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Tuesday, April 10, 2012

Low Tax Effect Circular is retrospective & dept Must Show “Cascading Effect”

CIT VS. VARSHA DILIP KOHLE (BOMBAY HIGH COURT)

Low Tax Effect Circular is retrospective & dept Must Show “Cascading Effect”


The department filed an appeal in the year 2010 where the tax effect was Rs. Rs.6.69 lakhs. The issue raised was whether deduction of interest payment on funds introduced in the firm, (in the form of loan), could be allowed against remuneration received from the firm. In response to the point whether  Instruction No. 3 of 2011 dated 9.2.2011 issued by the CBDT which states that appeals should not be filed where the tax effect was less that Rs. 10 lakhs, the department argued that (i) as the appeal had been filed prior to the issuance of the circular, the circular did not apply and (ii) as the appeal had a “cascading effect” involved a “common principle”, the appeal could not be dismissed in view of the Supreme Court’s verdict in Surya Herbals. HELD dismissing the appeal:

In CIT vs. Polycott Corp 138 ITR 144 (Bom) & CIT vs. Vijaya V. Kavekar, it was held that Circular No.3 of 2011 has retrospective operation and applies even to pending cases. As regards Surya Herbals, the appeal does not involve any “cascading effect” as the department has not shown whether there are other appeals which raise the same point.

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