2013 (3) TMI 17 - HC - Income Tax

Appeal by revenue - low tax effect - Consideration of notional tax effect - held that - even loss claimed by assessee for a particular year assumes considerable significance in variety of situations. Merely because even as per the Assessing Officer s order, ultimately income of the assessee is negative, the Revenue s appeal before the appellate Tribunal would not be barred by the Board s circular under Section 268A of the Act. It is, however, clarified that the notional tax effect would have to be above the limits prescribed by the Board from time to time for presentation of such appeals. In all these cases since it is stated that the notional tax effect would be higher than the limits prescribed by the Board in different circulars, we are of the view that the Tribunal committed an error in dismissing the Revenue s appeals as being not maintainable. - Decided in favor of revenue.

Issues Involved:
1. Disallowance of losses by the Assessing Officer.
2. Confirmation and deletion of disallowances by CIT(Appeals).
3. Dismissal of Revenue's appeal by the Appellate Tribunal on the ground of low tax effect.
4. Legality of dismissing the appeal based on the tax effect being less than Rs.2 lacs.
5. Application of Board's circulars on monetary limits for filing appeals.

Detailed Analysis:

1. Disallowance of Losses by the Assessing Officer:
For the assessment year 2003-04, the assessee filed its return of income. Upon scrutiny, the Assessing Officer disallowed certain losses. The specific disallowances were not detailed in the judgment, but the issue was pivotal in the subsequent appeals.

2. Confirmation and Deletion of Disallowances by CIT(Appeals):
When the disallowance was challenged before the CIT(Appeals), the CIT confirmed the disallowance of Rs.3,24,000/- but deleted the disallowance of Rs.36,84,912/-. This partial relief led to further appeals by the Revenue.

3. Dismissal of Revenue's Appeal by the Appellate Tribunal:
The Revenue approached the Appellate Tribunal against the deletion of Rs.36,84,912/-. The Tribunal dismissed the appeal on the ground of low tax effect, stating that the tax effect involved was less than Rs.2,00,000/-. The Tribunal relied on the judgment in JOT vs. Peerless Developers Ltd., dismissing the appeal in limine.

4. Legality of Dismissing the Appeal Based on Low Tax Effect:
The primary legal question was whether the Appellate Tribunal was right in dismissing the appeal on the ground that the tax effect was less than Rs.2 lacs. The High Court examined this question extensively, referencing the case of Joint Commissioner of Income-Tax Vs. Saheli Leasing & Industries Ltd. and Commissioner of Income-Tax-II vs. Good Luck Marketing Ltd.

The High Court noted that even loss claims by an assessee assume significance due to provisions for set-off and carry-forward of losses. It emphasized that the computation of loss should be accurate and subjected to scrutiny. The Court highlighted that appeals should not be dismissed merely on the ground of low tax effect if the loss computation has broader implications for future assessments.

5. Application of Board's Circulars on Monetary Limits for Filing Appeals:
The High Court analyzed various Board circulars, including those issued on 27.3.2000, 24.10.2005, 15.5.2008, and 9.2.2011, which set monetary limits for filing appeals. It was clarified that these circulars did not intend to bar appeals in cases of negative income where the potential tax effect was significant.

The Court concluded that the Board's circulars should not prevent the filing of appeals in loss cases if the notional tax effect exceeds prescribed limits. It was determined that the Tribunal erred in dismissing the appeal based on low tax effect without considering the broader implications of the loss computation.

Conclusion:
The High Court held that the Revenue's appeal should not be barred by the Board's circulars under Section 268A of the Act merely because the income was negative. The notional tax effect must be considered, and if it exceeds the prescribed limits, the appeal should proceed. The Tribunal's dismissal of the Revenue's appeal was set aside, and the matter was remanded to the Tribunal for reconsideration on merits. The Tax Appeal was accordingly disposed of, with instructions for the Tribunal to issue notices to both parties and decide the issues in accordance with the law.

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