Commissioner of Income Tax vs Chanakya Finvest Pvt. Ltd.

Girish Chandra Gupta, J.—The subject matter of challenge in this appeal is a judgment and order dated 14th May, 2013 by which the learned Tribunal allowed the appeal of the assessee. Aggrieved by the order of the learned Tribunal, the revenue has come up in appeal u/s 260A of the Income Tax Act.

It appears that an assessment u/s 147/144 of the Income Tax Act was made by the Assessing Officer holding that the total taxable income escaped was Rs. 18,69,000/-. The tax payable by the assessee was calculated at a sum of Rs. 6,87,615/-. He added interest u/s 234B of the said Act amounting to a sum of Rs. 6,25,982/-. The assessee challenged the order of the Assessing Officer unsuccessfully before the CIT (Appeal) and ultimately the learned Tribunal was approached, which has allowed the appeal of the assessee and set aside the order passed both by the Commissioner of Income Tax and the Assessing Officer.

Mr. Khaitan, learned senior Advocate appearing in support of the respondent-assessee contended that considering that the tax effect in this case is Rs. 6,87,615/-, the department is not entitled to prefer an appeal following the Instruction No. 3 of 2011 dated 9th February, 2011 issued by the C.B.D.T. He relied upon Clauses 3 and 4 of the said Instruction. From Clause-3, it appears that the appeals are not to be filed before the High Court u/s 260A of the Act when the tax effect is within Rs. 10,00,000/-. The expression ''Tax Effect'' has been defined in Clause-4 of the said Instruction, which reads as follows:

''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 the 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.

Mr. Khaitan contended that the amount of interest claimed u/s 234B of the Income Tax Act of the Assessing Officer cannot be taken into account for the purpose of determining the tax effect in the light of Clauses-3 and 4 of the Instruction issued by C.B.D.T. The matter was heard by us on 9th April, 2014.

Mrs. Bhargava, learned Advocate took time to further ponder over the matter. Today, she submitted that the assessee had taken the issue with regard to the interest before the Commissioner of Income Tax, but no such point was taken by the assessee before the learned Tribunal. That does not seem to us to be of any importance. In all cases where the liability to pay tax has been determined, interest as a matter of course shall become payable, unless the tax already paid in advance is enough to cover the liability determined. The present case is also a case of that nature. The instructions relied upon by Mr. Khaitan appear to lay down that the expression ''tax effect'' shall include only these cases where liability determined is with respect to interest or penalty independently of any claim on account of principal. Because only in those cases chargeability of interest or penalty shall be in issue. We are, therefore, of the opinion that chargeability of interest was not the issue in the appeal before the learned Tribunal. Interest followed, as a matter of course, the claim on account of principal.

In that view of the matter, the mere fact that the claim made against the assessee under sections 147/144 of the Income Tax Act was for a sum of Rs. 13,35,271/-, it cannot be said that the tax effect is for any sum more than Rs. 6,87,615/-, which is evidently below the sum of Rs. 10,00,000/-.

Our attention was drawn by Mr. Khaitan to an earlier unreported Division Bench judgment of this Court in the case of CIT Vs. Ceramic Decorators (P) Ltd. in ITAT No. 83 of 2011 wherein the Division Bench expressed the following views:

At the very outset, Mr. Nizamuddin, the learned advocate appearing for the appellant, points out that the tax effect of the present appeal is less than Rs. 10 lakh and this does not come within the exception as pointed out in CBDT Instruction No. 3 of 2011 dated 9th February, 2011.

In view of the aforesaid fact, we find that this appeal has been filed by violating the Instructions issued by the CBDT, which was binding upon the appellant in view of the provisions contained in Section 268A of the Income Tax Act. We, thus, dismiss this appeal on that ground alone.

Following the aforesaid judgment, we hold that this appeal has been filed by violating the Instructions issued by the CBDT, which were binding upon the appellant u/s 268A of the Income Tax Act. We, therefore, dismiss the appeal on that ground alone.

In view of the dismissal of the appeal itself, the connected application has become infructuous and the same is also disposed of accordingly.