ITO 9(3)(1), MUMBAI V. SAB AGRO SERVICES P. TD, MUMBAI

ITA 5687/MUM/2010

• Counselvise Citation: 568719914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 13-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: VINITA SHAH
• Keywords: Audit objection; Tax effect; Revenue expenditure
• Section: 260A; 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER) ITA NO. 5687/MUM/2010 ASSESSMENT YEAR- 2006-07 THE ITO 9(3)(1), AAYAKAR BHAVAN, MUMBAI-400 20 VS. M/S. SAB AGRO SERVICES PVT. LTD., 11 JAY NIKETAN BLDG., 16 TH KHAR DANADA ROAD, KHAR (W), MUMBAI-400 052 PAN-AAACS 9468D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI V.V. SHASTRI RESPONDENT BY: MISS VINITA SHAH DATE OF HEARING : 28.09.2011 DATE OF PRONOUNCEMENT:30.9.2011 O R D E R PER B.R. MITTAL, JM : THE REVENUE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2006-076 AGAINST ORDER OF LD. CIT(A) DT. 4.5.2010 ON THE FO LLOWING TWO GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF RS. 5,39,250/- IN AGGREGATE, PAID TO M/S. SRERLING CHEM ICALS AND ALCOHOL LTD. AND M/S. DUJODWALA PRODUCTS LTD. A S COMPENSATION, WAS A REVENUE EXPENDITURE ADMISSIBLE AS DEDUCTION U/S. 37 OF THE I.T. ACT, 1961, DISREGARDIN G THE FINDING OF THE AO THAT THE PAYMENT WAS OF THE NATUR E OF COMPENSATION FOR LOSS OF BUSINESS AND WAS CAPITAL I N NATURE. ITA NO.5687/M/2010 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2, 00,274/- REPRESENTING 20% OF THE INDIRECT EXPENSES CLAIMED OVERLOOKING THE FINDING OF THE AO THAT THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR AND THAT THE INDI RECT EXPENSES CLAIMED WERE DISPROPORTIONATELY HIGH. 2. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT TH E TAX EFFECT INVOLVED IN THIS APPEAL IS BELOW 3 LACS AND THE APPEAL SHOULD B E DISMISSED. HOWEVER, LD. DR SUBMITTED THAT THIS IS AN OLD APPEAL FILED BEFOR E 9 TH FEBRUARY, 2011 AND THEREFORE THE LATEST CBDT INSTRUCTION NO. 3/2011 WI LL NOT APPLY. 3. THE ISSUE NOW REMAINS BEFORE US IS WHETHER THE APPEAL OF THE REVENUE IS BELOW THE PRESCRIBED LIMIT OF TAX EFFECT IN VIEW OF THE BOARDS INSTRUCTION ISSUED FROM TIME TO TIME REVISING THE MONETARY LIMI TS FOR FILING OF APPEALS BY THE DEPARTMENT BEFORE ITAT AND OTHER SUPERIOR COURT S. EVEN THOUGH THIS APPEAL FILED BEFORE 09.02.2011, THE SAME STILL WILL BE COVERED BY INSTRUCTION NO. 3/2011 ISSUED ON 09.02.2011 I.E. THE REVISED MO NETARY LIMIT FOR FILING OF APPEAL BEFORE ITAT, WHEREBY THE CBDT HAS FIXED THE LIMIT OF RS. 3 LACS. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS DELHI RACE CLUB IN ITANO.128/2008 DATED 03.03.20 11 HAS HELD AS UNDER: THE TAX EFFECT INVOLVED IN THE PRESENT APPEAL IS R S.4,65,860/-. AS PER THE RECENT GUIDELINES OF THE CBDT, APPEAL IN THOSE CASES WHERE THE TAX EFFECT IS LESS THAN 10 LACS, ARE NOT TO BE ENTERTAINED. THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TA X-III V. M/S. P. S. JAIN AND CO. BEING ITA NO. 179/1991 DECIDED O N 2 ND AUGUST, 2010 HAS TAKEN A VIEW THAT SUCH CIRCULAR WO ULD ALSO APPLY TO PENDING CASES. 4. IN VIEW OF THE DECISION OF HONBLE DELHI HIGH CO URT, THE REVISED MONETARY LIMIT OF RS. 3 LACS AS PER INSTRUCTION NO. 3/2011 WILL APPLY TO PENDING APPEALS. 5. THE RELEVANT CIRCULAR ISSUED BY CBDT READS AS UN DER: ITA NO.5687/M/2010 3 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 DISPUTED ISSUES ARISE IN MORE THAN ONE ASSESSMENT Y EAR, APPEAL, CAN BE FILED IN RESPECT OF SUCH ASSESSMENT YEAR OR YEARS IN ITA NO.5687/M/2010 4 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. 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 ITA NO.5687/M/2010 5 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. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE DEL HI HIGH COURT IN THE CASE OF DELHI RACE CLUB (SUPRA), THE REVENUES APPE AL IS DISMISSED. ITA NO.5687/M/2010 6 6. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER, 2011 SD/- SD/- ( RAJENDRA SINGH) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH SEPTEMBER, 2011 RJ OPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO.5687/M/2010 7 DATE INITIALS 1. DRAFT DICTATED ON: 28.9.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 28.09.2011 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: