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2011 (4) TMI 326 - AT - Income TaxDeduction u/s 10A - business or profession - Revenue has 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 - 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 , which the CIT(A) followed - Hence, appeal of the Revenue is dismissed.
Issues:
1. Allowance of deduction under section 10A for interest income. 2. Maintainability of the appeal based on the tax effect. Issue 1: Allowance of deduction under section 10A for interest income: The appeal involved a dispute regarding the allowance of a deduction under section 10A for interest income. The appellant, engaged in the manufacturing and export of studded jewellery, claimed exemption under section 10A for income from its industrial undertaking in SEEPZ, Mumbai. The appellant had maintained a margin money deposit of Rs. 1 crore in a bank and obtained a credit facility against it, resulting in an interest income of Rs. 5,78,432/- and interest payment of Rs. 68,55,835/-. The Assessing Officer (A.O.) considered the interest earned on the fixed deposit as income from other sources, while the appellant argued that the interest earned was linked to the interest paid and the deposit was made from borrowed funds for the purpose of margin money. The Commissioner of Income Tax (Appeals) (CIT(A)), following a precedent, directed the A.O. to grant exemption under section 10A, stating that the interest earned had a nexus with the business of the undertaking. The Revenue appealed against this decision. The Tribunal dismissed the appeal, citing the precedent judgment by the ITAT in a similar case where the issue was decided against the Revenue. Issue 2: Maintainability of the appeal based on the tax effect: The second issue revolved around the maintainability of the appeal by the Revenue based on the tax effect involved. The appellant contended that the tax amount in question was only Rs. 2,07,512/-, falling below the new monetary limit of Rs. 3,00,000/- as per Instruction No. 3/2011. The appellant relied on a judgment by the Bombay High Court and a decision by the Delhi High Court to support the argument that the appeal was not maintainable due to the tax effect being less than the prescribed limit. The Departmental Representative (D.R.) objected to this, stating that the appeal was filed when the tax limit was Rs. 2,00,000/- as per the relevant instruction. The Tribunal, after considering the issue, held that the appeal was not maintainable due to the tax effect being below the prescribed limit of Rs. 3,00,000/ as per the applicable instruction. Additionally, the Tribunal noted that even on merits, there was no case for the Revenue as the issue had been decided against them in a previous ITAT order which the CIT(A) had followed. Consequently, the appeal of the Revenue was dismissed based on both the tax effect and the lack of merit in their case. In conclusion, the Tribunal's judgment addressed the issues of allowing deduction under section 10A for interest income and the maintainability of the appeal based on the tax effect. The decision highlighted the importance of the nexus between the interest earned and the business activity for claiming exemptions under section 10A and emphasized adherence to the prescribed tax effect limits for the maintainability of appeals.
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