The CBDT vide Circular No. 21 of 2015 dated 10.12.2015 defines ‘Tax Effect’ for the purpose of filing departmental appeals ( Income tax Matters) before Appellate Tribunal (ITAT), High Courts & Special Leave Petition before the Supreme Court.

Further, Appeals / Special Leave Petitions shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder:

Sl. No. Appeals in Income – Tax Matters Monetary Limit ( In `)
1.    Before the Appellate Tribunal 10,00,000
2.    Before the High Court 20,00,000
3.    Before the Supreme Court 25,00,000

  ‘Tax Effect ‘means –  

  • The difference between the tax on the total income (TI) assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed.
  • In case the chargeability of Interest is under dispute, the amount of interest itself shall be the tax effect.
  • In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions.
  • In case of penalty orders, the quantum of penalty deleted or reduced in the order to be appealed against.

Proposed Amendments to the Circular No 21/2015 dated 10.12.2015 in Brief  

In certain situations where income is computed under MAT provisions of the I-T Act for the purposes of determination of ‘tax effect’, and the additions made under other than said provisions, do not impact book profit. Hence, the appellate authorities are not considering the said additions for the purpose of ‘tax effect’.

In view of the above, the CBDT has proposed to insert a Para 4.1 after the Para 4 of the said Circular & same as follows:

4.1 Where income is computed under the MAT provisions [i.e. section 115JB or section 115JC] for the purposes of determination of ‘tax effect’, tax on the total income assessed shall be computed as per the following formula-

(A-B)+ (C-D)

Where,

A = the total income assessed, other than the MAT Provisions i.e. General Provisions.

B = the total income assessed as per the general provisions been reduced by the amount of the disputed issues;

C = the total income assessed as per the MAT provisions

D = the total income assessed as per the MAT provisions been reduced by the amount of disputed issues. 

However, where the amount of disputed issues is considered both under the MAT provisions & general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.”

Source: CBDT Letter Dated 14.07.2017

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