2018 (5) TMI 1914 - AT - Income Tax

ITAT Ahmedabad dismisses Revenue's appeal on cash payment of legal fees under Income Tax Act

The Appellate Tribunal ITAT Ahmedabad dismissed the Revenue's appeal challenging the deletion of the addition for cash payment of legal fees under section ... Disallowance of cash payment under section 40A(3) of the Income-tax Act, 1961 - Board Circular No. 21/2015 dated 10-12-2015 on withdrawal/not-pressing of departmental appeals - low tax effect - retrospective application of departmental instructionDisallowance of cash payment under section 40A(3) of the Income-tax Act, 1961 - Board Circular No. 21/2015 dated 10-12-2015 on withdrawal/not-pressing of departmental appeals - low tax effect - Validity of continuing Revenue appeal against deletion of addition for cash payment of legal fees in view of the Board's circular and low tax effect. - HELD THAT: - The tribunal recorded that the addition on account of disallowance of cash payment of legal fees under section 40A(3) had been deleted by the CIT(A). It noted that the net tax effect in the appeal was below the threshold of Rs. 10 lacs and that the Central Board of Direct Taxes had issued Circular No. 21/2015 dated 10-12-2015 directing that departmental appeals pending before the tribunal/high courts be withdrawn or not pressed; the circular has been given retrospective effect. Applying that departmental instruction and having regard to the low tax effect of the appeal, the tribunal declined to press the Revenue's appeal and dismissed it. [Paras 2, 3]Revenue's appeal dismissed on account of low tax effect and in view of Board Circular No. 21/2015 directing withdrawal/not-pressing of departmental appeals.Final Conclusion: The Revenue's appeal for A.Y. 2010-11 is dismissed as having low tax effect and in view of the Board's instruction in Circular No. 21/2015 to withdraw or not press departmental appeals. Issues:Appeal challenging deletion of addition for cash payment of legal fees under section 40A(3) of the Income Tax Act, 1961.Analysis:The judgment by the Appellate Tribunal ITAT Ahmedabad involved an appeal for the assessment year 2010-11, arising from the order of the CIT(A)-2, Ahmedabad dated 22-08-2016. The sole substantive ground of the Revenue's appeal was the deletion of the addition made on account of the disallowance of cash payment of Rs. 4,35,000 towards legal fees, invoking the provisions of section 40A(3) of the Income Tax Act. It was noted that the net tax effect in the appeal was less than Rs. 10 lakhs. The Tribunal considered Circular No. 21/2015 dated 10-12-2015 issued by the Central Board of Direct Taxes, which directed the withdrawal or non-pressing of department's pending appeals before the tribunal/high courts. The circular was declared to have retrospective effect. Taking into account this circular, the Tribunal dismissed the appeal accordingly.The Tribunal's decision to dismiss the Revenue's appeal was primarily based on the low tax effect involved in the case. The judgment highlighted the significance of the Circular issued by the Central Board of Direct Taxes, which mandated the withdrawal or non-pressing of certain appeals, including the one in question. By considering the retrospective effect of the circular and the specific tax impact of the case, the Tribunal concluded that the appeal should be dismissed. The order was pronounced in the open court on 11-05-2018, thereby concluding the matter.