2012 (4) TMI 372 - HC - Income Tax

Determination of monetary limit for filing appeal before tribunal - Whether the Appellate Tribunal is right in law and on facts in dismissing the Appeal of the revenue on the ground of low tax when the tax effect was Rs. 18,83,616 (Notional), which exceeded the monetary limit prescribed by the Board - if the difference of opinion between the Assessing Officer and the CIT (Appeals) in terms of quantum of loss is considerable, whether the Revenue s appeal would be shut out as not maintainable simply because in any case the assessee s income is negative for a particular assessment year - It is for this reason that Section 80 of the Act provides that no loss which has not been determined in pursuance of a return filed in accordance with the provisions contained in sub-Section (3) of Section 139, shall be carried forward or set off under Sections 72(1) or 73(2) or 74(1) or (3) or under Section 74(3) of the Act - From the above statutory provisions, it can be seen that merely on the ground that even if the Assessing Officer s order is restored, the net result would be a negative income, the issue cannot be treated to be one of academic interest - 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 - Appeal is allowed by way of remand to Tribunal

Summary

Issues Involved:
1. Determination of tax effect in cases of negative income.
2. Applicability and interpretation of CBDT circulars regarding monetary limits for filing appeals.
3. Whether the Tribunal erred in dismissing the Revenue's appeal based on low tax effect.

Issue-wise Detailed Analysis:

1. Determination of Tax Effect in Cases of Negative Income:
The primary issue revolves around whether the Revenue's appeal can be dismissed on the grounds of low tax effect when the assessee's income is negative. The court analyzed various statutory provisions, including Sections 2(24), 70, 71, 71B, 72, 72A, 80, 139(3), 157, 143(1)(a), and 147 of the Income Tax Act. It was emphasized that "even loss claimed by assessee for a particular year assumes considerable significance in a variety of situations." The court held that "merely on the ground that even if the Assessing Officer's order is restored, the net result would be a negative income, the issue cannot be treated to be one of academic interest." The court concluded that the extent of loss claimed and allowed is significant for purposes such as set off and carrying forward of such loss.

2. Applicability and Interpretation of CBDT Circulars:
The court examined multiple CBDT circulars, including those dated 27.3.2000, 24.10.2005, 15.5.2008, and 9.2.2011, to determine if they barred the department from filing appeals in cases of negative income. The circular dated 15.5.2008 specifically mentioned that "in loss cases notional tax effect should be taken into account." The court interpreted this as a clarification rather than a new directive, stating, "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." The court concluded that previous circulars did not intend to bar appeals in cases of negative income where the potential tax effect is substantial.

3. Tribunal's Error in Dismissing the Revenue's Appeal:
The court addressed the Tribunal's dismissal of the Revenue's appeal based on low tax effect. It was argued that the Tribunal erred by not considering the notional tax effect, which was Rs. 18,83,616/-, exceeding the monetary limits prescribed by the Board. The court held that "the Tribunal committed an error in dismissing the Revenue's appeals as being not maintainable" and emphasized 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."

Conclusion:
The court allowed the tax appeal, setting aside the Tribunal's order and remanding the matter back to the Tribunal for reconsideration on merits. The Tribunal is directed to decide the issues arising in such appeals in accordance with law after issuing notice to the assessees. The judgment underscores the significance of notional tax effect in cases of negative income and clarifies the applicability of CBDT circulars in regulating the filing of appeals.