M/s. Zaveri & Co. Pvt.Ltd., Ahmedabad V. The CIT-IV, Ahmedabad

ITA 1395/AHD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5935 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 05-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 13-05-2013
• Court: TRIBUNAL
• Department Lawyers: SU
• Keywords: Business income; Services rendered outside India; Competent authority; Prejudicial to interest; Benefit of exemption
• Section: 143(3); 142(1); 10AA; 80HHC; 115JB; 10B; 263; 63; 15

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD 0 0 , , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 1395/AHD/2013 (ASSESSMENT YEAR 2009-10) & ITA NO. 1396/AHD/2013 (ASSESSMENT YEAR 2010-11) M/S ZAVERI & CO. PVT. LTD. SWAGAT BUILDING, C.G. ROAD AHMEDABAD-380009. PAN: AAACZ2014N V/S THE COMMISSIONER OF INCOME-TAX-IV, AHMEDABAD. (APPELLANT)/ (RESPONDENT)/ APPELLANT BY : SHRI MEHUL K. PATEL WITH SHRI J.C. SHAVEDALAL, AR RESPONDENT BY : SHRI R.K. DHANESTA, SR. DR WITH SH. K.R.MEGHWAL & SH. SU BHASH BAINS, DR / DATE OF HEARING : 06-03-2014 / DATE OF PRONOUNCEMENT : 07-05-2014 ( )/ ORDER PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE TWO APPEALS FILED BY THE ASSESSEE A GAINST THE ORDERS PASSED U/S 263 OF THE INCOME TAX ACT, 19 61 BY THE COMMISSIONER OF INCOME TAX, BOTH DATED 19.04.2013 I N RESPECT OF ASSESSMENT YEARS 2009-10 AND 2010-11. ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 2 - 2. THE ASSESSEE CHALLENGED THE VALIDITY OF THE ORD ERS PASSED U/S 263 ON THE FOLLOWING GROUNDS IN ITS APPE AL FOR ASSESSMENT YEAR 2009-10: 1. THAT ON FACTS, AND IN LAW, THE LEARNED CIT-IV, AHMA DABAD HAS GRIEVOUSLY ERRED IN ASSUMING JURISDICTION U/S 2 63 OF THE ACT. 2. THAT ON FACTS AND IN LAW, THE LEARNED CIT-IV, AHMAD ABAD HAS GRIEVOUSLY ERRED IN HOLDING THAT THE LEARNED AO HAS NOT DONE ANY INQUIRY NOR ANY VERIFICATION, WHEREAS, IN FACT, THE ASSESSMENT ORDER IS PASSED U/S 143(3) OF THE ACT AFTER THOROUGH INQUIRY THROUGH SHOW-CAUSE NOTIC E AND REPLIES, AND VERIFICATION OF ALL THE ISSUES SOUGHT TO BE REVISED. 3. THAT THE LEARNED CIT-IV, AHMADABAD HAS GRIEVOUSLY E RRED IN LAW AND ON FACTS IN HOLDING THAT THE APPELLANTS SEZ UNIT IS NOT ENTITLED TO DEDUCTION U/S 10AA OF THE A CT OF RS 76.11 CRORES. 4. THAT THE LEARNED CIT-IV, AHMADABAD HAS GRIEVOUSLY E RRED IN LAW AND ON FACTS IN HOLDING THAT THE APPELLANT I S NOT ENTITLED TO DEDUCTION U/S 10AA OF THE ACT WHILE COM PUTING BOOK PROFIT U/S 115JB OF THE ACT. 5. ON FACTS AND IN LAW, THE ENTIRE INCOME OF APPELLANT SEZ UNIT IS NOT INCLUDIBLE WHILE CALCULATING THE BOOK P ROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. 6. THAT ON FACTS AND IN LAW, THE LEARNED CIT-IV, AHMAD ABAD HAS GRIEVOUSLY ERRED IN HOLDING THAT THE INTEREST I NCOME IS REQUIRED TO BE TAXED AS INCOME FROM OTHER SOURCES, AND THAT THE APPELLANT IS NOT ENTITLED TO DEDUCTION U/S 10AA OF THE ACT ON THE INTEREST INCOME. 7. THAT THE LEARNED CIT-IV, AHMADABAD HAS GRIEVOUSLY E RRED IN LAW AND ON FACTS IN HOLDING THAT THE APPELLANT I S NOT ENTITLED FOR SET-OFF OF BROUGHT FORWARD BUSINESS LO SS AGAINST INCOME FROM OTHER SOURCES. 8. THAT ON FACTS AND IN LAW, THE LEARNED CIT-IV, AHMAD ABAD HAS GRIEVOUSLY ERRED IN SETTING ASIDE AND DIRECTING THE AO TO EXAMINE THE CORRECTNESS, GENUINENESS AND ALLOWAB ILITY OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS 70.97 CR ORES, RESULTING INTO MULTIPLICITY OF PROCEEDINGS. ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 3 - THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITS AP PEAL FOR ASSESSMENT YEAR 2010-11: 1. THAT ON FACTS, AND IN LAW, THE LEARNED CIT-IV, AHMEDABAD HAS GRIEVOUSLY ERRED IN ASSUMING JURISDIC TION U/S 263 OF THE ACT. 2. THAT ON FACTS AND IN LAW, THE LEARNED CIT-IV, AH MEDABAD HAS GRIEVOUSLY ERRED IN HOLDING THAT THE LEARNED AO HAS NOT DONE ANY INQUIRY NOR ANY VERIFICATION, WHEREAS, IN FACT, THE ASSESSMENT ORDER IS PASSED U/S 143(3) OF THE ACT AFTER THOROUGH INQUIRY THROUGH SHOW-CAUSE NOTIC E AND REPLIES, AND VERIFICATION OF ALL THE ISSUES SOU GHT TO BE REVISED. 3. THAT THE LEARNED CIT-IV, AHMEDABAD HAS GRIEVOUS LY ERRED IN LAW AND ON FACTS IN HOLDING THAT THE APPEL LANT'S SEZ UNIT IS NOT ENTITLED TO DEDUCTION U/S 10AA OF T HE ACT OF RS. 38.20 CRORES. 4. THAT THE LEARNED CIT-IV, AHMEDABAD HAS GRIEVOUSL Y ERRED -IN LAW AND ON FACTS IN HOLDING THAT THE APPE LLANT IS NOT ENTITLED TO DEDUCTION U/S 10AA OF THE ACT WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 5. ON FACTS AND IN LAW, THE ENTIRE INCOME OF APPELL ANT SEZ UNIT IS NOT INCLUDIBLE WHILE CALCULATING THE BOOK P ROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. 6. THAT ON FACTS AND IN LAW, THE LEARNED CIT-IV, AH MEDABAD HAS GRIEVOUSLY ERRED IN HOLDING THAT THE INTEREST I NCOME IS REQUIRED TO BE TAXED AS INCOME FROM OTHER SOURCE S, AND THAT THE APPELLANT IS NOT ENTITLED TO DEDUCTION U/S 10AA OF THE ACT ON THE INTEREST INCOME. 7. THAT THE LEARNED CIT-IV, AHMEDABAD HAS GRIEVOUSL Y ERRED IN LAW AND ON FACTS IN HOLDING THAT THE APPEL LANT IS NOT ENTITLED FOR SET-OFF OF BROUGHT FORWARD BUSINES S LOSS AGAINST INCOME FROM OTHER SOURCES. 8. THAT ON FACTS AND IN LAW THE LEARNED CIT-IV, AHM EDABAD HAS GRIEVOUSLY ERRED IN SETTING ASIDE AND DIRECTING THE AO TO EXAMINE THE CORRECTNESS, GENUINENESS AND ALLOWAB ILITY OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS 2.01 CRO RES, RESULTING INTO MULTIPLICITY OF PROCEEDINGS. ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 4 - 3. AS THE GROUNDS OF APPEAL AND THE ISSUES INVOL VED IN THE ASSESSMENT YEAR 2010-11 ARE SAME AS IN THE ASSE SSMENT YEAR 2009-10, BOTH THE PARTIES BEFORE US ADMITTED THAT A DJUDICATION OF APPEAL FOR THE ASSESSMENT YEAR 2009-10 WILL ALSO AD JUDICATE THE APPEAL FOR THE ASSESSMENT YEAR 2010-11. SO, WE PRO CEED TO ADJUDICATE THE APPEAL FOR ASSESSMENT YEAR 2009-10. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E WRITTEN SUBMISSIONS FILED BY BOTH THE PARTIES AND G ONE THROUGH ALL THE MATERIALS BROUGHT ON RECORD AND THE DECISIONS R ELIED UPON BY BOTH THE PARTIES. 5. IT IS A SETTLED POSITION THAT THE PROVISION OF SECTION 263 PROVIDES POWER OF SUO MOTU REVISION UPON THE COMMIS SIONER OF INCOME TAX WHEN THE ORDER PASSED BY THE ASSESSING O FFICER IS FOUND BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 6. FURTHER, THE ASSESSMENT ORDER CAN BE CONSIDERED AS ERRONEOUS WHEN IT IS FOUND BY THE COMMISSIONER OF I NCOME TAX THAT THE ORDER CONTAINS SOME MIS-APPLICATION OF LAW OR M IS-CONSTRUCTION OF FACTS OR NON-APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER. 7. NON-APPLICATION OF MIND IN THE CONTEXT MEANS ACCEPTANCE OF THE CLAIM OF THE ASSESSEE WITHOUT MAK ING ANY INQUIRY. 8. IT IS ALSO AN ACCEPTED POSITION OF LAW THAT THE LACK OF INQUIRY ON PART OF THE ASSESSING OFFICER WILL RESUL T IN THE ORDER BEING TERMED AS ERRONEOUS BUT MERELY BECAUSE THE INQUIRY THOUGH MADE ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 5 - WAS CONSIDERED BY THE COMMISSIONER OF INCOME TAX AS INSUFFICIENT OR NOT IN THE MANNER IN WHICH THE COMMISSIONER OF I NCOME TAX WOULD HAVE LIKED TO BE DONE WILL NOT MAKE THE ORDER OF THE ASSESSING OFFICER ERRONEOUS WITHIN THE MEANING OF S ECTION 263 OF THE ACT. 9. FURTHER, IT IS ALSO AN ESTABLISHED POSITION THA T WHEN TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS AD OPTED ONE OF THE POSSIBLE VIEWS, THEN SUCH AN ORDER OF THE ASSESSING OFFICER CANNOT BE CALLED ERRONEOUS. 10. FURTHER, THE PROVISIONS OF SECTION 263 CANNOT BE INVOKED FOR MERELY PROVIDING THE ASSESSING OFFICER A SECOND INNINGS TO PLAY UNLESS THE ORDER PASSED BY THE ASSESSING OF FICER IS FOUND BY THE COMMISSIONER OF INCOME TAX AS ERRONEOUS. 11. ON THE TOUCHSTONE OF THE ABOVE SETTLED POSITIO N OF LAW, THE VALIDITY OF THE ORDERS PASSED U/S 263 ARE TO BE TESTED. 12. IN THE INSTANT CASE, THE COMMISSIONER OF INCOM E TAX HAS CONSIDERED THE ORDER OF ASSESSMENT AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND HAS ORDERED AS UNDER: IN VIEW OF THE DISCUSSION MADE IN THE AFORESAID PA RAGRAPHS, THE ASSESSMENT ORDER PASSED ON 19 TH DEC. 2011, U/S. 143(3) OF THE ACT BY THE ASSESSING OFFICER IS TREATED AS E RRONEOUS AND PREJUDICIAL TO INTEREST OF REVENUE HENCE SAME I S SET ASIDE AND TO BE MODIFIED AS UNDER: (I) AS ASSESSEE HAS NOT FULFILLED THE CONDITIONS FO R ELIGIBILITY OF DEDUCTION UNDER SECTION 10AA FOR CAR RYING OUT THE SERVICES AS PER SECTION 2(Z) OF SEZ ACT, 20 05 I.E. IMPORT FOR THE PURPOSE OF RE-EXPORT AND HAS NO T EARNED ANY FOREIGN EXCHANGE FOR THE COUNTRY, WHICH IS THE MAIN INTENTION BEHIND THE PROVISIONS OF SECTION 10AA OF THE ACT, AS DISCUSSED HEREIN ABOVE, ASSESSE E ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 6 - IS NOT ENTITLED TO EXEMPTION UNDER SECTION 10AA OF THE ACT, BOTH WHILE COMPUTING INCOME AS PER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT U/S 115JB OF THE ACT. (II) THE ASSESSING OFFICER WILL EXAMINE THE CORRECT NESS, GENUINENESS AND ALLOWABILITY OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS 70.97 CRORES AND DECIDE THE ISSUE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESS EE. (III) THE INTEREST INCOME EARNED BY ASSESSEE ON BAN K FDR IS REQUIRED TO BE TAXED AS INCOME FROM OTHER SOURCE S, AS DISCUSSED IN DETAIL HEREINABOVE AND THE SAME CANNOT BE TREATED AS PROFIT DERIVED FROM EXPORT OF SERVICE OUTSIDE INDIA AND ELIGIBLE BUSINESS ACTIVIT Y AS PER SEZ ACT, 2005. THE ASSESSEE WILL NOT BE ENTITL ED TO EXEMPTION U/S 10AA ON INTEREST INCOME EARNED ON BANK FDRS. (IV) AS INTEREST INCOME EARNED ON FDRS IS TO BE TAX ED AS INCOME FROM OTHER SOURCES, ASSESSEE WOULD NOT BE ENTITLED FOR SET OFF OF BROUGHT FORWARD BUSINESS LO SS, IF ANY AVAILABLE, AGAINST INCOME FROM OTHER SOURCES. 13. THE FIRST CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE BEFORE US IS THAT TH E ASSESSING OFFICER HAD DURING THE COURSE OF ASSESSMENT PROCEED INGS CALLED FOR THE EXPLANATION OF THE ASSESSEE FOR ITS CLAIM OF DE DUCTION U/S 10AA, BROUGHT FORWARD LOSS, INTEREST RECEIPT FROM BANK ON FIXED DEPOSITS AND COMPUTATION OF INCOME U/S 115JB OF THE ACT AND THE ASSESSEE IN REPLY SUBMITTED ITS EXPLANATION WITH EVIDENCES A ND SUPPORTING DECISIONS. 14. THE ASSESSING OFFICER AFTER MAKING INQUIRIES A ND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ACCEPTE D THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10AA, SET OFF OF BRO UGHT FORWARD BUSINESS LOSS, INTEREST INCOME ON FIXED DEPOSIT REC EIPTS AS PART OF BUSINESS INCOME AND COMPUTATION OF INCOME U/S 115JB OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE IN SUPPORT OF THE ABOVE ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 7 - ARGUMENTS DREW OUR ATTENTION TO THE NOTICE ISSUED B Y THE ASSESSING OFFICER U/S 142(1) OF THE ACT. IN VIEW OF THE ABOV E, THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT AS T HE ABOVE CLAIMS WERE ACCEPTED BY THE ASSESSING OFFICER AFTER MAKING DUE INQUIRIES, THEREFORE, THE ORDER OF THE ASSESSING OFFICER CANNO T BE CONSIDERED AS ERRONEOUS. 15. FURTHER, THE LD. AUTHORIZED REPRESENTATIVE ALS O CONTENDED THAT AS A POSSIBLE VIEW IN RESPECT OF THE ABOVE ISSUES WAS ADOPTED BY THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER, THEREFORE, THE COMMISSIONER OF INCOME TAX WAS NOT J USTIFIED IN PASSING THE IMPUGNED ORDER IN RESPECT OF ABOVE ISSU ES MERELY FOR TAKING A DIFFERENT VIEW. IN SUPPORT OF THE ABOVE C ONTENTIONS, THE LD. AUTHORIZED REPRESENTATIVE RELIED UPON THE DECIS IONS IN THE CASE OF CIT VS. MAX INDIA LIMITED 295 ITR 282 (SC) AND M ALABAR INDUSTRIAL LIMITED 243 ITR 82 (SC) AND CIT VS. ARVI ND JEWELLERS 259 ITR 502 (GUJ.). 16. WE FIND THAT IN THE IMPUGNED ORDER, COMMISSION ER OF INCOME TAX HAS MODIFIED THE ORDER OF THE ASSESSING OFFICER AS COMMISSIONER OF INCOME TAX HAS HELD THAT THE ASSESS EE IS NOT ELIGIBLE FOR DEDUCTION U/S 10AA OF THE ACT, UNDER B OTH COMPUTATION I.E. COMPUTATION U/S 115JB OF THE ACT AS WELL AS UN DER NORMAL COMPUTATION (COMPUTATION AS PER OTHER PROVISIONS OF THE ACT EXCEPT 115JB), INTEREST INCOME EARNED BY THE ASSESSEE ON F IXED DEPOSIT RECEIPT IS ASSESSABLE UNDER THE HEAD INCOME FROM O THER SOURCES AND NOT UNDER THE HEAD PROFIT AND GAINS OF BUSINES S AND PROFESSION. CONSEQUENTIALLY, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 10AA IN RESPECT OF SUCH INTEREST INCO ME AND THE ASSESSEE IS ALSO NOT ENTITLED FOR SET-OFF OF BROUGH T FORWARD BUSINESS LOSS AGAINST SUCH INTEREST INCOME. THUS, THE COMMI SSIONER OF ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 8 - INCOME TAX FOUND THAT THE VIEW IN RESPECT OF ABOVE ISSUES ADOPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS UNSUSTAINABLE. 17. THEREFORE, IT CANNOT BE HELD THAT COMMISSIONER OF INCOME TAX HAS CONSIDERED THE ORDER OF THE ASSESSIN G OFFICER AS ERRONEOUS IN RESPECT OF ABOVE ISSUES ON THE GROUND THAT THE ASSESSING OFFICER ACCEPTED THE CLAIM OF THE ASSESSE E WITHOUT APPLICATION OF MIND, BUT RATHER THE SUBSTANCE OF TH E ORDER OF THE COMMISSIONER OF INCOME TAX IS THAT THE VIEW ADOPTED BY THE ASSESSING OFFICER IN RESPECT OF ABOVE ISSUES IS UNS USTAINABLE I.E. NOT A POSSIBLE VIEW IN VIEW OF THE FACTS OF THE CASE. HENCE, WE HAVE TO ADJUDICATE WHETHER THE VIEW ADOPTED BY THE ASSESSIN G OFFICER IN RESPECT OF ABOVE ISSUES WAS A POSSIBLE VIEW OR NOT. 18. THE FIRST ISSUE IS IN RESPECT OF ELIGIBILITY O F DEDUCTION U/S 10AA OF THE ACT. THE COMMISSIONER OF INCOME TAX CO NSIDERED THAT THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION U/S 10A A ON THE GROUND THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS FOR ELIGIBILITY OF DEDUCTION U/S 10AA FOR CARRYING OUT THE SERVICES AS PER SECTION 2(Z) OF THE SEZ ACT, 2005 I.E. IMPORT FOR THE PURPOSES O F RE-EXPORT AND HAS NOT EARNED ANY FOREIGN EXCHANGE FOR THE COUNTRY WHICH IS THE MAIN INTENTION BEHIND THE PROVISIONS OF SECTION 10A A OF THE ACT. IN VIEW OF THIS, THE COMMISSIONER OF INCOME TAX ORDERE D THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S 10AA OF T HE ACT, BOTH WHILE COMPUTING INCOME AS PER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT U/S 115JB OF THE ACT. FOR THE ABOVE IS SUE, IT IS NECESSARY TO GIVE A LOOK AT THE PROVISIONS OF THE S UB-SECTION (1) OF SECTION 10AA OF THE ACT WHICH READS AS UNDER: 10AA. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, BEING AN ENTREPRENEUR AS REFERRED TO IN CLAUSE (J) OF SECTIO N 2 OF THE ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 9 - SPECIAL ECONOMIC ZONES ACT, 2005, FROM HIS UNIT, WH O BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR PRO VIDE ANY SERVICES DURING THE PREVIOUS YEAR RELEVANT TO ANY A SSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2 006, A DEDUCTION OF (I) HUNDRED PER CENT OF PROFITS AND GAINS DERIVE D FROM THE EXPORT, OF SUCH ARTICLES OR THINGS OR FROM SERVICES FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNIT BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR PROVIDE SERVICES, AS THE CASE MAY BE, AND FIFTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS AND THEREAFTER; (II) FOR THE NEXT FIVE CONSECUTIVE ASSESSMENT YE ARS, SO MUCH OF THE AMOUNT NOT EXCEEDING FIFTY PER CENT OF THE PROFIT AS IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR IN RESPECT OF WHICH THE DEDUCTION IS TO BE ALL OWED AND CREDITED TO A RESERVE ACCOUNT (TO BE CALLED THE SP ECIAL ECONOMIC ZONE RE-INVESTMENT RESERVE ACCOUNT) TO BE CREATED AND UTILIZED FOR THE PURPOSES OF THE BUSINE SS OF THE ASSESSEE IN THE MANNER LAID DOWN IN SUB-SECTION (2) . 19. IN THE INSTANT CASE, WE FIND THAT IT IS AN UND ISPUTED FACT THAT THE ASSESSEE IN ITS SEZ UNIT IS ENGAGED IN CAR RYING ON BUSINESS OF TRADING IN GOLD, PLATINUM AND DIAMOND. THE SEZ UNIT INTER ALIA IMPORTS GOODS FROM SUPPLIER OF DUBAI AND RE-EXPORTS IT. 20. IT IS NOT IN DISPUTE THAT THE INCOME FROM ABOV E ACTIVITY QUALIFIES FOR DEDUCTION U/S 10AA OF THE ACT. THE A BOVE VIEW IS SUPPORTED BY THE INSTRUCTION NO. 4 DATED 24.05.2006 ISSUED BY GOVERNMENT OF INDIA, MINISTRY OF COMMERCE & INDUSTR Y WHEREIN IT IS STATED AS UNDER: THIS DEPARTMENT HAS BEEN RECEIVING REPRESENTATIONS ON DIFFICULTIES FACED BY THE EXISTING SEZ UNITS HOLDIN G APPROVAL TO DO TRADING, THAT THEIR EXPORTS ARE ADVERSELY AFF ECTED AND ALSO THAT SEVERAL OF THEIR ORDERS ARE HELD UP DUE T O THE RESTRICTION ON TRADING ON ACCOUNT OF THE ABOVE INST RUCTION. TAKING COGNIZANCE OF THESE REPRESENTATIONS, PARTIAL MODIFICATION OF THE ABOVE REFERRED INSTRUCTION DATE D 24 TH ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 10 - MARCH, 2006, IT HAS BEEN DECIDED THAT WHILE UNITS I N THE SPECIAL ECONOMIC ZONE WHO HOLD APPROVAL TO DO TRADI NG ACTIVITIES WILL BE ALLOWED TO CARRY OUT ALL FORMS O F TRADING ACTIVITY, THE BENEFITS UNDER SECTION 10AA WILL EXCL UDE TRADING OTHER THAN TRADING IN THE NATURE OF EXPORT OF IMPOR TED GOODS. APPROPRIATE AMENDMENTS IN THIS REGARD ARE BEING ISS UED. 2. IN THE MEANTIME, SOURCING FROM DOMESTIC AREA MAY BE PERMITTED BY UNITS IN THE SEZS WHICH ARE ALLOWED TO DO TRADING, SUBJECT TO THIS CIRCULAR BEING CITED AND O N PRODUCTION OF AN UNDERTAKING BY THE CONCERNED UNIT THAT NO INC OME TAX BENEFITS WILL BE AVAILABLE BY THE UNIT FOR TRADING, EXCEPT IN THE NATURE OF RE-EXPORT OF IMPORTED GOODS. 21. THUS, IT IS CLEAR THAT SEZ UNITS ARE NOT ENTIT LED FOR DEDUCTION U/S 10AA IN RESPECT OF TRADING GOODS EXPO RTED FROM SEZ WHEN SUCH GOODS WERE PROCURED FROM DOMESTIC TARIFF AREA AND THE ASSESSEE IS ENTITLED FOR INCOME TAX BENEFIT U/S 10A A IN RESPECT OF TRADING WHICH IS IN THE NATURE OF RE-EXPORT OF IMPO RTED GOODS. TO THE SAME EFFECT IS THE DECISION OF THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S GOENKA DIAMOND & JEWELLERS LIMITED ITA NO. 509/JP/2011 ASSESSMENT YEAR 2008-09. 22. FURTHER, IT IS ALSO NOT IN DISPUTE THAT THE AB OVE ACTIVITY OF THE ASSESSEE WAS STARTED DURING THE ASSESSMENT Y EAR 2008-09. THUS, THE ONLY OTHER CONDITION IS THAT THE ASSESSEE MUST BE AN ENTREPRENEUR AS REFERRED TO IN CLAUSE (J) OF SECTIO N 2 OF SEZ ACT, 2005. THE SECTION 2(J) OF SEZ ACT, 2005 READS AS U NDER: 'ENTREPRENEUR' MEANS A PERSON WHO HAS BEEN GRANTED A LETTER OF APPROVAL BY THE DEVELOPMENT COMMISSIONER UNDER SUB- SECTION (9) OF SECTION 15. 23. SUB-SECTION (9) OF SECTION 15 OF SEZ ACT, 2005 READS AS UNDER: ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 11 - THE DEVELOPMENT COMMISSIONER MAY, AFTER APPROVAL O F THE PROPOSAL REFERRED TO IN SUB- SECTION (3), GRANT A L ETTER OF APPROVAL TO THE PERSON CONCERNED TO SET UP A UNIT A ND UNDERTAKE SUCH OPERATIONS WHICH THE DEVELOPMENT COMMISSIONER MAY AUTHORIZE AND EVERY SUCH OPERATION SO AUTHORIZED SHALL BE MENTIONED IN THE LETTER OF APPR OVAL. 24. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS BEEN GRANTED AN APPROVAL BY THE DEVELOPMENT COM MISSIONER UNDER SUB-SECTION (9) OF SECTION 15 OF THE SEZ ACT, 2005. A COPY OF THE SAID APPROVAL VIDE LETTER NO. SSEZ/II/18/2007-0 8/603 DATED 30.10.2007 IS PLACED AT PAGE NO. 908 OF THE PAPER B OOK. 25. FURTHER, ORIGINALLY DEVELOPMENT COMMISSIONER, SURAT SPECIAL ECONOMIC ZONE GRANTED APPROVAL TO THE ASSES SEES SEZ UNIT IN RESPECT OF MANUFACTURING OF GOLD, SILVER, PLATIN UM, PALLADIUM, COINS (OTHER THAN LEGAL TENDERS), PLAIN JEWELLERY, STUDDED JEWELLERY & ARTICLES THEREOF OR COMBINATION THEREOF WITH OR W ITHOUT DIAMONDS AND/OR SEMIPRECIOUS STONES, CUT & POLISHED DIAMONDS , SEMI PRECIOUS STONES {UNDER CHAPTER-71 OF ITC (HS)} VIDE LETTER NO. SSEZ/II/18/2007-08/663 DATED 30.08.2007, COPY OF WH ICH IS PLACED AT PAGE NOS. 908 TO 910 OF PAPER BOOK-III. HOWEVER, THE SAID CERTIFICATE WAS AMENDED VIDE LETTER NO. SSEZ/I I/018/2007- 08/824 DATED 18.10.2007 WHEREIN THE ASSESSEE WAS GR ANTED APPROVAL FOR TRADING ALSO WHICH READS AS UNDER: GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY, OFFICE OF THE DEVELOPMENT COMMISSIONER SURAT SPECIAL ECONOMIC ZONE NEAR SACHIN RAILWAY STATION, DIAMOND PARK, SACHIN, SURAT-394230 . PHONE NO. [phone]; 2397667; FAX NO. [phone]. NO. SSEZ/II/018/2007-08/824 DATED: 18 TH OCTOBER, 2007 ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 12 - M/S ZAVERI & CO. PVT. LTD. SWAGAT, C.G. ROAD, AHMEDABAD-380009. SUB: YOUR PROPOSAL FOR TRADING ACTIVITY IN THE SURA T SPECIAL ECONOMIC ZONE. REFERENCE:- LOA NO. SSEZ/II/18/2007-08/663 DATED 30 -08- 2007 DEAR SIRS, I AM DIRECTED TO REFER TO YOUR LETTER DATED 18-09-2 007, ON THE ABOVE SUBJECT AND TO CONVEY THE APPROVAL OF THE COMPETENT AUTHORITY/DEVELOPMENT COMMISSIONER FOR BR OAD- BANDING OF LETTER OF APPROVAL NO. SSEZ/II/18/2007-0 8/663 DATED 30-08-2007 AS AMENDED, AND TO INCLUDE TRADING AND EXPORT OF THE FOLLOWING ITEMS WITH ALL THE FACILITI ES AND ENTITLEMENTS ADMISSIBLE TO A UNIT IN THE SURAT SPEC IAL ECONOMIC ZONE SUBJECT TO THE PROVISIONS OF THE SPEC IAL ECONOMIC ZONES ACT, 2005 AND THE RULES AND ORDERS M ADE THEREUNDER, FROM UNIT NO. 364, ON PLOT NO. 239, SUR AT SPECIAL ECONOMIC ZONE, SACHIN, SURAT IN THE STATE O F GUJARAT. AUTHORIZED OPERATIONS:- SR. NO. ACTIVITY 01. TRADING:- TRADING OF GOLD, SILVER, PLATINUM, PALLADIUM, BARS, COINS (OTHER THAN LEGAL TENDERS) AND MEDALLIONS. {UNDER CHAPTER-71 OF ITC (HS)} (1) CONDITIONS :- (I) YOU SHALL EXPORT THE GOODS PROCURED/IMPORTED, A S PER PROVISIONS OF THE SPECIAL ECONOMIC ZONES ACT, 2005 AND RULES MADE THERE-UNDER FOR A PERIOD OF FIVE YEA RS FROM THE DATE OF COMMENCEMENT OF TRADING ACTIVITIES . FOR THIS PURPOSE, YOU SHALL EXECUTE A FRESH BOND- CUM -LEGAL UNDERTAKING AS PRESCRIBED UNDER THE SPECIAL ECONOMIC ZONE RULES, 2006, FOR BOTH MANUFACTURING AND TRADING OPERATION CONSOLIDATED. ( II ) YOU SHALL ACHIEVE POSITIVE NET FOREIGN EXCHANGE (NFE) AS PRESCRIBED IN THE SPECIAL ECONOMIC ZONE RULES, 2006 FOR THE PERIOD YOU OPERATE AS A UNIT IN THE SPECIAL ECONOMIC FROM THE COMMENCEMENT OF ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 13 - PRODUCTION, FAILING WHICH YOU SHALL BE LIABLE FOR P ENAL ACTION UNDER THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992. (III) YOU MAY IMPORT OR PROCURE FROM THE DOMESTIC T ARIFF AREA ALL THE ITEMS REQUIRED FOR YOUR AUTHORIZED OPERATIONS UNDER THIS APPROVAL, EXCEPT THOSE PROMOT ED UNDER THE ITC (HS) CLASSIFICATIONS OF EXPORT AND IMPORT ITEMS. (IV) THE BENEFITS UNDER SECTION-10AA OF THE INCOME TAX ACT, SHALL EXCLUDE TRADING OTHER THAN TRADING IN TH E NATURE OF RE-EXPORT OF IMPORTED GOODS ONLY. IF YOU ENVISAGE DTA PROCUREMENT, YOU SHALL MAINTAIN SEPARATE ACCOUNT, ETC. AS PROVIDED UNDER SEZ ACT AN D RULES THERE-UNDER. (V) DATE OF COMMENCEMENT OF TRADING ACTIVITIES SHAL L BE INTIMATED TO THE DEVELOPMENT COMMISSIONER. (VI) YOU SHALL UNDERTAKE TRADING ACTIVITIES IN A SE GREGATED PREMISES AND SEPARATE ACCOUNT SHALL BE MAINTAINED WITH PROPER IDENTIFICATION. (VII) YOU SHALL FOLLOW THE RBI REGULATIONS. (2) IF YOU FAIL TO COMPLY WITH THE CONDITIONS STIPU LATED ABOVE, THIS LETTER OF APPROVAL SHALL BE CANCELLED A S PER THE PROVISIONS OF THE SPECIAL ECONOMIC ZONES ACT, 2005 AND THE RULES AND ORDERS MADE THERE-UNDER. (3) THIS LETTER MAY BE KEPT ATTACHED WITH THE ORIGI NAL LETTER OF APPROVAL, AS AMENDED. ALL FUTURE CORRESPONDENCE MAY BE ADDRESSED TO THE DEVELOPMENT COMMISSIONER, SURAT SEZ. YOURS FAITHFULLY (R.P. VAIDYA) OFFICER ON SPECIAL DUTY, FOR DEVELOPMENT COMMISSIONER SURAT SPECIAL ECONOMIC ZONE COPY OF THE SAID LETTER IS PLACED AT PAGE NOS. 911 TO 913 OF PAPER BOOK-III. FURTHER, VALIDITY OF APPROVAL WAS RENEWE D TILL 25.10.2017 VIDE LETTER NO. SSEZ/II/18/2007-08/1229 DATED 17.01 .2013, COPY OF WHICH IS PLACED AT PAGE NO. 1282 OF THE PAPER BO OK-IV. ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 14 - 26. THUS, WE FIND THAT THE ASSESSEE IS ENTREPRENEU R AS REFERRED TO IN CLAUSE (J) OF SECTION 2 OF THE SEZ A CT, 2005 WHO BEGAN TO PROVIDE SERVICES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09. THEREFORE, IN OUR OPINION , THE ASSESSING OFFICERS VIEW THAT THE ASSESSEE IS ENTITLED FOR DE DUCTION U/S 10AA CANNOT BE HELD AS AN IMPOSSIBLE VIEW ON THE BASIS O F THE LANGUAGE EMPLOYED U/S 10AA OF THE ACT. THE COMMISSIONER OF INCOME TAX CONSIDERED THAT THE ASSESSEE IS NOT ENTITLED FOR DE DUCTION U/S 10AA OF THE ACT ON THE GROUND THAT NET FOREIGN EXCHANGE EARNING FOR THE SAID UNIT IS NEGATIVE. IN CALCULATING NET FOREIGN EXCHANGE EARNING AS NEGATIVE, THE COMMISSIONER OF INCOME TAX RELIED UPON EXPORT PROMOTION COUNCIL FOR EOUS AND SEZS CIRCULAR NO. 42 DATED 26.03.2007 AND VIEWED THAT THE PURCHASES MADE BY TH E ASSESSEE FROM DOMESTIC TARIFF AREA SHOULD BE TREATED AS IMPO RT AND THEREFORE, THE PURCHASE VALUE SHOULD BE REDUCED FROM THE FOREI GN EXCHANGE EARNINGS OF THE ASSESSEE FOR CALCULATING NET FOREIG N EXCHANGE EARNING. 27. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSES SEE POINTED OUT THAT THE SAID EXPORT PROMOTION COUNCIL FOR EOUS AND SEZS CIRCULAR NO. 42 DATED 26.03.2007 CONTAINS ONLY A PROPOSED CHANGE IN RULE 53 OF SEZ RULES, 2006 BUT THAT CHANG E HAS NOT YET BEEN INCORPORATED. IN SUPPORT OF THE ABOVE, THE AU THORIZED REPRESENTATIVE OF THE ASSESSEE FILED BEFORE US CLAR IFICATION DATED 27.02.2014 ISSUED BY EXPORT PROMOTION COUNCIL FOR E OUS AND SEZS NO. EDC/SEZ/AM04/A.14 DATED 26.02.2014 WHICH READS AS UNDER: FROM EPCES HO [e-mail] SENT: THU, 27 FEB. 2014 13:02:02:05 TO MR. MRUGESH SHAH [e-mail] SUBJECT: CLARIFICATION-REG. ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 15 - EXPORT PROMOTION COUNCIL FOR EOUS AND SEZS MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDI A 8G, HANSALAYA BUILDING, 15, BARAKHAMBA ROAD, NEW DELHI-110001. TEL:[phone] FAX NO. 011-233297 70 O.P.KAPOOR NO. EPC/SEZ/AM04/A.14 DY. DIRECTOR GENERAL FEBRUARY 26 2014 MOBILE: [phone] DEAR SIR, THIS IS WITH REFERENCE TO YOUR EMAIL REGARDING APPLICABILITY OF CIRCULARS ON SEZS, IN THIS REGARD, WE ARE TO INFORM YOU AS UNDER: 1. AS REGARDS CIRCULAR ISSUED BY EPCES N.16/2007-08 DATED 11/7/07, KINDLY NOTE THAT THIS CIRCULAR IS ME ANT FOR EOUS ONLY. 2. AS REGARDS EPCES CIRCULAR NO. 42 DATED 26/3/07, THIS SUGGESTION WAS NOT INCLUDED IN SEZ RULE 53. TO REA D THE UPDATED SEZ RULE 53, PLEASE VISIT WEBSITE WWW.SEZINDIA.NIC.IN . 3. AS REGARDS CIRCULAR NO. 12/2008-CUSTOMS DATED 24/7/08, THIS CIRCULAR IS ALSO MEANT FOR EOUS ONLY. KINDLY NOTE THAT EPCES HAS SHIFTED ITS PREMISES FRO M BHIKAJI CAMA BHAWAN TO ITS OWN PREMISES AS THE ADDRESS MENT IONED ABOVE, KINDLY NOTE THE NEW ADDRESS AND CONTACT DETA ILS. WITH WARM REGARDS, YOURS SINCERELY (O.P. KAPOOR) DY. DIRECTOR GENERAL 28. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ALSO SUBMITTED BEFORE US A CLARIFICATION ISSUED BY THE G OVERNMENT OF INDIA, MINISTRY OF ECONOMIC AND INDUSTRY, OFFICE OF THE DEVELOPMENT COMMISSIONER, SURAT SPECIAL ECONOMIC ZONE DATED 03. 03.2014 WHICH READS AS UNDER: ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 16 - GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY, OFFICE OF THE DEVELOPMENT COMMISSIONER SURAT SPECIAL ECONOMIC ZONE NEAR SACHIN RAILWAY STATION, DIAMOND PARK, SACHIN, SURAT. NO. SSEZ/II/18/2007-08/1408 DATED 3 RD MARCH 2014- TO, M/S ZAVERI & CO. PVT. LTD. UNIT NO. 364 ON PLOT NO. 239 SURAT SPECIAL ECONOMIC ZONE, SURAT. GENTLEMEN, SUB: REQUEST FOR CLARIFICATION REG. PLEASE REFER TO YOUR LETTER 27.02.2014 ON THE ABOVE MENTIONED SUBJECT AND IN THIS CONNECTION IT IS TO C LARIFY THAT: A. EPCES CIRCULAR NO. 16/2007 IS NOT APPLICABLE TO SEZ S. IT PERTAINS TO EOUS ONLY. B. REGARDING EPCES CIRCULAR NO. 42, IT IS ONLY A SUGGESTION BY EPCES HOWEVER, THE SUGGESTIONS HAVE NOT BEEN INCORPORATED IN SEZ ACT/RULES SO FAR. C. CIRCULAR NO. 12/2008-CUS IS NOT APPLICABLE TO SEZS. IT PERTAINS TO EOUS ONLY. 2. IT IS ALSO TO CLARIFY THAT THOUGH SEZS AND EOUS, BOTH ARE EXPORT PROMOTION SCHEMES, THEY ARE GOVERNED BY DIFFERENT PROVISIONS. SEZS ARE GOVERNED BY SEZ ACT , 2005 AND RULES FRAMED THEREUNDER. 100% EOUS ARE GOVERNE D BY FOREIGN TRADE POLICY. YOURS SINCERELY (VIJAY N SHEWALE) DEVELOPMENT COMMISSIONER SURAT SPECIAL ECONOMIC ZONE 29. FURTHER, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAS RECEIVED A RENEWAL FROM DEVELOPMENT COMMISSIONER, SURAT SPECIAL ECONOMIC ZO NE ON ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 17 - 17.01.2013 UPTO A PERIOD OF 5 YEARS I.E. UPTO 25.10 .2017 WHICH CONCLUSIVELY PROVES THAT THE ANNUAL PERFORMANCE REP ORT SUBMITTED BY THE ASSESSEE BEFORE THE SEZ AUTHORITIES SHOWING POSITIVE NET FOREIGN EXCHANGE EARNINGS WERE IN ACCORDANCE WITH T HE SEZ ACT AND SEZ RULES AND THE ASSESSEE COMPLIED WITH SEZ ACT AN D SEZ RULES. 30. THE LD. AUTHORIZED REPRESENTATIVE ALSO POINTED OUT THAT THE APPROVAL COMMITTEE OF SEZ, WHO EXAMINED AND APP ROVED THE ANNUAL PERFORMANCE REPORT FILED BY THE ASSESSEE CON SISTS OF VARIOUS PERSONS INCLUDING COMMISSIONER OF INCOME TAX AND TH EY HAVE NOT FOUND ANY DEFECT WHILE MONITORING ASSESSEES WORKIN G ACHIEVING POSITIVE NET FOREIGN EXCHANGE EARNINGS AS SUBMITTED IN THE ANNUAL PERFORMANCE REPORT. 31. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON R ECORD BY THE REVENUE TO CONTROVERT THE ABOVE SUBMISSION OF T HE ASSESSEE. FURTHER, WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF GESTATNER DUPLICATORS PRIVATE LTD. VS. CIT 117 ITR 1 (SC) HELD AS UNDER: IN THAT SITUATION WE DO NOT THINK THAT IT WAS OPEN TO THE TAXING AUTHORITIES TO QUESTION THE RECOGNITION IN A NY OF THE RELEVANT YEARS ON THE GROUND THAT THE ASSESSEES PR OVIDENT FUND DID NOT SATISFY ANY PARTICULAR CONDITION MENTI ONED IN R.4. IT WOULD BE CONDUCIVE TO JUDICIAL DISCIPLINE AND TH E MAINTAINING OF CERTAINTY AND UNIFORMITY IN ADMINIST ERING THE LAW THAT THE TAXING AUTHORITIES SHOULD PROCEED ON T HE BASIS THAT THE RECOGNITION GRANTED AND AVAILABLE FOR ANY PARTICULAR ASSESSMENT YEAR IMPLIED THAT THE PROVIDENT FUND SAT ISFIES ALL THE CONDITIONS UNDER R. 4 OF PART A OF THE FOURTH S CHEDULE TO THE ACT AND NOT SIT IN JUDGMENT OVER IT. THERE IS AMPLE POWER CONFERRED UPON THE CIT UNDER R. 3 OF PART A O F THE FOURTH SCHEDULE TO WITHDRAW AT ANY TIME THE RECOGNI TION ALREADY GRANTED IF, IN HIS OPINION, THE PROVIDENT F UND CONTRAVENES ANY OF THE CONDITIONS REQUIRED TO BE SA TISFIED FOR ITS RECOGNITION AND IF DURING THE ASSESSMENT PROCEE DINGS FOR ANY PARTICULAR ASSESSMENT YEAR THE TAXING AUTHORITY FINDS THAT THE PROVIDENT FUND MAINTAINED BY AN ASSESSEE H AS CONTRAVENED ANY OF THE CONDITIONS OF RECOGNITION, H E MAY ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 18 - REFER THE QUESTION OF WITHDRAWAL OF RECOGNITION TO THE CIT BUT UNTIL THE CIT ACTING UNDER THE POWERS RESERVED TO H IM WITHDRAWS SUCH RECOGNITION THE TAXING AUTHORITY MUS T PROCEED ON THE BASIS THAT THE PROVIDENT FUND HAS SA TISFIED ALL THE REQUISITE CONDITIONS FOR ITS RECOGNITION FOR TH AT YEAR; ANY OTHER COURSE IS BOUND TO RESULT IN CHAOS AND UNCERT AINTY WHICH HAS TO BE AVOIDED. 32. TO THE SAME EFFECT IS THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF NITIN P. SHAH ALIAS MODI VS. DCIT (2005) 276 ITR 411 (GUJ.) AND DECISION OF THE AHMEDABAD BE NCH OF THE TRIBUNAL IN THE CASE OF GUJARAT INFORMATION TECHNOL OGY FUND 64 DTR 169(AHD.). IN OUR CONSIDERED VIEW, IT WAS NOT OPEN TO THE COMMISSIONER OF INCOME TAX TO TAKE THE VIEW CONTRAR Y TO THE APPROVAL ALREADY GRANTED BY THE APPROVAL COMMITTEE APPOINTED UNDER SEZ ACT, 2005 AND SEZ RULES, 2006. 33. THUS, WE DO NOT FIND ANY MATERIAL TO ARRIVE AT THE FINDING THAT THE ASSESSEE HAS VIOLATED ANY PROVISIO N OF SEZ ACT, 2005 OR SEZ RULES, 2006 OR THAT THE ASSESSEE WAS NO T AN ENTREPRENEUR REFERRED TO IN CLAUSE (J) OF SECTION 2 OF SEZ ACT, 2005. THEREFORE, IN OUR CONSIDERED VIEW, IT CANNOT BE HEL D THAT THE VIEW ADOPTED BY THE ASSESSING OFFICER IN HOLDING THAT TH E ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10AA OF THE ACT WAS NOT A POSSIBLE VIEW. THEREFORE, THE INTERFERENCE BY THE COMMISSIONER OF INCOME TAX WITH THAT VIEW OF THE ASSESSING OFFICER IN PURPORTE D EXERCISE OF POWER AVAILABLE TO HIM U/S 263 CANNOT BE SUSTAINED. WE, THEREFORE, CANCEL THE ORDER OF THE COMMISSIONER OF INCOME TAX ON THIS ISSUE. 34. AS A CONSEQUENCE OF OUR FINDING, WE DELETE THE ORDER OF THE COMMISSIONER OF INCOME TAX TO THE EXTENT IT WAS HELD THE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S 10AA OF T HE ACT BOTH ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 19 - WHILE COMPUTING THE INCOME AS PER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT U/S 115JB OF THE ACT. 35. BEFORE PARTING WITH THIS ISSUE, WE WOULD LIKE TO OBSERVE THAT IN VIEW OF THE INSTRUCTION NO. 4 OF 24.05.2006 QUOTED ABOVE, DEDUCTION U/S 10AA IS NOT AVAILABLE TO THE ASSESSEE IN RESPECT OF PROFIT RELATING TO TRADING ACTIVITIES WHEREIN GOODS FOR EXPORT WERE PROCURED FROM DOMESTIC TARIFF AREA. HOWEVER, WE FI ND THAT IN THE INSTANT CASE, IT IS NOT THE CASE OF THE REVENUE THA T BENEFIT OF SECTION 10AA WAS ALLOWED TO THE ASSESSEE BY THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER IN RESPECT OF INCOME ARISIN G FROM GOODS EXPORTED BY PROCURING THE SAME FROM DOMESTIC TARIFF AREA. THEREFORE, NO INTERFERENCE BY US IN THIS RESPECT IS CALLED FOR. 36. THE NEXT ISSUE RELATES TO THE ORDER OF COMMISS IONER OF INCOME TAX WHEREBY IT WAS HELD THAT INTEREST INCOME EARNED BY THE ASSESSEE ON ITS FIXED DEPOSIT RECEIPTS WITH THE BAN K IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND CONS EQUENTIALLY NOT ENTITLED TO EXEMPTION U/S 10AA OF THE ACT AND C ONSEQUENTIALLY INTEREST INCOME IS TO BE EXCLUDED FOR CALCULATING B ENEFIT ALLOWABLE U/S 10AA OF THE ACT. 37. THE UNDISPUTED FACTS RELATING TO THIS ISSUE AR E 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 CRED IT, THE ASSESSEE IS REQUIRED TO OFFER FIXED DEPOSIT RECEIPT TO THE BANK AS A SECURITY. ON EXPIRY OF THE LETTER OF CREDIT PERIOD, THE BANK LIQ UIDATES THE FIXED DEPOSIT RECEIPT AND MAKES PAYMENT TO THE IMPORTER. FURTHER, THE EXPORTS ARE MADE ON IMMEDIATE PAYMENT BASIS. THERE FORE, AS THE PURCHASES ARE MADE ON CREDIT BASIS, THE PURCHASE VA LUE IS HIGHER ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 20 - THAN THE PREVAILING RATE ON THE DATE OF PURCHASE FR OM PURCHASES WHICH ARE MADE ON IMMEDIATE PAYMENT BASIS. THE EXP ORTS ARE MADE ON IMMEDIATE PAYMENT BASIS AT THE MARKET VALUE WHICH IS PREVALENT ON THE DATE OF PAYMENT. NORMALLY, THE AS SESSEES PURCHASE VALUE IS THEREFORE MORE THAN ITS SALE VALU E. 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 INTERVENIN G PERIOD ON SALE VALUE, THE TRANSACTION WERE CONSIDERED AS COMM ERCIALLY EXPEDIENT AND RESULTS IN OVERALL INCOME TO THE ASSE SSEE. THE INTEREST INCOME IN QUESTION ARE INTEREST INCOME WHI CH ARE EARNED BY THE ASSESSEE ON FIXED DEPOSIT RECEIPTS WHICH ARE KE PT 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 IN COME EARNED BY THE ASSESSEE WAS ASSESSED AS BUSINESS INC OME 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 O RDER PASSED U/S 263 OF THE ACT AND THE COMMISSIONER OF INCOME T AX HAD HELD THAT THE 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 ASSESS EE WERE FROM FIXED DEPOSIT RECEIPTS WITH BANK WHICH WERE MADE 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 P URCHASES. WE THUS FIND THAT THE RELEVANT FIXED DEPOSIT RECEIPTS ON WH ICH INTEREST WERE EARNED WERE BUSINESS ASSETS OF THE ASSESSEE ACQUIRE D IN THE COURSE ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 21 - AND FOR THE PURPOSES OF ITS BUSINESS. THE FIXED D EPOSIT RECEIPTS BEING BUSINESS ASSETS, WE FIND NO REASON AS TO WHY INTEREST INCOME EARNED FROM SUCH FIXED DEPOSIT RECEIPTS COULD NOT B E ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. OUR ABOVE VIEW FI NDS SUPPORT FROM THE RECENT DECISIONS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ANR. VS. MOTOROLA INDIA ELECTRONI CS (P) LIMITED (2014) 265 CTR 94 (KAR.) WHEREIN IT WAS HELD THAT: NO DOUBT SUB-SECTION 10(B) SPEAKS ABOUT DEDUCTION O F SUCH PROFITS AND GAINS AS DERIVED FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THEREF ORE, IT EXCLUDES PROFIT AND GAINS FROM EXPORT OF ARTICLES. BUT SUB- SECTION (4) EXPLAINS WHAT IS THE PROFIT DERIVED FRO M EXPORT OF ARTICLES AS MENTIONED IN SUB-SECTION (1). THE SUBS TITUTED SUB-SECTION (4) SAYS THAT PROFITS DERIVED FROM EXPO RT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E AMOUNT WHICH BARES TO THE PROFITS OF THE BUSINESS OF THE U NDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICL ES. THEREFORE, PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES ARE DIFFERENT FROM THE INCOME DERIVED FROM THE PROF ITS OF THE BUSINESS OF THE UNDERTAKING. THE PROFITS OF THE BU SINESS OF THE UNDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE ARTICLES AS WELL AS ALL OTHER INCIDENTAL INCOME S DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT IS INTERE STING TO NOTE THAT SIMILAR PROVISIONS ARE NOT THERE WHILE DE ALING WITH COMPUTATION OF INCOME UNDER SECTION 80HHC. ON THE CONTRARY THERE IS SPECIFIC PROVISION LIKE SECTION 8 0HHB WHICH EXPRESSLY EXCLUDES THIS TYPE OF INCOMES. THEREFORE , IN VIEW OF THE AFORESAID PROVISIONS, IT IS CLEAR THAT, WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAINS FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF THE UNDERT AKING. 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 EEFC ACCOUNT. YET ANOTHER PORTION OF THE AMOUNT IS INVESTED WITHIN TH E COUNTRY BY WAY OF FIXED DEPOSITS, ANOTHER PORTION OF THE AM OUNT IS INVESTED BY WAY OF LOAN TO THE SISTER CONCERN WHICH IS DERIVING INTEREST OR THE CONSIDERATION RECEIVED FRO M 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 ENTITLEMEN T IS TO BE CONSTRUED AS INCOME OF THE BUSINESS OF THE UNDERTAK ING. THOUGH IT DOES NOT PARTAKE THE CHARACTER OF A PROFI T AND GAINS FROM THE SALE OF AN ARTICLE, IT IS THE INCOME WHICH IS ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 22 - DERIVED FROM THE CONSIDERATION REALIZED BY EXPORT O F ARTICLES. IN VIEW OF THE DEFINITION OF INCOME FROM PROFITS A ND GAINS INCORPORATED IN SUBSECTION (4), THE ASSESSEE IS ENT ITLED TO THE BENEFIT OF EXEMPTION OF THE SAID AMOUNT AS CONT EMPLATED UNDER SECTION 10B OF THE ACT. THEREFORE, THE TRIBU NAL WAS JUSTIFIED IN EXTENDING THE BENEFIT TO THE AFORESAID AMOUNTS ALSO. WE DO NOT FIND ANY MERIT IN THESE APPEALS. 40. IN VIEW OF THE ABOVE, WE FIND THAT THE VIEW AD OPTED BY THE ASSESSING OFFICER SHOWING INTEREST INCOME UNDER CONSIDERATION IS BUSINESS INCOME CANNOT BE HELD AS NOT A POSSIBLE VIEW AND THEREFORE, THE COMMISSIONER OF INCOME TAX WAS NOT J USTIFIED IN INTERFERING WITH THE SAID VIEW IN THE IMPUGNED ORDE R. 41. THE OTHER CONNECTED ISSUE IS THAT AS PER THE V IEW OF THE COMMISSIONER OF INCOME TAX, THE INTEREST INCOME IN QUESTION BEING DERIVED BY THE ASSESSEE FROM INDIAN BANK, THE SAME IS TO BE EXCLUDED WHILE COMPUTING PROFITS DERIVED FROM THE E XPORT OF ARTICLES OR THINGS OR SERVICES FOR THE PURPOSE OF SECTION 10 AA OF THE ACT. SUB-SECTION (7) OF SECTION 10AA PROVIDES THE MANNER IN WHICH THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR SERVICES IS TO BE COMPUTED FOR THE PURPOSES OF SECTION 10AA OF THE AC T. THEREFORE, IN VIEW OF THE ABOVE SPECIFIC PROVISION IN THE SECT ION ITSELF, PROFITS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR SE RVICES CANNOT BE COMPUTED IN ANY OTHER MANNER. SUB-SECTION (7) OF S ECTION 10AA READS AS UNDER: FOR THE PURPOSES OF SUB-SECTION (1), THE PROFITS D ERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR SERVICES (INCLU DING COMPUTER SOFTWARE) SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, BEING T HE UNIT, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT O F SUCH ARTICLES OR THINGS OR SERVICES BEARS TO THE TOTAL T URNOVER OF THE BUSINESS CARRIED ON [BY THE UNDERTAKING]: [PROVIDED THAT THE PROVISIONS OF THIS SUB-SECTION [AS AMENDED BY SECTION 6 OF THE FINANCE (NO. 2) ACT, 2009 (33 ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 23 - OF 2009)] SHALL HAVE EFFECT FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2006 AND SUBSEQU ENT ASSESSMENT YEARS. ] 42. THUS, A PERUSAL OF THE AFORESAID SUB-SECTION T AKES US TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKINGS. NOW, THE PROFITS OF THE BUSINESS OF THE UNDERTAKINGS ARE TO BE COMPU TED AS PER THE PROVISIONS OF CHAPTER-IVD OF THE ACT AND THE ONLY A DJUSTMENT WHICH IS PERMITTED BY THE LEGISLATURE TO BE MADE TO SUCH PROFITS OF THE BUSINESS IS TO APPORTION THE SAME IN THE PROPORTION OF EXPORTS TURNOVER OF THE ELIGIBLE SERVICES TO THE TOTAL TURN OVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IT IS SIGNIFICANT TO N OTE HERE THAT THE SPECIFIC PROVISION LIKE EXPLANATION (BAA) OF SECTIO N 80HHC WHICH PROVIDES FOR EXCLUSION OF 90% OF INTEREST INCOME FR OM THE PROFITS OF BUSINESS TO ARRIVE AT THE PROFITS OF THE BUSINESS H AS NOT BEEN PROVIDED BY THE LEGISLATURE IN SECTION 10AA OF THE ACT. IN ABSENCE OF SUCH A PROVISION ENACTED BY THE PARLIAMENT IN SE CTION 10AA OF THE ACT, IT IS NOT POSSIBLE FOR ANY OTHER PERSON TO READ SUCH PROVISION IN SECTION 10AA OF THE ACT. HONBLE SUPR EME COURT IN THE CASE OF SM. TARULATA SHYAM VS. CIT (1971) 108 ITR 3 45 (SC) HELD THAT THERE IS NO SCOPE FOR IMPORTING IN THE STATUTE WORDS WHICH ARE NOT THERE. FURTHER, HONBLE SUPREME COURT IN THE C ASE OF CIT VS. SHANN FINANCE PRIVATE LIMITED (1998) 231 ITR 308 (S C) WENT ON TO HOLD THAT IN INTERPRETING FISCAL STATUTE, COURT CAN NOT PROCEED TO MAKE GOOD THE DEFICIENCIES IF THERE BE ANY. THE COU RT MUST INTERPRET THE STATUTE AS IT STANDS, AND IN CASE OF DOUBT, IN A MANNER FAVOURABLE TO TAXPAYER. THUS, WE FIND NO PROVISION IN THE STATUTE ON THE BASIS OF WHICH IT CAN BE HELD THAT THE INTER EST INCOME WHICH FORMS PART OF THE PROFITS OF THE BUSINESS IS TO BE EXCLUDED FOR ARRIVING AT PROFITS DERIVED FROM EXPORT OF ARTICLE S OR THINGS OR SERVICES AS PRESCRIBED UNDER SUB-SECTION (7) OF SE CTION 10AA OF THE ACT. OUR ABOVE VIEW ALSO FINDS SUPPORT FROM THE DE CISION OF THE ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 24 - BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF RAJE SH EXPORTS LIMITED VS. ACIT, (2008) TIOL-457-ITAT-BANGALORE WH EREIN IT WAS HELD THAT: IN THE LIGHT OF THE AFORESAID DISCUSSION, IT SEEMS TO US THAT THE EXPRESSION PROFITS OF THE BUSINESS OF THE UNDE RTAKING APPEARING IN SECTION 10B(4) HAS TO BE CONSTRUED IN A WIDER SENSE THAN THE EXPRESSION PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING F ROM THE EXPORT OF ARTICLES OR THINGS APPEARING IN SECTION 10B(1) OF THE ACT. WE HAVE ALREADY NOTICED THAT SUB-SECTION (1) HAS BEEN EXPRESSLY MADE SUBJECT TO THE PROVISIONS OF TH E SECTION. THEREFORE, THE MEANING TO BE ASCRIBED TO THE WORDS USED IN THAT SUB-SECTION SHOULD BE CONTROLLED OR TE MPERED BY THE LANGUAGE USED IN SUB-SECTION (4). SO CONSTRUCT ED IT APPEARS TO US THAT THE PROFITS OF THE BUSINESS OF T HE UNDERTAKING INCLUDES NOT MERELY THE PROFITS DERIVED BY OR FROM THE UNDERTAKING, BUT ALSO INCLUDE ANY PROFITS OR INCOME WHICH ARE INCIDENTAL TO THE CARRYING ON OF THE BUSI NESS OF THE UNDERTAKING. TO THE SAME EFFECT IS THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MOTOROLA INDIA ELECTRONICS (P) LIMITED (SUPRA). 43. IN VIEW OF THE ABOVE, WE FIND THAT THE VIEW AD OPTED BY THE ASSESSING OFFICER IN THIS REGARD IN THE ASSESSM ENT ORDER OF NOT EXCLUDING INTEREST INCOME WHICH WAS ASSESSED AS BUS INESS INCOME OF THE ASSESSEE FOR COMPUTING PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR SERVICES WAS A POSSIBLE VIEW AND THEREFORE, THE SAME COULD NOT BE INTERFERED IN EXERCISE OF POW ERS AVAILABLE U/S 263 OF THE ACT. 44. WE ALSO OBSERVE THAT THE COMMISSIONER OF INCOM E TAX IN THE IMPUGNED ORDER HAS OBSERVED THAT THE ASSESSE E WAS INDULGING IN FINANCIAL ARBITRAGE ONLY IN ITS SEZ UN IT. IN OTHER WORDS, THE TRUE BUSINESS OF THE ASSESSEE IN ITS SEZ UNIT W AS THAT OF FINANCIAL ARBITRAGE AND NOT OF TRADING BY WAY OF RE -EXPORT OF ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 25 - IMPORTED GOODS. THE COMMISSIONER OF INCOME TAX FOR MED THE ABOVE VIEW AS HE OBSERVED THAT ON EXCLUSION OF INTE REST INCOME, THE RESULT OF THE ACTIVITIES OF THE ASSESSEE ARE NEGATI VE OR LOSS ONLY. 45. WE FIND THAT THE ASSESSEE WAS DULY GRANTED APP ROVAL BY SEZ AUTHORITIES TO SET UP SEZ UNIT FOR ENGAGING IN TRADING BY WAY OF RE-EXPORT OF THE IMPORTED GOODS. THE ACTIVITIES CA RRIED OUT BY THE ASSESSEE IN THE SEZ UNIT ARE MONITORED BY THE COMPE TENT SEZ AUTHORITIES. THE ANNUAL PERFORMANCE REPORT OF THE ASSESSEE ARE MONITORED AND VERIFIED BY APPROVAL COMMITTEE FORMED UNDER THE SEZ ACT. THE ASSESSEE IS RECOGNIZED AS AN ENTREPRE NEUR UNDER THE SEZ ACT. AFTER TAKING INTO CONSIDERATION THE ACTIV ITIES OF THE ASSESSEE IN THE SEZ UNIT, THE ASSESSEE WAS ALSO GRA NTED RENEWAL OF APPROVAL FOR TRADING BY COMPETENT AUTHORITY UNDER T HE SEZ ACT. KEEPING IN VIEW THE ABOVE FACT, IN OUR CONSIDERED V IEW, IT WOULD BE NOT PROPER TO CHARACTERIZE THE ACTIVITY OF THE ASSE SSEE WHICH CONSISTS OF RE-EXPORT OF THE IMPORTED GOODS AND INT ER ALIA TO ACQUIRE FIXED DEPOSITS FOR OBTAINING LETTER OF CREDIT FOR R ECEIVING GOODS ON CREDIT IN THE CASE OF IMPORT AS MERELY FINANCIAL AR BITRAGE AND NOT AS TRADING BY WAY OF RE-EXPORT OF IMPORTED GOODS AND C ONSEQUENTIALLY SERVICE UNDER THE SEZ ACT. IN THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOM E TAX TO THE EXTENT THE COMMISSIONER OF INCOME TAX HELD THAT INT EREST INCOME EARNED BY THE ASSESSEE ON BANK FIXED DEPOSIT RECEIP TS IS REQUIRED TO BE TAXED AS INCOME FROM OTHER SOURCES AND SUCH IN TEREST INCOME IS TO BE EXCLUDED FROM ARRIVING AT PROFITS DERIVED FROM EXPORT OF SERVICES FOR THE PURPOSES OF SECTION 10AA OF THE AC T. 46. THE NEXT ISSUE RELATES TO THE SET-OFF OF BROUG HT FORWARD LOSS. THE ABOVE ISSUE IS CONSEQUENTIAL TO THE FIND ING OF THE COMMISSIONER OF INCOME TAX IN RESPECT OF HEAD UNDER WHICH THE ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 26 - INTEREST INCOME EARNED BY THE ASSESSEE ON FIXED DEP OSIT RECEIPTS IS TO BE ASSESSED. AS WE FIND THAT THE VIEW ADOPTED B Y THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT INTEREST INCOM E EARNED BY THE ASSESSEE ON FIXED DEPOSIT RECEIPTS ARE ASSESSABLE U NDER THE HEAD BUSINESS INCOME ON THE FACTS OF THE INSTANT CASE WAS FOUND TO BE A POSSIBLE VIEW AND THEREFORE, WE HAVE TO ALSO HOLD THAT SET-OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST SUCH BUSINESS INCOME AS DONE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORD ER WAS A POSSIBLE VIEW. THEREFORE, WE SET ASIDE THE ORDER O F THE COMMISSIONER OF INCOME TAX TO THE EXTENT IT DIRECTE D THAT AS INTEREST INCOME EARNED ON FIXED DEPOSIT RECEIPTS TA XED AS INCOME FROM OTHER SOURCES, THE ASSESSEE WOULD NOT BE ENTIT LED FOR SET-OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST SUCH INTEREST INCOME. 47. THE LAST ISSUE RELATES TO THE ORDER OF THE COM MISSIONER OF INCOME TAX WHEREBY COMMISSIONER OF INCOME TAX DI RECTED THE ASSESSING OFFICER TO EXAMINE THE CORRECTNESS, GENUI NENESS AND ALLOWABILITY OF FOREIGN EXCHANGE FLUCTUATION LOSS O F RS 70.97 CRORES AND TO DECIDE THE ISSUE AFRESH. 48. ACCORDING TO THE COMMISSIONER OF INCOME TAX, T HE ASSESSING OFFICER HAS NOT EXAMINED THE CORRECTNESS, GENUINENESS AND ALLOWABILITY OF HUGE LOSS CLAIMED BY THE ASSESS EE UNDER THE HEAD FOREIGN EXCHANGE FLUCTUATION. 49. WE FIND FROM PAGE NO. 111 OF PAPER BOOK FILED BY THE ASSESSEE THAT A QUERY WAS RAISED BY THE ASSESSING O FFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH READS AS UNDER: GIVE DETAILS OF LEGAL & PROFESSIONAL CHARGES, OTHER EXPENSES, REPAIR & MAINTENANCE EXP., FOREIGN EXCHANGE AND FLUCTUATION, EXCHANGE CHARGES EXP. ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 27 - 50. IN REPLY THERETO, THE ASSESSEE FURNISHED BREAK -UP OF FOREIGN EXCHANGE LOSS DISTINGUISHING BETWEEN EXCHAN GE LOSS ON EXPORT AND EXCHANGE LOSS ON IMPORT OF TRADING GOODS , COPY OF WHICH IS PLACED AT PAGE NO. 115 OF PAPER BOOK-I. FURTHER , IN REPLY TO CONSEQUENTIAL INQUIRY BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED TRANSACTION-WISE DETAILS OF EXCHANGE FLUC TUATION LOSS BEFORE HIM, COPIES OF WHICH ARE PLACED AT PAGE NOS. 131 TO 164 OF THE PAPER BOOK-I. 51. ON THE BASIS OF THE ABOVE DOCUMENT, IT WAS CON TENDED BY THE AUTHORIZED REPRESENTATIVE THAT IT CANNOT BE HELD THAT THE ASSESSING OFFICER ACCEPTED THE EXCHANGE FLUCTUATION LOSS OF THE ASSESSEE WITHOUT APPLICATION OF MIND. THE ASSESSIN G OFFICER WAS FULLY ALIVE TO THE FACT OF INCURRING OF FOREIGN EXC HANGE LOSS BY THE ASSESSEE AND THE ASSESSING OFFICER AFTER DUE APPLIC ATION OF MIND, ACCEPTED THE SAID EXCHANGE FLUCTUATION LOSS AS GENU INE, CORRECT AND ALLOWABLE. THE VIEW OF THE ASSESSING OFFICER IS SU PPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. WOODWARD GOVERNOR INDIA PRIVATE LIMITED 312 ITR 254 (SC). 52. WE FIND THAT THE HONBLE DELHI HIGH COURT IN T HE CASE OF CIT VS. HONDA SIEL POWER 333 ITR 547 (DEL.) HAS HEL D AS UNDER: WHILE PASSING AN ORDER U/S 263, COMMISSIONER OF INCOME TAX HAS TO EXAMINE NOT ONLY THE ASSESSMENT ORDER BUT THE ENTIRE RECORDS. WHEN A REGULAR ASSESSMENT IS MADE U/S 143(3), A PRESUMPTION CAN BE RAISED THAT THE ORDER HAS BEEN PASSED UPON AN APPLICATION OF MIND. 53. NO DOUBT THIS PRESUMPTION IS REBUTTABLE, BUT T HERE MUST BE SOME MATERIAL TO INDICATE THAT THE ASSESSING OFF ICER HAD NOT ITA NOS.1395 & 1396 OF 2013 M/S ZAVERI & CO. VS. CIT-IV, AHD.. AYS 2009-10 & 2010-11 - 28 - APPLIED HIS MIND. WE FIND THAT NO MATERIAL COULD B E BROUGHT ON RECORD IN THE IMPUGNED ORDER PASSED U/S 263 TO SHOW THAT THE ASSESSING OFFICER HAD ACCEPTED THE CLAIM OF EXCHANG E FLUCTUATION LOSS WITHOUT APPLICATION OF MIND WHEN RECORD SHOWS THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS CALLED FOR DETAILS OF EXCHANGE FLUCTUATION LOSS AND A NUMBER O F DOCUMENTS AND DETAILS WERE FILED BY THE ASSESSEE BEFORE THE ASSES SING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IN SUPPORT OF ITS CLAIM FOR DEDUCTION OF EXCHANGE FLUCTUATION LOSS. IN VIEW OF THE ABOVE, IN OUR CONSIDERED VIEW, THE COMMISSIONER OF INCOME TAX WAS NOT JUSTIFIED IN CONCLUDING THAT THE ASSESSING OFFICER ACCEPTED THE CORRECTNESS, GENUINENESS AND ALLOWABILITY OF TH E EXCHANGE FLUCTUATION LOSS WITHOUT ANY APPLICATION OF MIND. WE, THEREFORE, SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX O N THIS ISSUE. 54. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON WEDNESDAY, THE 7 TH OF MAY, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 07/05/2014 GHANSHYAM MAURYA, SR. P.S.