2019 (1) TMI 121 - HC - Income Tax

Monetary limit for maintaining appeal - demand raised from the order appealed against is lower than the mandatory limit as prescribed under the Litigation Policy for maintaining an appeal before the Tribunal - revised return filed declaring loss of ₹ 7,60,87,930/- as against the earlier loss declared of ₹ 3,50,00,000/- - no tax effect for the subject assessment year - Government of India (Taxes) submission that the mere fact that there was no tax effect for that year would not determine the monetory limit, especially since the assessee could have earned profits in the subsequent years and if that exceeded the limit, definitely there was a scope for consideration as to whether the revised return was proper or not Held that - We directed the revenue to file a statement as to the details of the returns for the subsequent year. The Department has today filed a statement clearly indicating that in the next eight years the assessee has been declaring a loss. Since loss could be carried over only for eight years, we do not think that the consideration of the appeal is expedient especially since this would not create any tax liability on the assessee for the subsequent years also for reason of the declaration of loss in the subsequent 8 years during which period alone the loss could be carried over.

Summary

Issues:
1. Appeal dismissal based on mandatory limit under Litigation Policy.
2. Question raised regarding revised return showing increased loss.
3. Impact of no tax effect for the subject assessment year.
4. Consideration of revised return based on potential future profits.
5. Details of subsequent year returns provided by the revenue.
6. Loss carried over for eight years and its impact on appeal decision.

The High Court judgment in this case revolved around the dismissal of the appeal by the Tribunal due to the demand raised falling below the mandatory limit set by the Litigation Policy. The appeal was related to a revised return filed by the appellant, declaring a higher loss compared to the earlier declaration. Notably, there was no tax effect for the subject assessment year in question. The Senior Standing Counsel for the Government of India argued that the absence of tax liability for that year did not automatically determine the monetary limit for maintaining the appeal, as the appellant could potentially earn profits in subsequent years. The Court directed the revenue department to provide details of the returns for the following years to assess the situation further.

The revenue department complied with the Court's directive and submitted a statement showing that the appellant had been declaring losses for the next eight years. Given that losses can only be carried forward for eight years, the Court concluded that considering the appeal was not expedient. It was noted that even in the subsequent years, the appellant continued to declare losses, which meant there would be no tax liability arising from the loss declared in the original assessment year. Consequently, the Court decided to close the IT appeal, leaving the question of law open and making no order as to costs.

This judgment underscores the importance of considering potential future profits in determining the monetary limit for maintaining appeals, especially in cases where losses can be carried forward for a specific period. It also highlights the significance of analyzing the long-term financial implications of revised returns and the impact of continuous loss declarations on tax liabilities in subsequent years.