The ITO, Ward-4(2),, Baroda v. Patwa Kinariwala Electronics Ltd.,, Baroda

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D.C. AGRAWAL AM) ITA NO.2783/AHD/2008 A. Y.: 2005-06 THE INCOME TAX OFFICER WARD-4(2) BARODA 4 TH FLOOR AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA 390 007 VS M/S. PATWA KINARIWALA ELECTRONICS LTD. C-29 SARDAR ESTATE AJWA ROAD BARODA PA NO. AABCP 2714 L (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. C. PANDIT DR RESPONDENT BY SHRI S. N. SOPARKAR AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III BARODA DATED 2 6-05-2008 FOR ASSESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTING THE A. O. TO DELETE THE ADDITION OF RS.4 30 718/- I N RESPECT OF ROYALTY PAYMENT THOUGH IT IS IN VIOLATIO N OF SECTION 40(A) (2). 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTING THE A. O. TO DELETE THE ADDITION OF RS.1 26 745/- O UT OF MOULDINGS FITTING AND LABOUR CHARGES WITHOUT SPECIFYING ANY REASON OVERLOOKING THE FACTS THAT T HE PAYMENTS COULD NOT BE VERIFIED IN RESPECT OF MOULDI NG FITTING AND LABOUR CHARGES. 2. AT THE OUTSET IT IS NOTICED THAT THE TAX EFFECT IN THIS APPEAL IS BELOW THE PRESCRIBED LIMIT UNDER INSTRUCTION NO.2/2005 DATED 24-10-2005 AND THE TAX EFFECT ON THIS IS LESS THEN RS.2 LACS. WHEN THIS WAS CONFRONTED TO THE DR HE HAS NOT DISPUTED THE SAME. ITA NO.2783/AHD/2008 ITO VS M/S. PATWA KINARIWALA ELECTRONICS LTD. 2 3. IT SEEMS THAT RECENTLY HONBLE GUJARAT HIGH COUR T IN THE CASE OF CIT V. CONCORD PHARMACEUTICALS IN TAX APPEAL NO.402/2001 VIDE ORDER DATED 05-08-2008 HAS FINALLY SETTLED THE ISSUE REGA RDING TAX EFFECT CASES. HONBLE HIGH COURT IN THIS CASE HAS HELD AS UNDER:- 20. THERE IS ALSO DIFFERENCE OF OPINION AMONGST TH E COURTS WITH REGARD TO THE APPLICABILITY OF THE CIRCULAR. IF ON THE DATE OF FILING OF AN APPEAL A CIRCULAR IS NOT IN FORCE OR CERTAIN EXCEPTIONS ARE NOT THERE OR MONETARY LIMIT IS LESS THAN WHAT WAS THERE AT THE TIME OF DECIDING THIS APPEAL IN S UCH CASES THE TRIBUNAL WILL HAVE TO GIVE DUE WEIGHTAGE TO THE PROVISIONS CONTAINED IN THE CIRCULAR PREVALENT ON THE DATE OF FILING OF APPEAL AND NOT ON THE DATE OF THE DECISION OF THE A PPEAL. IN CIT V. CHHAGER PACKAGING & PLASTICS (P) LTD. (2008) 214 CTR 389 (BOM) THE BOMBAY HIGH COURT TOOK THE VIEW THAT CIRCULARS / INSTRUCTIONS ISSUED BY THE BOARD ARE AP PLICABLE ONLY PROSPECTIVELY AND IF THERE IS NO REFERENCE TO THEIR APPLICABILITY TO THE PENDING MATTERS SUCH PENDING MATERS CANNOT BE DECIDED ON THE BASIS OF CIRCULARS / INSTR UCTIONS. IN CIT V. PITHWA ENGINEERING WORKS 276 ITR 519 (BOM) THE BOMBAY HIGH COURT TOOK THE VIEW THAT TAKING JUDICIA L NOTICE OF THE MONEY VALUE HAVING GONE DOWN AND COST OF LITIGA TION EXPENSES HAVING GONE UP AS WELL AS HUGE PENDENCY OF CASES THE BOARD SHOULD EVOLVE A POLICY OF APPLYING THE CI RCULAR EVEN TO THE OLD REFERENCES WHICH ARE STILL UNDIVIDED. TH E DEPARTMENT SHOULD NOT HAVE PROCEEDED WITH THE APPEA LS / REFERENCES WHEREIN THE TAX IMPACT IS MINIMAL IRRES PECTIVE OF THEIR DATE OF FILING. 21. THERE IS NO DISPUTE ABOUT THE FACT THAT WHERE S UBSTANTIAL QUESTION OF LAW OF IMPORTANCE IS INVOLVED OR WHERE QUESTION OF LAW IS IMPORTANCE IS INVOLVED OR WHERE QUESTION OF LAW IS REPEATEDLY ARISING OR WHERE THE ISSUE IS COVERED BY THE JUDGMENT OF TERRITORIAL HIGH COURT OR SUPREME COURT THE TRIBUNAL WILL HAVE TO DECIDE THE APPEAL ON MERITS A ND IN TERMS OF THE LAW DECLARED BY THE SUPREME COURT OR BY THE TERRITORIAL HIGH COURT. HOWEVER ON THIS GROUND THE MATTERS CA NNOT BE REMANDED TO THE TRIBUNAL DIRECTING THE TRIBUNAL TO DECIDE THE SAME AFRESH. IF NO OBJECTIONS ARE RAISED BY THE DE PARTMENTAL REPRESENTATIVE AT THE TIME OF HEARING OF THE APPEAL AGAINST THE APPLICABILITY OF THE CIRCULAR DESPITE THERE BEING A N EXCEPTION THE DEPARTMENT HAS MISSED THE BUS AND SECOND INNING CANNOT BE GRANTED FOR THAT PURPOSE. HOWEVER IN MATTERS W HERE SUCH ITA NO.2783/AHD/2008 ITO VS M/S. PATWA KINARIWALA ELECTRONICS LTD. 3 OBJECTIONS ARE RAISED AND DESPITE THOSE OBJECTIONS OR WITHOUT DEALING WITH THOSE OBJECTIONS IF THE TRIBUNAL HAS D ISMISSED THE APPEAL ONLY ON THE GROUND OF LOW TAX EFFECT IN SUCH MATTER AN INDULGENCE IS REQUIRED TO BE SHOWN BY THIS COURT AN D FOR THIS LIMITED PURPOSES THE DEPARTMENT IS PERMITTED TO MO VE AN APPROPRIATE APPLICATION BEFORE THE TRIBUNAL FOR DEC IDING THE APPEAL ON MERITS. 22. WE ARE OF THE VIEW THAT SIMPLY BECAUSE THE APPEAL I S FILED BY THE DEPARTMENT IN CONTRAVENTION OF THE CIRCULAR THE TRIBUNAL IS NOT BOUND TO DECIDE THE APPEAL ON MERITS. DUE WEIG HTAGE SHOULD INVARIABLY BE GIVEN BY THE TRIBUNAL TO THE C IRCULAR ISSUED BY THE BOARD. EVEN OTHERWISE THE NEWLY INS ERTED PROVISIONS CONTAINED IN SECTION 268A(4) MAKE IT OBL IGATORY FOR THE TRIBUNAL TO CONSIDER SUCH CIRCULAR. IT IS NOT OPEN FOR THE DEPARTMENT TO CONTEND THAT CIRCULARS ARE INTERNAL M ATTERS OF THE DEPARTMENT AND ASSESSEE CANNOT OBJECT TO FILING OF AN APPEAL ON THE BASIS OF SUCH CIRCULAR. IT IS TRUE T HAT FILING OF AN APPEAL IS A STATUTORY RIGHT BUT IT CAN CERTAINLY BE REGULATED BY THE BOARD BY ISSUANCE OF ORDERS INSTRUCTIONS OR CI RCULARS. THIS WOULD NOT AMOUNT TO TAKING AWAY THE RIGHT OF F ILING OF APPEAL OR THAT SUCH RIGHT IS PROHIBITED BY EXECUTIV E INSTRUCTIONS. SECTION 268A(1) OF THE ACT NOW RECOG NIZES SUCH RIGHT OF THE BOARD TO REGULATE THE FILING OF APPEAL OR APPLICATION BEFORE THE TRIBUNAL OR THE COURT. IT IS ALSO TRUE THAT WHEN THE HONBLE SUPREME COURT OR THE TERRITORIAL HIGH COURT HAVE DECLARED THE LAW ON A QUESTION IT IS NOT OPEN TO T HE TRIBUNAL TO DIRECT THAT THE CIRCULAR ISSUED BY THE BOARD PRESCR IBING THE MONETARY LIMIT SHOULD BE GIVEN EFFECT TO AND NOT TH E DECISION OF HONBLE SUPREME COURT OR THE TERRITORIAL HIGH COURT . IT IS HOWEVER EQUALLY TRUE THAT THE TRIBUNALS ATTENTION MUST BE DRAWN BY THE DEPARTMENTAL REPRESENTATIVE TO SUCH DE CISION OF THE HONBLE SUPREME COURT OR THE HIGH COURT. AN OB JECTION MUST BE RAISED BY THE DEPARTMENTAL REPRESENTATIVE. 23. CONSIDERING ALL THE AFORESAID ISSUES WE DISMIS S ALL THESE TAX APPEALS RESERVING LIBERTY TO THE DEPARTMENT ONLY ON THOSE CASES TO APPLY TO THE TRIBUNAL TO DECIDE THE APPEAL ON MERITS WHERE THE OBJECTIONS WERE RAISED BEFORE THE TRIBUNA L EITHER IN THE APPEAL MEMO OR AT THE TIME OF HEARING OF APPEAL RAISING A SPECIFIC CONTENTION THAT A PARTICULAR APPEAL IS COV ERED BY AN EXCEPTION AND DESPITE THIS OBJECTION THE TRIBUNAL H AS NOT DEALT WITH THE SAID CONTENTION AND DISMISSED THE APPEAL O N THE GROUND OF LOW TAX EFFECT. IT IS EXPECTED FROM THE T RIBUNAL TO CONSIDER THIS BROAD PARAMETERS WHILE APPLYING THE R ELEVANT ITA NO.2783/AHD/2008 ITO VS M/S. PATWA KINARIWALA ELECTRONICS LTD. 4 CIRCULAR TO THE FACTS OF THE CASE AT THE TIME OF DE CIDING APPEALS. 4. AT THE TIME OF HEARING BEFORE US THE LD. DEPART MENTAL REPRESENTATIVE WAS SPECIFICALLY ASKED BY THE BENCH WHETHER THIS APPEAL FALLS UNDER ANY OF THE EXCEPTIONS AS PROVIDE D IN BOARDS INSTRUCTION NO.2/2005 DATED 24-10-2005 THE SUBJECT-MATTER OF THE APPEALS ARE COVERED BY ANY OF THE JUDGMENT OF J URISDICTIONAL HIGH COURT OR OF SUPREME COURT ANY SUBSTANTIAL QUE STION OF LAW IS INVOLVED OR NOT. THE LD DR STATED THAT IN THESE AP PEALS THE ISSUES ARE FACTUAL AND DOES NOT FALL IN ANY OF THE EXCEPTI ONS AS PROVIDED BY BOARDS INSTRUCTION OR ANY OF THE CRITERIA LAID DOWN BY THE HONBLE HIGH COURT IN THE CASE OF CONCORD PHARMACEUTICALS (SUPRA). THE RELEVANT EXCEPTIONS AS PROVIDED IN BOARDS INST RUCTION NO.1979/2000 DATED 27-03-2000 READS AS UNDER:- 3. ADVERSE JUDGMENTS RELATING TO THE FOLLOWING SHOULD BE CONTESTED IRRESPECTIVE OF REVENUE EFFECT : (I) WHERE REVENUE AUDITED OBJECTION IN THE CASE HA S BEEN ACCEPTED B THE DEPARTMENT (II) WHERE THE BOARDS ORDER NOTIFICATION INSTRUC TION OR CIRCULAR IS THE SUBJECT-MATTER OF AN ADVERSE ORDER. (III) WHERE PROSECUTION PROCEEDINGS ARE CONTEMPLATE D AGAINST THE ASSESSEE. (IV) WHERE THE CONSTITUTIONAL VALIDITY OF THE PROVI SIONS OF THE ACT ARE UNDER CHALLENGE. 5. WE FIND THAT THIS APPEAL RELATES TO LOW TAX EFFE CT AND COVERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CONCORD PHARMACEUTICALS (SUPRA). RESPECTFULLY FOLLOWING CONCORD PHARMACEUTICALS (SUPRA) WE DISMISS THIS APPEAL OF THE REVENUE. ITA NO.2783/AHD/2008 ITO VS M/S. PATWA KINARIWALA ELECTRONICS LTD. 5 6. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON 12-05-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 12-05-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD