CBDT Circular specifying monetary limits for filing appeals applies to pending appeals

IN THE INCOME TAX APPELLATE TRIBUNAL

“A” Bench, Mumbai

ITA No. 2165/Mum/2010 (Assessment Year: 2004- 05)

Income Tax Officer – 8(2) – 2   Vs.   M/s. Laxmi Jewel Pvt. Ltd.

ORDER

Per B. Ramakotaiah, A.M

This appeal by Revenue is against the order of the CIT(A) XVII, Mumbai dated 23.12.2009.

2. Revenue has raised two grounds on the issue of directing the A.O. to allow deduction under section 10A amounting to 5,78,432/- in respect of interest income, which according to the A.O. was not derived from the business or profession.

3. Briefly stated, assessee, engaged in the business of manufacturing and export of studded jewellery, claimed exemption under section 10A in respect of the income of its industrial undertaking at SEEPZ, Mumbai. As a part of business assessee had kept margin money deposit of 1 crore in Bank of India and obtained credit facility against the deposit. Assessee received an interest income of 5,78,432/- and paid interest of 68,55,835/- during year under consideration. In the P & L Account of the assessee the above amounts are credited and debited, respectively. The A.O. was of the opinion that interest earned on fixed deposit has to be treated as income from other sources. It was assessee’s contention that the interest earned has a link with the interest paid and the deposit was made out of borrowed funds only for the purpose of margin money. The A.O. did not agree and treated the interest income as income from other sources and completed the assessment while allowing deduction under section 10A to the rest of income. The CIT(A), after considering the submissions and provisions of section 1 0A, following the ITAT order in the case of Living Stones Jewellery (P) Ltd. vs. DCIT 31 SOT 323 observed that the interest earned has nexus with the business of the undertaking which will qualify for deduction. Accordingly he directed the A.O. to grant exemption under section 10A. Revenue is aggrieved.

4. At the outset the learned counsel submitted that the tax amount involved in this appeal is only 2,07,512/- and as per instruction No. 3/2011 the Revenue should not contest appeal up to 3,00,000/- as per the new monitory limit. It was further submitted that the Hon’ble Bombay High Court in the case of CIT vs. Madhukar K. Inamdar (HUF) 318 ITR 149 considered the maintainability of the appeals on small tax basis and held that CBDT circular issued later would be applicable to all the appeals pending in appellate forums and, therefore, relying on the CBDT instruction No. 5 of 2008 the appeals were dismissed where the tax effect was leas than the prescribed limit. The learned counsel relied on the principles established in the above said case to submit that the present limit of 3,00,000/- make the Revenue appeal non-maintainable as the tax effect is less than 3,00,000/-. He further submitted that the Hon’ble Delhi High Court in the case of CIT vs. Delhi Race Club Ltd. in ITA No. 128 of 2008 dated 03.03.2011 relied on the latest CBDT Instruction to dismiss the appeal as not maintainable. It was the submission of the learned counsel that the appeal is not maintainable.

5. The learned D.R., however, objected to the submissions stating that at the time of preferring the appeal the tax limit was only 2,00,000/- and that instruction was followed.

6. We have considered the issue. There is no doubt that the tax effect in this case if only 2,07,512/-. As per Instruction No. 3 of 2011 dated 09.02.2011 appeal before appellate Tribunal can be filed where the tax effect exceeds the monitory limit of 3,00,000/-. However, considering the similar situation where tax limits were modified by the CBDT Instruction No. 5 of 2008 the Hon’ble jurisdictional High Court in the case of CIT vs. Madhukar K. Inamdar (HUF) (supra) held that the circular will be applicable to the cases pending before the court either for admission or for final disposal. In view of the order of the jurisdictional High Court we hold that Instruction No. 3 dated 09.02.2011 is applicable for the appeal preferred by the Revenue. Therefore, the appeal is dismissed on the issue of tax effect involved. Even otherwise there is no case for the Revenue on merits as the issue was held in against the Revenue by the ITAT order in the case of Living Stones Jewellery (P) Ltd. vs. DCIT 31 SOT 323, which the CIT(A) followed.