By Bijal Ajinkya, Raghav Bajaj, Krutika Chitre

In a move that is intended to enhance the ease of doing business, reduce low value litigations, and also help the Income-tax department (Department) focus on high value litigations, on 11 July 2018, the Ministry of Finance released a circular (Circular) enhancing the monetary thresholds of the tax effect on matters below which an appeal (Appeal) cannot be filed by the Department.

‘Tax effect’ is the tax amount in respect of the issues against which Appeal is intended to be filed (Disputed Issues). The ‘tax effect’ must be calculated by including applicable surcharge and cess. Interest on such tax payable should not form part of the calculation, unless the chargeability of interest is the Disputed Issue. The tax effect would also include the notional tax on disputed additions in cases where a loss returned by the tax payer is reduced or assessed as income. In case of penalty orders, the tax effect shall mean quantum of penalty deleted or reduced in the order to be appealed against.