2013 (10) TMI 1341 - HC - Income Tax

Maintainability of appeal - Whether the Tribunal has committed substantial illegality while interpreting instruction No. 5 of 2008 dated 15th May 2008 without taking into account the loss notional tax effect in case of loss? - disallowance of bad debt and its interest claimed under Section 36(1)(viia)delted by CIT(A) - Held that - The assessee is enjoying the benefit of Section 80P of the Act and as such the tax on an income is exempted. Even if the addition is sustained there will be no tax demand as the tax effect will be NIL. In view of the Instruction No.5 of the CBDT dated 10.7.2014 the present appeal is not maintainable. In the case of CIT v. Manglam Ricinus Ltd. 2008 (5) TMI 640 - DELHI HIGH COURT the Hon ble Delhi High Court observed that in such type of cases the exercise shall be merely academic exercise - Decided against revenue.

Summary

Issues:
Appeal under Section 260A of the Income-Tax Act, 1961 against the ITAT judgment for the assessment year 2004-05. Interpretation of C.B.D.T. Instruction No. 5/2008 dated 15.05.2008 regarding tax effect in case of loss.

Analysis:
The appeal filed by the Department under Section 260A of the Income-Tax Act, 1961 challenged the judgment and order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2004-05. The substantial question of law admitted by the Coordinate Bench of the High Court pertained to the interpretation of C.B.D.T. Instruction No. 5/2008 dated 15.05.2008, specifically questioning whether the Tribunal had erred in not considering the notional tax effect in case of a loss. The case involved a Cooperative Bank that had declared a loss of &8377; 2,81,73,770/- and claimed deduction under Section 36(1)((viia) of the Act for &8377; 2,48,03,100/-. The AO disallowed the bad debt and interest claimed under Section 36(1)(viia), but the CIT(A) deleted the same. The Tribunal upheld the CIT(A)'s order, stating that the tax effect was less than &8377; 2.00 lacs, making the appeal not maintainable as per the C.B.D.T. Instruction.

The High Court noted that the assessee was benefiting from Section 80P of the Act, resulting in the tax on income being exempted. Even if the addition was sustained, there would be no tax demand as the tax effect would be NIL. Referring to a Delhi High Court case, it was observed that in such scenarios, the exercise would be merely academic. The Tribunal decided that if the issue had a tax effect in subsequent years, it could be considered by the Department later. Given this liberty, the Department's appeal was dismissed, which the High Court found reasonable in the circumstances of the case. The High Court upheld the Tribunal's order, stating that if the issue had any impact in subsequent years, the revenue could take proceedings accordingly. No interference was found necessary with the concurrent findings of the appellate authorities, and the order was sustained.

The High Court answered the substantial question of law in the negative, favoring the assessee and ruling against the department. Consequently, the appeal filed by the department was dismissed.