THE PR. COMMISSIONER OF INCOME TAX, PANAJI., vs. THE GOA STATE CO-OPERATIVE BANK LTD. PANAJI.
What did the High Court hold?
The High Court disposed of the appeal without answering the substantial questions of law framed. The sole ground for disposal was the tax effect involved in the appeal, which was stated to be hardly ₹5,00,000/- or thereabouts. The Court referred to CBDT Circular No. 17 of 2019 dated August 8, 2019, which suggests that appeals with a low tax effect should not be prosecuted by the department. The Court noted that in similar circumstances, it had disposed of another Tax Appeal (No. 72 of 2015) by its order dated October 13, 2020. Therefore, the appeal was disposed of on the administrative ground of low tax effect, rather than on the merits of the substantial questions of law. No issue was expressly left undecided, as the appeal was disposed of on a preliminary ground.
What were the facts?
The appeal was filed by the Principal Commissioner of Income Tax (Revenue) against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had dismissed the Revenue's appeal, upholding the Commissioner of Income Tax's order. The dispute pertains to the assessment year(s) not explicitly stated but implied to be prior to the judgment date of October 28, 2020. The core issue involves the allowability of a provision for standard assets as a deduction. The amount in dispute is stated to be in the range of ₹17,00,000/-, with a tax effect of approximately ₹5,00,000/-. The High Court had admitted the appeal on two substantial questions of law on August 31, 2016. The Revenue had initially proposed a third question regarding investment depreciation reserve, which the High Court declined to frame.
What were the issues?
The Tribunal had to decide two substantial questions of law: 1. Whether the ITAT's order, which dismissed the Revenue's appeal by declining to interfere with the CIT's order, is sustainable in law, specifically on the ground that a provision for standard asset is a diminution in the value of stock-in-trade and thus allowable under Section 28(1) of the Income Tax Act, 1961. 2. Whether the ITAT's order is sustainable in law because it failed to assign reasons for deciding issue No./ground No. 2 in favour of the assessee, mechanically answering it without discussing the applicability of the Supreme Court's decision in the case of Nainital to the present facts. Assessee's contentions: The assessee argued that the provision for standard assets represents a diminution in the value of stock-in-trade and is therefore an allowable deduction under Section 28(1). The assessee also relied on the Supreme Court's decision in Nainital (case name not fully provided in the excerpt). Revenue's contentions: The Revenue contended that the ITAT erred by not assigning reasons for its decision on the second issue and by mechanically favouring the assessee without properly considering the facts in light of the Nainital judgment. The Revenue also questioned the sustainability of the ITAT's order on the first issue regarding the allowability of the provision for standard assets under Section 28(1).
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
ORAL JUDGMENT (Per M. S. Sonak, J) Heard Ms. S. Linhares, learned Standing counsel for the Appellant and Mr. S. R. Rivankar, learned Senior Advocate who appears alongwith Mr. Rama Rivankar for the Respondent.
This appeal was admitted on 31st August, 2016, on the following two substantial questions of law :- (a) Whether in law, the order passed by the Income Tax Appellate Tribunal is sustainable in so far as it dismissed the 2 appeal filed by the revenue by declining to interfere in the order of Commissioner of Income Tax, by holding that provision for standard asset is the diminution in the value of stock-in-trade and thus allowable u/s 28(1) of the Act ? (b) Whether in law, the order passed by the Income Tax Appellate Tribunal is sustainable in law as no reasons have been assigned by the Tribunal for answering the issue No./ground No.2 raised in appeal memo before Tribunal by the revenue as it mechanically answers the same in favour of the assessee without discussing the applicability of facts of the case of Nainital ( supra) of Supreme Court to the facts of the present case ?
Both these substantial questions of law concern the provision for standard asset. The amount involved is in the range of 17,00,000/- and therefore the tax effect will be around 5,00,000/-. ₹ ₹
Mr. Rivankar points out that the appellant at the stage of admission of this appeal had urged another substantial question of law based upon investment depreciation reserve. The tax effect as far as this question was concerned may have exceeded 1 Crore. However, by order ₹ dated 31st August, 2016, this Court declined to frame such substantial question of law.
According to us, the tax effect on the basis of substantial questions of law also framed is hardly 5,00,000/- then the CBDT ₹ Circular No.17 of 2019 dated 8th August, 2019 will come in the way of department prosecuting this appeal.
3
In such similar circumstances, we had disposed of Tax Appeal No.72 of 2015 by our order dated 13th October, 2020. 7. Accordingly, we dispose of this appeal without answering the substantial questions of law as framed on the sole ground that the tax effect now involved in this appeal is hardly 5,00,000/- or ₹ thereabouts.
This appeal is accordingly disposed of. There shall be no order as to costs. DAMA SESHADRI NAIDU, J. M. S. SONAK, J. at*
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