ACIT 18(1), MUMBAI V. ADINATH JEWELLERY EXPORTS, MUMBAI

ITA 148/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0342 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 06-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Business income
• Section: 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH SMC, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER ITA NO.148/M/2017 ASSESSMENT YEAR: 2012-13 ACIT-18(1), ROOM NO.202, 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI 400 021 VS. M/S. ADINATH JEWELLERY EXPORTS, G-38, GEMS & JEWELLERY COMPLEX, SEEPZ SEZ, ANDHERI (E), MUMBAI 400 021 PAN: AAPFA 6756Q (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : NONE REVENUE BY : SHRI T.A. KHAN, D.R. DATE OF HEARING : 13.06.2017 DATE OF PRONOUNCEMENT : 16.08.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 10.10.2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2012-13. 2. THE SHORT FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE IS A PARTNERSHIP FIRM HAVING INCOME FR OM BUSINESS DURING THE YEAR UNDER CONSIDERATION. THE FIRM IS ENGAGED I N MANUFACTURE AND EXPORT OF DIAMOND AND JEWELLERY FROM A UNIT SITUATED IN, SEEP Z, ANDHERI, MUMBAI. THE ASSESSEE FIRM HAD A TURNOVER OF RS.224.40 CRORES DU RING THE YEAR AND EARNED A NET PROFIT OF RS. 48.12 CRORES. THE ENTIRE TURNOVER OF THE ASSESSEE WAS N THE FORM OF EXPORT FROM THE UNIT LOCATED IN THE SEZ. TH E FIRM DID NOT HAVE ANY LOCAL TURNOVER. THE ASSESSEE FILED ITS RETURN OF IN COME ON 29/09/2012 FOR AY 2012-13 DECLARING NIL INCOME AFTER CLAIMING DEDUCTI ON U/S. 10AA OF THE ITA NO.148/M/2017 M/S. ADINATH JEWELLERY EXPORTS 2 INCOME TAX ACT, 1961 OF RS. 48.12 CRORES. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (HEREINAFTER REF ERRED TO AS THE AO) OBSERVED THAT THE ASSESSEE HAS RECEIVED INTEREST OF RS.36,80 ,659/- FROM THE FIXED DEPOSITS IN THE BANK. THE AO FURTHER OBSERVED THAT THIS INTE REST INCOME HAS BEEN NETTED AGAINST THE INTEREST PAID OF RS.2,28,47,528/-. THE AO HELD THAT THE INTEREST RECEIVED HAS TO BE TAXED UNDER THE HEAD, INCOME FRO M OTHER SOURCES AND NOT AS BUSINESS INCOME. HE PLACED HIS RELIANCE ON THE JUD GEMENTS OF THE APEX COURT IN THE CASE OF M/S. PANDIAN CHEMICALS 262 ITR 278 W HEREIN THE APEX COURT HELD THAT INTEREST ON DEPOSIT WITH ELECTRICITY BOAR D IS NOT INCOME DERIVED FROM BUSINESS AND HAS TO BE ASSESSED AS INCOME FROM OTHE R SOURCES. THE AO ALSO RELIED UPON THE JUDGEMENT OF THE DELHI HIGH COURT I N THE CASE OF SHRIRAM HONDA POWER EQUIPMENT 289 ITR 475 (DEL). HOWEVER, I N THIS CASE THE ISSUE WAS INTEREST EARNED FROM SURPLUS FUNDS WHICH WE PAR KED WITH THE BANK WHERE THE COURT HELD THAT SUCH INTEREST SHOULD BE CATEGOR IZED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME AND HAS NO BEARING TO THE FACTS OF THE PRESENT CASE. 3. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS ALLOWED THE APPEAL BY OBSERVING AS UNDER: 3.3. THE SUBMISSIONS OF THE LEARNED COUNSEL HAVE BEEN CA REFULLY CONSIDERED AND I FIND SUFFICIENT FORCE IN THE SAME. THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRONICS PRIVATE LTD 225 TAXMAN 11 HELD, AFTER CONSIDERING T HE DECISIONS OF THE APEX COURT IN PANDIAN CHEMICALS LTD VS. CIT 262 ITR 278 AND LIBERTY INDIA VS. CIT 317 ITR 218 'IT IS CLEAR THAT WHAT IS EXEMPTED IS N OT MERELY THE PROFITS AND GAINS FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF THE UNDERTAKING'. SPECIFIC TO THE QUEST ION OF INTEREST EARNED BY THE EOU ON THE FDRS PLACED BY IT AND INTE REST EARNED FROM THE LOANS GIVEN TO SISTER CONCERNS, IT WAS HELD THAT 'A LTHOUGH IT DID NOT PARTAKE THE CHARACTER OF PROFITS AND GAINS FROM THE SALE OF AN ARTICLE IT IS INCOME WHICH IS DERIVED FROM THE CONSIDERATION REAL ISED BY EXPORT OF ARTICLES'. IN THIS CASE, THE HON'BLE HIGH COURT HEL D THAT INTEREST EARNED ON LOANS GIVEN TO SISTER CONCERNS IS ALSO TO BE TREATE D AS BUSINESS INCOME. IN THE INSTANT CASE, THE INTEREST EARNED IS ON FIXED D EPOSITS KEPT WITH THE BANK AS COLLATERAL SECURITY TO ENABLE THE APPELLANT TO HAVE CREDIT FACILITIES FOR EXPORTS. THEREFORE, IT HAS DIRECT NEXUS WITH THE EXPORT ACTI VITIES OF THE APPELLANT. ACCORDING TO THE APPELLANT, IT WAS MANDATORY AND ABSOLUTELY N ECESSARY FOR THE APPELLANT TO KEEP FIXED DEPOSITS OF RS. 4 CRORES WITH THE BANK TO AVAIL THE CREDIT FACILITIES FOR ITA NO.148/M/2017 M/S. ADINATH JEWELLERY EXPORTS 3 SMOOTH CONDUCT AND RUNNING OF ITS EXPORT BUSINESS. THE LEARNED COUNSEL PLEADED THAT THE DEPOSIT MADE BY THE APPELLANT SHOULD BE DE EMED TO BE A DEPOSIT MADE FOR THE PURPOSE OF BUSINESS AND THE INTEREST EARNED FRO M SUCH DEPOSIT SHOULD BE TREATED AS BUSINESS INCOME. THE APPELLANT HAS AL SO GIVEN THE CORRESPONDENCE WITH BANK OF INDIA WHEREIN THE BANK HAS ENHANCED THE LIMIT OF CREDIT FACILITIES PROVIDED TO THE APPELLANT ON C ERTAIN TERMS AND CONDITIONS. ONE OF THE CONDITIONS IS PROVIDING COLL ATERAL SECURITY OF EQUIPMENTS ETC. OF THE FIRM AND TDRS OF RS.4 CRORES UNDER BANKS LIEN. THEREFORE, THE APPELLANT HAD NO CHOICE BUT TO KEEP AN FD OF RS. 4 CRORES WITH THE BANK IN ORDER TO AVAIL THE CREDIT FACILITIES OF THE BANK. THIS ACT WAS PURELY IN THE INTEREST OF BUSINESS AND THE INTEREST ARISING THERE FROM HAS TO BE TREATED AS BUSINESS INCOME FOLLOWING THE RATIO OF THE JUDGMENT OF THE K ARNATAKA HIGH COURT IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRONICS PRIVATE LTD. CITED SUPRA. THESE GROUNDS OF APPEAL ARE ALLOWED. 4. HAVING HEARD THE LD. D.R., I FIND THAT LD. CIT(A ) HAS RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT WHICH IS I N REFERENCE TO SECTION 10AA BUT LD. CIT(A) HAS NOT CONSIDERED WHETHER THE INTEREST INCOME IS ARRIVED FROM EXPORT OF ARTICLE OF THINGS. THEREFOR E, AFTER CONSIDERING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF PA NDIAN CHEMICALS 262 ITR 278 AND JUDGMENT OF HONBLE KERLA HIGH COURT IN THE CASE OF RAVINDRAN NAIR 263 ITR 3, I RESTORE THIS ISSUE BACK TO THE FI LE OF THE LD. CIT(A) TO DECIDE THE ISSUE AND DECIDE THE MATTER AFRESH. 5. IN THE RESULT, APPEAL OF THE DEPARTMENT IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16.08.2017. SD/- (D.T. GARASIA) JUDICIAL MEMB ER MUMBAI, DATED: 16.08.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// ITA NO.148/M/2017 M/S. ADINATH JEWELLERY EXPORTS 4 [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.