LAL CHAND YADAV vs. THE INCOME TAX OFFICER,WARD 23, JAIPUR

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ITA/205/2017HC RajasthanRJHC02097179201712 December 201781 pages
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What did the High Court hold?

The High Court addressed two substantial questions of law. Regarding the first issue, concerning the applicability of CBDT Circular No. 21 dated December 10, 2015, to pending appeals, the Court referred to the Supreme Court's decision in Director of Income Tax vs. S.R.M.B. Dairy Farming (P.) Ltd. The Court held that the Circular is binding on the Department, and appeals cannot be filed contrary to its instructions. However, a clarification was issued: if an issue decided by the CIT(A) or Tribunal is contrary to judgments of the Supreme Court, the Department can prefer an appeal, provided it is in cases where the order contradicts the Supreme Court's ratio. This is to maintain the sanctity of Article 141 of the Constitution. The Court suggested incorporating this clarification into the Circular. The second issue, concerning the ITAT's reversal of CIT(A)'s findings and confirmation of additions under Section 68, was deemed academic as the first issue was decided in favor of the assessee. The appeal was disposed of.

What were the facts?

The appellant, Lal Chand Yadav, challenged an order of the Income Tax Appellate Tribunal (ITAT) which had allowed a departmental appeal and cross-objections. The appeal was admitted by the High Court on August 8, 2017, with specific substantial questions of law framed. The core of the dispute revolved around the applicability of a CBDT Circular regarding monetary limits for appeals to pending matters and whether the ITAT had correctly reversed the CIT(A)'s findings without plausible reason, thereby confirming additions made by the Assessing Officer under Section 68 of the Income Tax Act. The judgment discusses the applicability of CBDT Circular No. 21 dated December 10, 2015, to pending appeals before a Third Member/Larger Bench of the ITAT.

What were the issues?

1. Whether CBDT Circular No. 21 dated December 10, 2015, concerning monetary limits for appeals, is applicable to Revenue's appeals pending before the Third Member/Larger Bench of the Income Tax Appellate Tribunal? (Question of law) 2. Whether the learned ITAT was correct in reversing the findings of the learned CIT(A) without plausible reason and confirming additions made by the Assessing Officer under Section 68 of the Income Tax Act, 1961? (Question of mixed law and fact) Assessee's Contentions: - Relied on judgments like Lt. Col. S.K. Kashyap and Anr. vs. State of Rajasthan, Asgarali Nazarali Singaporewalla vs. State of Bombay, and Commissioner of Income-tax, Bombay City-I vs. Sunny Sounds (P.) Ltd. to argue that the term 'pending' includes matters not concluded and that circulars issued under Section 268A of the Act have statutory character and are binding. Revenue's Contentions: - Argued that Article 141 of the Constitution of India mandates that the law declared by the Supreme Court is binding on all courts. If the Tribunal takes a view contrary to Supreme Court judgments, an appeal should be maintainable irrespective of the tax effect, for judicial discipline. - Submitted that if the Tribunal or CIT(A) takes a view contrary to Supreme Court judgments, the rider imposed by the CBDT on filing appeals cannot apply.

Which sections of the Income-tax Act were involved?

Section 68,Section 268A

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Income Tax Appellate Tribunal, ?

Before: the/Larger Bench

Per Hon’ble M.N. Bhandari, J.

24.

The issue for our consideration is as to whether the Department can act contrary to the Circular issued by the Central Board of Direct Taxes (for short “the CBDT”) in pursuance of Section 268A of the Income Tax Act, 1961 (for short “the Act of 1961”).

25.

It is admitted by learned counsel for the parties that the Department cannot act contrary to the Circular issued by the CBDT for reduction of arrears of the cases in different courts. It is more specifically after amendment in Section 268A of the Act of 1961. It is, however, urged by learned counsel appearing for the Department that if the Tribunal takes a view contrary to the judgments of the Apex Court then the appeal should be held maintainable irrespective of value of the tax effect.

26.

Learned counsel appearing for the Department submits that Article 141 of the Constitution of India provides law declared by the Supreme Court to be binding on all the Courts within the territory of India. In a case where ratio propounded by the Supreme Court is not followed then irrespective of value of tax effect, appeal should be held maintainable. It is even otherwise required for the judicial discipline. The binding effect of the judgments of the Supreme Court has to be maintained. The Appellate Tribunals are not at liberty to take their own view contrary to the judgments of the Supreme Court on the same issue for the reason that no appeal can be preferred considering tax effect involved therein. The clarification is thus necessary to that extent.

27.

Learned counsel for the non-appellant/s has contested the issue. It is submitted that when the Circular has been issued under Section 268A of the Act of 1961 then it takes statutory character, hence, no direction or liberty can be sought contrary to it. Accordingly, the arguments raised by learned counsel for the Department may not be accepted even in reference to Article 141 of the Constitution of India.

28.

We have considered the submissions made by learned counsel for the parties and perused the record as well as the judgments cited at Bar.

(80 of 81) [ITA-205/2017]

29.

Various High Courts have considered the issue raised before us. The Circular issued by the CBDT under Section 268A of the Act of 1961 is binding on the Department thus the appeal cannot be preferred contrary to the instructions given therein. This Court, however, cannot lose sight of the only issue raised by the Department in reference to Article 141 of the Constitution of India. If an issue has been decided by the Apex Court then the ratio propounded therein is to be applied as a precedence. If the Tribunal or the CIT (Appeals) takes a view contrary to the settled law then rider imposed by the CBDT on filing of appeal cannot be applied. If we hold that appeal would not be maintainable even if the Tribunal or the CIT (Appeals) has taken view contrary to the judgment of the Supreme Court then Article 141 of the Constitution of India would be violated. No statutory provision can stand or be read contrary to the constitutional provision.

30.

In view of the above, theory of reading down needs to be applied for making Circular of the CBDT in consonance to the provisions of the Constitution of India otherwise it would not only cause judicial indiscipline but give rise to the anarchy, leading to serious consequences.

31.

Accordingly, the Circular issued by the CBDT under Section 268A of the Act of 1961 is held binding on the Department thus appeal cannot be filed, if it is barred. It is, however, with a clarification that if the issue decided by the CIT (Appeals) or Tribunal is contrary to the judgments of the Supreme Court, the Department can prefer an appeal, however, care would be taken to file it only in those cases where the order passed by the CIT (Appeals) or the Tribunal is contrary to the ratio propounded by the Supreme Court on the same issue. In doing so, sanctity of Article 141 of the Constitution of India would be maintained, thereby, serious consequences of taking different view would also be avoided.

32.

The Department may incorporate it in the Circular to avoid further controversy.

33.

The question framed before the Larger Bench is answered accordingly. (M.N. BHANDARI,J.”

(81 of 81) [ITA-205/2017]

5.

The first issue is answered in favour of assessee and against the department.

6.

The second issued is academic.

7.

The appeal is disposed of. (VIJAY KUMAR VYAS) J. (K.S. JHAVERI)J. Chouhan/29 .

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