ITO 8(2)(2), MUMBAI V. LAXMI JEWEL P. LTD, MUMBAI

ITA 2165/MUM/2010

• Counselvise Citation: 216519914 RSA 2010
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 18-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: K A VAIDYALINGAN
• Keywords: Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2165/MUM/2010 (ASSESSMENT YEAR: 2004-05) INCOME TAX OFFICER - 8(2) - 2 M/S. LAXMI JEWEL PVT. LTD. ROOM NO. 212, 22ND FLOOR GJ/66, SDF-VII, SEEPZ AAYAKAR BHAVAN, M.K. ROAD VS. ANDHERI (E), MUMBAI 400096 MUMBAI 400020 PAN - AAACJ 7385 G APPELLANT RESPONDENT APPELLANT BY: SHRI SHRAVAN KUMAR RESPONDENT BY: SHRI K.A. VAIDYALINGAN O R D E R 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 DIRE CTING 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 NO T DERIVED FROM THE BUSINESS OR PROFESSION. 3. BRIEFLY STATED, ASSESSEE, ENGAGED IN THE BUSINESS O F 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 DEP OSIT 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 ACCOU NT OF THE ASSESSEE THE ABOVE AMOUNTS ARE CREDITED AND DEBITED, RESPECTIVEL Y. THE A.O. WAS OF THE OPINION THAT INTEREST EARNED ON FIXED DEPOSIT HAS T O BE TREATED AS INCOME FROM OTHER SOURCES. IT WAS ASSESSEES CONTENTION TH AT THE INTEREST EARNED HAS A LINK WITH THE INTEREST PAID AND THE DEPOSIT WAS M ADE OUT OF BORROWED FUNDS ONLY FOR THE PURPOSE OF MARGIN MONEY. THE A.O . DID NOT AGREE AND ITA NO. 2165/MUM/2010 M/S. LAXMI JEWEL PVT. LTD. 2 TREATED THE INTEREST INCOME AS INCOME FROM OTHER SO URCES AND COMPLETED THE ASSESSMENT WHILE ALLOWING DEDUCTION UNDER SECTION 1 0A TO THE REST OF INCOME. THE CIT(A), AFTER CONSIDERING THE SUBMISSIO NS AND PROVISIONS OF SECTION 10A, FOLLOWING THE ITAT ORDER IN THE CASE O F LIVING STONES JEWELLERY (P) LTD. VS. DCIT 31 SOT 323 OBSERVED THAT THE INTE REST EARNED HAS NEXUS WITH THE BUSINESS OF THE UNDERTAKING WHICH WILL QUA LIFY 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 TH E TAX AMOUNT INVOLVED IN THIS APPEAL IS ONLY ` 2,07,512/- AND AS PER INSTRUCTION NO. 3/2011 THE REVENUE SHOULD NOT CONTEST APPEAL UPTO ` 3,00,000/- AS PER THE NEW MONITORY LIMIT. IT WAS FURTHER SUBMITTED THAT T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MADHUKAR K. INAMDAR (H UF) 318 ITR 149 CONSIDERED THE MAINTAINABILITY OF THE APPEALS ON SM ALL 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 L IMIT OF ` 3,00,000/- MAKE THE REVENUE APPEAL NON-MAINTAINABLE AS THE TAX EFFE CT IS LESS THAN ` 3,00,000/-. HE FURTHER SUBMITTED THAT THE HON'BLE D ELHI 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 LEAR NED COUNSEL THAT THE APPEAL IS NOT MAINTAINABLE. 5. THE LEARNED D.R., HOWEVER, OBJECTED TO THE SUBMISSI ONS 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 ITA NO. 2165/MUM/2010 M/S. LAXMI JEWEL PVT. LTD. 3 SITUATION WHERE TAX LIMITS WERE MODIFIED BY THE CBD T INSTRUCTION NO. 5 OF 2008 THE HON'BLE JURISDICTIONAL HIGH COURT IN THE C ASE OF CIT VS. MADHUKAR K. INAMDAR (HUF) (SUPRA) HELD THAT THE CIRCULAR WIL L 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 R EVENUE ON MERITS AS THE ISSUE WAS HELD IN AGAINST THE REVENUE BY THE ITAT O RDER IN THE CASE OF LIVING STONES JEWELLERY (P) LTD. VS. DCIT 31 SOT 323, WHIC H THE CIT(A) FOLLOWED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 12 TH APRIL 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 12TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XVII, MUMBAI 4. THE CIT VIII, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.