ASSISTANT COMMISSIONER OF INCOME TAX vs. M/S. OHM DEVELOPERS

Facts

The appellant, Assistant Commissioner of Income Tax, has challenged the judgment and order dated August 4, 2006, passed by the Income-tax Appellate Tribunal (ITAT), Ahmedabad Bench, camp at Surat, in ITA No. 2878/Ahd/2004. The appeal was admitted by the High Court of Gujarat on November 19, 2007, with a substantial question of law framed. The respondent is M/s. Ohm Developers. The dispute pertains to the interpretation of instructions issued by the Central Board of Direct Taxes (CBDT) regarding net tax effect.

Held

The High Court of Gujarat, after hearing the learned advocates for the parties, considered the submissions. The Court noted the assessee's argument that the amount involved and the revenue effect were small. Relying on CBDT Circular No. 1979 dated March 27, 2000, and Circular No. 2 of 2005 dated October 24, 2005, and Section 268 of the Income Tax Act, the Court agreed that the revenue should not have pursued the appeal. Consequently, the questions of law were answered in favour of the assessee and against the revenue. The appeal filed by the revenue was dismissed. The specific interpretation of the CBDT instructions by the ITAT was not elaborated upon by the High Court, but the outcome was based on the principle that appeals with low revenue effect should not be pursued.

Key Issues

1. Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in interpreting instruction no. 2/2005 issued by the Central Board of Direct Taxes on October 24, 2005, modifying its instruction no. 1979 dated March 27, 2000, in respect of net tax effect and paragraph 3 of instruction no. 1979 dated March 27, 2000, and dismissing the appeal of the Revenue on the said interpretation? Assessee's contention: The learned advocate for the assessee stated that the amount involved in the present case is small with a low revenue effect. Therefore, as per Circular No. 1979 dated March 27, 2000, and Circular No. 2 of 2005 dated October 24, 2005, and in view of the provisions of Section 268 of the Income Tax Act, the revenue ought not to have filed an appeal, and thus, the appeal should be dismissed. Revenue's contention: The judgment does not record any specific contentions made by the revenue regarding the interpretation of the CBDT instructions or the merits of the case. The revenue's argument is implicitly addressed by the assessee's submission that the appeal should not have been filed.