IN THE ITAT DELHI BENCH SMC
Income-tax Officer
Ward-1, Saharanpur
v.
Virender Kumar
R.C. SHARMA, ACCOUNTANT MEMBER
IT APPEAL NO. 1451 (DELHI) OF 2006
[Assessment Year 2000 01]
August 31, 2007
Section 119, read with section 253, of the
Income Tax Act, 1961 Central Board of Direct Taxes Instruction to
subordinate authorities Assessment year
2000-01-Whether where tax effect in appeal filed by department was less than
Rs. 2 lakhs, in view of CBDT Instruction No. 2 dated 24-10-2005, such an appeal
would not be maintainable Held, yes.
Circular & Notification
CBDTs Instruction No. 2 dated 24-10-2005.
Section 44AD of the Income Tax Act, 1961
Civil construction business Assessment year 2000-01 Assessee earned gross
receipts of Rs. 38,90,564/-
executing contact work of transportation
for a Sugar Mill Assessing Officer applied provisions of section 44AD and
estimated income of assessee and made addition of Rs. 2,51,945 Commissioner
(Appeals), however, by applying net profit rate of 9 per cent reduced addition
to Rs. 51, 945 Whether Commissioner (Appeals) was justified in deleting part
of addition made by Assessing Officer Held,
yes.
The assessee earned gross receipts of Rs.38,90,564 by executing the contract work of transportation for a sugar mill. The Assessing Officer applying the provision of section 44AD estimated the income of the assessee and, accordingly, made addition of Rs. 2,51,945 to the total income of the assessee. The Commissioner (Appeals) reduced the addition to Rs. 51,945 by applying net profit rate of 9 per cent on gross receipts earned by the assessee from the contract works.. The department filed instant appeal challenging the impugned order. The assessee opposed instant appeal on the ground that since tax effect in the instant appeal was less than Rs .2 lakhs same was not maintainable
HELD
The instructions for not filing the appeals with regard to the quantum of revenue effect being less than particular amount have not been issued by the Central Board of Direct Taxes in a light hearted manner. These are issued after a great deal of deliberations and discussion where every aspect of the matter, more particularly the question of loss of revenue is examined in depth. Every officer is enjoined with the duty to advance the policies laid down by the Central Board of Direct Taxes and see that these are not defeated. The instructions are also aimed at reducing arrears of appeals in Courts and Tribunals. The Central Board of Direct Taxes, in the circular dated 27-3-2000, had asked all officers of the Income-tax Department under their control not to file appeals before the Appellate Tribunal in cases where the tax effect involved in appeal did not exceed Rs. 1 lakh. These instructions in question are binding on all departmental authorities and they could not be by passed and treated as of no consequence on the pretext that these were private only, and the authorities are bound to follow, comply with and see that the policies laid down by the Board achieve their objectives. These instructions had been issued to avoid unnecessary litigation in small cases particularly, it was very difficult for a small assessee to come from a remote and distant place to defend an appeal filed against him in the Tribunal. The legal fees payable to the lawyer, traveling and other incidental expenses involved, were likely to be more than the tax effect in the appeal and the financial loss to such an assessee would be more, even if he legally succeeded in the appeal. Therefore, the circular/instruction definitely aimed at redressing problems of small assessees. The assessees are entitled to urge the Tribunal to enforce it. It was observed by the Madras High Court in CWT v. S. Annamalai [2002] 258 ITR 675 that in order to reduce the litigation for filing Departmental appeals/references before the Income-tax Appellate Tribunal, High Courts and the Supreme Court, the Central Board of Direct Taxes by Circular F. No. 279/126/98-ITJ, dated 27-3-2000, revised the monetary limits. It was held that in case of matters not covered by the exceptions like: (i) where Revenue audit objection in the case has been accepted by the Department, (ii) where the Boards order, notification, instruction or circular is the subject matter of an adverse order, (iii) where prosecution proceedings are contemplated against the assessee, and (iv) where the constitutional validity of the provisions of the Act are under challenge, the appeals filed by the department should be dismissed. It was observed by ITAT Special Bench in the case of ITO v. Bir Engg. Works [2005] 94 ITD 164 (ASR) that with a view to reduce the pendency of appeals in the Tribunal, High Court and Supreme Court and also to redress difficulties of small assesses in meeting cost of litigation, CBDT has been issuing various instructions to revenue officials prescribing the monetary limit for filing appeals before the above forums. Impugned instruction No. 1979 dated 28-3-2000 was issued in suppression of all earlier instructions stipulating such limit of tax effect. [Para 4]
With regard to the binding nature of these instructions issued by the CBDT, on the Income-tax authorities, the provisions of section 119 of IT Act are very much clear. On a plain reading of section 119, it is clear that sub-section (1) refers to orders, instructions and directions to the Income-tax authorities by the Board. The section itself provides that all such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board. Only exceptions provided under the proviso are that such instructions cannot interfere with the discretion of the Commissioner (Appeals) in exercise of appellate functions and also cannot direct any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner. Otherwise, section 119(1) itself mandates that such instructions shall be binding on the Income-tax authorities. Section 119(2) refers to specific orders with reference to any class of income or class of cases either by way of relaxation of any of the provisions of section mentioned therein or with reference to class of income or class of cases. These instructions could be in the form of guidelines, principles or procedure to be followed by the Income-tax authorities in the work relating to assessment, collection of revenue or the initiation of proceedings for the imposition of penalties. Here also the Board may, if it is of the opinion that it is necessary in the public interest to do so, publish and circulate such instructions. Therefore, it is not in all cases that instructions/circulars issued by the Board under section 119(2) 'are published by the Board. Thus, the only difference between sub-section (1) and sub-section (2) of section 119 is that while sub-section (2) is more specific with reference to particular class of income or class of cases. The contention of the Revenue could not be accepted that instructions issued under sub-section (1) were more in the nature of administrative instructions and, "therefore, were not binding on the authorities because section itself mandates that such instructions shall be followed by the revenue authorities. Nowhere section 119 provides any exception to income-tax authorities not to follow such instructions except in a case where such instructions interfere with the discretion of Commissioner (Appeals) or with the jurisdiction and power of particular income-tax authority in a particular case. Admittedly, instructions issued by the CBDT prescribing monetary limit for filing the appeals before the Tribunal, High Court or Supreme Court are not In nature which could Interfere with the discretion of Commissioner (Appeals) or interfere with the powers and jurisdiction of income-tax authorities to complete the assessment order to dispose of a particular matter in a particular case In a particular manner, Therefore, these instructions are binding on income-tax authorities. [Para 5]
Recently Supreme Court in the case of Tanna & Modi v. CIT [2007] 292 ITR 209/161 Taxman 329 vide its order 17-05-2007, has observed that executive instructions are binding on the authorities under the Income-tax Act, 1961. [Para 8]
In view of the above discussion and keeping in view the recent verdict of Supreme Court mentioned hereinabove the tax effect in the instant appeal being less than Rs 2 lakhs the department should not have filed the appeal before the Tribunal.
Even on merits, no interference was warranted in the order of the Commissioner (Appeals) who after considering the detailed submission of the assessee, deleted part of the addition made by the Assessing Officer after recording his finding. [Para 9]
In the result, appeal of the revenue was dismissed.