2011 (12) TMI 25 - AT - Income Tax

Tax Effect - The returned and assessed income being both Nil and the assessment being a loss assessment - The tax effect should be of a minimum of Rs. 2 lacs so as to enable the department s appeal to be entertained, which is not so in the present case.Thus appeal of revenue was dismissed.

Summary

Issues:
1. Disallowance of depreciation claimed at 25% of WDV
2. Excess claim of expenditure under the head interest

Analysis:

Issue 1: Disallowance of Depreciation
The Department's appeal was against the deletion of the addition of Rs. 4,09,769/- made by the AO on account of depreciation claimed at 25% of WDV, which was restricted to 10% by the AO. The Tribunal dismissed the department's appeal earlier due to low tax effect, as the income remained a negative figure even after the CIT(A)'s order. However, the High Court remitted the matter back to the Tribunal to determine the tax effect and proceed accordingly. The assessee's working of tax showed that even after the CIT(A)'s order, the total income remained nil. The department challenged the cancellation of the excess claim of depreciation and interest disallowance. The Tribunal considered the rival contentions and held that the real tax effect was nil, as per the applicable Instruction No. 2 dated 24.10.2005, which required a minimum tax effect of Rs. 2 lakhs for the appeal to be entertained. Consequently, the department's appeal was dismissed for less tax effect.

Issue 2: Excess Claim of Expenditure under Interest
The second ground of appeal was related to the excess claim of expenditure under the head interest. The department argued that the additions made amounted to Rs. 14 lakhs and relied on a decision by the Hon'ble Delhi High Court in a similar case. However, the Tribunal considered the working of tax effect provided by the assessee, which showed that the total income remained nil even after the CIT(A)'s order. The Tribunal applied the relevant Instruction dated 24.10.2005, which required a minimum tax effect of Rs. 2 lakhs for the appeal to be entertained. Since the real tax effect was nil in this case, the department's appeal on this issue was also dismissed for less tax effect.

In conclusion, the Tribunal dismissed the department's appeal on both issues of disallowance of depreciation and excess claim of expenditure under interest due to the negligible tax effect and the total income remaining nil even after the CIT(A)'s order. The decision was based on the applicable Instruction requiring a minimum tax effect of Rs. 2 lakhs for the appeal to be entertained.