DCIT CEN CIR 8(3), MUMBAI V. OSSIAN EXPORTS, MUMBAI

ITA 2024/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8513 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 08-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REEPAL TRALSHAWALA
• Assessee Lawyers: ANJU GARODIA
• Keywords: Business income
• Section: 143(3); 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 1650/MUM/2015 (ASSESSMENT YEAR: 2011-12) M/S. OSSIAN EXPORTS VS. INCOME TAX OFFICER - 14(2)(4) 902, JEWEL WORLD KALBADEVI ROAD MUMBAI 400002 EARNEST HOUSE NARIMAN POINT MUMBAI PAN AAACFO0992K APPELLANT RESPONDENT ITA NO. 2024/MUM/2015 (ASSESSMENT YEAR: 2011-12) DCIT, CENTRAL CIRCLE - 8(3) VS. M/S. OSSIAN EXPORTS (ERSTWHILE DCIT, CC-46) ROOM NO. 659, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 902, JEWEL WORLD KALBADEVI ROAD MUMBAI 400002 PAN AAACFO0992K APPELLANT RESPONDENT APPELLANT BY: SHRI REEPAL TRALSHAWALA RESPONDENT BY: MS. ANJU GARODIA DATE OF HEARING: 25.01.2017 DATE OF PRONOUNCEMENT: 31.01.2017 O R D E R PER JASON P. BOAZ, A.M. THESE ARE CROSS APPEALS, BY THE ASSESSEE AND REVENU E, DIRECTED AGAINST THE ORDER OF THE CIT(A)-29, MUMBAI DATED 12 .01.2015 FOR A.Y. 2011-12. 2. THE FACTS OF THE CASE, BRIEFLY STATED, ARE AS UNDER : - 2.1 THE ASSESSEE, A FIRM, INTER ALIA, ENGAGED IN TR ADING AND IMPORT/ EXPORT OF POLISHED DIAMONDS, GOLD AND GOLD JEWELLERY, FILE D ITS RETURN OF INCOME FOR A.Y. 2011-12 ON 29.09.2011 DECLARING NIL INCOME AF TER CLAIMING DEDUCTION OF ` 3,61,19,032/- UNDER SECTION 10AA OF THE INCOME TAX ACT, 1961 (IN SHORT ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 2 'THE ACT'). THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE AS SESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDE R DATED 27.11.2013; WHEREIN THE ASSESSEES INCOME WAS DETERMINED AT ` 4,83,19,020/- IN VIEW OF THE FOLLOWING DISALLOWANCES/TREATMENT OF AN ITEM OF INCOME: - (I) DISALLOWANCE OF DEDUCTION UNDER SECTION 10AA ` 3,61,19,032/- (II) TREATMENT OF INTEREST ON FDS AS INCOME FROM ` 1,23,10,695/- OTHER SOURCES 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 27.1 1.2013 FOR A.Y. 2011- 12, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A)-29, MUMBAI. THE LEARNED CIT(A) DISPOSED OFF THE APPEAL VIDE THE IMP UGNED ORDER DATED 12.01.2015 ALLOWING THE ASSESSEE PARTIAL RELIEF BY (I) ALLOWING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10AA OF THE ACT, AND (II) BY UPHOLDING THE AOS ACTION IN TREATING INTEREST ON FDS AS BEIN G EXIGIBLE TO TAX AS INCOME FROM OTHER SOURCES. 3. BOTH REVENUE AND THE ASSESSEE, BEING AGGRIEVED BY T HE IMPUGNED ORDER OF THE CIT(A)-29, MUMBAI FOR A.Y. 2011-12 DAT ED 12.01.2015, HAVE PREFERRED CROSS APPEALS IN RESPECT OF THE ISSUES HE LD AGAINST THEM IN THE AFORESAID IMPUGNED ORDER. THEIR APPEALS WILL BE DIS POSED OFF IN SERIATUM HEREUNDER: - 4. REVENUES APPEAL IN ITA NO. 2024/MUM/2015 FOR A.Y. 2011-12 4.1 IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUND ON THE ISSUE OF DEDUCTION UNDER SECTION 10AA OF THE ACT: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT TH E ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10AA. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) O N THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFIC ER BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY G ROUND AND/OR ADD NEW GROUNDS WHICH MAY BE NECESSARY. THE LEARNED D.R. FOR REVENUE PLACED STRONG RELIANCE ON THE ORDER OF THE AO IN DISALLOWING THE ASSESSEES CLAIM FOR DEDU CTION UNDER SECTION 10AA OF THE ACT. ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 3 4.2.1 PER CONTRA, THE LEARNED A.R. OF THE ASSESSEE CONTENDED THAT THERE WAS NO ERROR IN THE LEARNED CIT(A)S ORDER IN ALLOW ING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. ACCORD ING TO THE LEARNED A.R., THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF T RADING IN DIAMOND AND GOLD JEWELLERY AND HAD CLAIMED DEDUCTION UNDER SECT ION 10AA OF THE ACT IN RESPECT OF INCOME EARNED FROM TRADING ACTIVITY IN I MPORT/EXPORT OF CUT AND POLISHED DIAMONDS IN ITS SEZ UNIT AT SURAT. IT IS S UBMITTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER (AO) CAME TO THE VIEW THAT IN THE YEAR UNDER CONSIDERATION THE ASSES SEE HAD NEITHER MANUFACTURED OR PRODUCED ANY GOODS OR ARTICLES NOR PROVIDED ANY SERVICES, AS THE IMPORTED DIAMONDS WERE MERELY IMME DIATELY RE-EXPORTED, THEREFORE ITS CLAIM FOR DEDUCTION UNDER SECTION 10A A WAS NOT ALLOWABLE AND IS TO BE DISALLOWED. IN COMING TO THIS FINDING, THE AO REJECTED THE ASSESSEES CONTENTION THAT THE TERM SERVICES AS U SED IN SECTION 10AA(9) OF THE ACT SHOULD BE READ AS DEFINED IN THE SEZ ACT, 2 005 WHICH WOULD OVERRIDE THE PROVISIONS OF SECTION 10AA OF THE ACT. 4.2.2 IT IS CONTENDED THAT THIS INTERPRETATION OF T HE AO IS ERRONEOUS AS SECTION 51(1) OF THE SEZ ACT IS A NON-OBSTANTE CLAU SE AND WILL OVERRIDE ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OT HER LAW OR INSTRUMENT THAT MAY BE IN FORCE. IT IS FURTHER CONTENDED THAT SERVICES AS DEFINED IN RULE 76 OF THE SEZ RULES, 2006 AND THE EXPLANATION THERETO STATE THAT THE EXPRESSION TRADING SHALL MEAN IMPORT FOR THE PURP OSE OF RE-EXPORT AND THEREFORE THE ASSESSEE WAS ENTITLED TO BE ALLOWED D EDUCTION UNDER SECTION 10AA AS CLAIMED. IT IS SUBMITTED THAT IN IDENTICAL FACTUAL CIRCUMSTANCES AS IN THE CASE ON HAND, THE COORDINATE BENCH OF THE TR IBUNAL IN THE CASE OF; (I) GEETANJALI EXPORTS CORPORATION LTD. & OTHERS IN ITA NO. 6947/MUM/2011 DATED 08.05.2013, FOLLOWING THE DECIS ION OF THE ITAT, JAIPUR BENCH IN THE CASE OF GOENKA DIAMONDS AND JEW ELLERS LTD. IN ITA NO. 509/JA/2011 DATED 31.01.2012; HAVE ALLOWED THE ASSESSEES CLAIM IN THOSE CASES FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. IT IS PRAYED THAT IN VIEW OF THE ABOVE FACTUAL POSITION OF THE CASE O N HAND AND THE JUDICIAL PRONOUNCEMENTS CITED (SUPRA) WHICH ARE ON IDENTICAL FACTS, THE LEARNED CIT(A)S ORDER ALLOWING THE ASSESSEES CLAIM FOR DE DUCTION UNDER SECTION ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 4 10AA OF THE ACT FOLLOWING THE AFORESAID DECISIONS O F THE ITAT (SUPRA) BE UPHELD AND REVENUES GROUNDS/APPEAL BE REJECTED. 4.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED (SUPRA). ON AN APPRECIATION OF THE MATERIAL O N RECORD, IT IS SEEN THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, WHILE EXAM INING THE ASSESSEES TRADING ACTIVITIES IN CONNECTION WITH ITS CLAIM FOR DEDUCTION UNDER SECTION 10AA OF THE ACT, THE AO OBSERVED THAT ASSESSEE HAD MERELY IMPORTED DIAMONDS FROM DUBAI AND THE SAME WITHOUT ANY VALUE ADDITION WAS IMMEDIATELY RE-EXPORTED TO DUBAI. THE AO WAS OF THE VIEW THAT, SINCE THE ASSESSEE HAD NEITHER MANUFACTURED OR PRODUCED ANY G OODS OR ARTICLES NOR PROVIDED ANY SERVICES DURING THE YEAR WHILE TRADING IN EXPORTS, DEDUCTION UNDER SECTION 10AA IS NOT ALLOWABLE. IN COMING TO T HIS FINDING THE AO REJECTED THE ASSESSEES CLAIM THAT THE TERM SERVIC ES UNDER SECTION 10AA(9) OF THE ACT SHOULD BE READ AS DEFINED IN SECTION 2(Z ) AND SECTION 51(1) OF THE SEZ ACT, 2005 AND RULE 76 OF SEZ RULES, 2006 TH EREUNDER, WHICH OVERRIDES THE ACT. 4.3.2 IN THE CASE ON HAND, WE ARE INCLINED TO CONCU R WITH THE FINDING OF THE LEARNED CIT(A) THAT THE FACTS BROUGHT ON RECORD CLEARLY ESTABLISH THAT THE ASSESSEE IS ENGAGED IN TRADING AND RE-EXPORT OF IMPORTED DIAMONDS AND THEREFORE WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 10AA OF THE ACT IN VIEW OF THE OVERRIDING PROVISIONS OF SECTION 51(1) OF SEZ ACT, 2005. THE PROVISIONS OF SEZ ACT WILL BE APPLICABLE SINCE THERE IS NO DOUBT THAT EXPORT TRADING FOR RE-EXPORT IS COVERED BY AND INCL UDED AS SERVICES AS DEFINED THEREUNDER. WE HAVE CAREFULLY PERUSED THE J UDICIAL PRONOUNCEMENTS CITED AND REFERRED TO BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER AND FIND THAT AN IDENTICAL FACT SITU ATION HAS BEEN CONSIDERED AND ADJUDICATED IN FAVOUR OF THE ASSESSE E BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GEETANJALI EXP ORTS CORPORATION LTD. & OTHERS IN ITA NO. 6947/MUM/2011 DATED 08.05.2013, WHEREIN FOLLOWING THE DECISION OF THE ITAT JAIPUR BENCH IN THE CASE OF GOENKA DIAMONDS AND JEWELLERS LTD. (ITA NO. 509/JA/2011 DA TED 31.01.2012) IT WAS HELD AS UNDER AT PARA 22 THEREOF: - ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 5 22. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSION AND PERUSING THE M ATERIAL ON RECORD, ITA NOS.6947, 6948,6781,6783, 6785,6787,6949&6950/2 011 15 WE FOUND NO INFIRMITY IN THE FINDING OF THE LEARNED CI T(A). THE FINDING OF THE LEARNED CIT(A) HAVE BEEN RECORDED IN PARA 2.2 & 2.3 AT PAGE 9 AND 10, WHICH ARE AS UNDER :- I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE AS SESSING OFFICER AND SUBMISSIONS OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE RELEVANT SECTIONS AS WELL AS PROVISIONS OF SEZ ACT AND CIRCULAR NOAI2006 ISSUED BY THE GOVERNMENT OF INDIA (MINISTR Y OF COMMERCE & INDUSTRY). THE ASSESSING OFFICE HAS DISA LLOWED DEDUCTION U/S.10AA ON THE TRADING ACTIVITY BY THE A PPELLANT FROM PLOT NO.241, UNIT NO.374, SITUATED IN SURAT SEZ ARE AS BECAUSE HE WAS NOT AGREEABLE WITH THE ARGUMENTS OF THE APPE LLANT THAT TRADING ACTIVITY CARRIED OUT BY THE APPELLANT ARE R ED BY SERVICE. THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH EXE MPTION CT IS AVAILABLE ONLY ON MANUFACTURING ACTIVITY AND NOT ON TRADING OF GOODS. HE HAS RELIED UPON THE DECISION OF DELHI HIG H COURT AND SUPREME COURT TO UNDERSTAND THE MEANING OF THE WORD 'SERVICE' BECAUSE THE SERVICE HAS NOT BEEN DENIED IN THE INCO ME-TAX ACT. AFTER CONSIDERING THE ENTIRE FACTS AND CASE LAWS AS WELL AS CIRCULAR RELIED BY THE APPELLANT I FIND MERIT IN TH E CLAIM OF THE APPELLANT BECAUSE IT IS VERY CLEAR FROM CIRCULAR 17 OF 29.05.2006 ISSUED BY THE. EXPORT PROMOTION COUNCIL FOR EOUS & SEZ UNIT (MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF IND IA) PARA 2 OF WHICH READS AS UNDER :- 'IN THE MEANTIME, SOURCING FROM DOMESTIC AREA MAY B E PERMITTED BY UNITS IN THE SEZS WHICH ARE ALLOWED TO DO TRADIN G SUBJECT TO THIS CIRCULAR BEING CITED ON PRESCRIPTION OF AN UND ERTAKING BY THE CONCERNED UNIT THAT NO INCOME-TAX BENEFIT WILL BE A VAILED BY THE UNIT FOR TRADING EXCEPT IN THE NATURE OF RE-EXPORT OF IMPORTED GOODS'. 2.3 THE APPELLANT HAS FILED A SCHEDULE TO SEZ WHICH CLEARS THE CASE WITH MODIFICATIONS TO THE INCOME-TAX ACT, 1961 FOR INSERTING SEC.10AA OF THE ACT. 10 INSTRUCTION NO.4/2004 ALSO CLEARS THE CLAIM OF D EDUCTION U/S.10AA OF THE ACT TO THE UNITS CARRIED OUT FOR TR ADING IN THE NATURE OF RE-EXPORT FORM THE SEZ ACT. SO IT IS VERY CLEAR FROM THE SEZ ACT THAT SERVICE INCLUDES TRADING ALSO AND APPE LLANT HAS DONE TRADING FROM SEZ ACT OF THE IMPORTED GOODS WHI CH HAVE BEEN RE- EXPORTED AFTER PROCESSING. IT IS FURTHER V ERY CLEAR FROM SECTION 51 OF THE SEZ ACT WHICH PROVIDES AS UNDER: 'SECTION 51 OF THE SEZ ACT PROVIDES AS FOLLOWS:- '5 1(1) THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWITHSTA NDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW F OR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT B Y VIRTUE OF ANY LAW OTHER THAN THIS ACT'. HENCE, BY VIRTUE OF SECTI ON 51 OF THE ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 6 SEZ ACT, THE PROVISIONS OF THE SEZ ACT AND THE RULE WILL HAVE OVERRIDING EFFECT OVER THE PROVISIONS CONTAINED IN ANY OTHER ACT. IT CAN BE SEEN FROM THE WORDINGS OF SECTION 51 (1) OF SEZ ACT THE PROVISIONS OF THE SEZ ACT AND RULES HAS OVERRIDING EFFECT IN CASE OF CONTRADICTION BETWEEN THE SEZ ACT AND OTHER ACT. THUS THE PROVISIONS OF SEZ ACT WILL BE APPLICABLE AND SINCE THERE IS NO DOUBT THAT TRADING IS COVERED BY SERVICES AND SERVI CES INCLUDE TRADING AS PER SEZ ACT. THEREFORE THE APPELLANT IS FULLY ENTITLED FOR DEDUCTION U/S.10M OF THE ACT ON GOODS IMPORTED AND REEXPORTED FROM SEZ ACT. HOWEVER, NO SUCH DEDUCTION WILL BE AVAILABLE ON THE LOCAL PURCHASE AND SALES MADE BY T HE APPELLANT AND THAT IS WHY GOVERNMENT HAS MADE IT CLEAR THAT L OCAL PURCHASE AND SALE WILL NOT BE ENTITLED FOR BENEFIT. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW BENEFIT AND DEDUCTION U/S.10M OF THE ACT ON THE IMPORT-EXPORT TRADING ACT IVITY OF THE APPELLANT. HOWEVER, NO SUCH BENEFITS SHOULD E GIVEN IN THE LOCAL PURCHASE AND SALE MADE BY THE APPELLANT. HE SHOULD ENSURE THIS FACT AGAIN WHILE GIVING EFFECT TO THIS ORDER. HENCE , THIS GROUND OF APPEAL IS ALLOWED. WE NOTED THAT LEARNED CIT(A) HAS TAKEN INTO CONSIDE RING THE ASPECT AND OBSERVATION OF THE AO THAT DEDUCTION UNDER SECT ION 10AA IS NOT ALLOWABLE FOR THE REASON THAT THE ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY BUT HAS DONE TRADING OF GOOD S ONLY. FOR THIS PURPOSE, LEARNED AO HAS PLACED RELIANCE ON THE ORDE R OF HONBLE DELHI HIGH COURT. LEARNED CIT(A) HAS TAKEN INTO CONSIDERA TION THESE OBSERVATION OF THE AO AND THEREAFTER HE FOUND THAT THE GOVERNMENT OF INDIA HAS ISSUES A CIRCULAR NO.17 OF 29.5-2006, WHI CH WAS ISSUED BY EXPORT PROMOTION COUNCIL FOR EOUS & SEZ UNIT (MINIS TRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA). THE CONTENTS OF T HE CIRCULAR HAVE ALSO BEEN INCORPORATED IN THE FINDING OF THE LEARNE D CIT(A), WHICH HAVE ALSO BEEN REPRODUCED SOMEWHERE ABOVE IN THIS O RDER. THEREFORE, WE ARE NOT REPEATING THE CONTENTS OF THAT CIRCULAR ISSUED BY THE MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDI A). UNDER SECTION 51(1) OF THE SEZ ACT, IT HAS BEEN CLEARLY P ROVIDED THAT THE PROVISION OF THIS ACT HAS OVERRIDING EFFECT IN CASE OF CONTRADICTION BETWEEN THE SEZ ACT AND OTHER ACT. HENCE, BY VIRTUE OF SECTION 51 OF THE SEZ ACT, THE PROVISION OF SEZ ACT AND RULES WIL L HAVE OVERRIDING EFFECT OVER THE PROVISION CONTAINED IN ANY OTHER AC T. LEARNED CIT(A) HAS TAKEN INTO CONSIDERATION THIS CIRCULAR ISSUED B Y GOVERNMENT OF INDIA AND THE PROVISION OF SECTION 51 OF THE SEZ AC T AND FOUND THAT TRADING DONE BY THE ASSESSEE IS A SERVICE AND, THER EFORE, DEDUCTION UNDER SECTION 10AA IS ALLOWABLE. WE FURTHER NOTED T HAT ON SIMILAR FACTS IN CASE OF GOENKA DIAMONDS AND JEWELLERY LIMI TED (SUPRA), THE JAIPUR BENCH OF THE TRIBUNAL HAS DISCUSSED THE ISSU E IN DETAIL. THE PROVISIONS OF SECTION 51 OF SEZ ACT WERE ALSO CONSI DERED. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TAX REC OVERY OFFICER VS. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT, REPORT ED IN THE CASE OF 211 CTR 369 (SC) AND THE DECISION OF THE HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD., REPOR TED IN 238 CTR ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 7 142 (DELHI), WERE ALSO TAKEN INTO CONSIDERATION AND THEREAFTER IT WAS CONCLUDED THAT IN VIEW OF THE INSTRUCTION NO.1 OF 2 006, DATED 24- 3- 2006 AS MODIFIED BY INSTRUCTION NO.4 OF 2006, DATED 24-5-2006 ISSUED BY THE MINISTRY OF COMMERCE & INDUSTRY, GOVE RNMENT OF INDIA AND THE DEFINITION OF SERVICE GIVEN IN THE SEZ ACT, 2005, WHICH OVERRIDES THE WORD SERVICE ACCRUING IN SECTION 10 AA BY VIRTUE OF SECTION 51 OF THE SEZ ACT. THE ASSESSEE ENGAGED IN TRADING IN NATURE OF RE-EXPORT OF IMPORTED GOODS AND FOR THE SAME THE ASSESSEE WAS ENTITLED DEDUCTION UNDER SECTION 10AA OF THE ACT. F ACTS ARE SIMILAR BEFORE US, AS THE ASSESSEE IS ENGAGED IN TRADING OF RE-EXPORT OF IMPORTED GOODS AND, THEREFORE, THE ASSESSEE IS ENTI TLED FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. ALL THE ARGUMENTS AD VANCED BY THE LEARNED DR BEFORE US HAVE ALSO BEEN TAKEN CARE OF B Y THE TRIBUNAL WHILE DISCUSSING THE APPEAL IN THE CASE OF GOENKA D IAMONDS AND JEWELLERY LIMITED (SUPRA). IT IS FURTHER NOTED THAT THE MAIN PLANK OF ARGUMENT OF LEARNED DR IS THAT RULES PROVIDED UNDER THE SEZ ACT CANNOT PARTAKE THE CHARACTER OF THE SECTION OF THE INCOME TAX ACT. WE FIND THAT IN THE SEZ ACT UNDER SECTION 51, IT HAS B EEN CLEARLY PROVIDED THAT THE PROVISION OF SEZ ACT WILL OVERRIDE THE PRO VISION OF ANY OTHER ACT, MEANING THEREBY THE PROVISION PROVIDED UNDER T HE SEZ ACT HAS TO OVERRIDE ON THE PROVISION OF SECTION 10AA OF THE IN COME TAX ACT. UNDER THE RULES, IT IS NOT PROVIDED BUT UNDER SECTI ON 51 OF THE SEZ ACT, IT IS PROVIDED, THEREFORE, IN OUR VIEW, THE CONTENT ION RAISED BY THE LEARNED DR IS NOT TENABLE. MOREOVER, THE ISSUE IS S QUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN THE CASE OF GOENKA DIAMONDS AND JEWELLERY LIMITED (SUPRA). THEREFORE, RESPECTFU LLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF GOENKA DIAM ONDS AND JEWELLERY LIMITED (SUPRA) AND IN VIEW OF THE REASON ING GIVEN BY THE LEARNED CIT(A), WE CONFIRM HIS ORDER. 4.3.3 IN VIEW OF THE FACTUAL AND LEGAL MATRIX OF TH E CASE AS DISCUSSED ABOVE AND FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GEETANJALI EXPORTS CORPORATION LTD. (SUPRA), WE ARE OF THE CONSIDERED OPINION AND HOLD THAT THE ASSESSEE IN TH E CASE ON HAND IS ELIGIBLE FOR DEDUCTION OF ITS INCOME EARNED FROM TR ADING EXPORTS OF DIAMONDS UNDER SECTION 10AA OF THE ACT AND THEREFOR E UPHOLD THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE IN THE IMPUGNED ORDER. BEFORE US, THE LEARNED D.R. WAS NOT ABLE TO CONTRAVENE THE DECISIO N OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER ON THIS ISSUE. CONSEQUENTLY T HE GROUNDS RAISED BY REVENUE ARE DISMISSED. 5. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2011-12 IS DISMISSED. 6. ASSESSEES APPEAL IN ITA NO. 1650/MUM/2015 FOR A.Y. 2011-12 6.1 IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS: - ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 8 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN LAW TREATING THE INCOME FRO M FIXED DEPOSIT AS INCOME FROM OTHER SOURCE WHERE IN THE NE XUS OF BUSINESS TRANSACTION WAS ALREADY PROVED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN LAW IN HOLDING THAT THE EXP ENSES ARE NOT PERTAINING TO THE INCOME EARNED IN THE NEXUS OF BUS INESS TRANSACTION WAS ALREADY PROVED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED NOT ALLOWING THE EXPENDITURE F ROM THE INCOME WHICH WAS INCURRED SOLELY FOR THE PURPOSE OF EARRING THE SAME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT DECIDING THE FACT THAT THE ADDITION OF THE INCOME BY THE LEANED AO IN RESPECT OF FD INTERE ST WAS DOUBLE ADDITION. 5. APPELLANT RESERVES THE RIGHT TO ADD, AMEND, MODI FY OR ALTER THE ABOVE GROUNDS OF APPEAL AT ANY STAGE OF APPELLATE P ROCEEDINGS. 7. GROUNDS 1 TO 3 INCOME FROM FIXED DEPOSITS (FD) 7.1 IN THESE GROUNDS, THE ASSESSEE ASSAILS THE IMPU GNED ORDER OF THE LEARNED CIT(A) IN TREATING THE INCOME FROM FIXED DE POSITS (FD) AS INCOME FROM OTHER SOURCES; INSTEAD OF AS PART OF BUSINES S INCOME AS CLAIMED, SINCE THE NEXUS OF THE SAME BEEN CLEARLY ESTABLISHED BY D OCUMENTARY EVIDENCE AND THE SAME IS THEREFORE ALLOWABLE AS DEDUCTION UN DER SECTION 10AA OF THE ACT. THE LEARNED A.R. OF THE ASSESSEE SUBMITTED THA T THE FD IN QUESTION WAS NOT MADE OUT OF ASSESSEES EXCESS FUNDS OR WITH AN INTENTION TO EARN INTEREST, BUT WAS FOR ITS EXPORT BUSINESS. THE ASSE SSEE IN THE COURSE OF ITS BUSINESS OF IMPORT/EXPORT TRADING IN DIAMONDS OPENE D A LETTER OF CREDIT (L/C) WITH CORPORATION BANK, SURAT BRANCH AND AS PE R THE TERMS AND CONDITIONS SPECIFIED BY THE BANK IN THIS REGARD VID E LETTER DATED 29.12.2010, THE ASSESSEE MADE AN FD (AS MARGIN MONEY) EQUIVALEN T TO 95% OF THE TRANSACTION VALUE TO ASSURE THAT THE MATURITY AMOUN T OF FD WOULD COVER 100% VALUE OF L/C ON THE DATE OF PAYMENT (COPY PLAC ED AT PAGE 75 OF THE PAPER BOOK). ACCORDING TO THE LEARNED A.R., THIS CL EARLY ESTABLISHES THAT THE INCOME EARNED FROM THE AFORESAID FD HAS A CLEAR NEX US WITH THE ASSESSEES BUSINESS AND BEING A PART OF BUSINESS RECEIPTS WOUL D CONSTITUTE BUSINESS INCOME. THIS INCOME WOULD, THEREFORE, BE ELIGIBLE F OR DEDUCTION UNDER ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 9 SECTION 10AA OF THE ACT. IN SUPPORT OF THIS PROPOSI TION, THE LEARNED A.R. OF THE ASSESSEE, INTER ALIA, PLACED RELIANCE AND SUBMI TTED THAT IN SIMILAR FACTUAL SITUATION, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JEWEL ART IN ITA NO. 642/MUM/2013 DATED 30.09.2015 HAS HELD THIS ISSUE IN FAVOUR OF THAT ASSESSEE AND AGAINST THE REVENUE. 7.2 PER CONTRA, THE LEARNED D.R. SUPPORTED THE FIND ING OF THE AUTHORITIES BELOW THAT THE INCOME EARNED ON THE AFORESAID FD CO NSTITUTES INCOME FROM OTHER SOURCES AND SINCE IT WAS NOT PART OF THE ASSE SSEES BUSINESS INCOME, WOULD NOT BE ENTITLED FOR DEDUCTION UNDER SECTION 1 0AA OF THE ACT. 7.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENT CITED. THE FACTS ON RECORD INDICATE THAT THE ASSESS EE IN THE COURSE OF ITS BUSINESS OF IMPORT/EXPORT TRADING IN DIAMONDS EARNE D INTEREST INCOME FROM FDS KEPT IN BANK AS PER INSTRUCTIONS OF BANK B Y WAY OF MARGIN MONEY FOR THE PURPOSE OF ASSESSEES BUSINESS AND TH E ASSESSEE CONSIDERING THE SAME AS BUSINESS RECEIPTS/INCOME, CLAIMED DEDUC TION THEREON UNDER SECTION 10AA OF THE ACT. REVENUE, HOWEVER, TREATED THE SAME AS INCOME FROM OTHER SOURCES AND THEREBY DISALLOWED THE ASSE SSEES CLAIM THEREON FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. 7.3.2 BEFORE US, THE LEARNED A.R. HAS SUBMITTED THA T THE SAID FDS WITH BANKS WERE NOT MADE OUT OF IT EXCESS FUNDS OR WITH THE INTENTION OF EARNING INTEREST INCOME, BUT OUT OF BUSINESS FUNDS. AS PER THE DETAILS FILED BEFORE US (PLACED AT PAGE 75 OF THE PAPER BOOK) IT IS EVIDENT THAT THE FD IN QUESTION WAS MADE BY THE ASSESSEE WITH CORPORATION BANK AS PER THE REQUIREMENTS/DIRECTIONS LAID DOWN BY THE BANK, AS M ARGIN MONEY, WHEN OPENING AN L/C FOR ITS BUSINESS OF IMPORT/EXPORT TR ADING IN DIAMONDS. WE FIND FROM A PERUSAL OF THE CITED JUDICIAL PRONOUNCE MENT THAT AN IDENTICAL ISSUE WAS CONSIDERED AND ADJUDICATED BY THE COORDIN ATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. JEWEL ARTS (ITA NO. 64 2/MUM/2013 DATED 30.09.2015) IN FAVOUR OF THE ASSESSEE AND AGAINST R EVENUE, FOLLOWING, INTER ALIA, THE DECISION OF THE COORDINATE BENCH IN THE C ASE OF PRESTRESS WIRE INDUSTRIES (ITA NO. 8418/MUM/2010 AND 6312/MUM/2011 DATED ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 10 31.01.2014). AT PARA 3 TO 6 THEREOF THE COORDINATE BENCH IN THE AFORESAID ORDER HAS HELD AS UNDER: - 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE T HAT THE ASSESSEE IS AN EXPORTER OF DIAMOND JEWELLERY AND REPORTED THE EARN ING OF INTEREST INCOME OUT THE FIXED DEPOSITS KEPT WITH THE BANKS B Y WAY OF MARGIN MONEY FOR THE PURPOSE OF ASSESSEE S BUSINESS. THE DISPUTE AROSE ON THE TREATMENT OF THE SAID INTEREST INCOME. ASSESSEE CONSIDERED THE SAME AS A BUSINESS RECEIPT. ASSESSEE CLAIMED EXEM PTION U/S 10A OF THE ACT IN RESPECT OF THE SAID INTEREST RECEIPTS. P ER CONTRA, REVENUE AUTHORITIES TREATED THE SAME AS INCOME FROM OTHER SOURCES AND DENIED THE BENEFIT OF DEDUCTION U/S 10A OF THE ACT. AGGRIEVED WITH THE SAME, ASSESSEE IS IN APPEAL BEFORE US. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT MADE FDS WITH T HE BANK OUT HIS EXCESS FUNDS OR FOR A LONGER PERIOD WITH AN INTENTI ON TO EARN INTEREST INCOME. FURTHER, ELABORATING THE SAME, LD COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE FDS MADE WERE OUT OF THE WORKING CAPITAL AND OUT OF THE BUSINESS FUNDS. IT IS THE BUSINESS REQUIREME NT OF THE ASSESSEE THAT THE FDS ARE TO BE MADE WITH THE DIRECTIONS OF THE BANK. REFERRING TO VARIOUS DOCUMENTS PLACED IN THE PAPER BOOK, LD C OUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CORRESPONDENC E PLACED AT PAGE 28 ONWARD AND READ OUT THE RELEVANT INSTANCES OF TH E BANK INSISTING THE ASSESSEE TO PREPARE TERM DEPOSITS IN THE BANK. FURTHER, BRINGING OUR ATTENTION TO VARIOUS DECISIONS OF THE TRIBUNAL, WHEREIN ONE OF US (AM) TO THE ORDER IN THE CASE OF ACIT VS. M/S. PRES TRESS WIRE INDUSTRIES IN ITA NO. 8418/M/2010 (AY 2007-2008) AN D ITA NO. 6312/M/2011 (AY 2008-2009) AND OTHERS DATED 31.1.20 14, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE SAID DE CISION IS RELEVANT FOR THE PROPOSITION THAT, UNDER THE IDENTICAL FACTU AL MATRIX, THE RECEIPTS WERE TREATED AS BUSINESS RECEIPTS AND DECLARED AS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IN THIS REGARD, HE B ROUGHT OUR ATTENTION TO THE RELEVANT PARAS 14 TO 16 OF THE SAID TRIBUNAL S ORDER (SUPRA). FURTHER, BRINGING OUR ATTENTION TO OTHER DECISIONS OF THE TRIBUNAL, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THEY RELATE TO PRIOR TO THE AMENDMENT TO SECTION 10A(4) OF THE ACT. HE ALSO REL IED ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. K ARNAL COOPERATIVE SUGAR MILLS LTD 243 ITR 2 (SC) AND THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SWISS JEWELLS LTD 284 ITR 389 (BOM) AND ALSO ON VARIOUS PRECEDENTS OF THE HON'BLE SUPRE ME COURT AS WELL AS VARIOUS HIGH COURTS, COPIES OF WHICH ARE PLACED IN VOLUMINOUS PAPER BOOK, AND SUBMITTED THAT THE SAID JUDGMENTS W ERE RELIED UPON BY THE TRIBUNAL IN ADJUDICATING THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE SAID CASE DATED 31.1.2014 (SUPRA). 5. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL, WE FIND THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE ON THE FACTS OF THIS CASE. FOR THE SAKE OF COMPLETENES S OF THIS CASE, WE ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 11 EXTRACT THE SAID PARAS 14 TO 16 OF THE SAID TRIBUNA L S ORDER IN THE CASE OF M/S. PRESTRESS WIRE INDUSTRIES AND THE SAME READ AS UNDER: 14. REGARDING THE ISSUE OF INTEREST RECEIVED FROM F IXED DEPOSITS KEPT AS MARGIN MONEY FOR BANK GUARANTEES, LD COUNSE L FOR THE ASSESSEE MENTIONED THAT THE TEMPORARY DEPLOYMENT OF FUNDS SHOULD BE ASSESSED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES AS TREATED BY THE ASSESSING OFFICER. IN THIS REGARD, LD COUNSEL RELIED ON THE FOLLOWING DECISION S. I) CIT VS. VIDYUT STEEL LTD. 219 ITR 30 (AP) II) CIT VS. KOSHIKA TELECOM LTD 287 ITR 479 (DEL) III) CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD 2 43 ITR 2 (SC) IV) CIT VS. INDO SWISS JEWELLS LTD 284 ITR 389 (BO M) 15. ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON TH E ORDER OF THE AO. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS CITATIONS QUOTED BY THE LD COUNSEL ALONG WITH THE RELEVANT MATERIAL PLACED BEF ORE US. ON PERUSAL OF THE CITED JUDGMENTS OF THE HIGHER JUDICI ARY, WE FIND THAT THEY ARE RELEVANT FOR THE PROPOSITION THAT THE THERE IS NO QUESTION OF ISOLATING THE INTEREST RECEIVED ON MARG IN MONEY PAID FOR OBTAINING BANK GUARANTEE AND ASSESSING IT AS SE PARATE INCOME UNDER SECTION 56. THEREFORE, AGREE WITH THE VIEW OF THE TRIBUNAL THAT THE INCOME DERIVED ON THE MARGIN MONE Y FOR OBTAINING BANK GUARANTEE CANNOT BE SEPARATELY ASSES SED UNDER SECTION 56. CONSIDERING THE BINDING JUDGMENTS GIVEN BY THE HON'BLE HIGH COURTS AS WELL AS THE HON'BLE SUPREME COURT, WE ARE OF THE OPINION THAT THE INTEREST DERIVED ON MAR GIN MONEY FOR THE PURPOSE OF OBTAINING BANK GUARANTEE SHOULD BE A SSESSED AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES . ACCORDINGLY, WE DECIDE THIS PART OF THE GROUND IN F AVOUR OF THE ASSESSEE. 6. CONSIDERING THE ABOVE SETTLED NATURE OF THE ISSU E, WE ARE OF THE OPINION THAT THE SAID INTEREST RECEIPTS CONSTITUTE BUSINESS RECEIPTS AND ARE ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. ACCO RDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 7.3.3 FOLLOWING THE AFORESAID DECISION OF THE COORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF JEWEL ARTS (SUPRA), WHICH I S ON SIMILAR FACTUAL/LEGAL MATRIX AS THE CASE ON HAND, WE ARE OF THE CONSIDERE D OPINION THAT THE SAID INTEREST RECEIPTS EARNED BY THE ASSESSEE OUT OF FDS KEPT WITH BANKS BY WAY OF MARGIN MONEY MADE FOR THE PURPOSES OF THE AS SESSEES BUSINESS OF IMPORT/ EXPORT TRADING IN DIAMONDS, CONSTITUTES BUS INESS RECEIPTS/INCOME AND IS THEREFORE ELIGIBLE FOR DEDUCTION UNDER SECTI ON 10AA OF THE ACT. WE ITA NOS. 1650 & 2024/MUM/2015 M/S. OSSIAN EXPORTS 12 HOLD AND DIRECT ACCORDINGLY. CONSEQUENTLY, ASSESSEE S APPEAL ON GROUNDS 1 TO 3 IS ALLOWED. 8. GROUND NO. 4 8.1. IN VIEW OF OUR FINDING RENDERED ALLOWING GROUN DS 1 TO 3 OF THE ASSESSEES APPEAL, THAT INCOME EARNED FROM OUT OF F DS MADE WITH BANKS FOR BUSINESS PURPOSES CONSTITUTES BUSINESS RECEIPTS /INCOME AND IS THEREFORE ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT (SUPRA), GROUND NO. 4 IS RENDERED INFRUCTUOUS AND IS ACCORDI NGLY DISMISSED. 9. GROUND NO. 5 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON AND THE SAME IS DISMISSED AS INFRUCTUOUS. 10. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2011- 12 IS PARTLY ALLOWED 11. TO SUM UP, REVENUES APPEAL FOR A.Y. 2011-12 IS DIS MISSED AND THE ASSESSEES CROSS APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2017. SD/ - SD/ - (RAM LAL NEGI) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31 ST JANUARY, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -29, MUMBAI 4. THE CIT - 18, MUMBAI 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.