2009 (1) TMI 262 - HC - Income Tax

Appeal before ITAT held that - the tax effect is less than Rs. 2 lakhs, the limit prescribed under the abovesaid Circular dated March 27, 2000. The appeal is filed on April 15, 2004. Hence, the circular is binding on the Revenue. The appeal is dismissed.

Summary

Issues:
- Appeal against order of Income-tax Appellate Tribunal regarding interest liabilities claimed as deductions.
- Disallowance of interest liabilities by Assessing Officer.
- Commissioner of Income-tax (Appeals) decision on liability.
- Appellate Tribunal's dismissal of Revenue's appeal.
- Substantial questions of law admitted for appeal.
- Monetary limit for filing appeal by Revenue.
- Application of Circular of the Central Board of Direct Taxes.
- Precedents and judgments on tax effect and appeal filing.

Analysis:
1. The case involves an appeal by the Revenue against the Income-tax Appellate Tribunal's order regarding interest liabilities claimed as deductions for the assessment year 1988-89. The assessment was reopened due to the claim of interest liabilities to Canara Bank and Syndicate Bank, which were deemed personal liabilities of the partners and not related to the firm's business. The Assessing Officer disallowed the claim, but the Commissioner of Income-tax (Appeals) held that the liabilities were still that of the firm and allowed them as deductions.

2. The Appellate Tribunal dismissed the Revenue's appeal, stating that the reconstitution of the firm was not a dissolution and that the liabilities were attached to the firm, not the partners. The substantial questions of law admitted for appeal included the allowability of interest liabilities to the banks and the consideration of judgments on similar grounds.

3. The respondent argued that the tax effect in the case was below the prescribed limit for filing an appeal by the Revenue, as per the Circular of the Central Board of Direct Taxes. Citing precedents like CIT v. Associated Electrical Agencies, the court emphasized that the circular's monetary limit is binding on the Revenue, and if the tax effect is below the limit, the issue need not be pursued on appeal.

4. Relying on various case laws and judgments, the court reiterated that the circular's provisions must be followed, and the tax effect being less than the prescribed limit rendered the Revenue's appeal unsustainable. The court dismissed the appeal, emphasizing the binding nature of the circular on the Revenue and the lack of grounds to challenge it.