ADDL CIT 18(2), MUMBAI V. PRAKASH G MANDHANA-HUF, MUMBAI

ITA 3909/MUM/2010

• Counselvise Citation: 390919914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Keywords: Business income; Audit objection; Tax effect
• Section: 260A; 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI B. RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO. 3909/MUM/2010 ASSESSMENT YEAR- 2006-07 THE ACIT, CIRCLE-18(2), PIRAMAL CHAMBERS, PAREL, MUMBAI-400 012 VS. PRAKASH G. MANDHANA HUF, 338 A TO Z INDL. ESTATE, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI-400 013 PAN-AAHHP 3542B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ALEXANDER CHANDY RESPONDENT BY: SHRI RAJAN VORA DATE OF HEARING : 20.09.2011 DATE OF PRONOUNCEMENT: 20.9.2011 O R D E R PER B.R. MITTAL, JM : THE REVENUE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2006-07 AGAINST THE ORDER OF LD. CIT(A) DT. 26.02.2010 ON THE FOLL OWING TWO GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN ADOPTING EARNING CAPITALIZ ATION METHOD FOR VALUATION OF SHARES AS AGAINST THE METHO D ADOPTED BY THE AO OF SHARE VALUATION METHOD AS PER WEALTH TAX ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO ADOPT SALE VALUE OF RS. 529/- PER SHARE AS LONG TERM CAPITAL GAIN AS AGAINST RS. 365/- PER SHARE TAKEN BY THE AO AND RS. 41/- PER SHARE AS NON COMPETE FEES TREATED AS BUSINESS INCOME AS AGAINST RS. 205/- PER SHARE TAKEN BY THE AO. ITA NO.3909/M/2010 2 2. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT TAX EFFECT IN THIS APPEAL IS BELOW RS. 2 LAKHS. HE SUB MITTED THAT IN VIEW OF CBDT CIRCULAR NO. 279/MISC. 64/05-ITJ DT. 24.10.2005 REA D WITH BOARDS INSTRUCTION NO. 5/2008 DT. 15 TH MAY, 2008, THE APPEAL OF THE DEPARTMENT IS NOT MAINTAINABLE. 3. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT DISP UTED THE ABOVE CONTENTION OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. REPRES ENTATIVES OF THE PARTIES AND CBDT INSTRUCTION NO. 5/2008 DT. 15 TH MAY, 2008 WHEREIN MONETARY LIMITS AND OTHER CONDITIONS FOR FILING DEP ARTMENTAL APPEALS (IN INCOME TAX MATTERS) BEFORE THE INCOME TAX APPELLATE TRIBUNAL, HIGH COURTS AND SUPREME COURT HAVE BEEN SPECIFIED. IT IS OBSERV ED THAT SINCE 1987, THE CBDT HAS BEEN INSTRUCTING ITS OFFICERS NOT TO FILE THE APPEAL WHERE THE TAX EFFECT IS BELOW CERTAIN MONETARY LIMITS. VIDE INST RUCTION NO.1903 DATED 28.10.1992 THE MONETARY LIMIT WAS REVISED UPWARD AN D THE OFFICERS WERE DIRECTED NOT TO FILE APPEAL BEFORE THE INCOME TAX A PPELLATE TRIBUNAL WHERE THE TAX EFFECT WAS BELOW RS.25,000/-. THE ABOVE MO NETARY LIMIT WAS FURTHER REVISED UPWARD BY INSTRUCTION NO.1979 DATED 27.03.2 000 AND THE OFFICERS WERE DIRECTED NOT TO FILE THE APPEAL TO ITAT WHERE THE TAX EFFECT IS BELOW RS.1,00,000/-. THEREAFTER IN PARTIAL MODIFICATION OF THE ABOVE INSTRUCTION, THE BOARD VIDE INSTRUCTION NO.2/2005 DATED 24.10.2005 H AS FURTHER RAISED THE ABOVE MONETARY LIMIT TO RS.2,00,000/- WITH THE SAME DIRECTIONS. THUS THE C.B.D.T. SINCE 1987 HAS NOT ONLY TAKEN A CONSISTENT APPROACH OF INSTRUCTING ITS OFFICERS FOR NOT FILING THE APPEAL WHERE THE TAX EF FECT IS BELOW THE MONETARY LIMIT, BUT SUCH MONETARY LIMIT IS ALSO REVISED UPWA RD FROM TIME TO TIME. THE CIRCULAR UNDER INSTRUCTION NO.1979 DATED 27.03.2000 WAS CONSIDERED BY THE BOMBAY HIGH COURT IN THE CASE OF CAMCO COLOUR CO.25 4 ITR 565 AND THEIR LORDSHIPS HELD AT PAGE 568 AS UNDER: IT APPEARS THAT DESPITE THE ABOVE CIRCULAR, THE REV ENUE HAS CHOSEN TO FILE THE PRESENT APPEAL KNOWINGLY FUL LY; ITA NO.3909/M/2010 3 WELL THAT THE CORRIDORS OF THE COURTS ARE FLOODED W ITH PENDING LITIGATIONS. THE PRESENTATION OF THIS APPE AL IS QUITE CONTRARY TO THE INSTRUCTION ISSUED IN THE CIR CULAR, WHICH IS BINDING ON THE REVENUE. IN THE ABOVE VIEW OF THE MATTER, CONSIDERING THE INSTRUCTION ISSUED BY THE CENTRAL BOARD OF DIRECT TA XES, WE ARE SATISFIED THAT THE BOARD HAS TAKEN A POLICY DECISION NOT TO FILE APPEAL IN A TYPE OF CASE IN HA ND AND THE SAME IS BINDING ON THE REVENUE(APPELLANT HEREIN ). IN THE RESULT, WE DISMISS THIS APPEAL ON THIS COUNT IN LIMINE WITH NO ORDER AS TO COSTS. 5. WE FIND THAT RECENTLY THE APEX COURT HAS CONSIDE RED THE EFFECT OF CIRCULAR ISSUED BY THE CBDT IN THE CASE OF COMMISSI ONER OF CUSTOMS VS. INDIAN OIL CORPORATION LTD. 267 ITR 272. THEIR LORD SHIPS EXAMINED THE EARLIER DECISION OF THE APEX COURT WITH REGARD TO BINDING N ATURE OF THE CIRCULAR AND LAID DOWN THE FOLLOWING PRINCIPLES AT PAGE 277 OF T HE REPORTS- THE PRINCIPLES LAID DOWN BY ALL THESE DECISIONS AR E- 1. ALTHOUGH A CIRCULAR IS NOT BINDING ON A COURT ON AN ASSESSEE, IT IS NOT OPEN TO THE REVENUE TO RAISE A CONTENTION THAT IS CONTRARY TO A BINDING CIRCULAR B Y 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 VOID. 4. IT IS NOT OPEN TO THE REVENUE TO ADVANCE AN ARGUMENT OR FILE AN APPEAL CONTRARY TO THE CIRCULAR S. 6. IT IS RELEVANT TO STATE THAT CBDT VIDE INSTRUCTION NO. 3/2011 DT. 9 TH FEBRUARY, 2011 HAS FURTHER REVISED THE MONETARY LIM IT FOR FILING OF APPEALS BY THE DEPARTMENT BEFORE THE APPELLATE TRIBUNAL, HIGH COURTS. IT IS RELEVANT TO REPRODUCE THE SAID CBDT INSTRUCTION, WHICH READS AS UNDER: ITA NO.3909/M/2010 4 INSTRUCTION NO. 3/2011 [F. NO. 279/MISC. 142/2007- ITJ], DATED 9-2-2011 REFERENCE IS INVITED TO BOARD'S INSTRUCTION NO. 5/2 008 DATED 15- 5-2008 WHEREIN MONETARY LIMITS AND OTHER CONDITIONS FOR FILING DEPARTMENTAL APPEALS (IN INCOME-TAX MATTERS) BEFORE APPELLATE TRIBUNAL, HIGH COURTS AND SUPREME COURT WERE SPECIF IED. 2. IN SUPERSESSION OF THE ABOVE INSTRUCTION, IT HAS BEE N DECIDED BY THE BOARD THAT DEPARTMENTAL APPEALS MAY BE FILED ON MERITS BEFORE APPELLATE TRIBUNAL, HIGH COURTS AND SUPREME COURT KEEPING IN VIEW THE MONETARY LIMITS AND CONDITIONS SPECIFIED BELOW . 3. HENCEFORTH APPEALS SHALL NOT BE FILED IN CASES WHER E THE TAX EFFECT DOES NOT EXCEED THE MONETARY LIMITS GIVEN HE REUNDER: S. NO. APPEALS IN INCOME-TAX MATTERS MONETARY LIMIT (IN RS.) 1. APPEAL BEFORE APPELLATE TRIBUNAL 3,00,000 2. APPEAL U/S. 260A BEFORE HIGH COURT 10,00,000 3. APPEAL BEFORE SUPREME COURT 25,00,000 IT IS CLARIFIED THAT AN APPEAL SHOULD NOT BE FILED M ERELY BECAUSE THE TAX EFFECT IN A CASE EXCEEDS THE MONETARY LIMIT S PRESCRIBED ABOVE. FILING OF APPEAL IN SUCH CASES IS TO BE DECI DED 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 TH AT WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN RED UCED BY THE AMOUNT OF INCOME IN RESPECT OF THE ISSUES AGAIN ST WHICH APPEAL IS INTENDED TO BE FILED (HEREINAFTER REFERRE D TO AS 'DISPUTED ISSUES'). HOWEVER THE TAX WILL NOT INCLUDE ANY INTEREST THEREON, EXCEPT WHERE CHARGEABILITY OF INTEREST ITS ELF IS IN DISPUTE. IN CASE THE CHARGEABILITY OF INTEREST IS TH E ISSUE UNDER DISPUTE, THE AMOUNT OF INTEREST SHALL BE THE TAX EF FECT. IN CASES WHERE RETURNED LOSS IS REDUCED OR ASSESSED AS INCOM E, THE TAX EFFECT WOULD INCLUDE NOTIONAL TAX ON DISPUTED ADDIT IONS. IN CASE OF PENALTY ORDERS, THE TAX EFFECT WILL MEAN QUANTUM OF PENALTY DELETED OR REDUCED IN THE ORDER TO BE APPEALED AGAI NST. 5. THE ASSESSING OFFICER SHALL CALCULATE THE TAX EFFEC T SEPARATELY FOR EVERY ASSESSMENT YEAR IN RESPECT OF THE DISPUTE D ISSUES IN THE CASE OF EVERY ASSESSEE. IF, IN THE CASE OF AN AS SESSEE ,THE ITA NO.3909/M/2010 5 DISPUTED ISSUES ARISE IN MORE THAN ONE ASSESSMENT Y EAR, APPEAL, CAN BE FILED IN RESPECT OF SUCH ASSESSMENT YEAR OR YEARS IN WHICH THE TAX EFFECT IN RESPECT OF THE DISPUTED ISS UES EXCEEDS THE MONETARY LIMIT SPECIFIED IN PARA 3. NO APPEAL S HALL 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. I N OTHER WORDS, HENCEFORTH, APPEALS CAN BE FILED ONLY WITH REFERENC E TO THE TAX EFFECT IN THE RELEVANT ASSESSMENT YEAR. HOWEVER, IN CASE OF A COMPOSITE ORDER OF ANY HIGH COURT OR APPELLATE AUTH ORITY, WHICH INVOLVES MORE THAN ONE ASSESSMENT YEAR AND COMMON I SSUES IN MORE THAN ONE ASSESSMENT YEAR, APPEAL SHALL BE FILE D IN RESPECT OF ALL SUCH ASSESSMENT YEARS EVEN IF THE 'TAX EFFEC T' 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 CA SE WHERE A COMPOSITE ORDER/JUDGMENT INVOLVES MORE THAN ONE ASS ESSEE, 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 DEC ISION IS NOT ACCEPTABLE, APPEAL IS NOT BEING FILED ONLY ON THE C ONSIDERATION THAT THE TAX EFFECT IS LESS THAN THE MONETARY LIMIT SPECIFIED IN THIS INSTRUCTION'. FURTHER, IN SUCH CASES, THERE WI LL BE NO PRESUMPTION THAT THE INCOME-TAX DEPARTMENT HAS ACQUI ESCED IN THE DECISION ON THE DISPUTED ISSUES. THE INCOME TAX DEPARTMENT SHALL NOT BE PRECLUDED FROM FILING AN APPEAL AGAINS T THE DISPUTED ISSUES IN THE CASE OF THE SAME ASSESSEE FOR ANY OTH ER ASSESSMENT YEAR, OR IN THE CASE OF ANY OTHER ASSESS EE FOR THE SAME OR ANY OTHER ASSESSMENT YEAR, IF THE TAX EFFEC T 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 RELIE F FROM THE TRIBUNAL OR THE COURT ONLY ON THE GROUND THAT THE D EPARTMENT HAS IMPLICITLY ACCEPTED THE DECISION OF THE TRIBUNA L OR COURT IN THE CASE OF THE ASSESSEE FOR ANY OTHER ASSESSMENT Y EAR OR IN THE CASE OF ANY OTHER ASSESSEE FOR THE SAME OR ANY OTHE R ASSESSMENT YEAR, BY NOT FILING AN APPEAL ON THE SAM E DISPUTED ISSUES. THE DEPARTMENTAL REPRESENTATIVES/COUNSELS M UST 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 TH E 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 T HE TRIBUNAL OR THE COURT THAT SUCH CASES DO NOT HAVE ANY PRECED ENT VALUE. ITA NO.3909/M/2010 6 AS THE EVIDENCE OF NOT FILING APPEAL DUE TO THIS IN STRUCTION 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 EF FECT 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 PROVISI ONS OF AN ACT OR RULE ARE UNDER CHALLENGE, OR B. WHERE BOARD'S ORDER, NOTIFICATION, INSTRUCTION O R CIRCULAR HAS BEEN HELD TO BE ILLEGAL OR ULTRA VIRES, OR C. WHERE REVENUE AUDIT OBJECTION IN THE CASE HAS BE EN ACCEPTED BY THE DEPARTMENT. 9. THE PROPOSAL FOR FILING SPECIAL LEAVE PETITION UNDE R ARTICLE 136 OF THE CONSTITUTION BEFORE THE SUPREME COURT SH OULD, IN ALL CASES, BE SENT TO THE DIRECTORATE OF INCOME-TAX(LEGA L & RESEARCH), NEW DELHI AND THE DECISION TO FILE SPECI AL LEAVE PETITION SHALL BE IN CONSULTATION WITH THE MINISTRY OF LAW AND JUSTICE. 10. 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 AND R ULES. FURTHER, FILING OF APPEAL IN CASES OF INCOME-TAX, WHERE THE T AX 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 PA RA 3 ABOVE AND DECISION TO FILE APPEAL IN SUCH CASES MAY BE TAKEN ON MERITS OF A PARTICULAR CASE. 11. THIS INSTRUCTION WILL APPLY TO APPEALS FILED ON OR AFTER 09.02.2011. HOWEVER, THE CASES WHERE APPEALS HAVE B EEN FILED BEFORE 09.02.2011 WILL BE GOVERNED BY THE INSTRUCTI ONS ON THIS SUBJECT, OPERATIVE AT THE TIME WHEN SUCH APPEAL WAS FILED. 12. THIS ISSUES UNDER SECTION 268(1) OF THE INCOME TAX A CT, 1961. 7. IN VIEW OF THE ABOVE, IT IS EVIDENT THAT HONBLE APEX COURT HAS LAID DOWN THAT IT IS NOT OPEN TO THE REVENUE TO ADVANCE AN ARGUMENT OR FILE AN ITA NO.3909/M/2010 7 APPEAL CONTRARY TO THE CIRCULAR. THEREFORE, THIS A PPEAL FILED BY THE REVENUE IS NOT ADMITTED AND IS BEING DISMISSED IN LIMINE. 8. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON THIS 20 TH DAY OF SEPTEMBER, 2011 SD/- SD/- ( B. RAMAKOTAIAH) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 20 TH SEPTEMBER, 2011 RJ OPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO.3909/M/2010 8 DATE INITIALS 1. DRAFT DICTATED ON: 20.9.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 21.09.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: