Gujarat High Court Case Information System
Print
TAXAP/943/2010 6/ 6 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 943 of 2010
=========================================================
COMMISSIONER
OF INCOME TAX-II - Appellant(s)
Versus
GUJARAT
OPTICAL COMMUNICATION LTD - Opponent(s)
=========================================================
Appearance :
MRS
MAUNA M BHATT for
Appellant(s) : 1,
RULE SERVED BY DS for Opponent(s) :
1,
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE AKIL KURESHI
and
HONOURABLE
MS JUSTICE SONIA GOKANI
Date
: 06/09/2011
ORAL
ORDER
(Per
: HONOURABLE MS JUSTICE SONIA GOKANI)
1. Revenue
has proposed following questions of law for determination of this
Court in the present Tax Appeal which arises out of Order dated
11th
September 2009 passed by the Income Tax Appellate Tribunal,
Ahmedabad Bench (hereinafter referred to as “the
Tribunal”).
“Whether the Appellate
Tribunal is right in law and on facts in confirming the order passed
by CIT(A) deleting the disallowance of Rs 62,68,900/- out of
interest expenses and PF ?
2. This
Court decided entire bunch of Appeals on the identical questions of
law being Tax Appeal No. 1474 of 2010 and connected
Appeals.
3. It
emerges that despite due service of the notice none has appeared to
contest the present appeal. Accordingly learned counsel for the
revenue has been heard and substantial questions of law formulated
and mentioned hereinabove is decided.
4. In
this Tax Appeal the order of the Tribunal dated 11th
September 2009 is challenged in the following factual background.
4.1 For
the Assessment year 2002-2003 the Assessing Officer made disallowance
of proportionate interest amounting to Rs 62,68,900/- after
disallowing the aforementioned proportionate interest free
advances.
5. When
this was challenged before the CIT(A) it deleted the disallowance of
Rs 62,68,900/- .
6. The
revenue carried this issue before the Tribunal. The Tribunal held
that even if the addition is confirmed this would remain a case of
loss and thus in the light of the instruction of the CBDT Circular
No. 5 of 2008, the revenue ought not to have filed an appeal before
the Tribunal. The Tribunal also followed the order of Delhi
High Court in the case of CIT
V. Mangalam Ricinus Ltd.
(2008) 174 Taxman 186 (Delhi).
In other words, the Tribunal was of the opinion that even if the
order of the Assessing Officer was to be upheld, the income of the
assessee would be negative and the
tax effect would be low and therefore, it declined to entertain the
appeal on the ground of low tax effect.
7. The
impugned order is thus challenged by the revenue proposing
aforementioned substantial questions.
8. Heard
learned counsel Mrs Mauna Bhatt for the revenue and also scrutinised
the orders of the adjudicating authorities. Learned counsel has
candidly pointed out that this Court has decided group of tax
appeals being Tax Appeal No. 1601/09 and connected appeals in the
following manner :
“34. From the above
circulars, two fold questions arise. Firstly, we are required to
answer the question if circulars ranging from 27.3.2000 till
16.7.2007, debarred the department from filing appeals in cases of
negative income of the assessee. The second aspect of the matter is
whether when the Board in its subsequent circular dated 15.5.2008
provided that ” Similarly, in loss cases notional tax effect
should be taken into account”, did the Board desire for the
first time that the appeals be permitted to be presented in cases of
loss only on and from 15.4.2008 and not before. In other words, the
question is whether above quoted portion in the Board circular dated
15.4.2008 is clarificatory in nature or not?
35. Close perusal of the
circulars issued prior to 15.5.2008 noted hereinabove, would reveal
that such circulars provided for different conditions on which the
Revenue could prefer appeals before the Tribunal and Courts which
included the monetary limits specified from time to time. Nowhere do
these circulars, specify that irrespective of the degree of
divergence between the Assessing Officer and CIT merely because in
either case the assessee is held to have suffered loss, appeal before
the Tribunal would not be presented. Starting with circular dated
27.3.2000, we find that the said circular provided for limits for
preferring appeals to the Tribunal, reference before the High Court
and appeal before the Supreme Court as long as the tax effect
exceeded Rs.1,00,000/-, Rs.2,00,000/- and Rs.5,00,000/- respectively.
Paragraph 3 of the said circular specified the categories where
irrespective of the revenue effect, such appeals could be pursued.
The term ” tax effect” specified in circular dated
27.3.2000 is nowhere defined and explained in any of the preceding
and succeeding circulars. We must, therefore, understand this term in
the context of the intention of the Board in limiting the Tax
Appeals.
36. We must also remind
ourselves that Board circulars are not statutes though by virtue of
Section 268A, it may have certain statutory force. Common thread
running through all the circulars presented before us is that the
Board desired that subject to certain exceptions, Tax Appeals in
which effect of tax is lower than the prescribed limit such appeals
whether before the Tribunal, High Court or the Supreme Court, should
not be presented. For example in Circular dated 27.3.2000 it is
provided that appeals will be filed only in cases where tax effect
exceeds the revised monetary limits i.e.Rs.2,00,000/- for the appeal
to be file before the appellate Tribunal Rs.4,00,000/- for the appeal
or reference before the High Court and Rs.10,00,000/- in case of
appeals to the Supreme Court. Such limit came to be revised by
Circular dated 24.10.2005 which provided for monetary limits of tax
effect of Rs.2,00,000/-, Rs.4,00,000/- and Rs.10,00,000/- for appeals
to the Tribunal, High Court and the Supreme Court respectively. None
of these circulars provided that by virtue of assessment of loss by
the Assessing Officer, different from that declared by the assessee,
even if the possible tax effect is huge, no appeals should be
presented before the Tribunal, High Court or the Supreme Court;
merely because ultimately the income of the assessee was negative.
We have no hesitation in coming to the conclusion that none of the
circulars presented before us intended to bar the tax appeals even
where potential tax effect would be enormous, simply because in the
year in question, the assessee had earned negative income.
37. The issue can be looked
from a slightly different angle. In absence of the Board’s circulars
issued, which now can be stated to be covered under Section 268A of
the Act, there are no limitations on Revenue carrying the issue in
appeal either before the appellate Tribunal, the High Court, the
Supreme Court. To hold that a particular appeal is not maintainable
by virtue of the limitations imposed by the Board in its circular,
such limitation must be traced into circular itself. In other words
unless and until the appeal is found to be opposed to the directives
issued by the Board in its different circulars prevailing from time
to time, such an appeal cannot be categorized as not maintainable.
38. 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.
39. The contention that by
virtue of subsequent clarifications contained in circulars dated
15.5.2008 and 9.2.2011 the position prevailing prior to such
circulars gets amplified and that therefore in cases of loss returns
the Board’s instructions did not envisage further appeal also does
not impress us. We may recall that in the circular dated 15.5.2008 it
is provided that in the case of loss, notional tax effect should be
taken into account. This clarification to our mind, contained in
circular dated 15.5.2008 and absence of any such clarification in the
previous circulars, is of no consequence. 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. It cannot, however,
be stated that only on and from 15.5.2008 the Board desired that on
the basis of notional tax effect in cases of loss the appeals should
be filed. In the previous circulars to reiterate, no such intention
emerges. Only because clarification came in the subsequent circular
dated 15.5.2008, would not mean that previously the Board desired
that such appeals should be filtered out.
xxxxx
43. In the result common
question, framed in all appeals, is answered in favour of the Revenue
and against the assessees. It is held that 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.
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. We may record that none of the
appeals came to be decided by the Tribunal on merits.”
9. As
the question proposed in the present Tax Appeal is identical this
Court has no reason to hold otherwise than already held in the Tax
Appeal mentioned hereinabove. Here also as is pointed out by this
Court, notional tax effect is above the limit prescribed by the
Board from time to time for presentation of the appeal and therefore,
when it is pointed out that the limit prescribed Board in different
circular even when considered cumulatively, the notional tax effect
in the instant case would be higher than the limit prescribed and
therefore, it can be said that the Tribunal was in error in
dismissing the revenue appeal being not maintainable. It is also to
be noted that the Tribunal has not decided the appeal on merit but
only on the ground of low tax effect, the same came to be dismissed.
Resultantly, this Tax Appeal is allowed by quashing the judgment of
the Tribunal dated 11th September 2009 by answering the
question formulated by this Court while issuing the notice for
final disposal in favour of the revenue.
10, The
proceedings are remanded to the Tribunal for consideration of the
Appeal on merits. This Tax Appeal is disposed of accordingly.
(Akil
Kureshi,J.)
(Ms
Sonia Gokani,J.)
mary//
Top