JEWELLERY SOLUTIONS ITERNATIONAL P. LTD ( NOW KKNOWN AS FIRESTONE INTERNATIONAL P.LTD, MUMBAI V. ITO WD 5(2)(2), MUMBAI

ITA 1109/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7610 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHASARTHI NAIK
• Keywords: Business income; Commercial expediency
• Section: 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I BENCH BEFORE SHRI G.E.VEERABHADRAPPA, PR ESIDENT AND SHRI VIVEK VARMA, JM ITA NO.1109/MUM/2010 : A SSESSMENT YEAR : 2006-07 M/S. FIRESTONE INTERNATIONAL PVT. LTD. (PREVIOUSLY KNOWN AS JEWELLERY SOLUTIONS INTERNATIONAL PVT. LTD.) C/O. KARNAVAT & CO. 2A KITAB MAHAL, 192 DR. D. NAOROJI ROAD, FORT, MUMBAI 400001 PAN NO. AAACJ8708R VS. THE INCOME-TAX OFFICER, WARD 5(2)(2), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : MR VIJAY MEHTA RESPONDENT BY : MR PARTHASARTHI NAIK DATE OF HEARING : 20.03.2012 DATE OF PRONOUNCEMENT : 28.03.2012 ORDER PER VIVEK VARMA, JM: THE APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY CIT(A) 9, MUMBAI, DATED 04/01/2010, WHEREIN THE CIT(A) HAS UPHELD THE DISALLOWANC E OF EXEMPTION CLAIMED UNDER SECTION 10B(4) OF THE INCOME TAX ACT, 1961. 2. IN THE ASSESSMENT PROCEEDINGS THE AO NOTICED INTEREST RECEIVED ON FIXED DEPOSITS AT RS. 19,85,045 AND CALLED FOR AN EXPLANAT ION, AS TO WHY, THE INTEREST SO RECEIVED BE NOT TREATED AND TAXED AS INCOME FROM OTHER SOURCES. 3. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS 100% EXPORT ORIENTED UNIT, SITUATED AT SEEPZ, ANDHERI , MUMBAI AND IS IN THE BUSINESS OF MANUFACTURING AND EXPORT OF DIAMOND STUD DED JEWELLERY. DURING THE ASSESSMENT ITA NO.1109/MUM/2010 ASSESSMENT YEAR : 2006-07 2 PROCEEDINGS, THE AO NOTICED THAT RS. 1,32, 06,458 HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF INTEREST PAID. IT WAS INFORMED TO THE AO THAT RS. 1,32,06,458 IS THE NET OF THE INTEREST (R S. 1,51,90,503 LESS RS. 19,84,045). AT THIS POINT, THE AO QUERRIED THE ASSESSEE, AS TO WHY THIS INTEREST RECEIVED SHOULD NOT BE TREATED AND TAXED AS INCOME FROM OTHER SOURCES. 4. THE ASSESSEE, VIDE LETTER DATED 09/12/ 2008 SUBMITTED BEFORE T HE AO THAT THE ASSESSEE IS A 100% EXPORT ORIENTED UNIT DULY REGISTERED AND APPROVED FOR THE PURPOSES OF DEDUCTION UNDER SECTION 10B OF THE IT ACT, 1961. THE RELEVANT CONTENTS OF THIS LETTER, AS POINTED OUT BY THE AR, IN BR IEF ARE, THAT ALL ITS ASSETS AS WELL AS THE ENTIRE INFRASTRUCTURE AVAILA BLE WITH THE ASSESSEE COMPANY IN THE ACCOUNT PERIOD RELEVANT TO ASSESSMENT YEAR 2006-07 HAS BEEN UTILIZED BY THE ASSESSEE COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON ITS BUSINESS. THE ASSESSEE COMPANY HAD KEPT A FIXED DEP OSIT WITH THE BANK AND HAD RECEIVED AN INTEREST OF RS. 19,84,045 THEREON, THE SA ME HAD BEEN KEPT ON THE GROUNDS OF COMMERCIAL EXPEDIENCY AS COLLATERAL SECURITY FOR THE PUR POSE OF OBTAINING VARIOUS CREDIT FACILITIES FROM THE BANK SUCH AS L/C FACILITY, BANK GUARANTEES, OVER DRAFT FACILITY, CASH CREDIT FACILITIES, BILL DISCOUNTING FACILITIES, PACKI NG CREDIT FACILITIES ETC. WHICH HAD BEEN UTILIZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON THE EXPORT BUSINESS. THE ASSESSEE SUBMITTED THAT THERE WERE NO SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE BECAUSE IF THE ASSESSEE HAD SURP LUS FUNDS THEN THER E WOULD NEVER HAVE BEEN OCCASION FOR BORROWING FUNDS FROM THE BANK. 5. AFTER EXAMINING THE CONT ENTIONS OF THE ASSESSEE CO MPANY, THE AO REJECTED THE SAME AND AFTER REFERRING TO SEVERAL JUDICIAL DECISIONS , HELD THAT ALL INCOME RECEIPTS OF THE 100% EXPORT ORIENTED UNIT WH ICH HAD EITHER ARISEN FROM THE PROCESS OF CARRYING ON THE EXPORT BUSINESS OR WHICH AR E DIRECTLY CONNECTED OR WHICH FACILITATE THE PROCESS OF CARRYING ON THE EXPORT BUSI NESS SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. THE INTEREST RECEIVED ON FIXED DEPOSITS, ACCO RDING TO THE AO, CANNOT BE ALLOWED FOR THE PURPOSES OF CLAIMING EXEMPT ION UNDER SECTION 10 B, AND THEREFORE, SHALL BE ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY. ITA NO.1109/MUM/2010 ASSESSMENT YEAR : 2006-07 3 6. THE ASSESSEE COMPANY NOT SATISFIED BY THE FINDINGS OF THE AO, APPROACHED THE CIT(A), WHO ON THE FACTS BEFORE HIM AND BEFORE THE AO AND A FTER REFERRING TO CERTAIN OTHER CASE LAWS, SPECIALLY THE RECE NT DECISION OF THE HONBLE SUPREME COURT OF INDIA, IN THE CASE OF LI BERTY INDIA V/S CIT, REPORTED IN 317 ITR 218, SUSTAINED THE DISALLOWANCE. 7. AGGRIEVED BY THE DECISION OF THE CI T(A), THE ASSESSEE IS NOW BEFORE THE ITAT. 8. THE AR APPEARING ON BEHALF OF THE ASSESSEE COMPANY, SUBMITTED THAT THE ASSESSEE HAD ITSELF NETTED THE INTEREST AND HAD ONLY TAKEN THE BALANCE AMOUNT TO THE P & L ACCOUNT. HE FURTHER PL EADED THAT NEITHER THE AO NOR THE CIT(A) HAD DENIED THE FACT THAT THE ASSESSEE HAD PAR KED ITS FUNDS IN THE FIXED DEPOSITS ONLY TO AVAIL BANK FACILITIES AND TO ENHANCE ITS BUSINESS NEEDS AND THAT THE REVENUE AUTHORITIES NEVER CONTROVERTED TO THE SUBM ISSIONS OF THE ASSESSEE CO MPANY THAT THE ASSESSEE COMPANY NEVER HAD SURPLUS FUNDS. THE FACT THAT THE ASSESSEE COMPANY IS PAYING RS. 1.51 CRORES AS BANK INTEREST, ITSELF GOES TO PROVE THAT THE BUSINESS OF THE ASSESSEE IS HEAVILY MANAGED BY BORROWED FUNDS . HE THEREFORE SUBMITTED THAT, THAT IN THE CIRCUMSTANCES, INTEREST TRANSACTIONS , WHETHER IN THE NATUR E OF EXPENSE OR IN THE NATURE OF INCOME HAVE DIRECT NEXUS WI TH THE BUSINESS OF THE ASSESSEE COMPANY. 9. DURING THE COURSE OF HEARING, THE AR REFERRED TO THE DECISION OF COORDINATE BENCH OF MUMBAI BENCH OF ITAT IN THE CASE OF ITO V/S GREYTRIX (INDIA) PVT. LTD., ITA NO. 5787/MUM/2009, WHEREIN T HE DEPARTMENT HAD RAISED THE ISSUE, AS TO WHETHER INTEREST INCOME IN QUESTION IS ASSE SSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES OR UNDER THE HEAD INCOME FROM BUSI NESS. THE HONBLE ITAT, AFTER DETAILED DELIBERATIONS, DISMISSED THE APPEAL OF THE REVENUE, HOLDI NG THAT SINCE THE INTEREST RECEIVED WERE ON FIXED DEPOSITS PLACED WITH T HE BANKS FOR PURPOSE OF OBTAINING CREDIT FACILITIES, THE INTEREST CANNOT BE TAK EN AS INCOME FROM OTHER SOURCES. ITA NO.1109/MUM/2010 ASSESSMENT YEAR : 2006-07 4 10. THE AR FURTHER SUBMITTED COPIES OF ITAT ORDERS IN THE CASE OF ASSESSEES OWN CASE IN ASSESSMENT YEARS 2004-05 A ND 2005-06 IN ITA NOS. 6351/MUM/2007 AND 5766/MUM/2009, RESPECTIVELY, WHEREIN THE HONBLE ITAT HAS UPHELD THE INTEREST RECEIVED FROM FDRS PLACED WITH THE BAN KS, AS INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. 11. THE AR, THEREFORE, CLOS ED HIS ARGUMENTS, PLEADING T HAT THE INTEREST RECEIVED FROM FDRS, PLACED WITH THE BANKS TO AVAIL CREDIT FACILITIES HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND ALSO THAT IN IT S OWN CASES THE ITAT HAS HELD THE ISSUE IN THE ASSESSEES FAVOUR. ACCORDINGLY, TH E DISALLOWANCE SO MADE BY THE AO AND SUSTAINED BY THE CIT(A) SHOULD BE DELETED. 12. THE DR, ON THE OTHER HAND, STRONGLY SU PPORTED THE VIEW TAKEN BY THE REVENUE AUTHORITIES AND ALSO PLACED THE COPY OF AN ORDER IN THE CASE OF TRICOM I NDIA LTD. V/S ACIT, ITA NO. 1924/MUM/2008, REPOR TED IN 36 SOT 302 (MUMBAI). 13. FROM THE FACTS ASCERTAINED FROM T HE ORDERS OF THE REVENUE AUTHORITIES AND PLACED BEFORE US DURING THE COURSE OF HEARI NG, WE FIND THAT THE ASSESSEE HAD ITSELF NETTED THE INTEREST AND HAD ONLY TAKEN THE BALANCE AMOUNT TO THE P & L ACCOUNT. WE ALSO FIND, AS A MATTER OF FACT, THAT NEITHER THE AO NOR THE CIT(A) HAD DENIED THAT THE ASSESSEE HAD PARKED FUNDS IN T HE FIXED DEPOSITS ONLY TO AVAIL BANK FACILITIES AND TO ENHANCE ITS BUSINESS NEEDS. WE ALSO FIND T HAT THE REVENUE AUTHORITIES NEVER CONTROVERTED TO THE SUBMISSI ONS OF THE ASSESSEE COMPANY WH EN IT SUBMITTED THAT THE ASSESSEE COMPANY NEVER HAD SURPLUS FUNDS. WE FIND THAT THE ASSESSEE COMPANY HAS PAID RS. 1.51 CRORES AS BANK INTEREST, WH ICH GOES TO PROVE THAT THE BUSINESS OF THE ASSESSEE IS HEAVILY MANAGED BY BORROWED FUNDS AND WE AGREE WITH THE SUBMISSIONS OF THE AR THAT INTEREST TRANSACTIONS, IN THE CASE OF THE ASSESSEE, WHICH ARE IN THE NATURE OF EXPENSE AND IN THE NATURE OF INCOME HAVE DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE COMPANY. ITA NO.1109/MUM/2010 ASSESSMENT YEAR : 2006-07 5 14. WE HAVE ALSO GONE THROUGH THE DECISIO N OF TRICOM, REFERRED BY THE DR AND WE FIND THAT THERE IS A MAJOR POINT OF DISTIN CTION, BECAUSE IN THE ORDER OF THE ITAT THE CIT(A) HAS OBSERVED, THEREI N THAT THE ASSESSEE (TRICOM) HAD PARKED ITS OWN SURPLUS FUNDS AVAILABLE WITH IT ALONG WITH TH E TANKS MONEY MARKET INSTRUMENTS FOR CONVENIENCE AND FOR DERIVING HIGHER INTEREST INCOME, AND THEREF ORE THERE WAS NO DIRECT LINK. WE WOULD ALSO HO LD THAT THE DECISION OF LIBERT Y INDIA V/S CIT, REPORTED IN 317 ITR 218, RELIED UPON BY THE CIT(A) IS AL SO DISTINGUISHABLE ON FACTS, BECAUSE IN THE CASE OF LIBERTY INDIA, THE ISSUE WAS THE CLAIM OF DEDUCTION UNDER SECTION 80I, 80H AND 80HH. WHEN WE GO INTO THE PROVISIONS OF TH ESE SECTIONS, WE DO NOT FIND THAT FOR THE COMPUTATION OF DEDUCTION THERE IS ANY STATUTOR Y FORMULA, WHICH COMPUTES THE DEDUCTION. BUT FOR THE PURPOSES OF CL AIMING EXEMPTION UNDER SECTION 10B, THE MOMENT RECEIPT IS CLAIMED TO BE PERTAININ G TO BUSINESS, THE STATUTORY FORMULA AS PRESCRIBED IN THE SECTION TAKES OV ER TO COMPUTE THE EXEMPTION. 15. IN THE CASE AT HAND, WE FIND THAT THE ASSESSEE COMPANY HAD PARKED ITS FUNDS ONLY TO AVAIL BANK FACILITY AND NOT TO EARN ANY INTEREST ON ANY SURPLUS FUNDS. WE, THEREFORE, HOLD THAT THE INTEREST EARNED BY THE ASSESSEE COMPANY IS A BUSINESS RECEIPT, WHICH QUALIFIES FOR THE PURPOSES OF CLAIMING EXEMPTION UND ER SECTION 10B, AS CLAIMED BY THE ASSESSEE. WE, THEREFORE, RESPECTFULLY FOLLOW THE DECISIONS OF GREYTRIX AND THE DECISIONS RENDERED IN THE ASSESSE ES OWN CASE, AND ALLOW THE APPEAL AND DELETE THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES. 16. THE APPEAL, THUS, FILED BY T HE ASSESSEE COMPANY IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 TH MARCH, 2012 SD/- SD/- (G.E.VEERABHADRAPPA) PRESIDENT (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATED : 28 TH MARCH, 2012 RASIKA ITA NO.1109/MUM/2010 ASSESSMENT YEAR : 2006-07 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS), 9, MUMBAI 4. COMMISSIONER OF INCOME TAX CONCERN 5. DEPARTMENTAL REPRESENT ATIVE, BENCH I MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI