2013 (9) TMI 811 - HC - Income Tax

Monetary limit for filing an appeal by the revenue - Appeal of Department barred by Board s circular under Section 268A of the Act - Notional tax effect - Assessee-respondent has filed its return declaring loss of Rs.18,47,71,360/- Tribunal held that tax effect being less than Rs.2,00,000/- lacs, the appeal of the Revenue was not maintainable Held that - By virtue of subsequent clarifications contained in circulars dated 15.5.2008 and 9.2.2011, the position prevailing prior to such circulars gets amplified and that therefore in cases of loss returns the Board s instructions did not envisage further appeal also does not impress - In the circular dated 15.5.2008, it is provided that in the case of loss, notional tax effect should be taken into account. This clarification to our mind, contained in circular dated 15.5.2008 and absence of any such clarification in the previous circulars, is of no consequence. Such a clause can, at the best, be seen as clarificatory declaration by the Board to put the controversy beyond any shadow of doubt or debate. It cannot, however, be stated that only on and from 15.5.2008, the Board desired that on the basis of notional tax effect in cases of loss the appeals should be filed. In the previous circulars to reiterate, no such intention emerges. Only because clarification came in the subsequent circular dated 15.5.2008, would not mean that previously the Board desired that such appeals should be filtered out. 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 - Tribunal committed an error in dismissing the Revenue s appeals as being not maintainable - The matter is remanded back to the Tribunal to decide the same strictly on merits.

Summary

Issues:
Appeal under Section 260-A of the Income Tax Act 1961; Maintainability of departmental appeal based on tax effect limit as per CBDT Circulars.

Analysis:
The High Court considered an appeal filed by the department under Section 260-A of the Income Tax Act 1961 against a judgment of the Income Tax Appellate Tribunal for the assessment year 1998-99. The Tribunal had dismissed the departmental appeal on the grounds that the tax effect was below the limit specified in CBDT Circulars. The Court noted that in cases of loss returns with significant amounts involved, the issue can be viewed differently. The Court emphasized that unless a particular appeal contradicts the directives in the Board's circulars, it cannot be deemed as not maintainable solely based on the circulars. The circulars did not explicitly bar further appeals in cases of loss returns, and the Court highlighted that subsequent clarifications did not change the position regarding appeals in such cases.

The Court scrutinized the circulars issued by the Board and observed that the absence of specific instructions in previous circulars regarding appeals in loss return cases did not preclude the department from filing appeals. The Court clarified that while the notional tax effect must exceed the limits set by the Board for filing appeals, the circulars did not prohibit appeals in cases where the income was ultimately negative. The Court held that the Tribunal erred in dismissing the Revenue's appeals as not maintainable based on the tax effect limits specified in the circulars, especially when none of the appeals were decided on their merits.

As a result, the Court quashed the Tribunal's judgment and remanded the matter back to the Tribunal for a decision on merits, with a directive to provide a reasonable opportunity to the assessee. The Court instructed the Tribunal to expedite the decision within three months from the date of receiving the order. The department's appeal was allowed for statistical purposes, emphasizing the importance of deciding appeals based on their merits rather than dismissing them solely on the grounds of tax effect limits as per CBDT Circulars.