When the Income Tax Department Ignores Its Own Defeat: Bombay High Court Imposes ₹25,000 Cost on Officer for Pursuing a Low-Tax Appeal
Sales Tax Department Is Not a Law Enforcement Agency Under CBDT’s Old Circular: Nagpur Bench Reiterates the Law
SEO Keywords: Bombay High Court Income Tax Judgment 2026, Nagpur Bench Income Tax Appeal, CBDT Circular 2018 Tax Effect Limit, Low Tax Effect Appeal, Sales Tax Department Law Enforcement Agency, Income Tax Department ₹25,000 Cost, Abhishek Engineering and Chemical Ltd Case.
Introduction: When Persistence Becomes a Problem
The Income Tax Department is expected to be vigilant in protecting the interests of the Revenue. However, vigilance cannot mean pursuing every appeal regardless of monetary limits, settled judicial precedents, or the legal position applicable to the case.
In a remarkable judgment, the Bombay High Court, Nagpur Bench, has not only dismissed an Income Tax Department appeal involving a tax effect of merely ₹7,11,920 but has also imposed costs of ₹25,000 upon the concerned Deputy Commissioner of Income Tax. The costs were directed to be deducted from the officer’s salary.
The judgment sends a strong message: When the law is settled, the Department cannot keep litigating merely because it wishes to challenge an unfavourable decision.
The Case: Pr. CIT v. Abhishek Engineering and Chemical Ltd.
The case arose from Income Tax Appeal No. 45 of 2025, filed by the Principal Commissioner of Income Tax-1, Nagpur, against M/s Abhishek Engineering and Chemical Ltd., Amravati.
The appeal was heard by the Division Bench comprising Justice Anil L. Pansare and Justice Nivedita P. Mehta on November 2, 2026.
The principal issue was whether the Revenue could pursue an appeal involving a tax effect below the prescribed monetary limit by invoking an exception contained in the CBDT Circular dated August 20, 2018.
The tax effect involved in the present appeal was ₹7,11,920, significantly below the monetary limit of ₹2 crore.
The Controversy: Can the Sales Tax Department Be Treated as a Law Enforcement Agency?
The Revenue sought to justify the filing of the appeal by relying upon Clause 10(e) of the CBDT Circular dated August 20, 2018.
The said clause permitted the Department to contest adverse judgments on merits, notwithstanding the prescribed monetary limits, where additions were based on information received from external sources in the nature of law enforcement agencies such as:
– Central Bureau of Investigation (CBI)
– Enforcement Directorate (ED)
– Directorate of Revenue Intelligence (DRI)
– Serious Fraud Investigation Office (SFIO)
– Directorate General of GST Intelligence (DGGI)
In the present case, however, the information forming the basis of the addition had been received from the Sales Tax Department of Maharashtra.
The crucial question was whether the Sales Tax Department could be treated as a law enforcement agency for the purpose of Clause 10(e) of the 2018 CBDT Circular.
The Earlier Judgment: Siddhesh Mahendra Khara
The Bombay High Court had already examined an identical issue in Pr. Commissioner of Income Tax-1, Nagpur v. Siddhesh Mahendra Khara, Income Tax Appeal No. 23 of 2023, decided on March 27, 2026.
In that case, the tax effect was ₹2,32,129.
The Court held that information received from the Maharashtra Sales Tax Department did not fall within the scope of Clause 10(e) of the CBDT Circular dated August 20, 2018.
The Court also relied upon the decision of the Chhattisgarh High Court in DCIT v. Bhojraj Lal Chand Nawani, MCC No. 621/2019, decided on September 16, 2019, wherein a similar interpretation had been adopted.
The Bombay High Court accordingly held that the Revenue was not justified in filing the appeal.
The Revenue’s Further Stand: Reliance on CBDT Circular No. 5 of 2024
Despite the earlier binding judgment, the Revenue attempted to justify its stand by referring to CBDT Circular No. 5 of 2024.
The Department contended that the clauses of the subsequent circular indicated that the Sales Tax Department could be regarded as a law enforcement agency.
However, the High Court observed that the subsequent circular was not applicable to the present case.
The relevant ITAT decision had been delivered on October 4, 2022, much before the issuance of the subsequent circular. The circular applicable at the relevant time was the one dated August 20, 2018, which did not include the Sales Tax Department in the list of law enforcement agencies.
The Court further noted that the Revenue itself had admitted that the present case was covered by its earlier judgment in Siddhesh Khara.
High Court’s Strong Observations
The High Court expressed surprise at the stand taken by the Revenue.
It observed that once the Court had rendered a finding in an identical set of facts, based on the applicable CBDT Circular, that the Sales Tax Department was not a law enforcement agency, and the Revenue had accepted that finding, the order was binding.
The Court also observed that the reliance placed on CBDT Circular No. 5 of 2024 was known to the Deputy Commissioner of Income Tax to be inapplicable and was therefore uncalled for.
The Court expressly deprecated the conduct of the Revenue.
₹25,000 Costs: A Strong Message to the Department
The most striking part of the judgment was the imposition of costs.
The Bombay High Court dismissed the appeal and directed that costs of ₹25,000 be deducted from the salary of Mr. Suresh G. Kamble, Deputy Commissioner of Income Tax, Amravati Circle.
The Court directed that the amount be deposited with the High Court Legal Services Sub-Committee, Nagpur, within four weeks.
The reason for imposing costs was that the officer had taken a stand contrary to the law already laid down by the High Court.
This is a significant reminder that public authorities must act in accordance with binding judicial decisions and cannot disregard settled law without a legally sustainable basis.
Legal Significance of the Judgment
The judgment carries several important lessons for taxpayers, tax professionals, and departmental authorities.
1. Monetary Limits for Appeals Must Be Respected
The CBDT’s prescribed monetary limits are not merely administrative formalities. Appeals below the specified threshold cannot ordinarily be pursued unless a valid exception applies.
2. Exceptions Must Be Interpreted in Their Applicable Context
The expression “law enforcement agencies” under Clause 10(e) of the 2018 Circular cannot be expanded indiscriminately to include every government department supplying information.
3. Binding Precedents Cannot Be Ignored
Once the High Court has decided an issue in identical circumstances, the Revenue is expected to follow that decision unless it is reversed, distinguished on legally sustainable grounds, or otherwise rendered inapplicable.
4. Subsequent Circulars Cannot Be Applied Retrospectively Without Authority
A later circular cannot be used to justify an appeal relating to a period governed by an earlier circular when the subsequent circular is not applicable to the case.
5. Unjustified Litigation May Have Consequences
The imposition of personal costs upon the concerned officer demonstrates that the Court may take a serious view of litigation pursued contrary to settled law.
Conclusion: Tax Litigation Must Be About Justice, Not Just Persistence
The Bombay High Court’s decision in Abhishek Engineering and Chemical Ltd. is more than a judgment on monetary limits.
It is a reminder that the Income Tax Department, like every litigant, is bound by the rule of law.
The Department must certainly challenge erroneous orders wherever legally justified. However, pursuing an appeal despite a binding precedent, relying upon an inapplicable circular, and refusing to accept a settled legal position can unnecessarily burden the judiciary and the taxpayer.
The imposition of ₹25,000 costs, directed to be recovered from the salary of the concerned officer, makes the message unmistakable.
The power to litigate is not a licence to disregard judicial discipline.
Citation
Pr. Commissioner of Income Tax-1, Nagpur v. M/s Abhishek Engineering and Chemical Ltd., Amravati
Income Tax Appeal No. 45/2025
Bombay High Court, Nagpur Bench
Date of Judgment: November 2, 2026
Coram: Justice Anil L. Pansare and Justice Nivedita P. Mehta
Reported Citation: 2026:BHC-NAG:14883-DB
The copy of the order is as under:
