THE DCIT, CIRCLE-2(1), Guntur., Guntur V. M/s Bommidala Enterprises PVT Ltd, Guntur

ITA 274/VIZ/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8992 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 25-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R S NARAYAN
• Keywords: Business income; Revision of order; Rule of consistency; Non-deduction of tax; Speculation loss; Bad and doubtful debts; Revenue expenditure
• Section: 143(3); 10AA; 43(5); 194C; 263; 11; 15

Judgement Text

ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NOS.272 TO 274/VIZAG/2012 ( / ASSESSMENT YEARS: 2006-07, 2007-08 & 2009-10) DCIT, CIRCLE-2(1), M/S. BOMMIDALA ENTERPR ISES PVT. LTD., GUNTUR GUNTUR [PAN NO. AAACB9064G ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.477/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) ACIT, CIRCLE-1(1), M/S. BOMMIDALA ENTERPRISES P VT. LTD., GUNTUR GUNTUR ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.484/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) BOMMIDALA ENTERPRISES PVT. LTD., ACIT, RANGE-1, GUNTUR GUNTUR ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NOS.271/VIZAG/2016 ( / ASSESSMENT YEARS: 2011-12) M/S. BOMMIDALA ENTERPRISES PVT. LTD., ACI T, RANGE-1, GUNTUR GUNTUR ( % / APPELLANT) ( &'% / RESPONDENT) ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 2 ./I.T.A.NOS.275/VIZAG/2016 ( / ASSESSMENT YEARS: 2011-12) ACIT, CIRCLE- 1(1), M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR GUNTUR ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI S.R.S. NARAYAN, DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / DATE OF HEARING : 14.02.2017 & 22.03.2017 / DATE OF PRONOUNCEMENT : 07.04.2017 / O R D E R PER SHRI G. MANJUNATHA, ACCOUNTANT MEMBER: THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE COMMISSIONER OF INCOME TAX (A), GUNTUR FOR THE ASSESSMENT YEARS 200 6-07, 2007-08, 2009-10 & 2010-11. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOS ED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY, WHICH IS ENGAGED IN THE BUSINESS O F PROCESSING AND EXPORT OF TOBACCO, FILED ITS RETURN OF INCOME FOR T HE ASSESSMENT YEARS 2006-07, 2007-08, 2009-10 & 2010-11 U/S 139(1) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). THE A SSESSMENT FOR THE ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 3 ASSESSMENT YEAR 2006-07 WAS COMPLETED U/S 143(3) OF THE ACT, ON 24.12.2008. SUBSEQUENTLY, THE CASE WAS REVIEWED BY THE CIT AND PASSED ORDER U/S 263 OF THE ACT, ON 18.3.2011 AND S ET ASIDE THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT AND DIRECT ED THE A.O. TO REFRAME THE ASSESSMENT IN ACCORDANCE WITH LAW. THE CIT REVIEWED THE ASSESSMENT ORDER ON 2 GROUNDS I.E. DISALLOWANCE OF CLAIM OF EXEMPTION U/S 10AA OF THE ACT, AND EXAMINATION OF BAD DEBTS W RITTEN OFF BY THE ASSESSEE IN THE CASE OF DEBTS RECEIVED FROM OUT OF EXPORTS SALES. CONSEQUENT TO DIRECTIONS OF THE CIT U/S 263 OF THE ACT, THE A.O. HAS PASSED ASSESSMENT ORDER U/S 143(3) R.W.S. 263 OF TH E ACT, ON THE DIRECTIONS OF THE CIT U/S 263 OF THE ACT AND DISALL OWED EXEMPTION CLAIMED U/S 10AA OF THE ACT, TOWARDS EXPORT PROFIT DERIVED FROM THE UNIT SITUATED AT SPECIAL ECONOMIC ZONE (SEZ) AND DISALLO WED BAD DEBTS WRITTEN OFF TOWARDS DEBTS RECEIVABLE OUT OF EXPORT TURNOVER. 3. THE ASSESSMENT FOR THE ASSESSMENT YEAR 2007-08 H AS BEEN ORIGINALLY COMPLETED U/S 143(1) OF THE ACT, ACCEPTI NG INCOME RETURNED BY THE ASSESSEE. SUBSEQUENTLY, THE CASE HAS BEEN RE-O PENED ON THE GROUND THAT INCOME CHARGEABLE TO TAX HAD BEEN ESCAP ED ASSESSMENT TOWARDS EXEMPTION CLAIMED U/S 10AA OF THE ACT, FOR EXPORT PROFIT DERIVED FROM UNIT SITUATED AT COCHIN SEZ. HOWEVER, THE ASS ESSMENT FOR THE ASSESSMENT YEAR 2009-10 AND 2010-11 HAS BEEN COMPLE TED U/S 143(3) ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 4 OF THE ACT AND THE A.O. HAS DISALLOWED EXEMPTION CL AIMED U/S 10AA OF THE ACT, TOWARDS EXPORT PROFIT DERIVED FROM UNIT SI TUATED AT SEZ. FOR THE ASSESSMENT YEAR 2010-11, THE A.O. ALSO DISALLOWED C LEARING AND FORWARDING CHARGES U/S 40(A)(IA) OF THE ACT, FOR NO N-DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDERS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS IN RESPECT OF EACH AD DITIONS MADE BY THE ASSESSING OFFICER. THE CIT(A) FOR IN THE DETAILED DISCUSSIONS IN HIS ORDER HAS DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISA LLOWANCE OF EXEMPTION CLAIMED U/S 10AA OF THE ACT, TOWARDS EXPO RT PROFIT DERIVED FROM UNIT SITUATED AT COCHIN SEZ FOR THE ASSESSMENT YEARS 2006-07, 2007-08, 2009-10 & 2010-11. THE CIT(A) ALSO DELETE D ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF BAD DEBT WRITTE N OFF IN RESPECT OF DEBTS RECEIVABLE FROM THE EXPORT TURNOVER. THE CIT (A) ALSO DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF LOSS ON FORWARD EXCHANGE CONTRACTS. HOWEVER, THE CIT(A) PARTLY ALL OWED GROUND RAISED TOWARDS DISALLOWANCE OF EXPENDITURE MADE BY THE A.O ., U/S 40(A)(IA) OF THE ACT. AGGRIEVED BY THE CIT(A) ORDER, THE REVENU E AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE US. ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 5 5. THE REVENUE HAS RAISED COMMON GROUNDS FOR ALL TH E ASSESSMENT YEARS. FROM THESE GROUNDS OF APPEALS, THE REVENUE HAS AGITATED 3 ISSUES. (I) DISALLOWANCE OF EXEMPTION CLAIMED U/S 10AA OF THE ACT, TOWARDS EXPORT PROFIT DERIVED FROM SEZ UNIT (II) DE LETION OF ADDITIONS MADE BY THE A.O. TOWARDS BAD DEBT WRITTEN OFF IN RE SPECT OF DEBT RECEIVABLE OUT OF EXPORT TURNOVER. (III) DELETION OF ADDITIONS MADE BY THE A.O. TOWARDS LOSS ON FORWARD EXCHANGE CONTRACTS. T HE ASSESSEE HAS AGITATED THE ISSUE OF PARTIAL CONFIRMATION OF DISAL LOWANCE MADE BY THE A.O. TOWARDS CLEARING AND FORWARDING CHARGES U/S 40 (A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF EXEMPTION U/S 10AA OF THE ACT, TOWARDS EXPORT PR OFIT DERIVED FROM SEZ UNIT. THE FACT WHICH LEADS TO DISALLOWANCE OF EXEMPTION U/S 10AA OF THE ACT ARE THAT THE ASSESSEE IS HAVING A UNIT A T COCHIN SEZ. THE UNIT WAS APPROVED FROM THE DEVELOPMENT COMMISSIONER, COC HIN SEZ, COCHIN, VIDE LETTER NO.9/05/2005/IL/CSEZ/1563 DATED 14.3.2005. THE UNIT SITUATED AT COCHIN SEZ IS ENGAGED IN THE BUSIN ESS OF IMPORT OF CIGARS, CIGARETTS, ALCOHOLIC BEVERAGES, RE-EXPORT T HE SAME AND TO DERIVE FOREIGN EXCHANGE. THE ASSESSEE HAS CLAIMED EXEMPTI ON U/S 10AA OF THE ACT, TOWARDS EXPORT PROFIT DERIVED FROM THE UNIT SI TUATED AT COCHIN SEZ, COCHIN. THE A.O. DISALLOWED EXEMPTION U/S 10AA OF THE ACT, ON THE ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 6 GROUND THAT IMPORT AND EXPORT ACTIVITY CANNOT BE TR EATED AS SERVICE FOR THE PURPOSE OF SECTION 10AA OF THE ACT, NOTWITHSTAN DING ITS STATUS AS PER SEZ ACT. THE A.O. FURTHER HELD THAT ASSESSEE WAS O NLY ENGAGED IN TRADING, BUT NEITHER CARRIED ANY MANUFACTURING NOR RENDERED ANY SERVICE SO AS TO BE ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT. ACCORDING TO THE A.O., THE ELIGIBLE UNITS SITUATED AT SEZ, ENGAGED I N THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ARTICLES OR THINGS OR PROVIDED ANY SERVICE ONLY QUALIFIES FOR EXEMPTION U/S 10AA OF THE ACT, B UT NOT THE UNITS ENGAGED IN THE BUSINESS OF TRADING ACTIVITY. 7. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) FAILE D TO APPRECIATE THE FACT THAT, THE ASSESSEE NEITHER ENGAGED IN ANY MANU FACTURING ACTIVITY NOR PROVIDING ANY SERVICES IN THE UNIT SITUATED AT SEZ, BUT ENGAGED IN THE BUSINESS OF TRADING, THEREFORE, PROFIT DERIVED FROM SEZ UNIT FROM THE ACTIVITY OF TRADING IN THE NATURE OF IMPORT AND RE- EXPORT IS NOT ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT. THE LD. D.R. FURTHE R SUBMITTED THAT THE LD. CIT(A) OUGHT TO HAVE RELIED ON THE DECISION OF HONBLE ITAT, VISAKHAPATNAM VIDE ITA NO.177/VIZAG/2011 DATED 26.7 .2011 IN THE ASSESSEES OWN CASE ON THE SIMILAR ISSUE FOR THE AS SESSMENT YEAR 2006- 07, WHEREIN THE ITAT, CONFIRMED THE ORDER PASSED BY THE CIT U/S 263 OF THE ACT, ON THE SAME ISSUE, WHEREIN THE CIT HAS DIR ECTED THE A.O. TO DISALLOW EXEMPTION CLAIMED U/S 10AA OF THE ACT. TH E D.R. FURTHER ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 7 SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN RELIED U PON DECISION OF THE HONBLE KERALA HIGH COURT, IN THE CASE OF GIRNAR IN DUSTRIES VS. CIT (230 ITR 401) TO CONSIDER THE TRADING ACTIVITY CARRIED O N BY THE SEZ UNIT HAS TO BE CONSIDERED AS SERVICES AS DEFINED U/S 10AA OF THE ACT, THOUGH THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE F ROM THAT OF THE ABOVE CITED CASE IN AS MUCH AS THERE IS AN EXPRESS PROVIS ION IN SECTION 10AA OF THE ACT, BY WAY OF EXPLANATION ON SPECIFYING THE WO RDS/EXPRESSIONS, WHICH WILL DERIVE THEIR MEANING AS ASSIGNED UNDER SEZ ACT & RULES AND THE EXPRESSION SERVICE IS NOT MENTIONED THEREIN, WHEREAS THERE WAS NO SUCH EXPRESSION PROVISION IN SECTION 10AA OF THE ACT, WHICH WAS THE SUBJECT MATTER OF INTERPRETATION IN THE ABOVE CITED CASE. THE LD. D.R. FURTHER SUBMITTED THAT THE LEGISLATURE HAS AMBIGUOU SLY REFERRED SECTION 2 OF THE SEZ ACT, 2005 FOR THE PURPOSE OF DEFINING MA NUFACTURE, SEZ AND UNIT, HOWEVER, CONSCIOUSLY NO SUCH REFERENCE IS MAD E WITH REGARD TO DEFINITION OF SERVICES SO AS TO INCLUDE IMPORT FO R EXPORT AS CONTENDED BY THE ASSESSEE. THUS, THE DEFINITION OF SERVICE AS PER SEZ ACT, CANNOT BE IMPORTED FOR THE PURPOSE OF SECTION 10AA OF THE ACT. SINCE, THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MANUFACT URE OR RENDERED ANY SERVICES, THE A.O. HAS RIGHTLY DISALLOWED EXEMPTION CLAIMED U/S 10AA OF THE ACT, TOWARDS EXPORT PROFIT DERIVED FROM UNIT SI TUATED AT SEZ AND HIS ORDER SHOULD BE UPHELD. ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 8 8. ON THE OTHER HAND, THE LD. A.R. STRONGLY SUPPORT ED ORDER OF THE CIT(A). THE A.R. FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 10AA OF THE ACT, IN COMPUTING TOTAL INCOME OF AN AS SESSEE, BEING AN ENTREPRENEUR WHO BEGINS TO MANUFACTURE OR PRODUCE A RTICLES OR PROVIDE ANY SERVICES, A DEDUCTION OF 100% OF PROFITS & GAIN S DERIVED FROM EXPORT FOR A PERIOD OF 5 YEARS WILL BE ALLOWED BEGINNING F ROM THE YEAR IN WHICH THE UNIT BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR PROVIDE ANY SERVICES. THOUGH THE MEANING OF THE TERM SERVICES IS NOT DEFINED IN THE SECTION, THE DEFINITION PROVIDED UNDER THE RELE VANT ACT HAS TO BE CONSIDERED FOR THE PURPOSE OF SECTION 10AA OF THE A CT. THE TERM SERVICES HAS BEEN DEFINED BY THE SEZ ACT, 2005 AN D SEZ RULES, 2006 UNDER WHICH RULE 76 OF SEZ RULES, 2006 DEFINES THE TERM SERVICES, WHICH INCLUDES TRADING. AS PER EXPLANATION GIVEN I N SEZ RULES, 2006, THE EXPRESSION TRADING FOR THE PURPOSE OF SECOND SC HEDULE OF THE SEZ ACT, SHALL MEAN IMPORT FOR THE PURPOSE OF RE-EXPORT AND SUCH TRADING IS INCLUDED IN THE LIST OF SERVICES FOR THE PURPOSE OF SECTION 2 OF SEZ ACT. SINCE, THE ASSESSEE IS CARRYING ON TRADING OF GOODS AND THE SAID ACTIVITY FALLS WITHIN THE SCOPE OF DEFINITION OF SERVICES AS DEFINED UNDER SEZ ACT & RULES AND THE PROFIT DERIVED FROM ACTIVITY IS ELI GIBLE FOR EXEMPTION U/S 10AA OF THE ACT. IN SUPPORT OF HIS ARGUMENTS, RELI ED UPON THE DECISION OF ITAT, VISAKHAPATNAM IN ITA NO.331/VIZAG/2011 FOR THE ASSESSMENT ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 9 YEAR 2008-09 AND SUBMITTED THAT THE ITAT, AFTER CO NSIDERING THE PROVISIONS OF SECTION 10AA OF THE ACT, THE PROVISIO NS OF SEZ ACT, 2005 AND SEZ RULES, 2006 AND ALSO BY RELIED UPON THE DEC ISION OF HONBLE KERALA HIGH COURT, IN THE CASE OF GIRNAR INDUSTRIES VS. CIT 230 CTR 401, HELD THAT PROFITS DERIVED FROM THE UNITS SITUATED A T SEZ, ENGAGED IN THE BUSINESS OF TRADING WOULD COME WITHIN THE DEFINITIO N OF THE WORD SERVICES AS DEFINED U/S 10AA OF THE ACT AND HENCE , THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT TOWARDS EXPORT PROFIT DERIVED FROM UNITS LOCATED AT SEZ. THE ASSESSEE ALSO RELIE D UPON THE DECISION OF ITAT, JAIPUR B BENCH IN THE CASE OF DCIT VS. M/S. GOENKA DIAMOND & JEWELLERS LTD. IN ITA NO.509/JP/2011 DATED 31.1.201 2. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY QUESTION ARISES FOR OUR CONSIDERATION IS WHETH ER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE BENEFIT OF EXEMP TION U/S 10AA OF THE ACT IS AVAILABLE TO THE ASSESSEE, WHICH IS ENGAGED IN THE BUSINESS OF TRADING ACTIVITY IN THE NATURE OF IMPORT AND RE-EXP ORT OF GOODS WHICH FALLS WITHIN THE MEANING OF THE TERM SERVICES AS DEFINED U/S 10AA OF THE ACT. ADMITTEDLY, THE ASSESSEE HAS ESTABLISHED A UN IT AT COCHIN SEZ, WHICH WAS APPROVED BY THE DEVELOPMENT COMMISSIONER VIDE HIS LETTER NO.9/05/2005/IL/CSEZ/1563 DATED 14.3.2005. THE ASS ESSEE IS ENGAGED ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 10 IN THE BUSINESS OF TRADING ACTIVITY IN THE NATURE O F IMPORTING CIGARS, CIGARETTES & ALCOHOLIC BEVERAGES AND RE-EXPORTING T HE SAME. THE ASSESSEE CLAIMS THAT UNITS LOCATED IN SEZ, ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT FALLS WITHIN THE DEFINITION OF TH E TERM SERVICES AS DEFINED IN CLAUSE Z OF SECTION 2 OF SEZ ACT, 2005 AND RULE 76 OF SEZ RULES, 2006, WHICH DEFINES THE TERM SERVICES, WHI CH INCLUDES TRADING. AS PER EXPLANATION GIVEN IN SEZ RULES, 2006, THE EX PRESSION TRADING FOR THE PURPOSE OF SECOND SCHEDULE OF SEZ ACT, SHALL ME AN IMPORT FOR THE PURPOSE OF RE-EXPORT AND SUCH TRADING IS INCLUDED I N THE LIST OF SERVICES FOR THE PURPOSE OF SECTION (2) OF SEZ ACT. THE TER M SERVICES IS NOT DEFINED U/S 10AA OF THE ACT. SINCE, THE TERM SERV ICES HAS NOT BEEN DEFINED U/S 10AA OF THE ACT, THE DEFINITION PROVIDE D UNDER THE RELEVANT ACT, HAS TO BE CONSIDERED FOR THE PURPOSE OF THE TE RM SERVICES USED IN THE SECTION 10AA OF THE ACT, FOR THE PURPOSE OF DET ERMINATION WHETHER THE UNIT IS ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT. 10. THE LD. A.R. FOR THE ASSESSEE AT THE TIME OF HE ARING, SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM IN ASSESSEES OWN CASE IN ITA NO.331/VIZAG/2011, FOR T HE ASSESSMENT YEAR 2008-09. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEES OWN CASE HAS CONSIDERED THE ISSUE AND AF TER CONSIDERING THE PROVISIONS OF SECTION 10AA OF THE ACT, THE DEFINITI ON OF THE TERM SERVICES ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 11 AS DEFINED U/S (2) OF SEZ ACT, 2005 AND RULE 76 OF SEZ RULES, 2006, HELD THAT THE ACTIVITY CARRIED ON BY THE ASSESSEE A MOUNTS TO RENDERING OF SERVICES IN IMPORTING AND RE-EXPORTING OF GOODS AS DEFINED UNDER SEZ RULES, 2006. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE H AVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE IN THIS REGARD AND CARE FULLY PERUSED THE RECORD. AS PER THE SEZ RULES, ADMITTEDLY THE ACTIV ITY CARRIED ON BY THE ASSESSEE HAS TO BE CONSIDERED AS AN ACTIVITY ON WHI CH ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 10AA OF THE ACT. IN OUR OPIN ION, RATIO OF THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CA SE OF GIRNAR INDUSTRIES VS. CIT (230 CTR 401) SQUARELY APPLIES TO THE FACTS OF THIS CASE. NO CONTRARY DECISION WAS PLACED BEFORE US BY THE REVEN UE TO TAKE A DIFFERENT VIEW ON THIS MATTER. IT IS NO DOUBT TRUE THAT ON A PRINCIPLE OF LAW, RULE OF CONSISTENCY MAY NOT BE APPLICABLE BUT THE FACT REMA INS THAT THE ORDER PASSED BY THE LD. CIT(A) IS BASED ON COGENT REASONS IN THE LIGHT OF THE EXPLANATION GIVEN IN SEZ RULES AS WELL AS THE DEFIN ITION CONTAINED IN SEZ ACT, 2005 AND FACTS BEING IDENTICAL IN THE EARLIER YEARS, WHICH WAS ACCEPTED BY THE ASSESSING OFFICER, IN ORDER TO DEVIATE FROM THE DECISION TAKEN IN THE EARLIER YEARS, THE BURDEN IS UPON THE A.O. TO SHOW THAT THE VIEW TAKEN BY HIM IS THE ONLY VIEW POSSIBLE IN THE MATTER AND, IN LAW ASSESSEE CANNOT, BY ANY STRETCH OF IMAGINATION, BE ENTITLED TO CLAIM DE DUCTION U/S 10AA OF THE ACT. SINCE THE LD. CIT(A) HAS GIVEN COGENT REASONS IN ARRIVING AT A CONCLUSION THAT THE ASSESSEE IS ENTITLED TO EXEMPTI ON U/S 10AA OF THE ACT ON AN INTERPRETATION OF THE PROVISIONS OF THE INCOME -TAX ACT AS WELL AS THE SEZ ACT AND RULES, APART FROM THE INSTRUCTIONS ISSU ED BY THE MINISTRY OF COMMERCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND THUS, THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. 11. THE ASSESSEE RELIED UPON THE DECISION OF ITAT, JAIPUR B BENCH IN THE CASE OF DCIT VS. GOENKA DIAMONDS & JEWELLERS LT D. 509/JP/2011 DATED 31.1.2012, WHEREIN THE COORDINATE BENCH OF TH IS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HAS HELD AS UNDER: WE HAVE ALSO REPRODUCED SECTION 51 OF THE SEZ ACT. AS PER THIS SECTION, IT IS MENTIONED THAT NOTWITHSTANDING ANYTHING INCON SISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FO RCE OR IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT, THE PROVISION OF SEZ ACT WILL PREVAIL. THE HONBLE APEX COURT IN THE CA SE OF TAX RECOVERY ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 12 OFFICER, VS. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT, 293 ITR 369 HAD AN OCCASION TO CONSIDER THE MEANING OF LANGUAGE EMPLOYED IN SECTION 13 OF THE SPECIAL COURT ACT. IN SECTION 13 OF THE SPECIAL COURT ACT, IT WAS STATED THAT PROVISION OF THE ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW F OR THE TIME BEING IN FORCE. THE HONBLE APEX COURT HELD THAT THERE CAN BE NO MANNER OF DOUBT THAT THE PROVISION OF SPECIAL COURT ACT WHEREVER TH EY ARE APPLICABLE SHALL PREVAIL OVER THE PROVISIONOF THE INCOME TAX ACT. T HE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VAAPAR LT D., 330 ITR 440 HELD THAT WHEN THERE IS A PROVISION IN ANOTHER ENACTMENT WHICH CONTAINS A NON OBSTENTE CLAUSE THAN THAT WOULD OVERRIDE THE PROVIS IONS OF THE INCOME TAX. THUS ONE WILL HAVE TO CONSIDER THE IMPLICATIO N OF SECTION 51 OF THE SEZ ACT. IT MEANS THAT ANYTHING IN-CONSISTENT TO T HE PROVISION OF THE SEZ ACT WILL NOT BE CONSIDERED. THUS THE WORD SERVICES AS MENTIONED IN SECTION 10AA CANNOT BE CONSTRUED IN-CONSISTENTLY WI TH THE DEFINITION OF SERVICES GIVEN IN THE SEZ ACT. UNDER THE SEZ ACT, THE TRADING IS INCLUDED IN THE SERVICES PROVIDED THE TRADING IS EXPORT OF I MPORTED GOODS. WE THEREFORE, FEEL THAT THE ASSESSEE IS ENTITLED TO DE DUCTION U/S 10AA OF THE ACT AND THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE EXEMPTION. 12. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO FOLLOWING THE RATIOS OF THE JUDGEMENTS DISCUSSED AB OVE, WE ARE OF THE VIEW THAT PROFIT DERIVED FROM THE UNITS SITUATED AT SEZ, ENGAGED IN THE BUSINESS OF TRADING ACTIVITY IN THE NATURE OF IMPOR T AND RE-EXPORT OF GOODS FALLS WITHIN THE DEFINITION OF THE TERM SERV ICES AS DEFINED IN SECTION 10AA OF THE ACT. CONSEQUENTLY, THE ASSESSE E IS ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT, TOWARDS EXPORT PROFI T DERIVED FROM ELIGIBLE UNIT LOCATED AT SEZ. THE CIT(A), AFTER CO NSIDERING THE RELEVANT PROVISIONS OF THE ACT, HAS RIGHTLY DELETED ADDITION S MADE BY THE A.O. TOWARDS DISALLOWANCE OF EXEMPTION U/S 10AA OF THE A CT. WE DO NOT FIND ANY ERROR IN THE ORDER PASSED BY THE CIT(A). HENCE , WE UPHOLD CIT(A) ORDER AND REJECT THE GROUND RAISED BY THE REVENUE. ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 13 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF BAD DEBT WRITTEN OFF IN RESPECT OF DEBTS RECEIVA BLE FROM EXPORT SALES. THE A.O. DISALLOWED BAD DEBTS WRITTEN OFF TO THE EX TENT OF ` 76,23,963/- ON THE GROUND THAT DEBTS WRITTEN OFF IN THE BOOKS O F ACCOUNTS OF THE ASSESSEE ARE ARISED OUT OF EXPORT TURNOVER, WHICH C AN BE WRITTEN OFF IN ACCORDANCE WITH THE GUIDELINES ISSUED BY THE RBI, W HEREAS THE ASSESSEE HAS WRITTEN OFF THESE BAD DEBTS IN CONTRAVENTION OF THE PROVISIONS OF RBI GUIDELINES, THEREFORE, OPINED THAT BAD DEBT WRITTEN OFF IS NOT ALLOWABLE DEDUCTION U/S 36(1)(VII) OF THE ACT. IT IS THE CON TENTION OF THE ASSESSEE THAT IN ORDER TO CLAIM DEDUCTION U/S 36(1)(VII) OF THE ACT, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT IS IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AND T HE AMOUNT HAS BEEN OFFERED AS INCOME IN COMPUTING THE INCOME IN EARLIE R YEARS FULFILLING THE CONDITIONS LAID DOWN IN SUB-SECTION (2) OF SECTION 36 OF THE ACT. THE ASSESSEE FURTHER CONTENDED THAT THESE DEBTS ARE ARI SED OUT OF EXPORT TURNOVER AND THE ASSESSEE HAS WRITTEN OFF THESE DEB TS IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE. THE ACT DOES NOT DIFFER ENTIATE BETWEEN DOMESTIC DEBT AND FOREIGN DEBT AND IF SUCH A BAD DE BT IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE WHETHER IT I S ON ACCOUNT OF RECEIVABLES FROM DOMESTIC SALES OR NON-REALISATION OF EXPORT PROCEEDS, ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 14 THEN THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 36( 1)(VII) OF THE ACT. IN SUPPORT OF HIS ARGUMENTS, RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LIMITED VS. CIT (2010) 323 ITR 397. 14. HAVING HEARD BOTH THE PARTIES AND CONSIDERED MA TERIAL ON RECORD, WE FIND THAT THE A.O. HAS DISALLOWED BAD DEBTS WRIT TEN OFF IN THE BOOKS OF ACCOUNTS, ON THE GROUND THAT THE BAD DEBTS ARE A RISED FROM THE EXPORT TURNOVER, WHICH CANNOT BE UNILATERALLY WRITT EN OFF IN THE BOOKS OF ACCOUNTS. ACCORDING TO THE A.O., UNDER THE PROVISI ONS OF SECTION 36(1)(VII) OF THE ACT, ONLY BAD DEBT ARISED IN THE COURSE OF DOMESTIC BUSINESS, WRITTEN OFF IN THE BOOKS OF ACCOUNTS IS E LIGIBLE FOR DEDUCTION U/S 36(1)(VII) OF THE ACT. ANY DEBT ARISED IN THE COURSE OF EXPORT TURNOVER CANNOT BE WRITTEN OFF UNILATERALLY. THE A .O. REFERRED TO THE RBI GUIDELINES AND ALSO THE PROVISIONS OF SECTION 41(1) OF THE ACT. IN THE CASE OF DOMESTIC DEBTS, WHERE THE DOMESTIC DEBT IS UNILATERALLY WRITTEN OFF, THE DEPARTMENT HAD JURISDICTION OVER OTHER PAR TY TO BRING HIM UNDER THE PROVISIONS OF INCOME TAX ACT BY WAY OF SECTION 41(1) OF THE ACT. WHEREAS, IN THE CASE OF DEBTS ARISING OUT OF NON-REA LISATION EXPORT PROCEEDS WRITTEN OFF UNILATERALLY, THE DEPARTMENT C ANNOT EXERCISE JURISDICTION OVER THE OTHER PARTY, THEREFORE, OPINE D THAT THE DEBTS WRITTEN OFF OUT OF EXPORT PROFITS IS NOT DEDUCTIBLE U/S 36( 1)(VII) OF THE ACT. WE DO NOT FIND ANY MERITS IN THE FINDINGS OF THE A.O., FOR THE REASON THAT ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 15 SECTION 36(1)(VII) OF THE ACT CLEARLY STIPULATES TH AT DEDUCTION IS ALLOWED PROVIDED THE BAD DEBT IS WRITTEN OFF AS IRRECOVERAB LE IN THE ACCOUNTS OF THE ASSESSEE FOR THE CONCERNED PREVIOUS YEAR. IT I S NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE AND AMOUNT HAS BEEN OFFERE D AS INCOME IN COMPUTING THE INCOME IN EARLIER YEARS FULFILLING TH E CONDITIONS LAID DOWN IN SUB SECTION (2) OF SECTION 36 OF THE ACT, AS HEL D BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LIMITED VS. CIT (2 010) 323 ITR 397 (SC). WE FURTHER OBSERVED THAT THE ACT DOES NOT MAK E ANY DIFFERENCE BETWEEN DEBTS ARISED IN THE COURSE OF DOMESTIC BUSI NESS AND DEBTS ARISED IN THE COURSE OF EXPORT BUSINESS. THE ONLY REQUIREMENT OF THE ACT IS THAT IF THE DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE, IT IS A SUFFICIENT COMPLIANCE OF SECTION 36(1)(VII) OF THE ACT AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION TOWARDS BAD DEBT S WRITTEN OFF. 15. IN THIS CASE, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS WRITTEN OFF BAD DEBTS AS IRRE COVERABLE IN THE BOOKS OF ACCOUNTS. WE FURTHER OBSERVED THAT THESE DEBTS A RE OFFERED AS INCOME IN COMPUTING INCOME IN THE EARLIER YEARS. T HE CONDITIONS PRESCRIBED U/S 36(1)(VII) AND 36(2) OF THE ACT HAS BEEN FULFILLED. THEREFORE, WE ARE OF THE VIEW THAT MERELY BECAUSE A SSESSEE HAD NOT ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 16 OBTAINED APPROVAL OF RBI TO WRITE OFF DEBTS PERTAIN ING TO FOREIGN PARTY, THE CLAIM OF THE ASSESSEE COULD NOT BE DISALLOWED. THE CIT(A) AFTER CONSIDERING THE RELEVANT PROVISIONS OF THE ACT AND ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TR F LIMITED VS. CIT (SUPRA), HAS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF BAD DEBT WRITTEN OFF. WE DO NOT FIN D ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A), HENCE, WE INC LINED TO UPHOLD CIT(A) ORDER AND REJECT THE GROUND RAISED BY THE REVENUE. 16. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FOR THE ASSESSMENT YEAR 2009-10 IS TOWARDS DISALLOWANCE ON LOSS OF FORWARD CONTRACTS. THE A.O. DISALLOWED LOSS ON FORWARD CON TRACTS ON THE GROUND THAT LOSS INCURRED BY THE ASSESSEE IS IN THE NATURE OF SPECULATIVE TRANSACTION, WHICH CANNOT BE ALLOWED AS DEDUCTION A GAINST BUSINESS INCOME. ACCORDING TO THE A.O., AS PER THE PROVISIO NS OF SECTION 43(5) OF THE ACT, ONLY ELIGIBLE TRANSACTIONS WHICH ARE NOT I N THE NATURE OF SPECULATIVE TRANSACTION AS DEFINED U/S 43(5) OF THE ACT, ONLY QUALIFY FOR DEDUCTION. THE A.O. REFERRED TO THE CBDT CIRCULAR AND OBSERVED THAT ANY ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN D ERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION (2) OF THE SECURITIES CONTRA CTS (REGULATION ACT, 1965), THAT HAS BEEN CARRIED OUT IN A RECOGNISED ST OCK EXCHANGE SHALL NOT BE TREATED AS A SPECULATIVE TRANSACTION. BUT, THE TRANSACTIONS CARRIED ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 17 ON BY THE ASSESSEE ARE NOT COVERED BY THE SAID EXCE PTIONS, THEREFORE, LOSS INCURRED BY THE ASSESSEE TOWARDS FORWARD CONTR ACTS IS NOT ELIGIBLE FOR DEDUCTION. IT IS CLAIM OF THE ASSESSEE THAT IT HAD ENTERED INTO FORWARD EXCHANGE CONTRACTS TO HEDGE THE POSSIBLE LO SS IN FLUCTUATION IN CURRENCY IN THE COURSE OF EXPORT TURNOVER AND THE R ESULTANT LOSS ON ACCOUNT OF SETTLEMENT OF HEDGING TRANSACTIONS IS TR EATED AS REVENUE EXPENDITURE. THE ASSESSEE FURTHER CONTENDED THAT D URING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2009-10, ITS EXPOR T TURNOVER IS MORE THAN THE VALUE OF FORWARD EXCHANGE CONTRACTS, THERE FORE, ANY LOSS SUFFERED ON FORWARD EXCHANGE CONTRACTS NOT IN THE N ATURE OF SPECULATIVE TRANSACTIONS IS ALLOWABLE AS DEDUCTION AGAINST BUSI NESS INCOME. 17. HAVING HEARD BOTH THE PARTIES AND CONSIDERED MA TERIALS ON RECORD, WE FIND THAT THE ASSESSEE HAS ENTERED INTO A FORWAR D EXCHANGE CONTRACTS WITH ITS BANKERS TO HEDGE THE EXPORT RECEIVABLES IN FOREIGN CURRENCY, IN ORDER TO SAFEGUARD AGAINST PRICE FLUCTUATION IN REA LIZATION OF TRADE DEBTORS. DURING THE YEAR, IN RESPECT OF SUCH HEDGI NG CONTRACTS, THE ASSESSEE INCURRED LOSS OF AN AMOUNT OF ` 3,41,583/-. WE FURTHER OBSERVED THAT THE ASSESSEE HAS ACHIEVED AN EXPORT T URNOVER OF OVER ` 100 CRORES. WE FURTHER OBSERVED THAT THE TRANSACTIO N ENTERED INTO BY THE ASSESSEE WITH ITS BANKERS IS NOT IN THE NATURE OF SPECULATIVE TRANSACTION AS DEFINED U/S 43(5)(D) OF THE ACT. TH EREFORE, WE ARE OF THE ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 18 VIEW THAT ANY LOSS INCURRED ON FORWARD CONTRACTS EN TERED WITH ITS BANKERS TO HEDGE THE EXPORT RECEIVABLES, IN ORDER T O SAFEGUARD AGAINST PRICE FLUCTUATIONS IN REALIZATION OF TRADE DEBTORS IS IN THE NATURE OF BUSINESS LOSS, BUT NOT SPECULATION LOSS AS DEFINED U/S 43(5)(D) OF THE ACT. THE CIT(A) AFTER CONSIDERING THE RELEVANT DET AILS HAS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE CIT(A), HENCE WE INCLINED TO UPHOLD CIT(A) ORDE R AND REJECT THE GROUND RAISED BY THE ASSESSEE. 18. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2010-11 IS TOWARDS D ISALLOWANCE OF CLEARING AND FORWARDING CHARGES U/S 40(A)(IA) OF TH E ACT, FOR NON- DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. TH E A.O. DISALLOWED AN AMOUNT OF ` 77,99,394/- TOWARDS EXPORT CLEARING AND FORWARDING CHARGES U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DE DUCT TDS U/S 194C OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPENDITURE INCURRED UNDER THE HEAD EXPORT CLEARING CHARGES IS IN THE NA TURE OF REIMBURSEMENT OF EXPENSES INCURRED BY THE PARTIES, FOR WHICH THE PROVISIONS OF SECTION 194C OF THE ACT HAS NO APPLIC ATION. THE ASSESSEE FURTHER SUBMITTED THAT EXPORT CLEARING CHARGES AND IMPORT CLEARING CHARGES CONSIST OF PAYMENT TOWARDS CUSTOM DUTY; OCE AN FREIGHT, LOCAL TRANSPORT CHARGES, TERMINAL HANDLING CHARGES, WHICH WAS INCURRED BY THE ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 19 C&F AGENTS AND LATER REIMBURSED. THE ARRANGEMENT B ETWEEN THE C&F AGENTS AND THE ASSESSEE ARE NOT IN THE NATURE OF PR INCIPAL AND AGENT AND HENCE, THE QUESTION OF DEDUCTION OF TDS ON SUCH PAY MENTS DOES NOT ARISE. ALTERNATIVELY, THE ASSESSEE CONTENDED THAT EXPENDITURE INCURRED UNDER THE HEAD EXPORT CLEARING CHARGES HAS BEEN FUL LY PAID ON OR BEFORE 31 ST MARCH OF THE FINANCIAL YEAR AND HENCE NO DISALLOWA NCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TDS , IF THE AMOUNTS HAS BEEN PAID WITHIN THE SAME FINANCIAL YEAR. IN SUPPO RT OF ITS ARGUMENTS, RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM SPE CIAL BENCH DECISION IN THE CASE OF MERILYN SHIPPING & TRANSPORTERS VS. ACIT (2012) 136 ITD 23. 19. HAVING HEARD BOTH THE PARTIES AND CONSIDERED MA TERIAL ON RECORD, WE FIND THAT THE A.O. HAS DISALLOWED CLEARING AND F ORWARDING CHARGES U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TDS U/S 194C OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPENDITURE INC URRED UNDER THE HEAD CLEARING AND FORWARDING CHARGES HAS BEEN PAID WIT HIN THE END OF THE FINANCIAL YEAR AND HENCE NO DISALLOWANCE CAN BE MAD E U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TDS, IF AMOUNT HAS B EEN PAID ON OR BEFORE 31 ST MARCH OF THE FINANCIAL YEAR. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON THAT THE COORDINATE BENCH ITAT, VISAKHAPATNAM TRIBUNAL, IN THE CASE OF MERILYN SHIPPING & TRANSPO RTERS VS. ACIT ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 20 (SUPRA) HAS EXAMINED THE ISSUE OF DISALLOWANCE OF E XPENDITURE SPECIFIED UNDER SECTION 40(A)(IA) OF THE ACT, FOR NON-DEDUCTI ON OF TAX AT SOURCE UNDER RESPECTIVE PROVISIONS. THE COORDINATE BENCH HELD THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, IF AMOUNTS HAVE BEEN PAID ON OR BEFORE 31 ST MARCH OF THE FINANCIAL YEAR. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS NOT CORRECT IN DI SALLOWING EXPENDITURE INCURRED UNDER THE HEAD CLEARING AND FORWARDING CH ARGES UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, FOR NON -DEDUCTION OF TAX AT SOURCE. AS REGARDS THE LD. D.RS ARGUMENTS THAT TH E DEPARTMENT HAS NOT ACCEPTED THE DECISION OF MERILYN SHIPPING & TRA NSPORTERS VS. ACIT (SUPRA), WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF MUKUNDARA ENGINEERS VS. ACIT VIDE ITA NO.657/VIZ AG/2014 DATED 22.7.2015, HAS CONSIDERED THE ISSUE AND AFTER CONSI DERING THE REVENUE OBJECTION WITH REGARD TO SPECIAL BENCH DECISION, IN THE CASE OF MERILYN SHIPPING & TRANSPORTERS VS. ACIT (SUPRA) AND ALSO C ONSIDERING THE RATIO OF HONBLE A.P. HIGH COURT, IN THE CASE OF JANAPRIY A ENGINEERING SYNDICATE (SUPRA) DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER : WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. CONSISTENT WITH THE VIEW TAKEN BY THE ITAT SPECIAL BENCH VISAKHAPATNAM AND ALSO IN THE LIGHT OF THE VIEW EXP RESSED BY THE HONBLE A.P. HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERIN G SYNDICATE, WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 40A(IA) OF THE ACT CANNOT BE MADE APPLICABLE IN RESPECT OF THE AMOUNTS ALREADY P AID BEFORE 31 ST MARCH. ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 21 IN OTHER WORDS, THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE AMOUNTS PAYABLE AFTER 31 ST MARCH. WITH THESE OBSERVATIONS, GROUND NO.3 OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 20. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULL Y FOLLOWING THE RATIO OF THE COORDINATE BENCH, WE ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, FOR THE AMOUNTS WHIC H HAVE BEEN PAID ON OR BEFORE THE END OF THE FINANCIAL YEAR. HOWEVER, THE ASSESSEE HAS FAILED TO FILE NECESSARY EVIDENCES WITH REGARD TO P AID AND PAYABLE. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF TH E A.O. AND DIRECT THE A.O. TO EXAMINE THE ISSUE WITH REFERENCE TO THE BOO KS OF ACCOUNTS OF THE ASSESSEE TO ASCERTAIN THE FACT OF PAID AND PAYABLE AND IF EXPENDITURE IS PAID WITHIN THE SAME FINANCIAL YEAR, THEN THE A.O. IS DIRECTED TO DELETE ADDITIONS MADE U/S 40(A)(IA) OF THE ACT. IN OTHER WORDS, THE A.O. IS DIRECTED TO RESTRICT DISALLOWANCE TO THE EXTENT AMO UNT REMAINING PAYABLE AT THE END OF THE FINANCIAL YEAR. 21. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NOS.272, 273 & 274/VIZAG/2012 AND ITA NO.484/VIZAG/2014 ARE DISMISSED AND APPEAL FILED BY THE ASSESSEE IN ITA NO.477/VIZAG/20 14 IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 22 ITA NOS.271 & 275/VIZAG/2016: 22. THESE CROSS APPEALS FILED BY THE ASSESSEE, AS W ELL AS REVENUE ARE DIRECTED AGAINST ORDER OF THE CIT(A), DATED 29.1.20 16 FOR THE ASSESSMENT YEAR 2011-12. IN THESE APPEALS, THE REV ENUE HAS CHALLENGED THE DELETION OF ADDITIONS MADE BY THE A. O., TOWARDS EXPORT PROFIT U/S 10AA OF THE ACT AND ADDITIONS TOWARDS DI SALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE ACT. THE ASSESSEE HAS CHALLENGED THE ISSUE OF DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TAX AT SOURCE. SINCE THE ISSUES RAISED B Y THE REVENUE AND THE ASSESSEE ARE IDENTICAL TO THE ITA NOS.272 TO 272/VI ZAG/2012 FOR A.Y. 2010-11 AND IN THE EARLIER YEARS WE HELD THAT THE A SSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10AA OF THE ACT, TOWARDS EXPORT PROFI T DERIVED FROM SEZ UNIT. WE, FURTHER, SET ASIDE THE ISSUE OF DISALLOW ANCE OF EXPENDITURE U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TAX AT SOURCE TO THE FILE OF THE A.O. FOR THE LIMITED PURPOSE OF EXAMINATION OF PAID AND PAYABLE WITH REFERENCE TO SPECIAL BENCH DECISION OF ITAT, VISAKH APATNAM IN THE CASE OF ACIT VS. MERILYN SHIPPING & TRANSPORTERS (SUPRA) . IN THIS CASE, THE FACTS ARE SIMILAR TO THE FACTS OF THE CASE FOR THE EARLIER YEAR AND HENCE, WE DIRECT THE A.O. TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCE OF EXPORT PROFIT U/S 10AA OF THE ACT AND RESTRICT THE DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE ACT, TO THE EXTENT AMOUNT REMAINED ITA NOS.272 TO 274/VIZAG/2012 & 477 & 484/VIZAG/201 4 M/S. BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 23 PAYABLE AT THE END OF THE FINANCIAL YEAR. ACCORDIN GLY, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPO SES AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 7 TH APR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 07.04.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), GUNTUR 2. / THE APPELLANT THE ACIT, CIRCLE-1(1), GUNTUR 3. / THE APPELLANT THE ACIT, RANGE-1, GUNTUR 4. / THE RESPONDENT M/S. BOMMIDALA ENTERPRISES PVT. LTD., MANGALAGIRI ROAD, GUNTUR 5. + / THE CIT, GUNTUR 6. + ( ) / THE CIT (A), GUNTUR 7. # . , . , # / DR, ITAT, VISAKHAPATNAM 8 . / GUARD FILE / BY ORDER // TRUE COPY // ASST. REGISTRAR ITAT, VISAKHAPATNAM