IT Department broadens avenues for filing appeal in tax cases

Income Tax Department can now file appeal in cases of TDS (Tax Deducted at Source) or Tax Collected at Source (TCS) without any monetary limit. A similar provision will apply in cases of bogus capital gain or loss involving penny stocks.

These are part of new mechanism for filing of appeals by the Central Board of Direct Taxes (CBDT), before Income Tax Appellate Tribunal, High Courts and the Supreme Court. However, the Department has said there will be no change in the monetary limits for filing appeal. Accordingly, if the tax effect is exceeding ₹50 lakh, the appeal will be filed before Appellate Tribunal. In case the amount crosses ₹1 core, then the department can move to the High Court and in case of ₹2 crore or more, then appeal can be filed before the Supreme Court.

CBDT is the apex policy making body of the Income Tax Department. The new system will be applicable for new appeals. The circular has clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits. “Filing of appeal in such cases is to be decided on merits of the case. The officers should keep in mind the overall objective of reducing unnecessary litigation and providing certainty to taxpayers on the income-tax assessments while taking a decision regarding filing an appeal,” the board said.  

Tax effect

According to the CBDT, ‘Tax Effect’ means the difference between the tax on total income assessed and the tax that would have been chargeable had such total been reduced by the amount of amount of the income in respect of the issues against which appeals is intended to be filed. This will be tax including cess and surcharge but exclude interest.

The circular has also given list of exception where monetary limits would not applicable. For example, litigations arising out of disputes related with TDS/TCS matter in both domestic and international tax charges is part of exception list. It would also include dispute related to the determination of the nature of transactions or disputes relates to the applicability of a Double Taxation Avoidance Agreement. Another notable entry is “cases involving organised tax evasion including cases of bogus capital gain/loss through penny stocks and cases of accommodation entries.”

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Sandeep Jhunjhunwala, Partner, with Nangia Andersen LLP, said a residuary item is introduced providing a window to the Board to exempt cases from the monetary condition in the interest of justice and revenue. “Recognising that non-filing of appeals by virtue of this Circular could be used as a point of argument by taxpayers to the effect that it indicates acceptance of orders in favour of the assessee by the Revenue, the Circular lays emphasis on judicial records holding significant importance as evidence to be produced before courts,” he said.

Though the department feels that new mechanism can reduce litigations, but some experts do not agree. Amit Maheshwari, Tax Partner with AKM Global, said: “CBDT has broadened the scope of exceptions which are now outside the scope of monetary threshold and on which department may file the appeals / SLP irrespective of the amount involved. Such exceptions although seem to be reasonable will add to the volume of appeals filed by the department in future.”

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