CBDT revised Monetary Limits
For Filing Appeals By tax authorities and direct to withdraw old appeals
also: – the question is whether subordinates of CBDT will follow
instructions? It is doubtful considering past experience.
Earlier article:
The
last article on this issue by the same author was “Revenue should
withdraw appeals in cases of tax effect below present prescribed limits
for filing of appeals” was webhosted on September 22,
2015 on the
following link:
https://www.taxmanagementindia.com/print/print_Article.asp?ID=6453
Latest circular:
In
latest circular no. 21/ 2015, dated 10.12.2015 which is mostly on
similar lines as was in earlier circular the CBDT has revised limits and
has also instructed to withdraw old appeals if the issue involved has
less than revised tax effect limit.
Whether tax authorities always follow board’s instructions?
We
find many cases in which tax authorities filed appeals even though they
should not have filed because tax effect was not only below the
prescribed limits and in many cases tax effect was insignificant.
Cases of insubordination:
Based
on ground realities and past experience, we find that tax authorities
are not in habit of following binding circulars and judgments which are
in favour of tax payer. We find many cases of insubordination by tax
authorities who do not follow instructions of higher authorities. The
board is also of view that binding judgments must be followed, however,
unfortunately even judgments of the Supreme Court are not followed by
many tax authorities, including appellate authorities. What they do,
they just do not mention relevant submissions and references in the
order and decided case in a manner contrary to binding precedence.
Action must be taken against such insubordination:
An
appeal before ITAT is filed with sanction of Commissioner, and in case
of appeal before High Court and the Supreme Court with approval of
concerned authorities and also on opinion of counsel.
The scrutiny of orders under appeal involves working from inspectors to higher authorities and CCIT and / or counsels.
However,
it is experienced that whenever there is substantial addition made by
the AO, the departmental authorities and counsels are ready to fight
case up to the Supreme Court, even if there is no merit at all in the
case.
This practice should come to an end, and this can
only be if action of insubordination are reported, enquired and
concerned officers are penalised.
Tribunal and Courts must award substantial costs:
When
a tax authority files an appeal contrary to binding law/ precedence and
instructions of highest authority like CBDT, the Tribunal and Courts
must award substantial costs in favour of tax payer. This can put a
check on filing of frivolous appeals.
The recent
Circular is reproduced in this article with highlights. As per Circular
revised limit for filing appeals is for each year. As per Circular tax
effect for each year is to be considered. Even if appeals are being
filed for more than one year and in one year tax effect is higher than
for only that year appeal is required to be filed and not for other
years in which revenue effect is less than applicable limit.
In
view of the author each year is separate and for each year separate
appeal is required to be filed before CIT (A)/ ITAT/ High Court and the
Supreme Court, as the case may be. For each year time and cost are to
be spent to handle all aspects from filing of appeals to the ultimate
appeal effect, by revenue and assessee both. Therefore, revenue impact
of each year is required to be considered, to avoid litigation on petty
matters.
Separate orders vis a vis combined order for many years- there should be no different approach
The
Board has again adopted old view that in case of a composite order, in
case of same assessee, cumulative tax effect may be considered. And if
it exceeds limit then appeal has to be filed for each year. There seems
no logic for this view. Because as discussed earlier each year involves
separate appeal, even in case of Composite order , each year will entail
time and costs. The concerned Court and counsel of revenue and assessee
both will have to go through all orders beginning from assessment order
in respect of all years.
Example:
Suppose
a CIT(A) hears appeals of same assessee for six years involving some
issues common in all years. He passes separate orders for each of
appeal and the tax effect is less than prescribed limit in each of
years.
As per Board , revenue need not to file / cannot file for any year.
Cases where limit is not applicable (paragraph 8 and 9 of circular)
The monetary limit for filing of appeal shall not apply to the following cases:
Adverse
judgments relating to the Writ and other matters involving
Constitutional validity of the provisions of an Act or Rule are under
challenge, Board's order, Notification, Instruction or Circular has been
held to be illegal or ultra vires, where Revenue Audit objection in
the case has been accepted by the Department, Where the addition relates
to undisclosed foreign assets/ bank accounts.
Justified
exemption: The exception about constitutional validity of any provision
of IT Act, IT Rules, notification and circulars is justified because
these have impact all over India.
However, in such
cases also merits must be considered and counsels should not routinely
advise to file appeals or review petitions.
Not
justified: where Revenue Audit objection in the case has been accepted
by the Department should not get blanket permission to file appeal. The
audit objection, it self should be reviewed in view of change in law, if
any and merits of decision against such objection. This is because as
per ground reality, any audit objection having substantial revenue
effect is accepted and action is taken by way of rectification, revision
or reassessment, as may be found suitable. The objections are accepted
with a view to avoid criticism and for shirking responsibility.
Ground
reality and experience shows that large portion of action taken based
on revenue audit objections fails due to lack of merits and other
reasons. Therefore, in such cases also filing of subsequent appeals
[(after order of CIT(A)] should be based on merit and not only because
audit objection was accepted.
Appeal where the
addition relates to undisclosed foreign assets/ bank accounts – should
also be based on merit after order of CIT(A) / first appellate authority
has been passed. It should not be automatic to file appeal before
ITAT/High Court or the Supreme Court.
Assessee must take initiative in disposal of withdrawal of appeals:
As
per past experience we cannot expect any tax authority or counsel of
revenue to take initiative for withdrawal or dismissal of appeals which
involves lower tax effect than recently revised. Therefore, in such
cases assessee can take initiative and approach Tribunal / Court and
point out that such appeals be withdrawn.
In fact, CBDT
should have directed in clear terms to withdraw such appeals. However,
from the language used in the circular it appears to have been left to
the discretion of concerned authority / committee or counsels as the
case may be.
Recent circular fixing monetary limit is analysed below with highlights added by author:
Circular - Income Tax
Circular No. 21/2015
F No 279/Misc. 142/2007-ITJ (Pt)
Government of India
Ministry of Finance
Department of Revenue
Central Board Direct Taxes
New Delhi the 10th December, 2015
Subject
: Revision of monetary limits for filing of appeals by the
Department before Income Tax Appellate Tribunal and High Courts and
SLP before Supreme Court - measures for reducing litigation - Reg.
Reference
is invited to Board's instruction No 5/2014 dated 10.07.2014 wherein
monetary limits and other conditions for filing departmental appeals (in
Income-tax matters) before Appellate Tribunal and High Courts and SLP
before the Supreme Court were specified.
2. In
supersession of the above instruction, it has been decided by the Board
that departmental appeals may be filed on merits before Appellate
Tribunal and High Courts and SLP before the Supreme Court keeping in
view the monetary limits and conditions specified below.
3.
Henceforth, appeals/ SLPs shall not be filed in cases where the tax
effect does not exceed the monetary limits given hereunder:
S No
Appeals in Income-tax matters
Monetary Limit (in Rs)
1
Before Appellate Tribunal
10,00,000/-
2
Before High Court
20,00,000/-
3
Before Supreme Court
25,00,000/-
It
is clarified that an appeal should not be filed merely because the tax
effect in a case exceeds the monetary limits prescribed above. Filing of
appeal in such cases is to be decided on merits of the case.
4.
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 (hereinafter
referred to as "disputed issues"). However the tax will not include any
interest thereon, except where chargeability of interest itself is in
dispute. In case the chargeability of interest is the issue under
dispute, the amount of interest shall be the tax effect. In cases where
returned loss is reduced or assessed as income, the tax effect would
include notional tax on disputed additions. In case of penalty orders,
the tax effect will mean quantum of penalty deleted or reduced in the
order to be appealed against.
5. The Assessing Officer
shall calculate the tax effect separately for every assessment year in
respect of the disputed issues in the case of every assessee. If, in the
case of an assessee, the disputed issues arise in more than one
assessment year, appeal, can be filed in respect of such assessment year
or years in which the tax effect in respect of the disputed issues
exceeds the monetary limit specified in para 3. No appeal shall be filed
in respect of an assessment year or years in which the tax effect is
less than the monetary limit specified in para 3. In other words,
henceforth, appeals can be filed only with reference to the tax effect
in the relevant assessment year. However, in case of a composite order
of any High Court or appellate authority, which involves more than one
assessment year and common issues in more than one assessment year,
appeal shall be filed in respect of all such assessment years even if
the 'tax effect' is less than the prescribed monetary limits in any of
the year(s), if it is decided to file appeal in respect of the year(s)
in which 'tax effect' exceeds the monetary limit prescribed. In case
where a composite order/ judgement involves more than one assessee, each
assessee shall be dealt with separately.
6. In a case
where appeal before a Tribunal or a Court is not filed only on account
of the tax effect being less than the monetary limit specified above,
the Commissioner of Income-tax shall specifically record that "even
though the decision is not acceptable, appeal is not being filed only on
the consideration that the tax effect is less than the monetary limit
specified in this instruction". Further, in such cases, there will be no
presumption that the Income-tax Department has acquiesced in the
decision on the disputed issues. The Income-tax Department shall not be
precluded from filing an appeal against the disputed issues in the case
of the same assessee for any other assessment year, or in the case of
any other assessee for the same or any other assessment year, if the tax
effect exceeds the specified monetary limits.
7. In
the past, a number of instances have come to the notice of the Board,
whereby an assessee has claimed relief from the Tribunal or the Court
only on the ground that the Department has implicitly accepted the
decision of the Tribunal or Court in the case of the assessee for any
other assessment year or in the case of any other assessee for the same
or any other assessment year, by not filing an appeal on the same
disputed issues. The Departmental representatives/counsels must make
every effort to bring to the notice of the Tribunal or the Court that
the appeal in such cases was not filed or not admitted only for the
reason of the tax effect being less than the specified monetary limit
and, therefore, no inference should be drawn that the decisions rendered
therein were acceptable to the Department. Accordingly, they should
impress upon the Tribunal or the Court that such cases do not have any
precedent value. As the evidence of not filing appeal due to this
instruction may have to be produced in courts, the judicial folders in
the office of CsIT must be maintained in a systemic manner for easy
retrieval.
8. Adverse judgments relating to the
following issues should be contested on merits notwithstanding that the
tax effect entailed is less than the monetary limits specified in para 3
above or there is no tax effect:
(a) Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or
(b) Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or
(c) Where Revenue Audit objection in the case has been accepted by the Department, or
(d) Where the addition relates to undisclosed foreign assets/ bank accounts.
9.
The monetary limits specified in para 3 above shall not apply to writ
matters and direct tax matters other than Income tax. Filing of appeals
in other Direct tax matters shall continue to be governed by relevant
provisions of statute & rules. Further, filing of appeal in cases of
Income Tax, where the tax effect is not quantifiable or not involved,
such as the case of registration of trusts or institutions under section
12A of the IT Act, 1961, shall not be governed by the limits specified
in para 3 above and decision to file appeal in such cases may be taken
on merits of a particular case.
10. This instruction
will apply retrospectively to pending appeals and appeals to be filed
henceforth in High Courts/ Tribunals. Pending appeals below the
specified tax limits in para 3 above may be withdrawn/ not pressed.
Appeals before the Supreme Court will be governed by the instructions on
this subject, operative at the time when such appeal was filed.
11. This issues under Section 268A (1) of the Income-tax Act 1961.
(D. S. Chaudhry)
CIT (A&J), CBDT,
New Delhi