Interest Excluded When Computing Tax Effect for Revenue Appeal Monetary Limit: Allahabad High Court

The Allahabad High Court dismissed a Revenue appeal as below the ₹2 crore threshold, holding that interest cannot be added to tax to reach the limit and that quashing on jurisdiction is no exception.

The Allahabad High Court has held that interest and penalty are not to be counted when computing the tax effect that decides whether a Revenue appeal crosses the monetary limit under the Central Board of Direct Taxes litigation policy, and dismissed an appeal involving net tax of ₹1,23,07,705 [Pr Commissioner of Income Tax‑1 v. Pashupati Castings Ltd., 2026-juristway.com-3391-HC(Allahabad)-IT].

Justice Saumitra Dayal Singh and Justice Swarupama Chaturvedi heard the Revenue’s appeal against an order dated 17 Mar 2026 of the Income Tax Appellate Tribunal (ITAT), Agra Bench. The ITAT had quashed reassessment under Section 147 of the Income Tax Act, 1961 for assessment year 2017‑18 on a jurisdictional ground, following its coordinate bench in Aseem Sehgal v. ITO (ITA Nos. 154 to 156/Del/2025).

The assessee objected that the appeal was below the threshold of ₹2 crore. The Revenue relied on Clauses 3.1(e) and (f) of Circular No. 5 of 2024 dated 15 Mar 2024 and a computation showing total tax payable of ₹2,09,62,403. It also argued that the ITAT’s order contained adverse comments, and that tax effect was not quantifiable because the merits were never examined.

The Court rejected each ground. The passage of the ITAT order relied on only recited the assessee’s submissions; the ITAT had merely followed its coordinate bench without independent reasoning. Clause 3.1(e) refers only to strictures or adverse comments made specifically about an officer, and a statement that a procedure was not followed is not such a stricture.

Nor does an order quashing reassessment on a jurisdictional ground make the tax effect unquantifiable. Here the net tax was ₹1,23,07,705, and only the addition of interest took the figure to ₹2,09,62,403.

The Court held it fundamental that, where maintainability under the litigation policy depends on tax effect, interest and penalty are not to be examined for that purpose. The appeal was found below the monetary limit in the binding circular and was dismissed.

2026-juristway.com-3391-HC(Allahabad)-IT