Supreme Court Upholds Penalty Order: Gyan Chand Jain vs. Commissioner of Income Tax (2022)

Date of the Judgment: April 19, 2022
Citation: [Not Available in Source]
Judges: M.R. Shah, J. and B.V. Nagarathna, J.
Can a tax appeal be dismissed if the tax amount is reduced after the initial assessment? The Supreme Court addressed this question in a recent appeal concerning the maintainability of an appeal by the Revenue before the High Court. The core issue revolved around whether the High Court could hear a tax appeal when the tax amount fell below the prescribed limit after the Commissioner of Income Tax (Appeals) [CIT(A)] reduced the penalty. The Supreme Court bench comprising Justices M.R. Shah and B.V. Nagarathna delivered the judgment.

Case Background

The case involves an appeal by Late Shri Gyan Chand Jain, through his Legal Representative (LR), against the Commissioner of Income Tax-I. The dispute arose from a penalty imposed under Section 271(1)(c) of the Income Tax Act. Initially, the penalty was Rs. 29,02,743. However, the Commissioner of Income Tax (Appeals) [CIT(A)] later reduced this amount to approximately Rs. 6,00,000. The Income Tax Appellate Tribunal (ITAT) deleted the penalty. Aggrieved by this, the Revenue appealed to the High Court of Judicature for Rajasthan, Jaipur, which allowed the appeal and set aside the ITAT order.

Timeline

Course of Proceedings

The Income Tax Appellate Tribunal (ITAT) had deleted the penalty imposed on the assessee. The Revenue then appealed to the High Court of Judicature for Rajasthan, Jaipur. The High Court allowed the Revenue’s appeal, setting aside the ITAT order. This led to the assessee filing an appeal before the Supreme Court.

Legal Framework

The case primarily revolves around Section 271(1)(c) of the Income Tax Act, which deals with penalties for concealment of income. The definition of ‘Joint Commissioner’ under Section 2(28C) of the Income Tax Act is also relevant, as it includes an Additional Commissioner of Income Tax. Section 274(2) of the Income Tax Act is also relevant for the approval of the Additional Commissioner of Income Tax. The Central Board of Direct Taxes (CBDT) Circular No. 21 of 2015, dated 10.12.2015, is also central to the case, which states that the department cannot file an appeal in the High Court if the tax effect is less than Rs. 20,00,000.

The relevant legal provisions are:

• Section 271(1)(c) of the Income Tax Act: This section deals with the imposition of penalty for concealment of income.
• Section 2(28C) of the Income Tax Act: This section defines ‘Joint Commissioner’ to include an Additional Commissioner of Income Tax.
• Section 274(2) of the Income Tax Act: This section deals with the approval of the Additional Commissioner of Income Tax for imposition of penalty.

Arguments

Appellant’s Arguments:

• The appellant argued that the appeal by the Revenue before the High Court was not maintainable due to the CBDT Circular No. 21 of 2015. This circular states that no appeal can be filed by the department in any High Court if the tax effect is less than Rs. 20,00,000.
• The appellant contended that the penalty amount was reduced to approximately Rs. 6,00,000 by the CIT(A). Therefore, the tax effect was less than Rs. 20,00,000, making the Revenue’s appeal before the High Court not maintainable.
• The appellant also raised an argument on the jurisdiction of the Additional Commissioner of Income Tax. However, the court did not find merit in this argument.

Respondent’s Arguments:

• The Revenue argued that the appeal before the High Court was maintainable because the initial penalty imposed was Rs. 29,02,743, which was above the threshold mentioned in the CBDT circular.
• The Revenue contended that the subsequent reduction in penalty by the CIT(A) should not affect the maintainability of the appeal, as the appeal was against the original penalty order.
• The Revenue argued that the issue before the Tribunal and the High Court was the entire penalty of Rs. 29,02,743.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the appeal preferred by the Revenue before the High Court was maintainable in view of the CBDT Circular dated 10.12.2015, considering the reduction in penalty by the CIT(A).

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court did not cite any cases or books in its judgment. However, it did refer to the following legal provisions:

• Section 271(1)(c) of the Income Tax Act: This section deals with the imposition of penalty for concealment of income.
• Section 2(28C) of the Income Tax Act: This section defines ‘Joint Commissioner’ to include an Additional Commissioner of Income Tax.
• Section 274(2) of the Income Tax Act: This section deals with the approval of the Additional Commissioner of Income Tax for imposition of penalty.
• CBDT Circular No. 21 of 2015, dated 10.12.2015: This circular specifies the monetary limits for filing appeals in the High Court by the Revenue.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court considered Section 271(1)(c) of the Income Tax Act* as the basis for the penalty imposed.
• The Court used Section 2(28C) of the Income Tax Act* to define ‘Joint Commissioner’ to include Additional Commissioner.
• The Court mentioned Section 274(2) of the Income Tax Act* to show the approval of the Additional Commissioner of Income Tax.
• The Court considered CBDT Circular No. 21 of 2015* but held that it was not applicable to the facts of the case as the original penalty was above the threshold.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the appeal before the High Court was against the original penalty order of Rs. 29,02,743, which was above the threshold for maintainability as per the CBDT circular. The subsequent reduction of the penalty by the CIT(A) did not alter the fact that the initial appeal was valid. The Court emphasized that the jurisdiction of the High Court should be determined based on the amount under challenge at the time of filing the appeal, not on subsequent reductions. The Court also considered the fact that the issue before the Tribunal and the High Court was the entire penalty of Rs. 29,02,743.

The Court considered alternative interpretations but rejected them. The Court reasoned that the CBDT circular was intended to reduce litigation over small tax amounts. However, it was not meant to oust the jurisdiction of the High Court in cases where the initial tax demand was above the prescribed limit. The Court reasoned that the subsequent reduction in penalty by the CIT(A) does not change the fact that the original appeal was valid. The final decision was reached after considering the arguments of both sides, the relevant legal provisions, and the purpose of the CBDT circular.

The Court’s decision was that the appeal before the High Court was maintainable. The court reasoned that what is required to be considered is what was under challenge before the Tribunal as well as the High Court. The Court held that the subsequent reduction in penalty cannot oust the jurisdiction of the High Court.

The Court quoted the following from the judgment:

• “…what was assailed by the Revenue was the penalty amounting to Rs.29,02,743/- and not the penalty reduced by the CIT(A).”
• “Before the Tribunal, both the Revenue, as well as the assessee, preferred the appeals and the entire penalty amounting to Rs.29,02,743/- was an issue before the Tribunal as well as before the High Court.”
• “The subsequent reduction in penalty in view of the subsequent order cannot oust the jurisdiction.”

Key Takeaways

• The maintainability of an appeal before the High Court is determined by the original tax or penalty amount under challenge, not by subsequent reductions.
• The CBDT circulars on monetary limits for filing appeals are meant to reduce litigation over small tax amounts and do not oust the jurisdiction of the High Court in cases where the initial demand is above the prescribed limit.
• Subsequent reduction in penalty by CIT(A) does not affect the maintainability of the appeal before the High Court if the original penalty was above the threshold.

Directions

No specific directions were given by the Supreme Court.

Development of Law

The ratio decidendi of the case is that the maintainability of an appeal before the High Court is determined by the original amount under challenge, not by subsequent reductions. This clarifies the interpretation of CBDT circulars regarding monetary limits for appeals and ensures that the jurisdiction of the High Court is not ousted by subsequent reductions in tax or penalty amounts. There is no change in the previous position of law, but a clarification on the interpretation of the CBDT circular.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision that the appeal filed by the Revenue was maintainable. The Court clarified that the maintainability of an appeal is determined by the original amount under challenge, and subsequent reductions do not affect the jurisdiction of the High Court. This judgment provides clarity on the interpretation of CBDT circulars and the maintainability of tax appeals.

Category

Parent Category: Income Tax Act, 1961

Child Categories:

• Section 271(1)(c), Income Tax Act, 1961
• Section 2(28C), Income Tax Act, 1961
• Section 274(2), Income Tax Act, 1961
• CBDT Circulars
• Tax Appeals
• Maintainability of Appeal

FAQ

Q: What was the main issue in the Gyan Chand Jain vs. Commissioner of Income Tax case?
A: The main issue was whether an appeal by the tax department before the High Court was maintainable when the tax amount was reduced below a certain limit after the initial assessment.

Q: What is Section 271(1)(c) of the Income Tax Act?
A: Section 271(1)(c) of the Income Tax Act deals with penalties for concealing income.

Q: What is CBDT Circular No. 21 of 2015?
A: CBDT Circular No. 21 of 2015 states that the tax department cannot file an appeal in the High Court if the tax amount is less than Rs. 20,00,000.

Q: How did the Supreme Court decide on the maintainability of the appeal?
A: The Supreme Court decided that the maintainability of the appeal is based on the original penalty amount, not the reduced amount. If the original penalty was above the threshold, the appeal is maintainable even if it is reduced later.

Q: What is the practical implication of this judgment?
A: The practical implication is that tax appeals will be judged on the original amount under dispute. Reductions in the tax amount after the initial assessment will not affect the maintainability of the appeal.