2013 (10) TMI 641 - HC - Income Tax

Low Tax Effect - where returned / computed income is negative - Whether the Appellate Tribunal is right in dismissing the tax appeal of the revenue on the ground of low tax effect - Whether it is necessary to compute with degree of accuracy, declaration of loss made by the assessee in view of the statutory provisions contained in the Act 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 extent of loss claimed and allowed would be significant for variety of purposes, particularly, for the purpose of set off and carrying forward of such loss - We fail to see how such an issue can be seen as one of low tax effect - In a given case, an assessee may claim large amount by way of loss, which according to him he suffered during the assessment year - The Assessing Officer, while framing the assessment, may come to a conclusion that the loss is much smaller than what is claimed by the assessee - If in the appeal filed by the assessee, the CIT (Appeals) accepts the assessee s claim and sets aside the Assessing Officer s order, and if such order is allowed to stand merely on the ground that further appeal is not maintainable, it would be the CIT s computation of loss, which will prevail for all times to come without further scrutiny, by the higher forum. The order of CIT (Appeals) would achieve finality despite contentious issues being involved and the Revenue s disagreement to the order of the CIT (Appeals) - Eventually if the assessee declares positive income in future years, the claims of carry forward and set off of loss would be judged on the basis of the order passed by the CIT, which order would not have been scrutinized by the Tribunal only on the ground that the appeal was not maintainable - the Appeal of the Revenue is on of low tax effect - Our answer has to be in the negative - For an assessee to claim carry forward and set-off of losses, series of provisions have been made in the Act - It is necessary that loss claimed by an assessee is properly computed - Such declaration of negative income just as declaration of positive income should be allowed to go through the entire gamut of Appeals and Revisions. Board s Circular - Whether by virtue of the Board s circulars issued from time to time, which in view of the Section 268A of Act, have acquired considerable significance, and force the appeal presented to the Tribunal, could be termed as not maintainable Held that - Circulars of the Board nowhere provide that in case of return of loss automatically per se irrespective of difference in the Assessing Officer s perception and that of the CIT (Appeals) of the computation of loss, further appeal would be shut 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 - the notional tax effect would have to be above the limits prescribed by the Board from time to time for presentation of such appeals - the notional tax effect would be higher than the limits prescribed by the Board in different circulars, the Tribunal committed an error in dismissing the Revenue s appeals as being not maintainable - all tax appeals are allowed. Judgments of the Tribunal under challenge in respective appeals are set aside - All proceedings are remanded to the Tribunal for entertaining appeals on merits and to decide the issues arising in such appeals in accordance with law after issuing notice to the assesses Decided in favour of Revenue.

Issues Involved:
1. Maintainability of Revenue's appeal in cases of negative income.
2. Applicability and interpretation of CBDT circulars regarding monetary limits for filing appeals.
3. Computation and significance of loss for carry forward and set off in subsequent years.

Detailed Analysis:

1. Maintainability of Revenue's Appeal in Cases of Negative Income:
The primary issue was whether the Revenue's appeal could be dismissed as not maintainable simply because the assessee's income was negative. The Tribunal had dismissed the Revenue's appeal based on the CBDT circulars, stating that since the final assessment resulted in a loss, the appeal was not maintainable. The Tribunal relied on the decision in CIT v. Peerless Developers Ltd. and the Board's circulars to support its stance. However, the High Court found that the extent of loss claimed and allowed is significant for various purposes, especially for the set off and carry forward of losses. The Court held that merely because the income is negative, it cannot be treated as a low tax effect issue. The Revenue's appeal should not be dismissed on this ground alone, as the computation of loss is crucial for future assessments.

2. Applicability and Interpretation of CBDT Circulars Regarding Monetary Limits for Filing Appeals:
The Court examined the applicability of CBDT circulars that set monetary limits for filing appeals. The Revenue argued that the Tribunal misconstrued these circulars, which did not intend to bar appeals in cases of negative income. The Court noted that Section 268A of the Income Tax Act, introduced by the Finance Act, 2008, gives statutory recognition to such circulars. The Court also referred to various circulars issued by the Board from time to time, including those dated 27.3.2000, 24.10.2005, and 15.5.2008. The Court concluded that these circulars did not intend to bar appeals in cases of negative income and that the clarification in the 15.5.2008 circular regarding notional tax effect in loss cases was merely clarificatory and not a new provision.

3. Computation and Significance of Loss for Carry Forward and Set Off in Subsequent Years:
The Court emphasized the importance of accurately computing losses, as they can be carried forward and set off against future profits. Various sections of the Income Tax Act, such as Sections 70, 71, 72, 80, and 139(3), were discussed to highlight the statutory provisions related to the set off and carry forward of losses. The Court noted that the computation of loss is essential for determining the correct tax liability in subsequent years. The Court also referred to the Supreme Court's decision in CIT v. Gold Coin Health Food P. Ltd., which held that the term "income" includes losses, and even in cases of negative income, the computation of loss is significant for future assessments.

Conclusion:
The High Court held that the Revenue's appeal should not be dismissed merely because the assessee's income is negative. The computation of loss is significant for future assessments, and the CBDT circulars did not intend to bar appeals in such cases. The Court allowed all the tax appeals, set aside the Tribunal's judgments, and remanded the cases to the Tribunal for a decision on merits. The Tribunal was directed to entertain the appeals on merits and decide the issues in accordance with the law after issuing notice to the assessees.

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