IMPORTANT POINT
The court established that accepted audit objections necessitate a merits-based review of appeals, overriding the low tax effect dismissal under CBDT circulars.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr.Dev Patel for learned senior standing counsel Mr.Varun Patel for the petitioner and learned advocate Mr.Ketan Shah for the respondent.

2. Issue Rule, returnable forthwith. Learned advocate Mr.Ketan Shah waives service of notice of Rule on behalf of the respondent.

2.1 Since the issue involved is in narrow compass, with the request and consent of learned advocates appearing for the respective parties, the matter is taken up for final consideration today itself.

3. This petition is filed challenging order dated 06th January, 2020 passed by Income Tax Appellate Tribunal, “A” Bench, Ahmedabad (for short ‘the Tribunal’) in MA No.220/Ahd/2019 for Assessment Year 2010-11.

3.1 The assessment order under Section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) was finalised in case of the respondent by determining the total income at Rs.87,10,080/- as against the return of income at Rs.83,40,540/-.

3.2 It appears that thereafter the Revenue Audit under letter dated 27th January, 2014 raised objection with regard to disallowance of proportionate expenditure under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (for short ‘the Rules’).

3.3 The Assessing Officer accepted the audit objection and case was reopened under Section 147 of the Act by observing that the assessee has earned exempt income and claimed interest expenses of Rs.69,60,614/-, however the assessee did not show any expenditure separately which was incurred for earning exempt income.

3.4 The Assessing Officer passed order under Section 143(3) read with Section 147 of the Act by making proportionate disallowance of Rs.44,35,176/- under Section 14A of the Act read with Rule 8D of the Rules.

3.5 Being aggrieved with the re-assessment order, the assessee preferred appeal before the CIT (A), who confirms disallowance of Rs.04,61,744/- made under Rule 8D(2)(iii) of the Rules and deleted addition of Rs.39,73,432/- made under Rule 8D(2)(ii) of the Rules.

3.6 Being aggrieved by the order passed by the CIT (A), Revenue preferred appeal being ITA No.69/Ahd/2019 before the Tribunal. The Tribunal dismissed the appeal by order dated 29th January, 2019 on the ground of low tax effect as per CBDT Circular No.3/2018 dated 11th July, 2018, with liberty to the Revenue to recall of dismissal of appeal if the matter is covered by the permissible exceptions mentioned in the said Circular.

3.7 It appears that thereafter MA No.220/Ahd/2019 in ITA No.69/Ahd/2019 was preferred before the Tribunal to recall order dated 29th January, 2019 by submitting that the Appellate Tribunal ought to have considered the appeal filed by the Revenue on merits though tax effect was less than Rs.20,00,000/-, as the audit objection was accepted by the department as per Para-10 of the aforesaid Circular as amended by CBDT directive dated 20th August, 2018 which provides that adverse judgments relating to issues enumerated in the said para should be contested on merits notwithstanding that the tax effect entitled is less than the monetary limits specified in Para-3 thereof or there is no tax effect.

3.7.1 Reliance was placed on Para-10(c) of the said Circular which reads as under.

“(c) Where Revenue Audit Objection in the case has been accepted by the Department, or”

3.8 The Tribunal, however, relying upon CBDT Circular No.5/2017 dated 23rd January, 2017 passed the impugned order and dismissed Miscellaneous Application by observing as under.

“7. On due consideration of all these facts and Circular of the Board, i.e. Circular No.5 of 2017 in the light of Hon’ble Bombay High Court decision, we are of the view that Department has not brought any substantial material on the record pointing out that appeal was filed after evaluation of merit on the issues involved. It sought to recall the order of the Tribunal merely on the basis of audit objection, which is not sufficient for recalling the Tribunal order. Therefore, we do not find any error in the o