Court dismisses appeal due to tax effect falling below limit set by circular, emphasizing nature of expenditures over audit objections.

The court dismissed the appeal at the admission stage, ruling that the tax effect fell below the prescribed limit set by the circular, making the appeal not maintainable. Despite the Revenue's argument regarding an accepted audit objection, the court found no evidence of such acceptance in the communication between the assessing officer and the CIT. The court emphasized that the nature of expenditures, not the audit objections, was the focus of the assessment. Therefore, the appeal was deemed not maintainable based on the monetary limit outlined in the circular.

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Issues:
1. Appeal against ITAT order allowing respondent's appeal on merit.
2. Maintainability of appeal based on tax effect and circular no. 3/2018 dated 11.07.2018.

Analysis:
1. The appeal was filed against the ITAT order allowing the respondent's appeal and deleting the disallowance of expenditure amounting to Rs. 2,05,96,503/- on account of Security Deposit, Retention Money deposit, etc. The CIT(A) had initially dismissed the appeal filed by the assessee, leading to the appeal before the ITAT, which reversed the CIT(A)'s decision on 20.01.2020.

2. The main issue in this case was the maintainability of the appeal filed by the Revenue based on the tax effect and the circular no. 3/2018 dated 11.07.2018. The circular set a monetary limit of Rs.1,00,00,000/- for filing appeals under section 260A of the Income Tax Act, 1961. The disputed amount in the tax appeal was Rs. 2,05,96,503/-, with a tax in dispute of Rs. 68,64,814/-, which was below the prescribed limit.

3. The respondent raised a preliminary objection regarding the maintainability of the appeal due to the tax effect falling below the limit set by the circular. The Revenue argued that the audit objection was accepted by the CIT, making the appeal an exception to the monetary limit clause in the circular.

4. The court examined the documents and circulars related to the monetary limit for filing appeals under section 260A. It was found that the tax effect in the case was below the prescribed limit, rendering the appeal not maintainable as per the circular.

5. The court further analyzed the audit objection raised by the revenue and its acceptance. It was observed that the audit objection was not accepted by the department, as clarified in the communication between the assessing officer and the CIT. The absence of any mention of audit objection in the orders or communications indicated that it was not a basis for the appeal.

6. The court also reviewed the order passed by the CIT under Section 263 and found no reference to the audit objection being accepted. The order highlighted the erroneous assessment by the AO, focusing on the nature of expenditures rather than audit objections. This lack of mention of audit objections further supported the dismissal of the appeal based on maintainability.

7. In conclusion, the court dismissed the appeal at the admission stage itself, emphasizing that the tax effect was below the prescribed limit and no exception clause, including the audit objection, applied in this case. The appeal was deemed not maintainable based on the monetary limit set by the circular.

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