2013 (10) TMI 69 - HC - Income Tax

Tax effect - Maintainability of appeal in view of the CBDT Circular/ Instruction No.5 of 2008 - Ground that the tax effect in the present appeal is less than Rs.2,00,000/- Held that - Tax effect means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as disputed Issues ). - However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against - In the present case on examination of the order of the Assessing Officer, notional tax effect on loss return of Rs.1,56,47,435/- would come to Rs.32,03,487/- and thus the exceptions in Para 4 of the CBDT Instruction No.5 of 2008 will not bar the appeal. The revenue in such case will be entitled to prefer second appeal to the Tribunal Decided in favor of Revenue.

Summary

Issues:
1. Whether the Tribunal was justified in rejecting the appeal based on the tax effect being less than Rs.2 lakhs?
2. Whether the Tribunal was justified in not considering the notional tax effect in the case of loss returns?

Analysis:

Issue 1: The first issue revolves around the Tribunal's decision to dismiss the appeal due to the tax effect being less than Rs.2 lakhs. The Tribunal relied on CBDT Circular/Instruction No.5 of 2008, which states that the tax effect should be considered to determine the maintainability of an appeal. The Appellant argued that in the case of loss returns, the notional tax effect should be taken into account as per the exceptions outlined in the circular. The High Court examined the Assessing Officer's order and calculated the notional tax effect on the loss return, concluding that the revenue is entitled to file a second appeal to the Tribunal despite the tax demanded being less than Rs.2 lakhs.

Issue 2: The second issue questions whether the Tribunal erred in not considering the notional tax effect in the case of loss returns. The Appellant contended that the Tribunal failed to take into account the exceptions provided in the CBDT Circular/Instruction, which specify that in loss cases, the notional tax effect should be considered. The High Court agreed with the Appellant's argument and held that the Tribunal's decision to not consider the notional tax effect was incorrect. The Court emphasized that the merits of the case should be examined without prejudging them and ruled in favor of the revenue, remanding the matter to the ITAT for a decision on the second appeal based on merits in accordance with the law.

In conclusion, the High Court's judgment addressed the issues raised regarding the maintainability of the appeal based on the tax effect and the consideration of notional tax effect in loss return cases. The Court clarified the application of CBDT Circular/Instruction in such scenarios and directed the ITAT to review the second appeal on its merits.