Cross-Objections Not Maintainable in Income Tax Appeals Before High Court: Delhi High Court Rejects Assessee’s Plea

Section 260A of the Income Tax Act Does Not Provide for Cross-Objections; Appeal Must Be Based on a Substantial Question of Law - In a significant judgment Delhi High Court ruled that cross-objections are not maintainable in appeals filed under Section 260A of the Income Tax Act, 1961. The decision came in the case of Principal Commissioner of Income Tax (Central)-2 v. Nagar Dairy Pvt. Ltd., where the respondent-assessee had filed cross-objections against the revenue’s appeal.

The Court observed that "cross-objections are a substantive right and cannot be read into Section 260A unless explicitly provided by the statute. Since Section 260A only allows appeals on substantial questions of law, cross-objections have no place in such proceedings."

"Assessee Cannot Use Cross-Objections to Challenge Tribunal's Findings in a Revenue Appeal"
The case arose from a search and seizure operation conducted on September 17, 2010, on the Nagar Dairy Group, leading to tax assessments under Section 153C of the Income Tax Act. The assessee contested the invocation of Section 153C, but the Income Tax Appellate Tribunal (ITAT) upheld its validity while granting partial relief on certain tax additions.

The revenue appealed against the ITAT’s decision to delete various tax additions, and in response, the assessee filed cross-objections, arguing that the Tribunal erred in upholding the invocation of Section 153C.

Rejecting the maintainability of the cross-objections, the Court ruled that "Section 260A provides a limited appellate remedy only on substantial questions of law. The respondent-assessee, if aggrieved by the Tribunal’s ruling on Section 153C, should have filed an independent appeal instead of attempting to challenge it through cross-objections."

"Cross-Objections in Income Tax Appeals Cannot Be Read Into Section 260A"

The assessee contended that Order XLI Rule 22 of the Civil Procedure Code (CPC), which allows cross-objections in civil appeals, should be applied to appeals under Section 260A. However, the High Court rejected this argument, stating that "Order XLI Rule 22 applies to first appeals but does not extend to second appeals under Section 100 CPC, which is similar in structure to Section 260A of the Income Tax Act."

Referring to the Karnataka High Court's ruling in Jyoti Kumari v. Assistant Commissioner of Income Tax (2010 SCC OnLine Kar 5147), the Court reiterated that: "Cross-objections are not maintainable in second appeals under Section 100 CPC, and since Section 260A follows a similar appellate framework, the same principle applies. The provision for cross-objections cannot be inferred merely because Section 260A states that CPC provisions shall apply ‘so far as may be’."

"Right to Appeal Must Be Expressly Provided by Law"

The High Court emphasized that the right to appeal is a statutory creation and cannot be assumed unless expressly granted. The Court noted that: "An appeal is a substantive right, and cross-objections are in the nature of an appeal. Since Section 260A does not explicitly provide for cross-objections, the assessee cannot claim such a right."

The Court further explained that the absence of a cross-objection provision does not deprive the assessee of legal recourse. If an assessee is aggrieved by an ITAT ruling, they can file a separate appeal under Section 260A(2) within the prescribed 120-day period.

Dismissing the cross-objections, the Court ruled: "The cross-objections filed by the respondent-assessee are not maintainable under Section 260A of the Income Tax Act. The appeals filed by the Revenue shall proceed solely on the substantial question of law already framed."

The Delhi High Court’s ruling reaffirms that "cross-objections cannot be entertained in tax appeals before the High Court under Section 260A. Only substantial questions of law framed by the Court can be considered."

By rejecting the assessee’s attempt to challenge the ITAT’s findings through cross-objections, the judgment reinforces the limited scope of appellate review under Section 260A, ensuring that tax litigation remains confined to substantial legal issues.

Date of Decision: 03 March 2025