2013 (10) TMI 1038 - HC - Income Tax

Low Tax Effect - Notional tax effect - loss return / negative income - Whether the appellate tribunal is right in dismissing the appeal filed by the revenue that in the appeal, tax effect was below Rs.2 lakh, the revenue could not have preferred the same in view of the instructions of the CBDT, thereby entitling the appellate tribunal not to decide the same on merits Held that - Following Commissioner of Income Tax-II Versus Good Luck Marketing Ltd. 2013 (10) TMI 641 - GUJARAT HIGH COURT the Tax Appeal is required to be allowed and the order passed by the tribunal is to be quashed and set aside and the appeal is required to be remanded to the tribunal to decide the same on merits Decided in favour of Revenue.

Summary

Issues:
Challenge to tribunal's order based on low tax effect; Failure to adjudicate on merits; Notional tax effect exceeding limit; Precedents on similar substantial questions of law.

Analysis:
The appellant-revenue challenged the Income Tax Appellate Tribunal's order dismissing their appeal for the assessment year 2002-03 due to low tax effect. The main issue was whether the tribunal erred in not deciding the appeal on merits because the tax effect was below Rs.2 lakh, as per CBDT instructions. The appellant argued that the notional tax effect was actually more than Rs.2 lakh and should have been considered. The tribunal's decision was solely based on the low tax effect without delving into the case's merits. The appellant contended that proper computation of loss could be relevant if the assessee declared profits in subsequent years. The appellant relied on previous court decisions to support their argument.

The High Court noted that the tribunal's dismissal solely on the ground of low tax effect without considering the notional tax effect exceeding the monetary limit prescribed by the Board was incorrect. The court referred to a previous Division Bench decision that addressed a similar substantial question of law regarding the dismissal of tax appeals based on low tax effect despite the notional tax effect exceeding the prescribed limit. This previous decision was followed in a recent case as well. Based on these precedents, the High Court allowed the appeal, quashed the tribunal's order, and remanded the case for a fresh decision on merits.

In conclusion, the High Court allowed the Tax Appeal, setting aside the tribunal's order and remanding the case for a decision on merits in accordance with the law. The court emphasized the need to consider notional tax effects exceeding prescribed limits and ensure that appeals are adjudicated on their merits rather than solely based on tax effect thresholds.