CBDT has widened the scope of tax appeals that the Revenue can file against the judicial orders of the tax appellate authorities. Read our analysis to understand the same in detail.
Introduction
Central Board of Direct Taxes (CBDT) had set a list of criteria (including monetary limits) to select a case to file appeal against an adverse order of any tax appeal by Commissioner of Income Tax - Appeals [CIT(A)], Income Tax Appellate Tribunal [ITAT] or the High Court [HC]. This was done to reduce the tax litigations in smaller and trivial matters, thus reducing the overall costs and time of the stakeholders. These monetary limits and criteria were amended from time to time.
Monetary limits
In the Circular issued CBDT has maintained status quo on the monetary limits of the 'Tax effect' for appeal tax appeals to the higher authorities as follows:
Appeals/SLPs in Income Tax Matters | Monetary Limits (INR) |
|---|---|
Before ITAT | 50,00,000 |
Before HC | 1,00,00,000 |
Before SC | 2,00,00,000 |
These limits are the same as the limits set vide a circular in 2019.
Grounds of merit which overrides the monetary limits
There are certain grounds of merit which if exists or sustains in a tax appeal order shall warrant a further appeal, even if that case does not exceed the prescribed monetary limit. The changes in this list is as follows:
Grounds of merit | Changes |
|---|---|
Provision of Act/Rules/notification has been held to be unconstitutionally invalid | Same as earlier |
Order/ notification/ instruction/ circular has been held to be illegal or ultra vires or constitutionally invalid | Same as earlier |
Assessment is based on information received from any law enforcement or intelligence agencies such as CBI, ED, DRI, SFIO, NIA, NCB, DGGI, state law enforcement agencies such as State Police, State Vigilance Bureau, State Anti-Corruption Bureau, State Excise Department, State Sales/Commercial Taxes or GST Department | Widened the scope |
Prosecution has been filed by the Department in the relevant case or conviction order has been passed and the same has not been compounded | Widened the scope |
Strictures/adverse comments have been passed and/or cost has been levied against the Department of Revenue, CBDT or their officers | Newly inserted |
Where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under sections 10(23C), 12A/ 12AA/12AB of the Act, order passed u/s 263 of the Act, etc. | Same as earlier |
Undisclosed foreign income/undisclosed foreign assets/ foreign bank account | Same as earlier |
Cases of bogus capital gain/loss through penny stocks and cases of accommodation entries | Newly inserted |
Where mandated by a Court's directions | Newly inserted |
Writ matters | Same as earlier |
Wealth tax, fringe benefit tax, equalization levy and any matter other than the Income Tax Act | Same as earlier |
TDS/TCS matters in both domestic and International taxation:- i. Liability to deduct TDS/TCS thereon or otherwise is under question, orii. Applicability of the provisions of a DTAA or otherwise | Newly inserted |
Any other case or class of cases where in the opinion of the Board. | Newly inserted |
Contrary to the original intent of the Circular(s) to bring down the pendency of tax litigation, this widening of scope has the ability to significantly increase litigations in future. Interesting the said Circular also instructs the Tax Officers as follows:
"4.2 It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case. The officers concerned shall keep in mind the overall objective of reducing unnecessary litigation and providing certainty to taxpayers on their Income-tax assessments while taking a decision regarding filing an appeal."
Interest on TDS in 'Tax effect'
While evaluating the monetary limits to calculate the Tax effect (non TDS/TCS cases) Income Tax, surcharge and cess are included. It does not include interest, except where chargeability of interest is itself in dispute.
With this circular they have inserted TDS/TCS matters as exception to the monetary limits. In such cases, Tax effect amount would include the amount of TDS/TCS plus interest. Conclusion:
Taxpayers and stakeholders navigating the realm of tax appeals will need to stay abreast of these developments to effectively strategize their approach for their tax litigation matters. For comprehensive guidance on tax litigation and appeals, feel free to reach out to Monik Advisors LLP, where our team of experts stands ready to assist you.
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