreement, the PCIT shall first get the contents of rejoinder entered in ITBA system. He shall then reconsider the objection in the light of points raised in the CAG rejoinder and if the PCIT agrees with the views of the ITRA, the procedure as provided at para 5.3 to 5.6, when the objection is acceptable, shall be followed. However, if the PCIT does not accept the objection, he shall take up such cases of disagreement, in inter-departmental meeting with Director General of Audit or Principal Director of Audit (Central), along with cases where there is no response to PCIT's replies from the CAG officer after lapse of two months. The CIT(Audit) also is invited to the meeting and he shall play an active role for maintaining consistency of approach on a particular issue. The reasons for this reference was a must so as to bring home the point that there is a detailed mechanism provided in the lastly issued instruction on 21.07.2017 for accepting or not accepting the audit objections. Once accepted in case of a particular per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circular, learned counsel has strenuously argued that no interference is desirable on the part of the Court. The relevant observations made by the Court are reproduced below:- "17. Having heard learned counsels appearing for the respective parties and having gone through the relevant statutory provisions, judgments of various Courts and Circulars issued by the Board from time to time, we are of the view that subject to certain directions, which are issued hereinafter, all these Tax Appeals deserve to be dismissed and they are accordingly dismissed as no question of law, much less, any substantial question of law arises out of the order of the Tribunal. In almost all cases the Tribunal has dismissed the appeals only on the ground of low tax effect, without entering into merits of the matter. While dismissing the appeals, the Tribunal has referred to the Circular issued by the Central Board of Direct Taxes prescribing the monetary limit. The appeals filed by the Department in contravention of such Circulars prescribing the monetary limit were ordered to be dismissed. Almost all Courts are agreeable on this issue. 18. The real controversy arose when certain exceptions are carv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention is to be accepted, it would lead to chaos and indiscipline in the administration of tax laws. In Indian Oil Corporation case (Supra) the Hon'ble Supreme Court laid down certain propositions of law in relation to the binding nature of circulars issued by the Board. The Court held that despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board and that it is not open to the Revenue to advance an argument or file an appeal contrary to the circulars. 22. We are of the view that simply because the appeal is filed by the Department in contravention of the Circular the Tribunal is not bound to decide the appeal on merits. Due weightage should invariably be given by the Tribunal to the Circular issued by the Board. Even otherwise, the newly inserted provisions contained in Section 268A(4) make it obligatory for the Tribunal to consider such Circular. It is not open for the Department to contend that Circulars are internal matters of the Department and assessee cannot object to filing of an appeal on the basis of such Circular. It is true that filing of an appeal is a statutory right but it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n raised in these matters. Considering the long-drawn procedure prescribed in the Instruction No. 07/2017 dated 21.07.2017 superseding many of other instructions, once accepted by the department, the aspect of low tax effect will pale into insignificance. 10. The Principal CIT(Appeals) of course while filing the appeal to the ITAT would file it only if the appeal order is not acceptable on merits, in cases involving revenue audit objections and these cases are to be carefully scrutinized. It has presumed, since not gone into detail by the Tribunal at this stage, once appeal is preferred before the ITAT, that scrutiny at the end of the PCIT has been made. Therefore, once it was brought to the notice of the Tribunal that the disposal of all the appeals in a group on account of low tax effect was an exercise which required reconsideration since the audit objections raised had been raised by the Revenue, the least the Tribunal could have done was to consider this aspect. 11. The reason of non-acceptance of this rectification application is not on the ground of non-existence of such material, once the Tribunal overlooks Clause 10 of the said Circular which carves out the exception ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed discussion on Section 260(A) and Section 268(A), the Court held that the instructions issued by the CBDT laying down monetary limits for filing of appeals are mandatory and binding on the Revenue. Here also for revising the monetary limit for filing appeal before the Tribunal, the High Court as well as the Supreme Court, the arguments on the part of the assessee was that under the latest instructions issued by the CBDT, the latest revised monetary limit shall need to be borne in mind. The Court held thus:- "29. We have given our thoughtful consideration to the submissions advanced by the learned counsel for the respondent - assessee on the basis of the instruction dated 15.5.2008. We are, however, satisfied that the aforesaid instruction is irrelevant for the purpose of determination of the present controversy, on account of the fact that paragraph 11 of the aforesaid instruction, makes the same applicable only in respect of appeals filed on or after 15.5.2008. The instant appeal was filed in the year 2002 i.e. well before 15.5.2008. Be that as it may, it is possible for us to draw yet another inference in favour of the respondent - assessee, namely, that the instruction p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.2 lakhs. In our view, there is no logic behind this approach. 6. This Court can very well take judicial notice of the fact that by passage of time money value has gone down, cost of litigation expenses has gone up, the assessees on the file of the departments have increased; consequently, burden on the department has also increased to a tremendous extent. The corridors of the superior courts are chocked with huge pendency of cases. In this view of the matter, the Board has rightly taken decision not to file references if the tax effect is less than Rs.2 lakhs. The same policy for old matters needs to be adopted by the department. In our view, the Board's circular dated 27th March, 2000 is very much applicable even to the old references which are still undecided. The department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with the decades old references having negligible tax effect." The Court thus has made the Board Circular applicable to those matters which were still undecided. With money value having gone down and cost of litigation expenses having gone up, the Court held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the instructions of the CBDT, the Court after detailed examination of law on the point has held that subject to certain directions, all the Tax Appeals deserve to be dismissed as no question of law much less any substantial question of law arose out of the order of the Tribunal. The appeals had been dismissed on the ground of low tax effect without entering into the merits relying on the CBDT Circular prescribing the monetary limit. The question was whether certain exceptions carved out in the circulars were applied to the cases before the Tribunal and whether they were covered by those exceptions. The Tribunal straightway dismissed this appeal. "16. The real controversy arose when certain exceptions are carved out in the Circulars and despite the fact 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to advance an argument or file an appeal contrary to the circulars. 18. There is also difference of opinion amongst the Courts with regard to the applicability of the Circular. If, on the date of filing of an appeal, a Circular is not in force or certain exceptions are not there or monetary limit is less than what was there at the time of deciding this appeal, in such cases, the Tribunal will have to give due weightage to the provisions contained in the circular prevalent on the date of filing of appeal and not on the date of the decision of the appeal. In Chhager Packaging & Plastics (P) Ltd.'s case (Supra) the Bombay High Court took 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. In Pithwa Engineering Works' case (Supra) 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when the Hon'ble Supreme Court or the territorial High Court have declared the law on a question, it is not open to the Tribunal to direct that the Circular issued by the Board prescribing the monetary limit should be given effect to and not the decision of Hon'ble Supreme Court or the territorial High Court. It is, however, equally true that the Tribunal's attention must be drawn by the departmental representative to such decision of the Hon'ble Supreme Court or the High Court. An objection must be raised by the Departmental representative. 21. Considering all the aforesaid issues we dismiss all these Tax Appeals reserving liberty to the Department only on those cases to apply to the Tribunal to decide the appeal on 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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