SHRENUJ GEMS & JEWELLERY LTD, MUMBAI V. ITO 8(3)(1), MUMBAI

ITA 1311/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1994 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D PRABHAKAR REDDY
• Keywords: Bogus purchase; Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Question of law; Notional interest; Unabsorbed depreciation
• Section: 80C; 143(3); 92B; 10AA; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) M/S. SHRENUJ GEMS & JEWELLERY LTD., PLOT NO.GJ-09, SEEPZ++, MAROL INDUSTRIAL AREA, SEEPZ-SEZ, ANDHERI(E), MUMBAI 400096 PAN:AAJCS4265M ...... APP ELLANT VS. THE INCOME TAX OFFICER 8(3)(1), MUMBAI. .... RESPONDENT APPELLANT BY : SHRI HIRO RAI RESPONDENT BY : SHRI D.PRABHAKAR R EDDY DATE OF HEARING : 02/11/2016 DATE OF PRONOUNCEMENT : 16/11/2016 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAI NING TO ASSESSMENT YEAR 2010-11 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-58, MUMBAI DATED 12/12/2014, WHICH IN TURN, ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C(3) OF T HE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 28/01/2014. 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- 2 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) AS REGARDS ADDITION TOWARDS UPWARD ADJUSTMENT OF RS . 18,68,812 IN RESPECT OF VALUE OF INTERNATIONAL TRANSACTIONS MADE BY THE APP ELLANT WITH ITS ASSOCIATE ENTERPRISES: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN SUSTAINING ADDITION OF NOTIONAL INTEREST OF RS.18,68,812 U/S.92CA IN RESPE CT OF INTERNATIONAL TRANSACTIONS OF YOUR APPELLANT WITH ASSOCIATED ENTERPRISES. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN IGNORING THE FACT THAT THE APPELLANT HAS NOT CHARGED INTEREST TO ANY OF IT S CUSTOMERS, WHETHER ASSOCIATED ENTERPRISE OR NOT, ON DELAYED PAYMENT OF SALE CONSI DERATION BY THEM. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE LEARNED ASSESSING OFFICER HAD MADE TH E ADDITION WITHOUT ESTABLISHING THE FACT OF CHARGING OF INTEREST BY THE APPELLANT T O CUSTOMERS MAKING PAYMENT AFTER EXPIRY OF CREDIT PERIOD. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN REJECTING RELIANCE PLACED BY THE APPELLANT ON A.P.(DIR SERIES) CIRCULA R NO. 91 DATED APRIL 1,2003 STATING THAT THERE SHALL BE NO PRESCRIPTION OF ANY TIME LIM IT FOR REALIZATION OF EXPORTS MADE BY UNITS IN SEZ. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN STATING THAT THE APPELLANT DID NOT HAVE A UNIFORM PRACTICE OF CHARGI NG INTEREST TO DEBTORS, WHETHER ASSOCIATED ENTERPRISE OR NON AE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT DEALING WITH GROUND NO. 3 OF THE APPEAL IN RELATION TO WHETHER A DJUSTMENT TO INTERNATIONAL TRANSACTION OF SALE TO ASSOCIATED ENTERPRISES COULD HAVE BEEN MADE WITHOUT REJECTING TNMM METHOD FOLLOWED BY THE APPELLANT WHILE JUSTIFY ING ALP. AS REGARDS SET OFF OF BROUGHT FORWARD LOSSES OF RS. 2,14,77,088 OF AY 2009-10 BEFORE ALLOWING EXEMPTION U/S 10AA : 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SETTING OFF BROUGHT FORWARD LOSSES AMOUNTING TO RS. 2,14,77,088 OF A.Y. 2009-10 FROM THE BUSINESS INCOME, BEFORE ALLOWING THE EXEMPTION U/S 10AA. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE EXEMPTION U/S.10AA, FALLING UNDER CHAPTER III (AND NOT UNDER CHAPTER VIA), HAD TO TAKE PRECEDENCE OVER THE PROVISIONS FOR SET OFF OF LOSSES, WHICH FALL UNDER CHANTER VI OF THE INCOME TAX ACT. 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT DISPOSING OFF THE GROUND IN RELATION TO NON GRANT OF CREDIT OF FBT OF RS.25,OOO PAID ON 15.6.2009 3 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) TOWARDS REGULAR INCOME TAX BY THE ASSESSING OFFICER WITHOUT GIVING ANY REASONS FOR THE SAME. AS REGARDS ADDITION MADE ON ACCOUNT OF BOGUS PURCHA SE OF RS. 2,813 10. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING REJECTION BY THE ASSESSING OFFICER OF PURCHASE OF C ONSUMABLES OF RS. 2,813 FROM G. M. INTERNATIONAL IN A ROUTINE MANNER SIMPLY BECAUSE TH E NAME OF THE VENDOR APPEARED IN THE LIST OF 'SUSPICIOUS DEALERS' WHO HAD ISSUE D FALSE BILLS WITHOUT DELIVERY OF GOODS AS UPLOADED ON THE WEBSITE WWW.MAHAVAT.GOV.IN. WITH OUT ANY OTHER EVIDENCE. 3. THE APPELLANT IS A COMPANY INCORPORATED UNDER T HE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF JEWELLERY. FOR ASSESSMENT YEAR 2010- 11, IT FILED A RETURN OF INCOME DECLARING NIL INCOME AFTER CLAIMING DEDUCT ION OF RS.2,06,33,299/- UNDER SECTION 10AA OF THE ACT AND SET-OFF OF BROUG HT FORWARD LOSES OF RS.63,96,770/- PERTAINING TO ASSESSMENT YEAR 2009-1 0. THE ASSESSING OFFICER HAS DETERMINED THE INCOME AT RS.21,98,230/- AFTER M AKING CERTAIN DISALLOWANCES WHICH ARE THE SUBJECT MATTER OF APPE AL BEFORE THE TRIBUNAL IN TERMS OF THE ABOVE STATED GROUNDS OF APPEAL, WHICH SHALL BE DEALT WITH BY US IN SERIATIM. 4. IN SO FAR AS, GROUNDS OF APPEAL NO.1 TO 6 ARE C ONCERNED, THEY RELATE TO A SINGLE ISSUE PERTAINING TO THE ADDITION OF RS.18,68 ,812/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE RELEVANT FACTS IN THIS REGARD ARE THAT ASSESSEE IS IN THE BUSINESS OF MANU FACTURING AND EXPORTING OF PLAIN/STUDDED JEWELLERY AND IT IS A 100% EXPORT ORIENTED UNIT(EOU). IT WAS NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, A SSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES WITHIN THE MEANING OF SECTION 92B OF THE ACT ON ACCOUNT OF PURCHASE OF RA W MATERIAL AND FIXED ASSETS, SALE OF FINISHED GOODS AND OTHER SERVICES. AS A CO NSEQUENCE, IN TERMS OF SECTION 92(1) OF THE ACT, INCOME FROM INTERNATIONAL TRANSACTIONS WAS REQUIRED 4 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) TO BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH P RICE AND, THEREFORE, THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANSFER PRICING OFFICER UNDER SECTION 92CA(1) OF THE ACT FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. IN TERMS OF ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT DATED 09/05/2013 THE TRANSFER PRICING OFFICER HAS NOT MAD E ADJUSTMENT IN RESPECT OF ANY OF THE ANY OF THE INTERNATIONAL TRANSACTIONS EN TERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. HOWEVER, THE TR ANSFER PRICING OFFICER NOTED THAT THE ASSESSEE WAS MAKING EXPORT SALES TO ITS AS SOCIATED ENTERPRISES AS WELL AS TO NON-ASSOCIATED ENTERPRISES. ASSESSEE HAD MAD E TOTAL EXPORTS OF RS.39,77,07,330/- TO ITS ASSOCIATED ENTERPRISES. T HE TRANSFER PRICING OFFICER HAS OBSERVED IN HIS ORDER THAT IN THE CASE OF BOTH ASSO CIATED ENTERPRISES AS WELL AS NON-ASSOCIATED ENTERPRISES, RECOVERY OF SALE PROCEE DS WAS MADE AFTER THE CREDIT PERIOD STATED IN THE INVOICES. THE TRANSFER PRICING OFFICER NOTED THAT AS PER INDUSTRY AVERAGE A CREDIT PERIOD OF 365 DAYS WA S ALLOWABLE. CONSIDERING THE AFORESAID CREDIT PERIOD AS A NORMAL INCIDENCE O F BUSINESS, THE TRANSFER PRICING OFFICER HELD THAT WHEREVER ASSESSEE HAD PRO VIDED CREDIT PERIOD TO THE ASSOCIATED ENTERPRISES BEYOND THE PERIOD 365 DAYS, IN ALL SUCH CASES INTEREST WAS REQUIRED TO BE IMPUTED. FURTHER, THE TRANSFER P RICING OFFICER DETERMINED THE ARMS LENGTH INTEREST RATE AT 10.75% CONSIDERIN G THE RATE OF INTEREST INCURRED BY THE ASSESSEE ON OBTAINING WORKING CAPIT AL FACILITIES AND AFTER PUTTING A MARK-UP OF 200% BASIS POINTS ON SUCH RATE OF INTEREST TO COVER CURRENCY RISK, ENTITY RISK, ETC. IN TERMS OF ANNEX URE-1 OF HIS ORDER, THE TRANSFER PRICING OFFICER COMPUTED THE INTEREST ON THE DELA YED EXPORT RECEIVABLES FROM THE ASSOCIATED ENTERPRISES BEYOND THE PERIOD OF 36 5 DAYS AT RS.18,68,812/-. ACCORDING TO THE TRANSFER PRICING OFFICER, THE SAID SUM REPRESENTED BENEFIT 5 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) PASSED ON BY THE ASSESSEE TO ITS ASSOCIATED ENTERPR ISES AND THUS HE PROPOSED AN ADJUSTMENT OF RS.18,68,812/- TO THE INTERNATIONA L TRANSACTIONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS PASSED THE ASS ESSMENT ORDER MAKING AN ADDITION OF RS.18,68,812/- IN CONFORMITY WITH THE O RDER OF THE TRANSFER PRICING OFFICER, AND WHICH HAS ALSO BEEN AFFIRMED BY THE CI T(A). 5. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE MADE A PRELIMINARY ARGUMENT, WHICH IS BASED ON THE JUDGEMENT OF THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. INDO AMERICAN JEWELLERY LTD. 223 TAXMAN 8 (BOM) IN THE CASE BEFORE THE HON'BLE BOMBAY HIGH COURT, THE ISSU E RELATED TO IMPUTING OF INTEREST ON AMOUNTS OUTSTANDING FROM THE ASSOCI ATED ENTERPRISES IN TERMS OF SECTION 92(1) OF THE ACT. THE HONBLE HIGH COURT NOTED THAT THERE WAS COMPLETE UNIFORMITY IN THE ACT OF THE ASSESSEE INA SMUCH AS IT WAS NOT CHARGING INTEREST FROM BOTH ASSOCIATED ENTERPRISES AS WELL A S NON-ASSOCIATED ENTERPRISE DEBTORS AND THAT THE DELAY IN REALIZATION OF EXPORT PROCEEDS IN BOTH THE CASES WAS SAME. UNDER THESE CIRCUMSTANCES, THE HONBLE H IGH COURT UPHELD THE DECISION OF THE TRIBUNAL, WHEREBY THE ADDITION MAD E BY WAY OF NOTIONAL INTEREST ON OUTSTANDING AMOUNT OF EXPORT PROCEEDS R EALIZED BELATEDLY FROM THE ASSOCIATED ENTERPRISES WAS DELETED. ON THE STRENGT H OF THE SAID JUDGMENT, THE LD. REPRESENTATIVE FOR THE ASSESSEE SOUGHT TO POINT OUT THAT IN THE PRESENT CASE TOO, IT IS CLEAR THAT ASSESSEE HAS NOT CHARGED INTE REST ON BELATED RECOVERY OF ITS SALE PROCEEDS EITHER FROM THE ASSOCIATED ENTERPRISE S OR FROM NON- ASSOCIATED ENTERPRISES. IN THIS CONNECTION OUR ATTENTION HAS BEEN DRAWN TO THE STATEMENT OF FACTS FURNISHED BEFORE THE CIT(A), WHEREIN IS P LACED A TABULATION SHOWING THE TIME LINES IN THE RECOVERY OF SALE PROCEEDS FRO M ASSOCIATED ENTERPRISES AND NON- ASSOCIATED ENTERPRISES. 6 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) 5.1 WE HAVE PERUSED THE SAID DETAILS IN THE LIGHT OF THE PRINCIPLE APPROVED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF IN DO AMERICAN JEWELLERY (SUPRA). IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THERE WAS UNIFORMITY IN THE ACT OF THE ASSESSEE IN NOT CHARGING INTEREST FOR THE BELATED RECOVERY FROM ITS ASSOCIATED ENTERPRISES AS WELL AS NON-ASSOCIATE D ENTERPRISES, BUT IN SO FAR AS THE ISSUE AS TO WHETHER THE DELAY IN ULTIMATE REALI ZATION OF EXPORT PROCEEDS IN BOTH CASES IS SAME OR NOT IS ALSO REQUIRED TO BE VE RIFIED, HAVING REGARD TO THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF I NDO-AMERICAN JEWELLERY (SUPRA). A PERUSAL OF THE SAID DETAILS REVEAL THAT THE TRANSFER PRICING OFFICER HAS CULLED OUT THE DELAY IN EXCESS OF 365 DAYS IN THE C ASES OF ASSOCIATED ENTERPRISES AND FOR SUCH DELAY HE HAS IMPUTED INTEREST @ 10.75% . SO HOWEVER, IN THE CASE OF NON-ASSOCIATED ENTERPRISES ALSO THERE IS A DELAY IN RECOVERY BEYOND THE PERIOD OF 365 DAYS. SO HOWEVER, THE EXTENT OF SUCH DELAY IS NOT EMERGING FROM THE DISCUSSION IN THE ORDERS OF THE AUTHORITIES B ELOW BECAUSE THE TRANSFER PRICING OFFICER HAS CONFINED HIS WORKING TO THE DEL AY IN THE CASE OF ASSOCIATED ENTERPRISES ALONE. THE RIVAL COUNSELS AGREED THAT FOR THIS PURPOSE, THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE TRANSFER PR ICING OFFICER/ASSESSING OFFICER. 5.2 AS THE AFORESAID DISCUSSION REVEALS, THE PRELIM INARY PLEA OF THE ASSESSEE BASED ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF INDO AMERICAN JEWELLERY (SUPRA) CAN BE MEANINGFULLY ADDR ESSED ONLY AFTER COMPARING THE PERIOD OF DELAY IN THE CASE OF ASSOCI ATED ENTERPRISES VIS--VIS THAT IN THE CASE OF NON-ASSOCIATED ENTERPRISES. SI NCE THE AFORESAID PERTAINS TO A FACTUAL APPRECIATION OF AFFAIRS, IT IS DEEMED AP PROPRIATE THAT THE MATTER IS RESTORED BACK TO THE FILE OF TRANSFER PRICING OFFIC ER/ASSESSING OFFICER TO CARRY 7 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) OUT THE SAID EXERCISE, KEEPING IN MIND THE RATIO OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDO AMERICAN JEWE LLERS(SUPRA). 5.3 BEFORE PARTING, WE MAY ALSO NOTE THAT ASSESSE E HAS RAISED VARIOUS OTHER POINTS IN ORDER TO ASSAIL THE IMPUGNED ADDITION. S INCE THE MATTER IS BEING REMANDED BACK ON THE PRELIMINARY PLEA BASED ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDO AMERICAN JEWE LLERY (SUPRA), ALL OTHER ARGUMENTS THAT MAY BE RAISED BY THE ASSESSEE RELATI NG TO THE EFFICACY OF SUCH ADDITION, INCLUDING THE EFFICACY OF INTEREST RATE OF 10.75% APPLIED BY THE TRANSFER PRICING OFFICER ARE KEPT OPEN. IN THE ENS UING REMAND PROCEEDINGS, IT WOULD BE OPEN FOR THE ASSESSEE TO RAISE ALL THE ISS UES AFRESH, WHICH SHALL BE ADJUDICATED BY THE ASSESSING OFFICER /TRANSFER PRIC ING OFFICER IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION, THE AFORESAID EXERC ISE SHALL BE CARRIED OUT BY THE ASSESSING OFFICER /TRANSFER PRICING OFFICER AFT ER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH LAW. 5.4 THUS, SO FAR AS GROUNDS TO APPEAL NO.1 TO 6 ARE CONCERNED, THE ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 6. IN SO FAR AS, GROUNDS OF APPEAL NO.7 & 8 ARE CON CERNED, THE SAME ARISES FROM THE ACTION OF THE LOWER AUTHORITIES IN HOLDING THAT BROUGHT FORWARD LOSSES AMOUNTING TO RS.2,14,77,088/- PERTAINING TO ASSESSM ENT YEAR 2009-10 ARE REQUIRED TO BE REDUCED FROM THE BUSINESS INCOME BEF ORE ALLOWING THE DEDUCTION UNDER SECTION 10AA OF THE ACT . 6.1 IN THIS CONTEXT, RELEVANT FACTS ARE THAT IN THE COMPUTATION OF INCOME ASSESSEE HAD BROUGHT FORWARD BUSINESS LOSS FROM ASS ESSMENT YEAR 2009-10 OF RS.2,14,77,088/-, WHICH WAS AVAILABLE FOR SET-OFF. OUT OF THIS, ASSESSEE 8 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) COMPANY CLAIMED A SET-OFF OF RS.63,96,770/-, AFTE R CLAIMING DEDUCTION UNDER SECTION 10AA OF THE ACT. HOWEVER, THE ASSESSING OF FICER SET-OFF THE BROUGHT FORWARD LOSS OF RS.2,14,77,088/- BEFORE ALLOWING DE DUCTION UNDER SECTION10AA OF THE ACT. AS A CONSEQUENCE THE ASSESSING OFFICER RESTRICTED THE CLAIM FOR DEDUCTION UNDER SECTION 10AA TO RS.52,42,006/- AS A GAINST AN AMOUNT OF RS.2,06,33,279/- CLAIMED IN THE RETURN OF INCOME. THE AFORESAID DECISION OF THE ASSESSING OFFICER HAS SINCE BEEN AFFIRMED BY THE CI T(A) ALSO, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6.2 BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US, THE PERTINENT PLEA OF THE ASSESSEE IS THAT THE EXEMPTION PROVIDED IN SECT ION 10AA OF THE ACT FALLS UNDER CHAPTER III OF THE ACT AND, THEREFORE, IT TAK ES PRECEDENCE OVER THE PROVISIONS PRESCRIBING FOR SET OFF OF LOSSES, WHICH FALL UNDER CHAPTER VI OF THE ACT. 6.3 AT THE TIME OF HEARING, LD. REPRESENTATIVE FOR THE ASSESSEE EMPHASIZED THAT THE APPROACH OF THE INCOME TAX AUTHORITIES IS MISCONCEIVED SINCE THE EXEMPTION UNDER SECTION 10AA OF THE ACT IS NOT A PA RT OF CHAPTER VI OF THE ACT AND, THEREFORE, THE SET-FF OF LOSS WOULD NOT TAKE P RECEDENCE. IN PARTICULAR, RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS BLACK AND VEATCH CONSULTING P VT. LTD. (2012) 348 ITR 72 (BOM) AND ALSO THE FOLLOWING DECISIONS OF THE MUMBA I BENCH OF THE TRIBUNAL:- (I) G.JEWELCRAFT LTD. V. ITO, 56TAXMANN.COM 192(MU M-TRIB) (II) RAVE TECHNOLOGIES (INDIA) P. LTD. VS. ACIT,41 CCH 267 (MUM TRIB) 9 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) 6.3 ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE HAS DEFENDED THE ORDERS OF THE AUTHORITIES BELOW AND IN PARTICULAR R ELIANCE HAS BEEN PLACED ON THE ORDER OF CIT(A), WHEREIN THE JUDGMENT OF THE HO N'BLE BOMBAY HIGH COURT IN THE CASE BLACK AND VEATCH CONSULTING PVT. LTD.( SUPRA) HAS BEEN DISTINGUISHED. 6.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AT THE OUTSET, WE MAY SAY THAT THE CONTROVERSY IN QUESTION IS LIABLE TO BE DECIDED IN THE LIGHT OF THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COUR T IN THE CASE OF BLACK AND VEATCH CONSULTING PVT. LTD.(SUPRA). THE ISSUE BEFO RE THE HON'BLE BOMBAY HIGH COURT RELATED TO THE CLAIM OF EXEMPTION UNDER SECTI ON 10A OF THE ACT. THE QUESTION OF LAW, WHICH WAS RAISED BEFORE THE HON'BL E BOMBAY HIGH COURT READ AS UNDER:- (A) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME-TAX APPELLATE TRIBUNAL WAS CORRECT IN HOLDIN G THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSSES OF THE UNIT THE INCOME WHICH IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT CANNOT BE SE T OFF AGAINST THE CURRENT PROFIT OF THE ELIGIBLE UNIT FOR COMPUTING THE DEDUCTION UNDE R SECTION 10A OF THE INCOME-TAX ACT. 6.4.1 IN THE CASE OF BLACK AND VEATCH CONSULTING PV T. LTD.(SUPRA), THE ASSESSING OFFICER ADJUSTED THE BROUGHT FORWARD LOSS OF EARLIE R YEARS BEFORE THE ARRIVING AT THE INCOME ELIGIBLE FOR THE DEDUCTION UNDER SECTION 10B OF THE ACT. THE HONBLE HIGH COURT CONSIDERED THE OBJECTION OF THE ASSESSING OFFICER AND FOUND IT UNTENABLE BY MAKING THE FOLLOWING DISCUSSION:- SECTION 10A IS A PROVISION WHICH IS IN THE NATURE OF A DECISION AND NOT AN EXEMPTION. THIS WAS EMPHASISED IN A JUDGMENT OF A DIVISION BEN CH OF THIS COURT, WHILE CONSTRUING THE PROVISIONS OF SECTION 10B, IN HINDUSTAN UNILIVE R LTD. VS. DEPUTY CIT (2010) 325 ITR 102 (BOM) AT PARAGRAPH 24. THE SUBMISSION OF THE R EVENUE PLACED ITS RELIANCE ON THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCT ION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF AR TICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS IS TO BE ALLOWED FROM THE 10 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) TOTAL INCOME OF THE ASSESSEE. THE DEDUCTION UNDER S ECTION 10A, IN OUR VIEW, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFI TS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SE CTION 72 WHICH HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF CHAPTER VI-A. SECTION 80A(1) STIPULATES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE CHAPTER THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A GROSS TOTAL INCOME T O MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT, BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. WHAT THE REVENUE IN ESSENCE SEE KS TO ATTAIN IS TO TELESCOPE THE PROVISIONS OF CHAPTER VI-A IN THE CONTEXT OF THE DE DUCTION WHICH IS ALLOWABLE UNDER SECTION 10A, WHICH WOULD NOT BE PERMISSIBLE UNLESS A SPECIFIC STATUTORY PROVISIONS TO THAT EFFECT WERE TO BE MADE. IN THE ABSENCE THEREO F, SUCH AN APPROACH CANNOT BE ACCEPTED. IN THE CIRCUMSTANCES, THE DECISION OF TH E TRIBUNAL WOULD HAVE TO BE AFFIRMED SINCE IT IS PLAIN AND EVIDENT THAT THE DED UCTION UNDER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PROFITS AND GAINS OF BU SINESS ARE COMPUTED IN THE FIRST INSTANCE. 6.4.2 QUITE CLEARLY, AS PER THE HONBLE HIGH COURT, THE DEDUCTION ENVISAGED UNDER SECTION 10A OF THE ACT IS TO BE GIVEN EFFECT AT THE STAGE OF COMPUTING PROFITS AND GAINS OF BUSINESS, WHICH IS ANTERIOR TO THE APPLICATION OF THE PROVISIONS TO SECTION 72 OF THE ACT , WHICH DEALS W ITH THE CARRY FORWARD AND SET- OFF OF BUSINESS LOSSES. THEREFORE, IT UPHELD THE S TAND OF THE ASSESSEE THAT THE DEDUCTION UNDER SECTION 10A OF THE ACT HAS TO BE AL LOWED BEFORE SETTING OFF BROUGHT FORWARD LOSSES. THE ASSESSEE RELIED ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT BEFORE THE CIT(A), BUT THE CIT(A ) OBSERVED THAT THE SAME WAS INAPPLICABLE IN THE INSTANT CASE. ACCORDING TO THE CIT(A), WHAT HAS BEEN HELD IN THE CASE OF BLACK AND VEATCH CONSULTING PVT . LTD.(SUPRA) IS THAT BROUGHT FORWARD LOSSES OF A NON-10A UNIT CANNOT BE SET-OFF FROM THE INCOME OF A 10A ELIGIBLE UNIT BEFORE ALLOWING THE DEDUCTION UNDER S ECTION 10A OF THE ACT, WHEREAS IN THE INSTANT CASE, THE ASSESSEE HAD CLAIM ED DEDUCTION UNDER SECTION 10AA OF THE ACT BEFORE SETTING OFF OF BROUGHT FORWA RD LOSES OF THE SAME ELIGIBLE UNIT. THE AFORESAID REASONING OF THE CIT(A), IN O UR VIEW, IS NOT TENABLE 11 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) BECAUSE THE RATIONALE LAID DOWN BY THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF BLACK AND VEATCH CONSULTING PVT. LTD.(SUPRA), WH ICH WE HAVE REPRODUCED ABOVE, MAKES NO DISTINCTION WITH REGARD TO THE DEDU CTION ALLOWABLE UNDER SECTION 10A OF THE ACT AS TO WHETHER THE SET-OFF OF BUSINESS LOSS PERTAINS TO THE ELIGIBLE OR NON-ELIGIBLE UNIT. NEVERTHELESS, THE O BJECTION OF THE REVENUE STANDS SETTLED BY THE HON'BLE BOMBAY HIGH COURT IN SUBSEQU ENT DECISION IN THE CASE CIT VS. TECHNO TRAP AND POLYMERS PVT. LTD., ITA NO. 2134 OF 2013, DATED 5 TH DECEMBER, 2015. IN THE SAID CASE, THE QUESTION OF LAW BEFORE THE HONBLE HIGH COURT WAS AS UNDER:- (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED LOSS/DEPRECIATION OF THE ASSESSEES 10B UNIT WAS NO T LIABLE FOR SET OFF AGAINST THE CURRENT YEARS PROFIT OF THE SAME 10B UNIT. A PERUSAL OF THE AFORESAID WOULD SHOW THAT IN THE CASE OF TECHNO TRAP AND POLYMERS PVT. LTD. (SUPRA), THE BROUGHT FORWARD LOS S RELATED TO THE VERY SAME UNIT, FOR WHICH THE CLAIM OF DEDUCTION UNDER SECTIO N 10B WAS UNDER CONSIDERATION. THE HONBLE HIGH COURT DISMISSED TH E STAND OF THE REVENUE AND THE FOLLOWING DISCUSSION IS REPRODUCED IN THIS CON TEXT:- 4. MR. SURESH KUMAR, LEARNED COUNSEL FOR THE REVEN UE DOES NOT DISPUTE THAT THE QUESTION AS FRAMED IS COVERED BY THE DECISION OF T HIS COURT IN BLACK & VEATCH CONSULTING (P) LTD. (SUPRA) & GANESH POLYCHEM LTD. VS. ITO(SUPRA). HOWEVER, HE SUBMITS THAT THE QUESTION AS FRAMED WOULD REQUIRE C ONSIDERATION AS THE CONTRARY VIEW TAKEN BY KARNATAKA HIGH COURT IN CIT VS. HIMA TASINGIKE SEIDE LTD.[(2006) 156 TAXMAN 151 (KAR)]HAS NOW BEEN UPHELD BY THE APEX C OURT IN ITS ORDER DATED 19 SEPTEMBER 2013 AS UNDER:- 1. WE HAVE HEARD THE LEARNED COUNSEL FOR THE PARTI ES TO THE LIS. 2. HAVING PERUSED THE RECORDS AND IN VIEW OF THE FA CTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE CIVIL APPE AL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED AND IS DISMISSED ACCORDING LY. ORDERED ACCORDINGLY 5. WE FIND THAT THE DECISION OF KARNATAKA HIGH COUR T IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT WAS IN RESPECT OF ASSESSMENT YEAR 1994-95. THUS, IT DEALT WITH THE PROVISIONS OF SEC TION 10B OF THE ACT AS EXISTING PRIOR 12 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) TO 1 APRIL 2001 WHICH WAS ADMITTEDLY DIFFERENT FROM SECTION 10B AS IN FORCE DURING ASSESSMENT YEAR 2009-10 INVOLVED IN THIS APPEAL. S ECTION 10B OF THE ACT AS EXISTING PRIOR TO 1 APRIL 2001 PROVIDED FOR AN EXEMPTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM EXPORT BY 100% EXPORT ORIENTED UNDERTAKING AND NOW IT PROVIDES FOR DEDUCTION OF PROFITS AND GAINS DERIVED FROM A 100% EXPORTED O RIENTED UNITS.. 6. IN ANY VIEW OF THE MATTER, THE DECISION OF THE KARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTUR BED BY THE APEX COURT DEALT WITH THE PROVISION OF LAW DIFFERENT FROM THAT WHICH WAS DEALT WITH IN THE IMPUGNED ORDER. A DECISION HAS TO BE CONSIDERED IN THE CONTEXT OF T HE LAW AS ARISING FOR CONSIDERATION AND A CHANGE IN LAW WOULD RENDER THE DECISION UNDE R THE OLD LAW INAPPLICABLE WHILE CONSIDERING THE AMENDED LAW. 7. THE ISSUE AS RAISED STANDS CONCLUDED BY THE DEC ISION OF THIS COURT IN BLACK & VEATCH CONSULTING (P) LTD.(SUPRA) AND GANESH POLYC HEM LTD. VS. ITO AGAINST THE REVENUE. THEREFORE, THE QUESTION OF LAW AS PROPOSE D FOR OUR CONSIDERATION DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. 6.4.3 QUITE CLEARLY, THE JUDGMENT OF THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF TECHNO TRAP AND POLYMERS PVT. LTD. (SUPRA ) SQUARELY MILITATES AGAINST THE STAND OF THE CIT(A) IN DENYING THE CLAIM OF TH E ASSESSEE. FURTHERMORE, THE CIT(A) HAS ALSO REFERRED TO THE JUDGMENT OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. HIMATASINGIKE SEIDE LTD 286 ITR 255 (KAR). IT HAS ALSO BEEN NOTED BY THE CIT(A) THAT THE SAID DECISION OF THE HON'BLE KARNATAKA HIGH COURT HAS BEEN UPHELD BY THE HON'BLE SUPREME COURT . IN THIS CONTEXT, IT MAY ONLY BE SAID THAT THIS FACET OF THE CONTROVERSY HA S ALSO BEEN TAKEN NOTE OF BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TECHN O TRAP AND POLYMERS PVT. LTD. (SUPRA) AS IS EVIDENT FROM THE EXTRACT OF THE DECISION REPRODUCED ABOVE. ACCORDING TO THE HON'BLE BOMBAY HIGH COURT, THE DEC ISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE S EIDE LTD .(SUPRA) DEALS WITH THE PROVISION OF LAW DIFFERENT FROM THE LAW APPLICA BLE IN THE SUBSEQUENT PERIOD, WHICH IS ALSO A FACT POSITION IN THE CASE B EFORE US. 6.4.4 APART THEREFROM, IT IS ALSO ABUNDANTLY CLEAR THAT THE DECISION IN THE CASE OF HIMATASINGIKE SEIDE LTD.(SUPRA) RELATED TO SET-O FF OF BROUGHT FORWARD 13 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) UNABSORBED DEPRECIATION, WHICH STANDS ON A DIFFERE NT FOOTING. FOR ALL THE ABOVE REASONS, AND HAVING REGARD TO THE JUDGMENTS O F THE HONBLE HIGH COURT IN THE CASE OF BLACK AND VEATCH CONSULTING PVT. LTD .(SUPRA) AND TECHNO TRAP AND POLYMERS PVT. LTD. (SUPRA), IT HAS TO BE HELD T HAT INCOME TAX AUTHORITIES ERRED IN SETTING-OFF OF LOSSES AMOUNTING TO RS.2,14 ,77,088/- OF ASSESSMENT YEAR 2009-10 FROM THE BUSINESS INCOME OF THE CURRENT YEA R BEFORE ALLOWING EXEMPTION UNDER SECTION 10AA OF THE ACT. ACCORDING LY, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO R ECOMPUTE THE DEDUCTION ALLOWABLE UNDER SECTION 10AA OF THE ACT, AS ABOVE. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 7. IN GROUND OF APPEAL NO.9, THE GRIEVANCE OF THE A SSESSEE IS AGAINST THE ACTION OF THE LOWER AUTHORITIES IN NOT GRANTING CRE DIT FOR THE FRINGE BENEFIT TAX (FBT) OF RS.25,000/- PAID ON 15/6/2010 TOWARDS REGU LAR INCOME TAX. THE GRIEVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFF ICER HAS NOT GIVEN CREDIT FOR THE AFORESAID PAYMENT WHILE COMPUTING THE INCOME TA X LIABILITY DURING THE COURSE OF FINALIZATION OF ASSESSMENT UNDER SECTION 143(3) OF THE ACT. EXPLAINING THE BACKGROUND LD. REPRESENTATIVE FOR TH E ASSESSEE POINTED OUT THAT FINANCE ACT, 2009 PROVIDED FOR DELETION OF FBT. TH E FINANCE ACT, 2009 WAS PASSED BY LOK SABHA ON27/07/2009 AND IT RECEIVED TH E ASSENT OF THE HONBLE PRESIDENT ON 19/08/2009. IN THE MEANWHILE ON 15/06 /2009, ASSESSEE MADE A PAYMENT OF FBT OF RS.25,000/-. TO OVERCOME THE DIF FICULTY IN SUCH CASES, WHERE TAX PAYERS HAVE PAID FIRST INSTALMENT OF FBT, THE CBDT ISSUED CIRCULAR NO.2120 DATED 29/1/2010 ALLOWING THE GRANT OF CREDI T OF ADVANCE TAX OF FBT TOWARDS RECOVERY OF INCOME TAX INSTALMENTS. 14 ITA NO.1311/MUM/2015 (ASSESSMENT YEAR 2010-11) 8. ACCORDING TO THE LD. REPRESENTATIVE FOR THE ASSE SSEE, NECESSARY CREDIT DESERVES TO BE ALLOWED TO THE ASSESSEE IN TERMS O F THE CBDT CIRCULAR DATED 29/1/2010. ON THIS ASPECT OF THE MATTER, THE LD. D EPARTMENTAL REPRESENTATIVE HAD NO OBJECTION AND ACCORDINGLY THE MATTER IS REST ORED BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL ALLOW APPROPRIATE RELI EF IN ACCORDANCE WITH LAW. THUS, GROUND OF APPEAL NO.9 OF THE ASSESSEE SUCCEED S FOR STATISTICAL PURPOSES. 9. THE LAST GROUND RELATES TO AN ADDITION ON ACCOUN T OF BOGUS PURCHASE OF RS.2,813/- HAS NOT BEEN ADDRESSED AND IS ACCORDINGL Y DISMISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/11/2016 SD/- SD/- ( RAM LAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 16/11/2016 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI