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Maintainability of appeal to the Tribunal - tax - effect
September, 13th 2007

ACIT vs Erik Matthew Gottesman
Citation 2007 15 SOT 301 
Diversion of income at source - Topic Employers contribution: Social Security Account
The assessee-employee had no right to receive any amount from the contributions of the employer made to Social-Security Account till he reached the age of retirement. Thus he had no vested right therein till then. The amount contributed by the employer was not his income.

Maintainability of appeal to the Tribunal  - tax - effect
Since the tax-effect was less than Rs. 2 lakhs the appeal by Department was not maintainable in view of the instructions of the CBDT.

ITAT, Delhi

ACIT vs Erik Matthew Gottesman

IT Appeal No. 2753 (Delhi) of 2006 Assessment Year 2003-04

I.P. Bansal, Judicial Member and R.C. Sharma, Accountant Member

29 March 2007

B.P. Mishra for the Appellant


R.C. Sharma, Accountant Member. -This is an appeal filed by the Revenue against the order of ld. Commissioner of Income-tax (Appeals)-XXX, New Delhi dated 31-7-2006 for assessment year 2003-04, in the matter of order passed under section 143(3) of the Income-tax Act.

2. Following sole ground of appeal has been raised by the Revenue :

"On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 1,85,522 made by the Assessing Officer on account of social security contribution.

The appellant craves the right to amend, alter, add or substitute any grounds of appeal."

3. During the course of hearing we found that the tax effect in the appeal filed by the Revenue is less than Rs. 1,00,000, insofar as there is a deletion of addition of Rs. 1,85,522 made by the Assessing Officer on account of social security contribution.

4. We have gone through the grounds of appeal filed by the Revenue and found that tax effect in the instant appeal is less than Rs. 2 lakhs. In view of C.B.D.T. Instruction No. 2, dated 24-10-2005, the department should not have filed the appeals before the Tribunal. For this purpose reliance may be placed on the decision of ITAT Delhi Bench in the case of Vikram Bhatnagar [IT Appeal No. 60 (Delhi) of 2002, dated 10-3-2006].

5. The revenue is not supposed to file appeal as per CBDT Circular dated 24th October, 2005. The appeal of the revenue is, therefore, liable to dismissed in the light of the decision of the Hon'ble Bombay High Court in the case of CIT v. Pithwa Engg. Works [2005] 276 ITR 519, wherein their Lordships have observed as under :

"One fails to understand how the Revenue can contend that so far as new cases are concerned, the circular issued by the Board is binding on them and in compliance with the said instructions, they do not file references if the tax effect is less than Rs. 2 lakhs. But the same approach is not adopted with respect to the old referred cases even if the tax effect is less than Rs. 2 lakhs. In our view, there is no logic behind this approach.

This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up, the assessees on the file of the Departments have increased; consequently, the burden on the department also increased to a tremendous extent. The corridors of the superior courts are choked with huge pendency of cases. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect is less than Rs. 2 lakhs. The same policy for old matters needs to be adopted by the Department. In our view, the Board's circular dated March 27, 2000, is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect."

6. In case of Asstt. CIT v. Rajoo Engineers Ltd. [2006] 100 ITD 555 (Rajkot), it was observed that :-

"It is true that the High Court decision in CIT v. Pithwa Engg. Works [2005] 276 ITR 519 was not dealing with the new limit of the circular dated 24-10-2005. It was with reference to the earlier circular where reference was not required to be filed to the High Court if the tax effect was less than Rs. 2 lakhs. The contention of the revenue in that case was that Rs. 2 lakhs limit was increased by circular dated 27-3-2000 and prior to that, the limit was only Rs. 50,000 and the contention of the revenue was that the new limit would not be applicable to the old references. The High Court rejected the said contention of the revenue.

In those circumstances, though the said High Court decision did not deal with the circular dated 24-10-2005, but it had dealt with the earlier circular and the limits of that circular were applied even to the cases which were prior to the old circular. Therefore, the ratio of that decision was applicable in the instant case as well. The CBDT has taken a policy decision not to file appeals in such type of cases and the circular is binding on the revenue even to appeals filed before 31-10-2005 and the department would not be justified in proceeding with those appeals within the monetary limit of tax effect prescribed in the circular dated 24-10-2005."

7. As per our considered view 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 March 27, 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, travelling 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 Hon'ble 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 March 27, 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 Board's 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 assessees 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.

8. 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 CIT(A) 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.

9. ITAT, Hyderabad Bench in the case of Dy. CWT v. Nb. Syed Jaffar Ali Khan [2005] 1 SOT 691. Following was the observations and conclusions of the Co-ordinate Bench :

"It is necessary to bear in mind that an expression which lacks clarity requires clarification but, in present case, the policy decision taken by the C.B.D.T. vide Instruction No. 1979 being very specific and explicit, it may not be proper to give a different view on the matter in the garb of clarification. If the C.B.D.T. is of the view that the earlier instructions contained an unintended error, it could have been withdrawn and fresh circular/instruction would have been issued, which is within the powers of C.B.D.T. under section 119 of the Act. However, in our considered opinion, the C.B.D.T. is not justified in interpreting an earlier Circular, issued under section 119 of the Act. As stated earlier, Instruction No. 1979 leaves no room for doubt as to what should be the monetary limit to be taken into consideration while filing an appeal by the revenue. From para 2 of the aforementioned instruction, it could be seen that following three point were stated explicitly i.e.,

(a) The new monetary limit would apply with reference to each case taken singly.

(b) In group cases, each case should individually satisfy that new monetary limits.

(c) The working out of the monetary limits will, therefore, not take into consideration the cumulative revenue effect."

Such being the policy decision taken by the revenue, with a view to reduce the litigation and also the cost involved therein, it is duty of the revenue authorities to scrupulously follow the policy decision taken by the C.B.D.T. and in cases where tax effect in each case is less than Rs. 1 lakh, the departmental authorities should not prefer appeals before the Appellate Tribunal. The ITAT Hyderabad Benches had consistently taken this view, which is in consonance with the view taken by the Hon'ble Bombay High Court in the case of CIT v. Camco Colour Co. [2002] 254 ITR 565 and the judgment of the Hon'ble Madras High Court in the case of CIT v. S. Annamalai [2002] 258 ITR 675. No doubt the Circulars issued by the C.B.D.T. are not binding on the Courts and Tribunals but it is the duty of the Court to see to it that the instructions, which are binding upon the revenue authorities, being issued in exercise of their powers under section 119 of the Act, are followed by them. In this connection, it would be relevant to extract the observations of Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706.

"If, in the teeth of this clarification, the Assessing Officer chose to ignore the guidelines and spent their time, talent and energy on inconsequential matters, we think that the C.B.D.T. was justified in issuing "appropriate" directions vide Circular No. 789 [see (2000) 243 ITR (St.) 57], under its powers under section 119, to set things on course by eliminating avoidable wastage of time, talent and energy of the Assessing Officer discharging the onerous public duty of collection of revenue."

10. We are well aware of the judicial precedent that an order passed by the co-ordinate Bench should not be lightly disregard. In taking this view, we are supported by the decision of Hon'ble Supreme Court in the case of Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722 wherein Hon'ble Supreme Court has observed that it is true that a Bench of two members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. The rational of this rule is the need of continuity, certainty and predictability in the administration of justice. Persons effected by the decision of Tribunal have a right to expect that those exercising judicial functions will follow the reasons or grounds of the judicial decision in the earlier cases on identical matters.

11. Even on merit, we do not find any reason to interfere in the order of Ld. CIT(A) wherein he has held that the employer's share of social security contribution is not taxable in the hands of the assessee since he does not have any vested rights therein till he attains the age of retirement. Further, the contribution by the employer is 'diversion of the income by overriding title' and not an 'application of income' after it reaches the hands of the assessee.

12. In the result, appeal of the Revenue is dismissed.

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