The court affirmed that audit objections must directly relate to the assessment in question for exceptions in CBDT Circulars to apply, impacting the validity of appeals based on tax effect.

JUDGMENT :

Bhargav D. Karia, J.

1. Heard learned advocate Mr.Karan Sanghani for the petitioner.

2. By this petition under Article 227 of the Constitution of India, the petitioner has challenged order dated 25th January, 2023 passed by Income Tax Appellate Tribunal, B Bench, Ahmedabad (for short ‘the Tribunal’) in Miscellaneous Application No.128/Ahd/2021 in ITA No.132/Ahd/2019.

3. The brief facts of the case are as under.

3.1 The respondent – assessee filed return of income on 30th December, 2006 for A.Y. 2006-07 declaring total income at Rs. Nil.

3.2 The case was re-opened and order under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (for short ‘the Act’) was passed on 14th December, 2011, wherein tax was computed on the book profit of Rs.13,07,83,251/-.

3.3 The respondent–assessee being aggrieved preferred appeal before the CIT(A). The appeal was allowed by CIT(A) by order dated 23rd July, 2012.

3.4 The Assessing Officer passed an order giving effect of the CIT(A) and determined the book profit at Rs. Nil on 23rd August, 2012.

3.5 It is the case of the petitioner–Revenue that revenue audit party noticed that waiver of principal amount of loan of Rs.16,17,43,729/- being extra-ordinary item was reduced from book profit. The audit party was of the opinion that exclusion of waiver of principal amount of loan was not in accordance with the provisions of Section 115JB of the Act, hence it was a mistake apparent on record.

3.6 On perusal of the paper book submitted by the petitioner, we could not find the above order passed by the Assessing Officer on 14th December, 2011 as well as order dated 23rd July, 2012 passed by the CIT(A) of order giving effect dated 23rd August, 2012 passed by the Assessing Officer.

3.6.1 Learned advocate Mr.Sanghani therefore filed draft amendment placing the aforesaid orders on record. The same is allowed in terms of the draft. To be carried out forthwith.

3.7 The Assessing Officer, on receipt of the audit objections, issued a notice under Section 154 of the Act and passed order dated 29th March, 2016 by adding waiver of principal amount of Rs.16,17,43,729/- and revised the book profit was calculated at Rs.02,77,96,120/-.

3.8 Being aggrieved with the order under Section 154 dated 29th March, 2016, assessee filed appeal before the CIT(A), who deleted the disallowance/addition by order dated 28th November, 2018.

3.9 It appears that the Assessing Officer submitted the scrutiny report dated 30th January, 2019 where tax effect was calculated at Rs.01,35,86,474/-.

3.10 The department–petitioner preferred appeal before the Tribunal being aggrieved by the order dated 28th November, 2018 passed by the CIT(A) order. The Tribunal by order dated 05th April, 2021 passed in ITA No.132/Ahd/2019 dismissed the appeal of the Revenue in view of CBDT Circular/Instruction No.17/2019 by holding that the tax effect being below the prescribed monetary limit and provision of Section 268A of the Act would apply. The Tribunal, however, stated in its order that “on re-verification at the end of the AO it comes to the notice that the tax effect is more or Revenue’s case falls within the ambit of exceptions provided in the Circular, then the Department will be at liberty to approach the Tribunal for recall of this order. Such application should be filed within the time period prescribed in the Act.”.

3.11 The petitioner–Revenue thereafter filed Miscellaneous Application No.128/Ahd/2021 in ITA No.132/Ahd/2019 on the ground that audit party had raised audit objection which was accepted by the Assessing Officer and thereafter order under Section 154 was passed. It was, therefore, submitted before the Tribunal that the case would fall under the exceptions as mentioned in para-10 of the Circular No.3/2018 dated 11th July, 2018 and its subsequent amendment dated 20th August, 2018 and O.M. dated 16th September, 2019 to Circular No.23/2019 dated 06th September, 2018 as it was noticed from the scrutiny report submitted by the then Assessin