Bombay High Court Cautions Income Tax Dept. Against Routine Appeals With Mechanically Drafted Questions Of Law

The Bombay High Court has cautioned the Income Tax Department against routinely challenging Income Tax Appellate Tribunal (ITAT) orders by mechanically framing substantial questions of law.

A division bench of Justice Suman Shyam and Justice Gautam A. Ankhad observed,

"we are constrained to observe here that this Bench has noticed that Appeals under Section 260A of the Act are filed by the Department in a routine manner whereby the suggested substantial questions of law(s) are drafted mechanically. In most of those appeals, legal objection and/or purported grounds of challenge to the orders of the Tribunal have been projected as substantial questions of law, based on which, a large number of Income Tax Appeals have been filed under Section 260A of the Act which are pending before this Court. Having regard to the legislative scheme of Section 260A, the remedy thereunder, cannot be permitted to become a routine or automatic continuation of the proceeding instituted before the learned Tribunal"

The bench linked this practice to the growing pendency of appeals before the high court, particularly those that do not involve a substantial question of law. It observed:

“The pendency of large number of Appeals filed under Section 260A, where no substantial question of law is involved, is, on one hand, increasing back log of cases and on the other hand, coming in the way of expeditious disposal of Appeals involving the interest of the Revenue where serious questions of law are awaiting consideration of the Court. We, therefore, expect the Departmental Authorities to look into these aspects of the matter and take corrective step(s), as may be deemed necessary.”

The court made the observation while dismissing the Department's appeal against Mahalaxmi Infra Projects Ltd.

The dispute concerned the company's claim for a deduction under Section 80-IA(4) of the Income Tax Act for infrastructure works undertaken by it.

Mahalaxmi was engaged in the construction of roads and other infrastructure works. For the relevant assessment year, it claimed the deduction for infrastructure works undertaken by it.

The Assessing Officer rejected the claim, holding that the company was merely a contractor and could not be regarded as a developer of an infrastructure facility under Section 80-IA(4). The officer also held that the company did not satisfy the statutory requirement of developing, operating, and maintaining an infrastructure facility.

The Commissioner of Income Tax (Appeals) rejected this conclusion and allowed the company's claim. The ITAT affirmed the CIT(A)'s findings and dismissed the Department's appeal.

The Department then approached the high court under Section 260A of the Income Tax Act. The provision allows an appeal against an ITAT order where the case involves a substantial question of law.

The Department raised two questions. The first concerned whether the company was entitled to the Section 80-IA deduction on the basis that it was engaged in developing, operating, and maintaining infrastructure facilities. The second questioned the ITAT's reliance on its own earlier order dated December 9, 2015.

The high court found that neither of the two questions gave rise to a substantial question of law warranting admission of the appeal.

On the first issue, the bench held that the Department was essentially seeking reconsideration of the factual conclusion on whether the company's activities qualified it as a developer of an infrastructure facility.

The issue had already been examined by the CIT(A) and ITAT on the material before them. Both authorities had concurrently ruled in favour of the company.

The Department had not demonstrated that these findings were perverse or that the authorities had applied an erroneous legal test, the bench observed.

On the second issue, the bench noted that the ITAT had relied on its earlier order dated December 9, 2015, which had been confirmed by the high court. It rejected the Department's argument that the ITAT's reliance on that order, by itself, gave rise to a substantial question of law.

The bench also noted that a coordinate bench had dismissed an earlier appeal involving the same assessee and subject matter, though for a different assessment year. In that case, the coordinate bench had dismissed the Department's appeal on April 24, 2026, holding that no substantial question of law arose for consideration.

“In these circumstances, the present Appeal cannot be a third round of factual scrutiny,” the bench observed while dismissing the appeal.

The court further observed that Section 260A does not confer a general appellate jurisdiction to reappreciate evidence or substitute its own view for concurrent factual findings of the authorities below. An appeal can be admitted only when the high court is satisfied that it involves a substantial question of law requiring an answer from the court.

The bench also observed that legal objections and purported grounds challenging ITAT orders were being projected as substantial questions of law in a large number of appeals. It said such appeals were adding to the backlog and coming in the way of expeditious disposal of matters involving serious questions of law.

The bench held that the remedy under Section 260A “cannot be permitted to become a routine or automatic continuation of the proceeding instituted before the learned Tribunal.”

It expected the departmental authorities to look into the issue and take corrective steps as necessary. The bench also directed that a copy of the order be sent to the Principal Chief Commissioner of the IT Department.

For Income Tax Department: Advocate Arjun Gupta

For Mahalaxmi Infra Projects Ltd.: Advocates Rohan Deshpande with Vihit Shah