Maximum conceivable tax effect below CBDT’s monetary limit bars Revenue’s Section 263 appeal: Rajasthan High Court

Jodhpur: The Rajasthan High Court has dismissed an Income Tax Department appeal against an order passed under Section 263 of the Income Tax Act, holding that even if the maximum conceivable tax effect were computed entirely in the Revenue’s favour, it would not cross the monetary limit prescribed for departmental appeals before the High Court under CBDT Circular No. 5 of 2024.

A division bench of Justice Arun Monga and Justice Maneesh Sharma held that the distinction between ‘tax not quantifiable’ and ‘tax not quantified’ applied squarely to the case, since the appellant’s own counsel had conceded that the tax effect, however computed, would not exceed about Rs 2 crore.

The Court observed:

“Even if the tax effect is treated as not presently quantifiable, and even if it were to be quantified hereafter upon remand to the Assessing Officer, it would, on the appellant’s own showing, not exceed ₹2 crores in any eventuality. Clause 3.1(f) cannot be pressed into service to sustain an appeal where the maximum conceivable tax effect admittedly falls below the prescribed monetary limit; to hold otherwise would defeat the very object of the Circular.”

The appeal arose from an order dated Jun 24, 2024, passed by the Income Tax Appellate Tribunal, Jaipur Bench, whereby the Tribunal had set aside a revisional order passed by the Commissioner of Income Tax (International Taxation), Delhi-I under Section 263 of the Act and restored the original assessment order dated Mar 26, 2022.

The respondent-assessee, Sajjad Ali, a general merchant from Kapasan, Chittorgarh, had filed his return of income on Mar 20, 2018, declaring a total income of about Rs 1 lakh. Reassessment proceedings under Section 147 were subsequently initiated on information regarding the assessee’s investment in immovable property, and a notice under Section 148 was issued on Mar 30, 2021. No return was filed in response, and the case was transferred to the Circle (International Tax), Jaipur, for reassessment. The assessment was completed under Section 147 read with Section 144 by order dated Mar 26, 2022, accepting the income as originally returned.

Pursuant to objections raised by the Internal Audit Party, the Commissioner of Income Tax (International Taxation), Delhi-I examined the assessment records and formed the view that the Assessing Officer had not conducted adequate enquiry into the assessee’s claim of exemption under Section 54 of the Act, amounting to about Rs 82.29 lakh. The assessee had booked a residential flat with M/s Sana Land Developers Pvt. Ltd. on Apr 30, 2015, which was later cancelled with the deposit refunded during financial year 2017-18, and had thereafter purchased another flat from M/s Nyati Builders Pvt. Ltd. on Dec 28, 2017, claiming exemption under Section 54 in respect of the fresh purchase. Taking the view that this subsequent purchase fell beyond the period prescribed under Section 54 reckoned from the date of transfer of the original capital asset, i.e., Apr 7, 2015, the Commissioner held the assessment order to be erroneous and prejudicial to the interests of the Revenue, and by order dated Mar 27, 2024 passed under Section 263, directed the Assessing Officer to frame a fresh assessment. The Tribunal, on appeal by the assessee, held that the twin conditions prescribed under Section 263 were not satisfied and set aside the revisional order, leading to the present appeal by the Revenue.

At the threshold, learned counsel for the appellant submitted that the appeal was maintainable since the order under challenge before the Tribunal was one passed by the Commissioner in exercise of revisional jurisdiction under Section 263, which, according to him, fell outside the purview of Circular No. 5 of 2024. Per contra, learned counsel for the respondent submitted that the Circular carved out no such exception and contained no saving clause for orders passed in revisional jurisdiction, the sole determinative criterion being the tax effect contemplated by the Circular itself.

Examining Circular No. 5 of 2024, the bench found that it contained no exception for orders passed under Section 263, and that the only caveat relied upon — Clause 3.1(f), which exempts cases where the tax effect is “not quantifiable” from the monetary limits — did not advance the appellant’s case. On a query from the Court as to whether the tax effect would exceed about Rs 2 crore even if every parameter were decided in the Revenue’s favour and the entire tax demand sustained, learned counsel for the appellant fairly conceded that it would not.

The bench relied on a coordinate bench order dated Feb 21, 2025 in D.B. Income Tax Appeal No. 8 of 2025, The Principal Commissioner of Income Tax v Pinkcity Jewelhouse Pvt. Ltd., in which the Court had drawn the same distinction. It quoted the coordinate bench’s finding:

“There is a distinction between ‘tax not quantifiable’ and ‘tax not quantified’. The exception is for order passed under Section 263 of the Act where the tax effect is not quantifiable. Taking the case of the department at the highest and even if order of the revisional authority is upheld, the tax effect would be less than about Rs 2 crore.”

In an order dated Jul 9, 2026, agreeing with the view taken in the coordinate bench’s order, the Court held that the appeal was not maintainable and dismissed it, leaving all questions of law open. All pending applications were disposed of.

Title: Deputy Commissioner Of Income Tax (Intl. Tax), Jaipur v Sajjad Ali

Case No.: D.B. Income Tax Appeal No. 34/2025

Citation: [2026:RJ-JP:25823-DB]

Counsel for appellant: Mr. Shantanu Sharma, Mr. Parth Vashishtha

Counsel for respondent: Mr. Shrawan Kumar Gupta, Mr. Ashok Kumar Gupta