Only AO Additions Count for Tax-Effect Appeal Limit | HC

Case Details: Commissioner of Income-tax, International Taxation vs. SIS Live - [2025] 174 taxmann.com 852 (Delhi)

Judiciary and Counsel Details

• Vibhu Bakhru & Tejas Karia, JJ.
• Anant Mann, JSC for the Appellant.
• P. Roy Chaudhuri, Rishi Bhatnagar & Rishabh Gaur, Advs. for the Respondent.

Facts of the Case

The assessee filed an application for the low tax effect before the Delhi High Court. The computation of tax effect was below the threshold limit of Rs. 2 crores as stipulated in Circular No. 5 of 2024 dated 15.03.2024 as modified by the Circular No. 9 of 2024 dated 17.09.2024 issued by the CBDT.

The AO enhanced the assessee’s income to reflect the assessed income. Thus, the first step for calculating the tax effect would be determining the quantum by which the returned loss is reduced. In the current case, the entire returned loss had been wiped out by the additions made by the AO. Thus, the tax effect was determined to be less than the stipulated limit of Rs. 2 crores.

The AO contended that the tax effect would be higher as he had observed that the losses of earlier years cannot be permitted to be brought forward. Thus, the AO contended that the tax on the losses which were assessed in the assessment years prior to the relevant assessment year must also be taken into account to determine the overall tax effect.

High Court Held

The High Court held that the contention that the losses assessed in the previous assessment years must also be considered as the carry forward of the same has been disallowed is unmerited. The machinery to compute the tax effect as posited in paragraph 5.1 of the aforementioned Circular contemplates taking into account the observations made by the AO in regard to the losses assessed in the previous years which have been carried forward.

Thus, although the AO in the present case has noted that the business losses of prior years amounting to Rs. 56,40,20,407 are also required to be disallowed. The same does not require to be included for the purposes of computing the tax effect under paragraph 5.1 of the aforementioned CBDT Circular.