Lal Chand Yadav v. Income Tax Officer, Ward 2(3), Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 205 / 2017 Lal Chand Yadav S/o Shri Ram Prasad Yadav, Aged About 45Years, Plot No. 81, Heera Nagar, Heerapura, 200 Feet Bye Pass,Jaipur ----Appellant Versus Income Tax Officer, Ward 2(3), Jaipur Having Its Address At NewCentral Revenue Building, Bhagwan Das Road, C-Scheme, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Siddharth Ranka with Mr. Saurabh Harsh For Respondent(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASOrder 12/12/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the departmental appeal and cross-objections. 2.This Court while admitting the appeal on 08.08.2017 framed following substantial question/s of law:- ““i) Whether the Circular No. 21 dated 10thDecember, 2015 issued by the CBDT withregards to monetary limits would also beapplicable on Revenue’s appeal’s which arepending before the Third Member/Larger Benchof the Income Tax Appellate Tribunal? ii) Whether on the law and in facts and materialavailable on record the ld. ITAT was correct inreversing the findings recorded by the ld. CIT(A)without any plausible reason and in turnconfirming the additions made by the ld.Assessing Officer u/s 68 of the Act.?” 3.The first issue is now covered by the decision ofSupreme Court in case Director of Income Tax vs. S.R.M.B.Dairy Farming (P.) Ltd., [2017] 87 taxmann.com 288 (SC), wherein it has been observed: “17. In Commissioner of Income Tax v. NavbharatExplosives Co. P. Ltd.; Commissioner of IncomeTax v. Kodanand Tea Estates Co. and CWT v. JohnL. Chackola, the opinion is to the same effect asaforesaid applying the circular prospectively asthey state so. The view of the Supreme Court: 18. The view adopted by the Delhi High Courtmaking the Circular applicable to pending matterscame up before a three Judge Bench of this Courtin SLP(C) No. CC 13694/2011 titled CIT Central-IIIv. Surya Herbal Ltd. when the following order waspassedon29.8.2011:“Delay condoned. Liberty is given to the Department to move theHigh Court pointing out that the Circular dated 9thFebruary, 2011, should not be applied ipso facto,particularly, when the matter has a cascadingeffect. There are cases under the Income Tax Act,1961, in which a common principle may beinvolved in subsequent group of matters or largenumber of matters. In our view, in such cases ifattention of the High Court is drawn, the HighCourt will not apply the circular ipso facto. For thatpurpose, liberty is granted to the Department tomove the High Court in two weeks. The SpecialLeave Petition is, accordingly, disposed of. 19. The aforesaid order, in our view, actuallyshould have laid the controversy to rest. Theretrospective applicability of the Circular dated9.2.2011 was not interfered with, but with twocaveats - (i) Circular should not be applied by theHigh Courts ipso facto when the matter had acascading effect; (ii) where common principlesmay be involved in subsequent group of mattersor a large number of matters. It was opined that insuch cases, the attention of the High Court wouldbe drawn and the Department was even givenliberty to move the High Court in two weeks. Inour view this order holds the field and shouldcontinue to hold the field.” 4.Learned counsel for appellant has placed reliance on following judgments: 1. Lt. Col. S.K. Kashyap and Anr. Vs. State ofRajasthan, AIR 1971 SC 1120, wherein it has beenobserved: 4.Learned counsel for appellant has placed reliance on following judgments: 1. Lt. Col. S.K. Kashyap and Anr. Vs. State ofRajasthan, AIR 1971 SC 1120, wherein it has beenobserved: “25. The word 'pending' came up for considerationbefore this Court in Asgarali NazaraliSingaporawalla v. The State of BombayMANU/SC/0100/1957 : 1957CriLJ605 . CriminalLaw Amendment Act, 1952 provided for the trialof all offences under Section 161, 165 or 165A ofthe Indian Penal Code or Sub-section (2) ofSection 5 of the Prevention of Corruption Act,1947 exclusively by Special Judges and directedthe transfer of all such trial pending on the dateof the coining into force of the Act to SpecialJudges. The Presidency Magistrate continued thetrial and acquitted the appellant. Upon appeal bythe State Government the High Court held thatfrom the date of the commencement of the Actthe Presidency Magistrate lost all jurisdiction tocontinue the trial and ordered retrial by theSpecial Judge. It was contended that on the dateof the coming into force of the Criminal LawAmendment Act, 1952, viz., 28 July, 1952, thecase was not pending because no Special Judgewas appointed until 26 September, 1962 and thetrial also came to an end on 26 September, 1962this Court did not accept that contention becausethe accused was not called upon his defence on28 July, 1962 and the examination of the accusedunder Section 342 of the CrPC took place afterthat date and the accused filed his writtenstatement on 14 August, 1952 and the addressesby the prosecution as well as the defencecontinued right up to 26 September, 1952. Theword 'pending' will ordinarily mean that thematter is not concluded and the court which hascognizance of it can make an order on the matterin issue. The test is whether any proceedings canbe taken in the cause before the court or tribunalwhere it is said to be pending. The answer is thatuntil the case is concluded it is pending. Judgedby these tests it will appear that this presentappeal relates to a case pending before 30 June,1966.” 2. Asgarali Nazarali Singaporewalla vs. State ofBombay, AIR 1957 SC 503, wherein it has beenobserved: 20. We do not accept this contention. It cannot bedenied that on July 28, 1952, the date of thecommencement of the impugned Act the case ofthe appellant was pending before the learnedPresidency Magistrate. On that day the prosecutionhad closed its case and the appellant had not yetbeen called upon to enter upon his defence. Theexamination of the appellant under s. 342 of theCode of Criminal Procedure took place after thatdate. The appellant filed his written statement onAugust 14, 1952 and the address by theprosecution as well as the defence continued rightup to September 26, 1952. The word "pending" isthus defined in Stroud's Judicial Dictionary, 3rdEdition, Vol. III, p. 2141 : PENDING :- (1) A legal proceeding is "pending" assoon as commenced and until it is concluded, i.e.,so long as the Court having original cognizance ofit can make an order on the matters in issue, or tobe dealt with, therein. Similar are the observationsof Jessel, M.R. In re Clagett's Estate, Fordham v.Clagett (1882) 20 Ch. D. 637 : "What is the meaning of the word "pending" ? Inmy opinion, it includes every insolvency in whichany proceeding can by any possibility be taken.That I think is the meaning of the word"pending".................A cause is said to be pendingin a Court of justice when any proceeding can betaken in it. That is the test." 21. There is no doubt therefore that the case ofthe appellant was not concluded and was pendingbefore the learned Presidency Magistrate at thedate of the commencement of the impugned Act.” 3. Commissioner of Income-tax, Bomaby City-Ivs. Sunny Sounds (P.) Ltd., [2016] 65taxmann.com 162 (Bombay), wherein it has beenobserved: "What is the meaning of the word "pending" ? Inmy opinion, it includes every insolvency in whichany proceeding can by any possibility be taken.That I think is the meaning of the word"pending".................A cause is said to be pendingin a Court of justice when any proceeding can betaken in it. That is the test." 21. There is no doubt therefore that the case ofthe appellant was not concluded and was pendingbefore the learned Presidency Magistrate at thedate of the commencement of the impugned Act.” 3. Commissioner of Income-tax, Bomaby City-Ivs. Sunny Sounds (P.) Ltd., [2016] 65taxmann.com 162 (Bombay), wherein it has beenobserved: “6. In a case where appeal before a Tribunal or aCourt is not filed only on account of the tax effectbeing less than the monetary limit specifiedabove, the CIT shall specifically record that 'eventhough the decision is not acceptable, appeal isnot being filed only on the consideration that thetax effect is less than the monetary limit specifiedin this instruction'. Further, in such cases, therewill be no presumption that the IT Departmenthas acquiesced in the decision on the disputedissues. The IT Department shall not be precludedfrom filing an appeal against the disputed issuesin the case of the same assessee for any other assessment year, or in the case of any otherassessee for the same or any other assessmentyear, if the tax effect exceeds the specifiedmonetary limits. 7. In the past, a number of instances have cometo the notice of the Board, whereby an assesseehas claimed relief from the Tribunal or the Courton the ground that the Department has implicitlyaccepted the decision of the Tribunal or Court inthe case of the assessee for any other assessmentyear or in the case of any other assessee for thesame or any other assessment year, by not filingan appeal on the same disputed issues. TheDepartmental Representatives/counsel must makeevery effort to bring to the notice of the Tribunalor the Court that the appeal in such cases was notfiled or not admitted only for the reason of the taxeffect being less than the specified monetarylimit, and therefore, no inference should be drawnthat the decisions rendered therein wereacceptable to the Department. Accordingly, theyshould impress upon the Tribunal or the Courtthat such cases do not have any precedent value.As the evidence of not filing appeal due to thisinstruction may have to be produced in Courts,the judicial folders in the office of CIT must bemaintained in a systemic manner for easyretrieval.” and also Larger Bench’s decision in D.B. Income Tax Appeal No.575/2008, Commissioner of Income Tax vs. M/s GAD Fashion, decided on 10.11.2017 which is re-produced as under:- “1. By way of reference, this Court vide orderdated 05.07.2017 framed the following reference forconsideration by the larger Bench. “Whether the Department can take acontrary view than the circular which hasbeen issued for reduction of arrears in theSupreme Court, High Courts and Tribunalsand insist for arguing the matter on merits.” 2.The statutory provision which is required tobe considered by us reads as under: “268A. Filing of appeal or application forreferencebyincome-taxauthority.- (1) The Board may, from timeto time, issue orders, instructions ordirections to other income-tax authorities,fixing such monetary limits as it may deemfit, for the purpose of regulating filing ofappeal or application for reference by anyincome-tax authority under the provisionsof this Chapter. income-tax (2) Where, in pursuance of the orders,instructions or directions issued under sub-section (1), an income-tax authority hasnot filed any appeal or application forreference on any issue in the case of anassessee for any assessment year, it shallnot preclude such authority from filing anappeal or application for reference on thesame issue in the case of— (a) the same assessee for any otherassessment year; or forreferencebyincome-taxauthority.- (1) The Board may, from timeto time, issue orders, instructions ordirections to other income-tax authorities,fixing such monetary limits as it may deemfit, for the purpose of regulating filing ofappeal or application for reference by anyincome-tax authority under the provisionsof this Chapter. income-tax (2) Where, in pursuance of the orders,instructions or directions issued under sub-section (1), an income-tax authority hasnot filed any appeal or application forreference on any issue in the case of anassessee for any assessment year, it shallnot preclude such authority from filing anappeal or application for reference on thesame issue in the case of— (a) the same assessee for any otherassessment year; or (b) any other assessee for the same or anyother assessment year. (3) Notwithstanding that no appeal orapplication for reference has been filed byan income-tax authority pursuant to theorders or instructions or directions issuedunder sub-section (1), it shall not be lawfulfor an assessee, being a party in any appealor reference, to contend that the income-tax authority has acquiesced in the decisionon the disputed issue by not filing an appealor application for reference in any case. (4) The Appellate Tribunal or Court, hearingsuch appeal or reference, shall have regardto the orders, instructions or directions-issued under subsection (1) and thecircumstances under which such appeal orapplication for reference was filed or notfiled in respect of any case. (5) Every order, instruction or directionwhich has been issued by the Board fixingmonetary limits for filing an appeal orapplication for reference shall be deemed tohave been issued under sub-section (1) andthe provisions of sub-sections (2), (3) and (4) shall apply accordingly.” 3.Another statutory provision which isrequired to be considered reads as under: “119. Instructions to subordinateauthorities.- (1) The Board may, fromtime to time, issue such orders, instructionsand directions to other income-taxauthorities as it may deem fit for the properadministration of this Act, and suchauthorities and all other persons employedin the execution of this Act shall observeand follow such orders, instructions anddirections of the Board : Provided that no such orders, instructionsor directions shall be issued— (a) so as to require any income-taxauthority to make a particular assessmentor to dispose of a particular case in aparticular manner; or (b) so as to interfere with the discretion ofthe Commissioner (Appeals) in the exerciseof his appellate functions. (2) Without prejudice to the generality ofthe foregoing power,— (a) the Board may, if it considers itnecessary or expedient so to do, for thepurposeofproperandefficientmanagement of the work of assessmentand collection of revenue, issue, from timeto time (whether by way of relaxation ofany of the provisions of sections 115P,115S, 115WD, 115WE, 115WF, 115WG,115WH, 115WJ, 115WK, 139, 143, 144,147, 148, 154, 155 , 158BFA, sub-section(1A) of section 201, sections 210, 211,234A, 234B, 234C, 271 and 273 orotherwise), general or special orders inrespect of any class of incomes or fringebenefits or class of cases, setting forthdirections or instructions (not beingprejudicial to assessees) as to theguidelines, principles or procedures to befollowed by other income-tax authorities inthe work relating to assessment orcollection of revenue or the initiation ofproceedings for the imposition of penaltiesand any such order may, if the Board is ofopinion that it is necessary in the publicinterest so to do, be published andcirculated in the prescribed manner forgeneral information; (b) the Board may, if it considers itdesirable or expedient so to do for avoidinggenuine hardship in any case or class ofcases, by general or special order, (b) the Board may, if it considers itdesirable or expedient so to do for avoidinggenuine hardship in any case or class ofcases, by general or special order, authorise any income-tax authority, notbeing a Commissioner (Appeals) to admitan application or claim for any exemption,deduction, refund or any other relief underthis Act after the expiry of the periodspecified by or under this Act for makingsuch application or claim and deal with thesame on merits in accordance with law; (c) the Board may, if it considers itdesirable or expedient so to do for avoidinggenuine hardship in any case or class ofcases, by general or special order forreasons to be specified therein, relax anyrequirement contained in any of theprovisions of Chapter IV or Chapter VI-A,where the assessee has failed to complywith any requirement specified in suchprovision for claiming deduction thereunder,subject to the following conditions,namely:- (i) the default in complying with suchrequirement was due to circumstancesbeyond the control of the assessee; and (ii) the assessee has complied with suchrequirement before the completion ofassessment in relation to the previous yearin which such deduction is claimed : Provided that the Central Government shallcause every order issued under this clauseto be laid before each House of Parliament.” 4.The circulars which are the subject matterof this petition read as under: “INSTRUCTIONNO.3/2011(F.NO.279/MISC.142/2007-1TJ) SECTION 268A OF THE INCOME-TAXACT,1961- APPEALS AND REVISION-FILING OF APPEAL OR APPLICATIONFOR REFERENCE BY INCOME-TAXAUTHORITY- REVISION OF MONETARYLIMITS FOR FILING OF APPEALS BY THEDEPARTMENT BEFORE INCOME TAXAPPELLATE TRIBUNAL, HIGH COURTSAND SUPREME COURT- MEASURES FORREDUCING LITIGATIONReference is Invited to Board’sinstruction--No. 5/2008 dated 1552008wherein monetary limits and other conditions forfiling departmental appeals (In Income-taxmatters) before Appellate Tribunal, HighCourts and Supreme Court were specified. 2. In supersession of the above instruction,it has been decided by the Board thatdepartmental appeals may be filed on meritsbefore Appellate Tribunal, High Courts andSupreme Court keeping in view themonetary limits and conditions specifiedbelow. 3. Henceforth appeals shall not be filed incases where the tax effect does not exceedthe monetary limits given hereunder:— S. Appeals in Income-tax mattersMonetaryNo.Limit (In Rs.)1.Appeal before Appellate Tribunal3,00,0002.Appeal u/s 260A before High Court10,00,0003.Appeal before Supreme Court25,00,000 It is clarified that an appeal should not befiled merely because the tax effect in a caseexceeds the monetary limits prescribedabove. Filing of appeal in such cases is to bedecided on merits of the case. 4. For this purpose, “tax effect” means thedifference between the tax on the totalincome assessed and the tax that wouldhave been chargeable had such total incomebeen reduced by the amount of income inrespect of the issues against which appeal isintended to be filed (hereinafter referred toas “disputed Issues”). However the tax willnot include any interest thereon, exceptwhere chargeability of interest itself is indispute. In case the chargeability of interestis the issue under dispute, the amount ofinterest shall be the tax effect. In caseswhere returned loss is reduced or assessedas income, the tax effect would includenotional tax on disputed additions. In caseof penalty orders, the tax effect will meanquantum of penalty deleted or reduced inthe order to be appealed against. 5. The Assessing Officer shall calculate thetax effect separately for every assessmentyear in respect of the disputed issues in thecase of every assessee. If, in the case of anassessee, the disputed issues arise in more 5. The Assessing Officer shall calculate thetax effect separately for every assessmentyear in respect of the disputed issues in thecase of every assessee. If, in the case of anassessee, the disputed issues arise in more than one assessment year, appeal, can befiled in respect of such assessment year oryears in which the tax effect in respect ofthe disputed issues exceeds the monetarylimit specified in para 3. No appeal shall befiled in respect of an assessment year oryears in which the tax effect is less than themonetary limit specified in para 3. In otherwords, henceforth, appeals can be filed onlywith reference to the tax effect in therelevant assessment year. However, in caseof a composite order of any High Court orappellate authority, which involves morethan one assessment year and commonissues in more than one assessment year,appeal shall be filed in respect of all suchassessment years even if the ‘tax effect’ isless than the prescribed monetary limits inany of the year(s), if it is decided to fileappeal in respect of the year(s) in which ‘taxeffect’ exceeds the monetary limitprescribed. In case where a compositeorder/judgment involves more than oneassessee, each assessee shall be dealt withseparately. 6. In a case where appeal before a Tribunalor a Court is not filed only on account of thetax effect being less than the monetary limitspecified above, the Commissioner ofIncome-tax shall specifically record that“even though the decision is not acceptable,appeal is not being filed only on theconsideration that the tax effect is less thanthe monetary limit specified in thisinstruction”. Further, in such cases, there willbe no presumption that the Income-taxDepartment has acquiesced in the decisionon the disputed issues. The Income-taxDepartment shall not be precluded fromfiling an appeal against the disputed issuesin the case of the same assessee for anyother assessment year, or in the case of anyother assessee for the same or any otherassessment year, if the tax effect exceedsthe specified monetary limits. 7. In the past, a number of instances havecome to the notice of the Board, wherebyan assessee has claimed relief from theTribunal or the Court only on the groundthat the Department has implicitly acceptedthe decision of the Tribunal or Court in thecase of the assessee for any otherassessment year or in the case of any other assessee for the same or any otherassessment year, by not filing an appeal onthesamedisputedissues.TheDepartmentalrepresentatives/counselsmust make every effort to bring to thenotice of the Tribunal or the Court that theappeal in such cases was not filed or notadmitted only for the reason of the taxeffect being less than the specifiedmonetary limit and, therefore, no inferenceshould be drawn that the decisionsrendered therein were acceptable to theDepartment. Accordingly, they shouldimpress upon the Tribunal or the Court thatsuch cases do not have any precedentvalue. As the evidence of not filing appealdue to this instruction may have to beproduced in courts, the judicial folders inthe office of CSIT must be maintained in aSystemic manner for easy retrieval. 8. Adverse judgments relating to thefollowing issues should be contested onmerits notwithstanding that the tax effectentailed is less than the monetary limitsspecified in para 3 above or there is no taxeffect. (a) Where the Constitutional validity of theprovisions of an Act or Rule are underchallenge, or (b) Where Board’s order, Notification,Instruction or Circular has been held to beillegal or ultra vires, or (c) Where Revenue Audit objection in thecase has been accepted by the Department. 8. Adverse judgments relating to thefollowing issues should be contested onmerits notwithstanding that the tax effectentailed is less than the monetary limitsspecified in para 3 above or there is no taxeffect. (a) Where the Constitutional validity of theprovisions of an Act or Rule are underchallenge, or (b) Where Board’s order, Notification,Instruction or Circular has been held to beillegal or ultra vires, or (c) Where Revenue Audit objection in thecase has been accepted by the Department. 9. The proposal for filing Special LeavePetition under Article 136 of the Constitutionbefore the Supreme Court should, in allcases, be sent to the Directorate of Income-tax (Legal & Research), New Delhi and thedecision to file Special Leave Petition shallbe in consultation with the Ministry of Lawand Justice. 10. The monetary limits specified in para 3above shall not apply to writ matters anddirect tax matters other than Income-tax,filing of appeals in other direct tax mattersshall continue to be governed by relevantprovisions of statute and rules. Further, filingof appeal in cases of Income-tax, where the tax effect is not quantifiable ornot involved, such as the case of registrationof trusts or institutions under section 12A ofthe IT Act, 1961, shall not be governed bythe limits specified in para 3 above anddecision to file appeal in such cases may betaken on merits of a particular case. 11. This instruction will apply to appealsfiled on or after 9th February 2011.However, the cases where appeals havebeen filed before 9th February 2011 willbe governed by the instructions on thissubject, operative at the time when suchappeal was filed. 12. This issues under section 268A(1) of theIncome-tax Act, 1961.” “Circular No. 21/2015 F No 279/Misc. 142/2007-ITJ (Pt Government of IndiaMinistry of Finance Department of Revenue Central Board Direct Taxes New Delhi the 10th December, 2015 Subject: Revision of monetary limits forfiling of appeals by the Department beforeIncome Tax Appellate Tribunal and HighCourts and SLP before Supreme Court -measures for reducing litigation - Reg - Reference is invited to Board's instructionNo 5/2014 dated 10.07.2014 whereinmonetary limits and other conditions forfiling departmental appeals (in Income-taxmatters) before Appellate Tribunal and HighCourts and SLP before the Supreme Courtwere specified. 2. In supersession of the above instruction,it has been decided by the Board thatdepartmental appeals may be filed onmerits before Appellate Tribunal and HighCourts and SLP before the Supreme Courtkeeping in view the monetary limits andconditions specified below. 3. Henceforth, appeals/ SLPs shall not befiled in cases where the tax effect does notexceed the monetary limits givenhereunder: - S.No Appeals in Income-tax mattersMonetary Limit (inRs.)1.Before Appellate Tribunal 10,00,000/-2. Before High Court 20,00,000/-3.Before Supreme Court25,00,000/- It is clarified that an appeal should not befiled merely because the tax effect in a caseexceeds the monetary limits prescribedabove. Filing of appeal in such cases is tobe decided on merits of the case. 2. In supersession of the above instruction,it has been decided by the Board thatdepartmental appeals may be filed onmerits before Appellate Tribunal and HighCourts and SLP before the Supreme Courtkeeping in view the monetary limits andconditions specified below. 3. Henceforth, appeals/ SLPs shall not befiled in cases where the tax effect does notexceed the monetary limits givenhereunder: - S.No Appeals in Income-tax mattersMonetary Limit (inRs.)1.Before Appellate Tribunal 10,00,000/-2. Before High Court 20,00,000/-3.Before Supreme Court25,00,000/- It is clarified that an appeal should not befiled merely because the tax effect in a caseexceeds the monetary limits prescribedabove. Filing of appeal in such cases is tobe decided on merits of the case. 4. For this purpose, "tax effect" means thedifference between the tax on the totalincome assessed and the tax that wouldhave been chargeable had such totalincome been reduced by the amount ofincome in respect of the issues againstwhich appeal is intended to be filed(hereinafter referred to as "disputedissues"). However the tax will not includeany interest thereon, except wherechargeability of interest itself is in dispute.In case the chargeability of interest is theissue under dispute, the amount of interestshall be the tax effect. In cases wherereturned loss is reduced or assessed asincome, the tax effect would includenotional tax on disputed additions. In caseof penalty orders, the tax effect will meanquantum of penalty deleted or reduced inthe order to be appealed against. 5. The Assessing Officer shall calculate thetax effect separately for every assessmentyear in respect of the disputed issues in thecase of every assessee. lf, in the case of anassessee, the disputed issues arise in morethan one assessment year, appeal, can befiled in respect of such assessment year oryears in which the tax effect in respect ofthe disputed issues exceeds the monetarylimit specified in para 3. No appeal shall befiled in respect of an assessment year oryears in which the tax effect is less than themonetary limit specified in para 3. Inother words, henceforth, appeals can befiled only with reference to the tax effect in the relevant assessment year. However, incase of a composite order of any High Courtor appellate authority, which involves morethan one assessment year and commonissues in more than one assessment year,appeal shall be filed in respect of all suchassessment years even if the 'tax effect' isless than the prescribed monetary limits inany of the year(s), if it is decided to fileappeal in respect of the year(s) in which'tax effect' exceeds the monetary limitprescribed. In case where a compositeorder/ judgement involves more than oneassessee, each assessee shall be dealt withseparately. 6. In a case where appeal before a Tribunalor a Court is not filed only on account of thetax effect being less than the monetarylimit specified above, the Commissioner ofIncome-tax shall specifically record that"even though the decision is not acceptable,appeal is not being filed only on theconsideration that the tax effect is less thanthe monetary limit specified in thisinstruction". Further, in such cases, therewill be no presumption that the Income-taxDepartment has acquiesced in the decisionon the disputed issues. The Income-taxDepartment shall not be precluded fromfiling an appeal against the disputed issuesin the case of the same assessee for anyother assessment year, or in the case of anyother assessee for the same or any otherassessment year, if the tax effect exceedsthe specified monetary limits. 7. In the past, a number of instances havecome to the notice of the Board, wherebyan assessee has claimed relief from theTribunal or the Court only on the groundthat the Department has implicitly acceptedthe decision of the Tribunal or Court in thecase of the assessee for any otherassessment year or in the case of any otherassessee for the same or any otherassessment year, by not filing an appeal onthesamedisputedissues.TheDepartmentalrepresentatives/counselsmust make every effort to bring to thenotice of the Tribunal or the Court that theappeal in such cases was not filed or notadmitted only for the reason of the taxeffect being less than the specifiedmonetary limit and, therefore, no inference should be drawn that the decisionsrendered therein were acceptable to theDepartment. Accordingly, they shouldimpress upon the Tribunal or the Court thatsuch cases do not have any precedentvalue. As the evidence of not filing appealdue to this instruction may have to Page 2of 4 be produced in courts, the judicialfolders in the office of CSIT must bemaintained in a systemic manner for easyretrieval. 8. Adverse judgments relating to thefollowing issues should be contested onmerits notwithstanding that the tax effectentailed is less than the monetary limitsspecified in para 3 above or there is no taxeffect: (a) Where the Constitutional validity of theprovision under challenge, or (b) Where Board's order, Notification,Instruction or Circular has been held to beillegal or ultra vires, or (c) Where Revenue Audit objection in thecase has been accepted by the Department,or (d) Where the addition relates toundisclosed foreign assets/ bank accounts. 9. The monetary limits specified in para 3above shall not apply to writ matters anddirect tax matters other than Income tax.Filing of appeals in other Direct tax mattersshall continue to be governed by relevantprovisions of statute & rules. Further, filingof appeal in cases of Income Tax, where thetax effect is not quantifiable or not involved,such as the case of registration of trusts orinstitutions under se the IT Act, 1961, shallnot be governed by the limits specified inpara 3 above and decision to file appeal insuch cases may be taken on merits of aparticular case. 10.Thisinstructionwillapplyretrospectively to pending appeals andapplications be filed henceforth in HighCourts/ Tribunals. Pending appeals belowthe specified tax limits in para 3 above maybe withdrawn/ not pressed. Appeals beforethe Supreme Court will be governed by theinstructions on this subject, operative at thetime when such appeal was filed. 11. This issue under Section 268A (1) ofthe Income-tax Act 1961.” 5.Counsel for the Department Mr. R.B.Mathur has relied upon the following decisions:(i) K.P. Varghese vs. Income Tax Officer,Ernakulam and Anr.(04.09.1981 – SC),[1981]131ITR597(SC) 11. There is also one other circumstance whichstrongly reinforces the view we are taking inregard to the construction of Sub-section (2).Soon after the introduction of Sub-section (2),the Central Board of Direct Taxes, in exercise ofthe power conferred under Section 119 of theAct, issued a circular dated 7th July, 1964explaining the scope and object of Sub-section(2) in the following words: Section 13 of the Finance Act has introduced anew Sub-section (2) in Section 52 of theIncome-tax Act with a view to counteringevasion of tax on capital gains through thedevice of an under-statement of the full value ofthe consideration received or receivable on thetransfer of a capital asset. 11. There is also one other circumstance whichstrongly reinforces the view we are taking inregard to the construction of Sub-section (2).Soon after the introduction of Sub-section (2),the Central Board of Direct Taxes, in exercise ofthe power conferred under Section 119 of theAct, issued a circular dated 7th July, 1964explaining the scope and object of Sub-section(2) in the following words: Section 13 of the Finance Act has introduced anew Sub-section (2) in Section 52 of theIncome-tax Act with a view to counteringevasion of tax on capital gains through thedevice of an under-statement of the full value ofthe consideration received or receivable on thetransfer of a capital asset. The provision existing in Section 52 of theIncome-tax Act before the amendment (whichhas now been remembered as Sub-section (2)enables the computation of capital gains arisingon transfer of a capital asset with reference toits fair market value as on the date of itstransfer, ignoring the amount of theconsideration shown by the assessee, only if thefollowing two conditions are satisfied: (a) the transferee is a person who is directly orindirectly connected with assessee, and (b) the Income-tax Officer has reason to believethat the transfer was effected with object ofavoidance or reduction of the liability ofassessee to tax on capital gains. In view of these conditions, this provision has alimited operation and does not apply to othercases where the tax liability on capital gainsarising on transfer of capital assets betweenparties not connected with each other, is soughtto be avoided or reduced by an under-statementof the consideration paid for the transfer of theasset. The circular also drew the attention of Income-tax Authorities to the assurance given by theFinance Minister in his speech that Sub-section(2) was not aimed at perfectly honest andbonafide transactions where the consideration inrespect of the transfer was correctly disclosed ordeclared by the assessee, but was intended todeal only with cases where the consideration forthe transfer was under-stated by the assesseeand was shown at a lesser figure than thatactually received by him. It appears that despitethis circular, the Income-tax Authorities inseveral cases levied tax by invoking theprovision in Sub-section (2) even in cases wherethe transaction was perfectly, honest andbonafide and there was no under-statement ofthe consideration. This was quite contrary to theinstructions issued in the circular which wasbinding on the Tax Department and the CentralBoard of Direct Taxes was, therefore,constrained to issue another circular on 14thJanuary, 1974 whereby the Central Board, afterreiterating the assurance given by the FinanceMinister in the course of his speech pointed out: It has come to the notice of the Board that insome cases the Income-tax Officers haveinvoked the provisions of Section 52(2) evenwhen the transactions were bonaflde. In thiscontext reference is invited to the decision of theSupreme Court in Navnitlal C. Jhaveri v. K.K.Sen [1965]56ITR198(SC) and Ellerman LinesLtd. v. Commissioner of Income-tax, WestBengal [1971]82ITR913(SC) wherein it was heldthat the circular issued by the Board would bebinding on all officers and persons employed inthe execution of the Income-tax Act. Thus, theIncome-tax Officers are bound to follow theinstructions issued by the Board. It has come to the notice of the Board that insome cases the Income-tax Officers haveinvoked the provisions of Section 52(2) evenwhen the transactions were bonaflde. In thiscontext reference is invited to the decision of theSupreme Court in Navnitlal C. Jhaveri v. K.K.Sen [1965]56ITR198(SC) and Ellerman LinesLtd. v. Commissioner of Income-tax, WestBengal [1971]82ITR913(SC) wherein it was heldthat the circular issued by the Board would bebinding on all officers and persons employed inthe execution of the Income-tax Act. Thus, theIncome-tax Officers are bound to follow theinstructions issued by the Board. and instructed the Income-tax Officers that"while completing the assessments they shouldkeep in mind the assurance given by the Ministerof Finance and the provisions of Section 52(2) ofthe Income-tax Act may not be invoked in casesof bonafide trans-actions". These two circulars ofthe Central Board of Direct Taxes are, as weshall presently point out, binding on the TaxDepartment in administering or executing theprovision enacted in Sub-section (2), but quiteapart from their binding character, they areclearly in the nature of contemporaneaexposition furnishing legitimate aid in theconstruction of Sub-section (2). The rule ofconstruction by reference to contemporanea exposition is a well established rule forinterpreting a statute by reference to theexposition it has received from contemporaryauthority, though it must give way where thelanguage of the statute is plain andunambiguous. This rule has been succinctly andfelicitously expressed in Crawford on StatutoryConstruction (1940 ed) where it is stated inparagraph 219 that "administrative construction(i.e. contemporaneous construction placed byadministrative or executive officers charged withexecuting a statute) generally should be clearlywrong before it is overturned; such aconstruction, commonly referred to as practicalconstruction, although non-controlling, isnevertheless entitled to considerable weight; itis highly persuasive." The validity of this rulewas also recognised in Baleshwar Bagarti v.Bhagirathi Dass ILR 35 Cal. 701 whereMookerjee, J. stated the rule in these terms: It is a well-settled principle of interpretation thatcourts in construing a statute will give muchweight to the interpretation put upon it, at thetime of its enactment and since, by those whoseduty it has been to construe, execute and applyit. and this statement of the rule was quoted withapproval by this Court in Deshbandhu Guptu &Co. v. Delhi Stock Exchange Association Ltd.[1979]3SCR373 . It is clear from these twocirculars that the Central Board of Direct Taxes,which is the highest authority entrusted with theexecution of the provisions of the Act,understood Sub-section (2) as limited to caseswhere the consideration for the transfer hasbeen under-stated by the assessee and thismust be regarded as a strong circumstancesupporting the construction which we are placingon that sub-section. 12. But the construction which is commendingitself to us does not rest merely on the principleof contemporanea exposition. The two circularsof the Central Board of Direct Taxes to which wehave just referred are legally binding on theRevenue and this binding character attaches tothe two circulars even if they be found not inaccordance with the correct interpretation ofSub-section (2) and they depart or deviate fromsuch construction. It is now well-settled as aresult of two decisions of this Court, one inNavnitlalC.Jhaveriv.K.K.Sen[1965]56ITR198(SC) and the other in Ellerman 12. But the construction which is commendingitself to us does not rest merely on the principleof contemporanea exposition. The two circularsof the Central Board of Direct Taxes to which wehave just referred are legally binding on theRevenue and this binding character attaches tothe two circulars even if they be found not inaccordance with the correct interpretation ofSub-section (2) and they depart or deviate fromsuch construction. It is now well-settled as aresult of two decisions of this Court, one inNavnitlalC.Jhaveriv.K.K.Sen[1965]56ITR198(SC) and the other in Ellerman Lines Ltd. v. Commissioner of Income-tax, WestBengal [1971]82ITR913(SC) that circularsissued by the Central Board of Direct Taxesunder Section 119 of the Act are binding on allOfficers and persons employed in the executionof the Act even if they deviate from theprovisions of the Act. The question which arosein Navnitlal C. Jhaveri's case (supra) was inregard to the constitutional validity of Sections2(6A)(e) and 12(1B) which were introduced inthe Indian Income Tax Act 1922 by the FinanceAct 1955 with effect from 1st April, 1955. Thesetwo sections provided that any payment madeby a closely held company to its shareholder bya way of advance or loan to the extent to whichthe company possesses accumulated profitsshall be treated as dividend taxable under theAct and this would include any loan or advancemade in any previous year relevant to anyassessment year prior to the assessment year1955-56, if such loan or advance remainedoutstanding on the first day of the previous yearrelevant to the assessment year 1955-56. Theconstitutional validity of these two sections wasassailed on the ground that they imposedunreasonable restrictions on the fundamentalright of the assessee under Article 19(1)(f) and(g) of the Constitution by taxing outstandingloans or advances of past years as dividend. TheRevenue however relied on a circular issued bythe Central Board of Revenue under Section 5(8)of the Indian Income-tax Act 1922 whichcorresponded to Section 119 of the Present Actand this circular provided that if any suchoutstanding loans or advances of past yearswere repaid on or before 30th June 1955, theywould not be taken into account in determiningthe tax liability of the shareholders to whomsuch loans or advances were given. This circularwas clearly contrary to the plain language ofSection 2(6A)(e) and Section 121(B), but evenso this Court held that it was binding on theRevenue and since "past transactions whichwould normally have attracted the stringentprovisions of Section 12(1B) as it wasintroduced in 1955, were substantially grantedexemption from the operation of the saidprovisions by making it clear to all thecompanies and their shareholders that if thepast loans were genuinely refunded to thecompanies they would not be taken into accountunder Section 12(1B)" Sections 2(6A)(e) and 12(1B) did not sufferfrom the vice of unconstitutionality. This decisionwas followed in Ellerman Lives case (supra)where referring to another circular issued by theCentral Board of Revenue under Section 5(8) ofthe Indian Income Tax Act 1922 on whichreliance was placed on behalf of the assessee,this Court observed: Now, coming to the question as to the effect ofinstructions issued under Section 5(8) of theAct, this Court observed in Navnit Lal C. Jhaveriv. K.K. Shah Appellate Assistant Commissioner,Bombay. It is clear that a circular of the kind which wasissued by the Board would be binding on allofficers and persons employed in the executionof the Act under Section 5(8) of the Act. Thiscircular pointed out to all the officers that it waslikely that some of the companies might haveadvanced loans to their shareholders as a resultof genuine transactions of loans, and the ideawas not to affect such transactions and not tobring them