M/s. Gunjan Exports, Surat V. The Income Tax Officer, Ward-2(4), Surat

CO 98/AHD/2014

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2429 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 23-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH MEENA
• Keywords: Business income; Revision of order; Benefit of exemption
• Section: 143(3); 10AA; 10B; 263

Judgement Text

I.T.A. N O.2837 /AHD/201 3 & C.O. NO.98/AHD/2014 ASSESSMENT YEAR: 20 10 - 11 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR , AM AND MAHAVIR PRASAD , JM ] I.T.A. NO. 2837 /AHD/201 3 ASSESSMENT YEAR: 20 1 0 - 11 INCOME TAX OFFICER, WARD 2(4), SURAT. ..... .................. . APPELLANT VS. GUNJAN EXPORT, ... ..... ...... . ... . RESPONDENT PLOT NO.151, SURAT SPECIAL ECONOMIC ZONE, SACHIN, SURAT 394 230. [ PAN: AA GFG 7030 E ] C.O. NO.98/AHD/201 4 ( I.T.A. NO. 2837/AHD/2013) ASSESSMENT YEAR: 2010 - 11 GUN JAN EXPORT, ........ ...... . ... . APPELLANT PLOT NO.151, SURAT SPECIAL ECONOMIC ZONE, SACHIN, SURAT 394 230. [ PAN: AAGFG 7030 E ] VS. INCOME TAX OFFICER, WARD 2(4), SURAT. ....................... . RE SPONDENT APPEARANCES BY: RAJESH MEENA FOR THE REVENUE VARTIK CHOKSHI FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : 23 .0 8 .2016 DATE OF PRONOUNC ING THE ORDER : 22 . 1 1 .2016 O R D E R PER PRAMOD KUMAR , AM : I.T.A. N O.2837 /AHD/201 3 & C.O. NO.98/AHD/2014 ASSESSMENT YEAR: 20 10 - 11 PAGE 2 OF 7 1 . BY WAY OF THIS APPEAL, THE APPELLANT ASSE SSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 18.09.2013, PASSED BY THE LEARNED CIT(A) , IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT,1961, FOR THE ASSESSMENT YEAR 20 10 - 11 . 2. GRIEVANCE S RAISED BY THE APPELLANT ARE AS FOLLOWS : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT INTEREST INCOME RECEIVED FROM FDR IS A PART OF A BUSINESS INCOME AND DEDUCTION U/S.10 A A IS ALLOWABLE ON THAT. 2. ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) MAY BE SET - ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE E XTENT. 3. BRIEFLY STATED , THE R ELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE PROFIT & LOSS ACCOUNT SHOWS THAT THE ASSESSEE HAS RECEIVED BANK INTEREST INCOME OF RS.38 ,72,856 / - WHICH IS INCLUDED IN THE PRO FIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DEDUCTION UND ER SECTION 10AA NOT BE DECLINED IN RESPECT OF THE SAME . I T WAS SUBMITTED BY THE ASSESSEE THAT THE SAID INTEREST HAS BEEN EARNED ON DEPOSITS WHICH WERE PLACED WITH THE BANK SO AS TO AVAIL TH E CREDIT FACILITY . I T WAS ALSO SUBMITTED THAT THESE DEPOSITS WERE NECESSARY FOR AVAILING BANK FINANCE. IT WAS THUS CONTENDED THAT THE INTEREST SO EARNED ENDS UP REDUCING THE INTEREST PAID ON BORROWED FUND S . HIS EXPLANATION DID NOT HOWEVER , SATISFY , THE ASSESSING O FFICER. HE WAS OF TH E VIEW THAT INTEREST INCOME MAY BE ATTRIBUTABLE TO BUSINESS BUT IS NOT DERIVED FROM EXPORT OF SUCH A RTICLE OR THING S MANUFACTURED OR PURCHASED BY THE ASSESSEE. HE REFERRED T O AND RELIED UPON THE JUDGEMENT OF HON BLE SUPREME COURT IN I.T.A. N O.2837 /AHD/201 3 & C.O. NO.98/AHD/2014 ASSESSMENT YEAR: 20 10 - 11 PAGE 3 OF 7 THE CASE OF PANDIAN CHEMICALS LIMITED, 262 ITR 278 (SC) WHEREIN IT WAS HELD THAT THE INTEREST ON SECURITY DEPOSIT WITH THE ELECTRICITY BOARD WAS NOT ELIGIBLE FOR BENEFIT OF SECTION 80HH. A RELIA NCE WAS ALSO MADE TO THE JUDGEMENT OF HON BLE SUPREME COURT IN THE CASE OF CIT V S. STERLING FEEDS [1999] 237 ITR 579 HIGHLIGHTING THE LINE OF DEMARCATION ATTRIBUTABLE TO AND NOT DERIVED FROM . AS REGARDS THE ASSESSEE S PLEA ABOUT NETTING OF INTEREST PAID AND INTEREST RECEIVED, THE ASSESSING OFFICER HELD THAT SUCH COURSE IS NOT PERMISSIBLE. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER MAD E ADDITION OF RS.38,72,856/ - BY DECLINING DEDUCTION UNDER SECTION 10AA IN RESPECT OF THE SAME. AGGRIEVED, A SSESSEE CARRIED THE MA TTER IN APPEAL BEFORE T H E LEARNED C IT(A). LEARNED CI T(A) HELD THAT SO FAR AS FACTS OF THE PRESENT CASE ARE CONCERNED, THE DEPOSITS WERE PLACED AS SECURITY FOR THE BANK BORROWING AND FOR PURCHASE OF INTEGRAL PART OF THE BUSINESS . HE A LSO REFERRED TO CERTAIN EVIDENCES FILED BY THE ASSESSEE INCLUDING LETTER ISSUED BY ANTWERP DIAMOND BANK NV WHICH SHOWS THAT WHEN LIEN WAS NOT ON THESE DEPOSITS AND THAT THESE DEPOSITS WERE PLACED AS SECURITY FOR WORKING CAPITAL LOAN, IT WAS IN THIS BACKDRO P AND RELYING UPON THE DECISION OF THE T RIBUNAL IN THE CASE OF PARAS MOTOR M ANUFACTURING COMPANY (ITA NO.875/AHD/2012) , LIVING S TONE S JEWELLERY PVT. LTD. (31 SOT 323) AND TESSITURA MONTI INDIA PVT. LTD. (141 ITD 531) . THE LEARNED CIT(A) HELD THAT DEDUCTION UNDER SECTION 10AA IS TO BE ALLOWED ON THE FACTS OF THIS CASE. THE ASSESSING O FFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS , PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. WE HAVE NOTED THAT THE ASSESSING OFFICER HAS INTER ALIA PLEADED THAT WORKING CAPITAL FROM BANK HAS BEEN SECURED AGAINST HYPOTHECATION OF STOCK IN TRADE , BOOK DEBTS AND EQUITABLE MORTGAGE OF THE FACTORY BUILDING AND PLANT & MACHINERY, THUS IT CANNOT BE I.T.A. N O.2837 /AHD/201 3 & C.O. NO.98/AHD/2014 ASSESSMENT YEAR: 20 10 - 11 PAGE 4 OF 7 SAID THAT THE INTEREST ON FDRS WAS ATTRIBUTABLE TO HAVE BEEN DERIVED FROM INDUSTRIAL UNDERTAKING. WE , HOWEVER, SEE LITTLE MERIT IN THIS PLEA. IN THE PAPER BOOK FILED BEFORE US , THE ASSESSEE HAS FURNISHED EVIDENCE OF THE FAC T THAT THE FIXED DEPOSITS WERE PLACED UNDER LIEN AND THAT THESE DEPOSITS WERE GIVEN TO COMPLY WITH THE REQUIREMENT OF BANK SO AS TO AVAIL CREDIT FACILITIES. IN THESE CIRCUMSTANCES , IT CANNOT BE SAID , AS HAS BEEN PLEADED BY THE R EVENUE , THAT THE FIXED DEPO SITS IN QUESTION WERE NOT GIVEN AS SECURITY FOR AVAILING THE CREDIT FACILITIES . THE MERE FACT THAT THE RE WERE OTHER FORMS OF SECURITY BY WAY OF HYPOTHECATION OF STOCK IN TRADE OR CHARGES ON ASSETS OF THE COMPANY DOES NOT NEGATE THE FACT OF BANK DEPOSITS A LSO HAVING BEEN GIVEN AS COLLATERAL SECURITY. IN ANY CASE, IN THE LIGHT OF HON BLE SUPREME COURT S JUDGEMENT IN THE CASE OF ACG A SSOCIAT ED C APSULES VS. CIT , 247 CTR 372, NETTING HAS TO BE ALLOWED AND ONCE THAT IS DONE, THERE WILL BE NO INCOME LEFT FROM B ANK INTEREST IN ASMUCH AS INTEREST PAID ON THE LOANS TO THE BANK IS FAR IN EXCESS OF THE INTEREST EARNED FROM BANKS ON FIXED DEPOSITS TO AVAIL THESE LOANS. WE ALSO ADD THAT A CO - ORDINATE BENCH OF THIS T RIBUNAL IN THE CASE OF ZAVERI & CO . (P.) LTD. VS. CIT , [2014] 48 TAXMANN.COM 153, HAVE INTER ALIA OBSERVED AS FOLLOWS : 36. THE NEXT ISSUE RELATES TO THE ORDER OF COMMISSIONER OF INCOME TAX WHEREBY IT WAS HELD THAT INTEREST INCOME EARNED BY THE ASSESSEE ON ITS FIXED DEPOSIT RECEIPTS WITH THE BANK IS TO BE TA XED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND CONSEQUENTIALLY NOT ENTITLED TO EXEMPTION U/S 10AA OF THE ACT AND CONSEQUENTIALLY INTEREST INCOME IS TO BE EXCLUDED FOR CALCULATING BENEFIT ALLOWABLE U/S 10AA OF THE ACT. 37. THE UNDISPUTED FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE IMPORTS GOODS ON CREDIT AND RE - EXPORTS THE SAME FROM ITS SEZ UNIT. THE IMPORT IS MADE ON A CREDIT OF 360/90 DAYS AGAINST LETTER OF CREDIT. FOR OBTAINING THE LETTER OF CREDIT, THE ASSESSEE IS REQUIRED TO OFFER FIXED DEPOS IT RECEIPT TO THE BANK AS A SECURITY. ON EXPIRY OF THE LETTER OF CREDIT PERIOD, THE BANK LIQUIDATES THE FIXED DEPOSIT RECEIPT AND MAKES PAYMENT TO THE IMPORTER. FURTHER, THE EXPORTS ARE MADE ON IMMEDIATE PAYMENT BASIS. THEREFORE, AS THE PURCHASES ARE MADE ON CREDIT BASIS, THE PURCHASE VALUE IS HIGHER THAN THE PREVAILING RATE ON THE DATE OF PURCHASE FROM PURCHASES WHICH ARE MADE ON IMMEDIATE PAYMENT BASIS. THE EXPORTS ARE MADE ON IMMEDIATE PAYMENT BASIS AT THE MARKET VALUE WHICH IS PREVALENT ON THE DATE OF P AYMENT. NORMALLY, THE ASSESSEE'S PURCHASE VALUE IS I.T.A. N O.2837 /AHD/201 3 & C.O. NO.98/AHD/2014 ASSESSMENT YEAR: 20 10 - 11 PAGE 5 OF 7 THEREFORE MORE THAN ITS SALE VALUE. HOWEVER, AS THE ASSESSEE RECEIVES PAYMENT FOR SALES IMMEDIATELY AND THE PAYMENT FOR PURCHASES ARE MADE AT A LATER DATE AND INTEREST INCOME EARNED BY THE ASSESSEE DURING THE INTERVENING PERIOD ON SALE VALUE, THE TRANSACTION WERE CONSIDERED AS COMMERCIALLY EXPEDIENT AND RESULTS IN OVERALL INCOME TO THE ASSESSEE. THE INTEREST INCOME IN QUESTION ARE INTEREST INCOME WHICH ARE EARNED BY THE ASSESSEE ON FIXED DEPOSIT RECEIPTS WH ICH ARE KEPT OR PLEDGED BY THE ASSESSEE WITH ITS BANK FOR OBTAINING THE LETTER OF CREDIT AGAINST ITS PURCHASES IS NOT IN DISPUTE. 38. ON THE ABOVE UNDISPUTED FACTS, THE INTEREST INCOME EARNED BY THE ASSESSEE WAS ASSESSED AS BUSINESS INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THIS VIEW OF THE ASSESSING OFFICER WAS CONSIDERED AS NOT A POSSIBLE VIEW BY THE COMMISSIONER OF INCOME TAX IN THE IMPUGNED ORDER PASSED U/S 263 OF THE ACT AND THE COMMISSIONER OF INCOME TAX HAD HELD THAT TH E INTEREST ARE MANDATORILY ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 39. WE FIND THAT IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE INTEREST INCOME WHICH WERE EARNED BY THE ASSESSEE WERE FROM FIXED DEPOSIT RECEIPTS WITH BANK WHICH WERE MA DE BY THE ASSESSEE IN THE COURSE OF ITS TRADING BUSINESS OF IMPORT FOR THE PURPOSES OF RE - EXPORT, FOR OBTAINING LETTER OF CREDIT FOR ITS PURCHASES. WE THUS FIND THAT THE RELEVANT FIXED DEPOSIT RECEIPTS ON WHICH INTEREST WERE EARNED WERE BUSINESS ASSETS OF THE ASSESSEE ACQUIRED IN THE COURSE AND FOR THE PURPOSES OF ITS BUSINESS. THE FIXED DEPOSIT RECEIPTS BEING BUSINESS ASSETS, WE FIND NO REASON AS TO WHY INTEREST INCOME EARNED FROM SUCH FIXED DEPOSIT RECEIPTS COULD NOT BE ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. OUR ABOVE VIEW FINDS SUPPORT FROM THE RECENT DECISIONS OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. MOTOROLA INDIA ELECTRONICS (P.) LTD. [2014] 265 CTR 94 WHEREIN IT WAS HELD THAT: 'NO DOUBT SUB - SECTION 10(B) SPEAKS ABOUT DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THEREFORE, IT EXCLUDES PROFIT AND GAINS FROM E XPORT OF ARTICLES. BUT SUB - SECTION (4) EXPLAINS WHAT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES AS MENTIONED IN SUB - SECTION (1). THE SUBSTITUTED SUB - SECTION (4) SAYS THAT PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E AMOUNT WHICH BARES TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICLES. THEREFORE, PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES ARE DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUSINES S OF THE UNDERTAKING. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE ARTICLES AS WELL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT IS INTERESTING TO NOTE THAT SIMILAR PRO VISIONS ARE NOT THERE WHILE DEALING WITH COMPUTATION OF INCOME UNDER SECTION 80HHC. ON THE CONTRARY THERE IS SPECIFIC PROVISION LIKE SECTION 80HHB WHICH EXPRESSLY EXCLUDES THIS TYPE OF INCOMES. THEREFORE, IN VIEW OF THE AFORESAID PROVISIONS, IT IS CLEAR TH AT, WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAINS FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF THE UNDERTAKING. 8. IN THE INSTANT CASE, THE ASSESSEE IS A 100% EOU, WHICH HAS EXPORTED SOFTWARE AND EARNED THE INCOME. A PORTION OF THAT INCOME IS INCLUDED IN I.T.A. N O.2837 /AHD/201 3 & C.O. NO.98/AHD/2014 ASSESSMENT YEAR: 20 10 - 11 PAGE 6 OF 7 EEFC ACCOUNT. YET ANOTHER PORTION OF THE AMOUNT IS INVESTED WITHIN THE COUNTRY BY WAY OF FIXED DEPOSITS, ANOTHER PORTION OF THE AMOUNT IS INVESTED BY WAY OF LOAN TO THE SISTER CONCERN WHICH IS DERIVING INTEREST OR THE CONSIDER ATION RECEIVED FROM SALE OF THE IMPORT ENTITLEMENT, WHICH IS PERMISSIBLE IN LAW. NOW THE QUESTION IS WHETHER THE INTEREST RECEIVED AND THE CONSIDERATION RECEIVED BY SALE OF IMPORT ENTITLEMENT IS TO BE CONSTRUED AS INCOME OF THE BUSINESS OF THE UNDERTAKING. THOUGH IT DOES NOT PARTAKE THE CHARACTER OF A PROFIT AND GAINS FROM THE SALE OF AN ARTICLE, IT IS THE INCOME WHICH IS DERIVED FROM THE CONSIDERATION REALIZED BY EXPORT OF ARTICLES. IN VIEW OF THE DEFINITION OF 'INCOME FROM PROFITS AND GAINS' INCORPORATED IN SUBSECTION (4), THE ASSESSEE IS ENTITLED TO THE BENEFIT OF EXEMPTION OF THE SAID AMOUNT AS CONTEMPLATED UNDER SECTION 10B OF THE ACT. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN EXTENDING THE BENEFIT TO THE AFORESAID AMOUNTS ALSO. WE DO NOT FIND ANY MERIT IN THESE APPEALS.' 6. IN VIEW OF THE ABOVE DISCUSSION , AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE CONCLU SION S ARRIVED AT BY THE LEANED CI T (A) AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, APPEAL FILED BY THE R EVENUE IS DISMISS ED. 8. AS PER THE CROSS OBJECTION FILED BY THE ASSESSEE, THE SAME WAS NOT PRESSED AND IS ACCORDINGLY DISMISSED FOR WANT OF PROSECUTION. 9. IN THE RESULT, CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED. 10. TO SUM UP, APPEAL FILED BY THE REVENUE AS ALSO CROSS OBJECTION FILED BY THE ASSESSEE, ARE DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 22 ND DAY OF NOVEMBER , 2016. SD/ - SD/ - MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 22 ND DAY OF NOVEMBER , 2016. I.T.A. N O.2837 /AHD/201 3 & C.O. NO.98/AHD/2014 ASSESSMENT YEAR: 20 10 - 11 PAGE 7 OF 7 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENC HES, AHMEDABAD