IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 1055/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) DY. CIT-3(2), ROOM NO. 674, 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 VS. JEWELEX INDIA PVT. LTD. 124C, MITTAL COURT, NARIMAN POINT, MUMBAI-400 021 ! ' ./PAN/GIR NO. AABCJ 4523 H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#&' / APPELLANT BY : SHRI SANJEEV JAIN $%!#&' / RESPONDENT BY : SHRI NITISH JOSHI & SHRI P. P. BHANDARI ( )*&+, / DATE OF HEARING : 29.04.2014 -./&+, / DATE OF PRONOUNCEMENT : 27.06.2014 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI (CIT(A) FOR SHO RT) DATED 26.11.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2009-10 VIDE ORDER DATED 23.12.2011. 2.1 THE APPEAL RAISES THREE GROUNDS, WHICH WE SHALL TAKE UP IN SERIATIM. THE FIRST CHALLENGES THE EXCLUSION OF THE PROFIT OF THE ASSES SEES UNDERTAKING OPERATING FROM A 2 ITA NO. 1055/MUM/2013 (A.Y. 2009-10) DY. CIT VS. JEWELEX INDIA PVT. LTD. SPECIAL ECONOMIC ZONE (SEZ) FOR THE PURPOSE OF COMP UTING ITS BOOK PROFIT FOR THE RELEVANT YEAR U/S.115JB OF THE ACT. THE EXCLUSION I N ITS RESPECT STANDS CLAIMED BY THE ASSESSEE WITH REFERENCE TO SUB-SECTION (6) THEREOF, WHICH READS AS UNDER, INSERTED ON THE STATUTE BY THE SPECIAL ECONOMIC ZONE ACT, 2005, W.E .F. 10.02.2006, SO THAT IT WOULD APPLY FOR THE CURRENT YEAR: SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COM PANIES. 115JB. (1) (2) . (6) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO THE INCOME ACCRUING OR ARISING ON OR AFTER THE 1ST DAY OF APRIL, 2005 FROM ANY BUSINESS CARRIED ON, OR SERVICES RENDERED, BY AN ENTREPRENEUR OR A DEVEL OPER, IN A UNIT OR SPECIAL ECONOMIC ZONE, AS THE CASE MAY BE: PROVIDED THAT THE PROVISIONS OF THIS SUB-SECTION SHALL CEASE TO HAVE EFFECT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2012. THE ASSESSEES CLAIM STOOD ACCEPTED BY THE LD. CIT( A) FOLLOWING THE DECISION BY THE TRIBUNAL, MUMBAI BENCH (E) IN THE CASE OF GENEYS INTERNATIONAL CORPORATION LTD. VS. ACIT (IN ITA NOS.6903/MUM/2011 AND 609/MUM/2012 (FOR A.Y S. 2008-09 & 2009-10) DATED 31.10.2012/COPY ON RECORD). THE SAME, IN FACT , STANDS RELIED UPON BY THE ASSESSEE EVEN BEFORE US. 2.2 THE REVENUES CASE, ON THE OTHER HAND, TOWARD D ENIAL OF THE SAID EXCLUSION, IS THAT THE INCOME OF THE SAID UNIT IS EXEMPT U/S.10A, WHIL E THE ADJUSTMENT BY WAY OF REDUCTION OF THE PROFIT EXEMPT U/S.10A STOOD WITHDRAWN BY THE OMISSION OF THE WORDS SECTION 10A OR SECTION 10B IN EXPLANATION 1(II) TO SECTION 115JB(2) BY FINANCE ACT, 2007, W. E.F. 01.04.2008. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, INCLUDING THE DECISION BY THE TRIBUNAL IN THE CASE OF GENEYS INTERNATIONAL CORPORATION LTD. (SUPRA), THIS BEING THE PRINCIPAL ISSUE DECIDED BY THE TRIBUNAL I N THAT CASE. THE TRIBUNAL HAS DISCUSSED THE MATTER IN DETAIL; ITS FINDINGS BEING CONTAINED AT PARAS 21 AND 22 OF ITS ORDER, WHICH PARAGRAPHS FIND REPRODUCTION IN THE IMPUGNED ORDER VIDE PARA 6 THEREOF. THE TRIBUNAL HAS 3 ITA NO. 1055/MUM/2013 (A.Y. 2009-10) DY. CIT VS. JEWELEX INDIA PVT. LTD. CLARIFIED THAT NOTWITHSTANDING THE OMISSION OF THE REFERENCE TO, INTER ALIA , SECTION 10A IN THE RELEVANT ADJUSTMENT CLAUSE, SO THAT THE PROFIT FALLING U/S. 10A IS SUBJECT TO BOOK PROFIT TAX U/S.115JB, THE SAID PROVISION WOULD NOT, IN VIE W OF THE OVERRIDING CHARACTER OF SUB- SECTION (6) THEREOF, APPLY TO ANY UNIT OPERATING IN SEZ, ALSO CLARIFYING THAT THE DEDUCTION U/S.10A IS ALSO APPLICABLE TO UNITS NOT OPERATING I N A SEZ. NO CONTRARY DECISION HAVING BEEN BROUGHT TO OUR NOTICE BY THE REVENUE, RESPECTF ULLY FOLLOWING THE SAME, WE HAVE NO HESITATION IN UPHOLDING THE IMPUGNED ORDER ON THIS GROUND, DISMISSING THE REVENUES GROUND NO. 1. WE DECIDE ACCORDINGLY. 4. GROUND NOS. 2 & 3 RAISE A COMMON ISSUE, AND WHIC H WE SHALL THEREFORE TAKE UP TOGETHER, AS WAS THE CASE BY THE LD. CIT(A). THE AS SESSEE HAS TWO UNITS, INCOME FROM WHICH IS SUBJECT TO EXEMPTION U/S.10A AND SECTION 1 0AA RESPECTIVELY. THE FOLLOWING INCOMES, HOWEVER, WERE EXCLUDED BY THE ASSESSING OF FICER (A.O.) IN COMPUTING THE DEDUCTION UNDER THE SAID SECTIONS FOR THE REASON TH AT THE SAME WERE NOT DERIVED FROM THE ASSESSEES RELEVANT UNITS: (AMT. IN RS.) DESCRIPTION UNIT-I ELIGIBLE FOR DEDUCTION U/S.10A UNITS II & VII ELIGIBLE FOR DEDUCTION U/S.10AA INTEREST ON MARGIN DEPOSITS 18,43,921 2,326 SALE OF MOULDS WAX 10,273 - DESIGN CHARGES - 24,90,014 SALE OF SCRAP 1,61,032 10,20,877 EXCESS PROVISIONS OF EXPENSES WRITTEN BACK 1,79,775 24,584 21,95,001 (*) 35,37,801 (*) UNITS II (RS.33,09,946) & UNIT VII (RS.2,27,855) THE ASSESSEES CASE, ON THE OTHER HAND, IS THAT ITS VIEW HAS FOUND ACCEPTANCE BY THE TRIBUNAL IN THE CASE OF JEWELEX INTERNATIONAL PVT. LTD. , A GROUP CONCERN (IN ITA NO.3302/MUM(J)/2009 DATED 15.09.2010/COPY ON RECORD ) IN VIEW OF SUB-SECTION (4) OF SECTION 10A, WHICH READS AS UNDER: 4 ITA NO. 1055/MUM/2013 (A.Y. 2009-10) DY. CIT VS. JEWELEX INDIA PVT. LTD. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED U NDERTAKINGS IN FREE TRADE ZONE, ETC. 10A. (1) . (2) . (4) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTA KING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE UNDERTAKING. THE PROFIT EXEMPT U/S.10A(1) HAVING BEEN DEFINED BY THE SECTION ITSELF, THE ENTIRE INCOME OF THE ELIGIBLE UNIT, WITHOUT EXCEPTION, WOULD QUAL IFY FOR ENTERING THE COMPUTATIONAL FORMULAE OF SECTION 10A(4). THERE IS, ACCORDINGLY, NO SCOPE FOR EXCLUSION OF ANY INCOME AS LONG AS THE SAME BELONGS TO OR OWES ITS ORIGIN T O THE BUSINESS CARRIED ON BY THE ELIGIBLE UNIT. THE LD. CIT(A) HAD ALSO ALLOWED RELIEF TO THE ASSESSEE ON THAT BASIS, SO THAT, AGGRIEVED, THE REVENUE IS IN APPEAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) RELIED ON THE DECISION IN THE CASE OF TRICOM INDIA LTD. VS. ASST. CIT [2010] 36 SOT 302 (MUM), WHERE, FOLLOWING THE DECISION IN THE CASE OF CIT VS. MENON IMPEX (P.) LTD. [2003] 259 ITR 403 (MAD) (128 TAXMAN 11), THE TRIBUNAL CONFIRMED THE DISALLOWANCE OF INTEREST INCOME IN COMPUTING THE DEDUCTION U/S.10B, A PARA MATERIA PROVISION, ALSO HAVING A PROVISION CORRESPONDING T O SECTION 10A(4) IN SECTION 10B(4). THE LD. AR, ON TH E OTHER HAND, WOULD RELY ON THE DECISION IN THE CASE OF MOTOROLA INDIA ELECTRONICS (P) LTD. (IN IT APPEALS NO.428 & 447 OF 2007 DATED 11.12.2013/COPY ON RECORD) BY THE KAR NATAKA HIGH COURT. THE HONBLE COURT IN THE SAID DECISION, AGAIN IN THE CONTEXT OF SECTION 10B, FOUND NO SCOPE FOR EXCLUSION OF ANY INCOME IN COMPUTING THE DEDUCTION THERE-UNDER IN VIEW OF S. 10B(4), WHICH IS IDENTICALLY WORDED TO S. 10A(4) (SUPRA), D ESPITE THE REVENUES RELIANCE ON, AMONG OTHERS, LIBERTY INDIA VS. CIT [2009] 317 ITR 218 (SC) AND CIT VS. STERLING FOODS [1999] 237 ITR 579 (SC). AT THIS STAGE, THE LD. AR WAS INFORMED BY THE BENCH THAT THIS TRIBUNAL HAD, IN THE CASE OF TESSITURA MONTI (P.) LTD. VS. ITO [2013] 141 ITD 531(MUM.) 5 ITA NO. 1055/MUM/2013 (A.Y. 2009-10) DY. CIT VS. JEWELEX INDIA PVT. LTD. [22 ITR (TRIB) 329], UPON A REVIEW OF PRECEDENTS, I NCLUDING BY THE CO-ORDINATE BENCH IN THE CASE OF JEWELEX INTERNATIONAL PVT. LTD. , (SUPRA), AND DERIVING SUPPORT FROM THE DECISION IN THE CASE OF ITO VS. V. J. HOMES PVT. LTD. [2010] 38 SOT 4 (JODH), OPINED THAT THE COMPUTATION FORMULAE OF SECTION 10B(4) WOULD AP PLY ONLY TO THE PROFITS DERIVED BY THE ASSESSEES INDUSTRIAL UNDERTAKING. DUE REGARD W AS MADE BY IT TO THE WORDS BUSINESS OF THE UNDERTAKING OCCURRING IN SECTION 10B(4). AT THIS STAGE, IT WAS SUBMITTED BY THE LD. AR, THAT THE INCOMES UNDER REFERENCE IN THE INSTANT CASE WOULD STAND TO BE INCLUDED, I.E., ALLOWED RELIEF TOWARD, EVEN ON THE BASIS OF THE POS ITION OF LAW AS EXPLAINED BY THE TRIBUNAL IN TESSITURA MONTI (P.) LTD. (SUPRA). THE HEARING WAS CLOSED AT THIS STAGE. 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, INCLUDING THE DECISIONS CITED AND/OR RELIED UPON BY THE PARTIES. OUR FIRST OBSERVATION IN THE MATTER IS THAT SECTIONS 10A AND 10B ARE PARA MATERIA , SO THAT THE DECISIONS RENDERED IN THE CONTEXT OF ONE WOULD EQUALLY APPLY TO THAT IN THE CASE OF THE OTHER. SECONDLY, IN OUR VIEW, SECTION 10AA WOULD, IN VIEW OF SUB-SECTION 10AA(7) THEREOF, ALSO STAND TO BE CONSIDERED AS A PARI MATERIA PROVISION, SO THAT LIKE CONSIDERATIONS AND A LIKE DECISION FOR THE DEDUCTION U/SS. 10A & 10AA, AS BY THE A.O. AND THE LD. CIT(A) , COULD BE TAKEN BY US. THE TRIBUNAL IN THE CASE OF TRICOM INDIA LTD. (SUPRA) AND TESSITURA MONTI (P.) LTD. (SUPRA), RENDERED INDEPENDENT OF EACH OTHER, EXAMINED THE ISSUE AT LE NGTH, MEETING THE SEVERAL ARGUMENTS RAISED BY THE ASSESSEE, TO COME TO A DEFINITE FINDI NG THAT THE PROVISION OF SECTION 10A(4)/10B(4) WOULD NOT OPERATE TO INCLUDE ALL THE INCOMES OF THE ASSESSEE, I.E., IRRESPECTIVE OF THEIR NEXUS OR PROXIMATE CONNECTION WITH THE ELIGIBLE ACTIVITY AND, THEREFORE, THE INCOME QUALIFYING FOR DEDUCTION WOUL D REQUIRE BEING DERIVED FROM THE ELIGIBLE UNDERTAKING MANUFACTURING OR PRODUCING ART ICLES OR THINGS, THE PROFIT ON THE EXPORT OF WHICH IS TO BE EXCLUDED IN COMPUTING THE ASSESSEES TOTAL INCOME, TO QUALIFY FOR RELIEF UNDER THE RELEVANT SECTION. THE PROCESS, AS EXPLAINED IN TESSITURA MONTI (P.) LTD. (SUPRA), INVOLVES THREE STEPS (REFER PARA 4.3 OF TH E ORDER FOR THE RELEVANT DISCUSSION). FURTHER, HAVING REGARD TO THE WORDS BUSINESS OF TH E UNDERTAKING, AS WELL AS BUSINESS CARRIED ON BY THE ASSESSEES UNDERTAKING APPEARING IN SECTION 10A(4) (OR SECTION 10B(4)) 6 ITA NO. 1055/MUM/2013 (A.Y. 2009-10) DY. CIT VS. JEWELEX INDIA PVT. LTD. AND WHICH WE HAVE FOUND TO BE ALSO IN SECTION 10A A(7), IT WAS EXPLAINED THAT A RECEIPT INTEGRAL TO THE ASSESSEES BUSINESS WOULD STAND TO BE CONSIDERED AS A PART OF THE BUSINESS OF THE ELIGIBLE UNDERTAKING. THOUGH THE SOURCE OF T HE INTEREST INCOME, WHICH IS THE PREDOMINANT AMOUNT IN THE INSTANT CASE, IS THE DEPO SIT WITH THE BANK, THE CONTRACT WITH THE BANK FOR THE DEPOSIT OF THE MONEY IS ENTERED ONLY T O FACILITATE THE IMPORT OF GOODS ETC., I.E., THE BUSINESS OF THE UNDERTAKING. WHERE, THERE FORE, THE SAME (MONEY HELD IN DEPOSIT ACCOUNT/S) FORMS PART OF THE REGULAR ARRANGEMENT AD OPTED OR FOLLOWED BY THE ASSESSEES BANK FOR EXTENDING NON-FUND CREDIT FACILITY/S TO IT S CONSTITUENTS, IT COULD BE REGARDED AS INTEGRAL TO THE ASSESSEES BUSINESS, FORMING PART O F THE PROFIT OF THE BUSINESS OF ITS ELIGIBLE UNDERTAKING. THE INTEREST ON SURPLUS FUNDS, ON THE OTHER HAND, COULD NOT BE SAID TO BE SO DERIVED AND, THUS, WOULD STAND TO BE EXCLUDED. WE D O NOT WISH TO DWELL IN THE MATTER FURTHER; THE LD. COUNSEL ACCEPTING THE PROPOSITION FOR THE MATTER BEING RESTORED TO THE FILE OF THE A.O. FOR BEING EXAMINED IN LIGHT OF THE SAID DECISIONS. 7. THE MATTER IS ACCORDINGLY, I.E., IN VIEW OF THE FOREGOING, RESTORED BACK TO THE FILE OF THE A.O. TO ALLOW THE ASSESSEE DEDUCTION U/SS.10A A ND 10AA, AS THE CASE MAY BE, ON THE IMPUGNED INCOMES IN LIGHT OF AND CONSIDERING THE PA RAMETERS AS LAID DOWN IN TESSITURA MONTI (P.) LTD. (SUPRA). THE ASSESSEE SHALL COOPERATE WITH THE A.O. IN THE SET ASIDE PROCEEDINGS, ENABLING DUE VERIFICATION OF ITS CLAIM S AND, THUS, ISSUE OF DEFINITE FINDINGS OF THE FACT BY THE ASSESSING AUTHORITY. NEEDLESS TO AD D, THE ASSESSEE SHALL BE PROVIDED DUE OPPORTUNITY BY THE ASSESSEE TO PRESENT ITS CASE BEF ORE HIM. WE DECIDE ACCORDINGLY. 8. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. 1/+2)& 3& 456760) 8 +& +9 ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 27, 2014 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( :* MUMBAI; ; DATED : 27.06.2014 7 ITA NO. 1055/MUM/2013 (A.Y. 2009-10) DY. CIT VS. JEWELEX INDIA PVT. LTD. )< ROSHANI , SR. PS !' # $%&' ('% COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( =+ > ? / THE CIT(A) 4. ( =+ / CIT - CONCERNED 5. @)AB$<+