COMMISSIONER OF INCOME TAX Vs. CONTINENTAL CONSTRUCTION LTD

JUDGEMENT

(1.) Central Board of Direct Taxes (CBDT) has been issuing circular from time to time fixing the mandatory monetary limits for filing appeals. The circular with which, we are concerned is the one dated 24.10.2005, as per which appeals could be filed by the Department against the order of the Income Tax Appellate Tribunal to the High Court under Section 260A of the Income Tax Act only if the tax effect exceeds '4 lacs. This Circular was prevalent when instant appeals were filed. Naturally, in the cases where returns were filed and or assessed at loss, there was no tax effect. That is the position in these appeals also. However, clarification dated 15.05.2008 was issued by the Board clarifying the meaning which is to be assigned to "tax effect". As per this Circular, even in loss cases, "notional tax effect" is to be taken into account. Para 11 of the Circular stated that it would apply to the appeals filed after the date of circular.

(2.) These appeals pertain to the period before this clarification dated 15.05.2008 was issued. Taking refuge under Para 11, the learned counsel for the assessee has questioned the maintainability of these appeals preferred by the Revenue against the judgment of the Tribunal. The submission of learned counsel for the assessee, in this behalf, is that these appeals pertain to assessment years 1992-93 and 1993-94 and in both these years, the assessee had filed the return with no actual tax effect. There were losses in the earlier years, which were brought forward. The Assessing Officer while completing the assessment had disallowed the amount paid to M/s Negolice Ltd. as fee for service, which addition is deleted by the ITAT. The submission is that even after the disallowance of the aforesaid expenditure by the AO, the assessment is completed at loss and, therefore, there was no tax effect?. The learned counsel for the assessee pointed out that having regard to the CBDT Circular which was prevalent at the relevant time, appeals could not be filed when tax effect was neutral. No doubt, he conceded that thereafter clarification was issued by the CBDT vide O.M. dated 15 th May, 2008 which is instruction no. 5 of 2008 and as per these instructions, in loss cases notional tax effect is to be taken into account. However, his submission was that this O.M. was made operative only prospectively and was to be applicable in respect of appeals filed on or after 15 th May, 2008. Hence, as the appeals were filed in December, 2007, the aforesaid CBDT Circular had no application and as per the prevailing instructions as on the date of filing of these appeals, actual tax effect and not the notional tax effect was taken into consideration. It was, thus, argued that in the instant appeals, where the assessment resulted in losses even after disallowance of certain expenditure, and there was no actual tax effect in the year in question, the appeals were not maintainable as appeals could be filed in this Court only in those cases where the actual tax effect was '4 lacs. The learned counsel relied upon the judgment of this Court in CIT Vs. Nanak Ram where the view taken in CIT Vs. Pradeep Kumar Guptawas followed and appeals were dismissed in exactly the same circumstances.

(3.) The learned counsel for the Revenue could not dispute that in the aforesaid two judgments, this Court had decided that the Circular dated 15 th May, 2008 clarifying that notional tax effect is also to be taken into account while calculating the tax effect and examining the maintainability of the appeals. Her submission was that the aforesaid view taken was based on para 11 of the instructions stipulating "this instruction will apply to appeals filed on or after May 15, 2008". However, on the other hand this Court in CIT Vs. Ms/ P.S. Jain & Co. (ITR 179/1991 decided on August 2,2010) had that the instructions would apply even to the pending appeals.