India: CBDT Revises The Monetary Limits For Filing Of Appeals By The Department – An Effort To Reduce The Number Of Litigations And Facilitate Ease Of Doing Business In India

Last Updated: 3 August 2018
Article by SKP  

The Central Board of Direct Taxes (CBDT) issued Circular No. 3/2018 dated 11 July 2018 which supersedes CBDT Circular No. 21/2015 dated 10 December 2015, and has the effect of increasing the monetary limits for filing appeals before the Income Tax Appellate Tribunal, High Court and Supreme Court by the tax department (Government of India).

Revision in Monetary limits

The appeals/ Special Leave Petitions shall not be filed in cases where the 'tax effect' does not exceed the monetary limits specified below.

Appeals/SLPs in Income Tax Matters Current monetary limits (in INR) Revised monetary limits (in INR)
Appellate Tribunal 1,000,000 2,000,000
High Court 2,000,000 5,000,000
Supreme Court 2,500,000 10,000,000

Meaning of the term 'tax effect' remains same as specified in Circular No. 21:

Scenario Tax Effect
Additions to returned income Difference between 'tax on total income assessed' and 'tax that would have been chargeable had the total income assessed been reduced by the amount of income in respect of issues against which an appeal is intended to be filed'. However, the amount of tax will not include any interest thereon.

The interest amount shall be the tax effect if the chargeability of interest is itself the issue in dispute.
Reduction of returned losses or assessment as income Notional tax on disputed additions which have the impact of reducing the losses or resulting in assessment of income.
Penalty orders Quantum of penalty deleted or reduced
Income computed under Minimum Alternate Tax (MAT)/ Alternate Minimum Tax (AMT)
(This has been specified for the first time. It is similar to the provisions contained in Section 270A which mentioned the mechanism for computing tax on underreported income)
(A – B) + (C – D)
  • A = the total income assessed as per the provisions other than the provisions contained in Section 115JB or Section 115JC (hereinafter called as general provisions);
  • B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of the disputed issues under general provisions;
  • C = the total income assessed as per the provisions contained in section 115JB or section 115JC;
  • D = the total income that would have been chargeable had the total Income assessed as per the provisions contained in section 115JB or section 1I5JC was reduced by the amount of disputed issues under the said provisions.
Where the amount of disputed issues is considered both under the provisions contained in section 115JB or section 115JC and under the general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.
Disputed issues in more than one Assessment Year (AY) An appeal can be filed only in respect of such AY where the tax effect in respect of the disputed issues exceeds the monetary limit specified.
Composite orders of any High Court or Appellate Authority spreading over more than one year In case of composite orders which involve more than one AY and common issues in more than one AY, appeal shall be filed for all assessment years even if the tax effect is less than the prescribed limits in any year.
Composite orders involving more than one assessee Each assessee shall be dealt with separately
  • The term 'tax effect' shall be tax including applicable surcharge and cess, and excluding any interest thereon.
  • Monetary limit to apply to Cross objections before the Tribunal.

Other points

  • Recording the reason for not filing the appeal

    In a case where an appeal is not filed only on account of the tax effect being less than the monetary limit specified above, the Principal Commissioner of Income Tax/Commissioner of Income Tax shall specifically record that "even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this Circular." In such cases, there will be no presumption that the Income Tax Department has accepted the decision on the disputed issues and they shall not be precluded from filing an appeal against the disputed issues if the tax effect exceeds the specified monetary limits.

    Where the taxpayer claims relief on the ground that that the tax department has not filed an appeal for any AY, the department counsels must make effort to bring to the notice of the Tribunal or Court that appeal in such cases was not filed/admitted due to monetary limits and no inference should be drawn and that such cases do not have precedent value.
  • Exceptions to monetary limits (this is also more or less same as the old circular):

    1. Where the Constitutional validity of the provisions of an Act or Rule is under challenge;
    2. Where the Board's order, notification, instruction or circular has been held to be illegal or ultra vires;
    3. Where revenue audit objection in the case has been accepted by the department;
    4. Where the addition relates to undisclosed foreign assets/bank accounts;
    5. Writ matters;
    6. Direct tax matters other than income tax; and
    7. Where the tax effect is not quantifiable or not involved – e.g. Registration of trusts under Section 12A/12AA.
  • Retrospective applicability
    Pending appeals, including cross objections below the specified monetary limits may be withdrawn/not pressed.

SKP's comments

This is a very welcome move and in the right direction. India is moving towards becoming a less litigation jurisdiction. In fact, the number of existing cases would go down by 41% and the Indian Government is set to lose about INR 100 billion. This will also help in improving the ranking of India in World Bank's Ease of Doing Business report.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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