DCIT CC 39, MUMBAI V. DIAMOND 'R' US, MUMBAI

ITA 276/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2608 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SRIVASTAVA
• Section: 143(3); 10AA; 260A; 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI RAJESH KUMAR , AM ./ ITA NO. 2793/MUM/2012 ( / ASSESSMENT YEAR: 2007 - 08 ) M/S. DIAMONDS 'R' US / VS. CIT, CENTRAL III 1110, PRASAD CHEMBERS OPERA HOUSE, MUMBAI 400004 MUMBAI ./ PAN - AAAFD4507H /APPELLANT / RESPONDENT / CO NO. 276/MUM/2014 ( / ASSESSMENT YEAR: 2007 - 08 ) DCIT, CENTRAL CIRCLE 39 / VS. M/S. DIAMONDS 'R' US AAYKAR BHAVAN M.K. ROAD, MUMBAI 400020 1110, PRASAD CHEMBERS OPERA HOUSE, MUMBAI 400004 ./ PAN - AAAFD4507H CROSS OBJECTOR APPELLANT IN APPEAL / ASSESSEE BY: SHRI ANUJ KISNADWALA / REVENUE BY : SHRI A.K. SRIVASTAVA / DATE OF HEARING : 05.10. 2015 / DATE OF PRONOUNCEMENT : 30 .10.2015 / O R D E R PER SHAILENDRA KUMAR YADAV, JM THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER DATED 29.03.2012 PASSED BY CIT (CENTRAL III), MUMBAI AND IT PERTAINS TO A.Y. 2007 - 08. 2. THE FOLLOWING GROUNDS WERE URGED BY THE ASSESSEE: - 2 ITA NO. 2793/MUM/2012 M/S. DIAMONDS 'R' US 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT HAS ERRED IN PASSING THE ORDER U/S. 263 OF THE ACT WHICH IS BAD IN LAW AND WITHOUT JURISDICTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT HAS ERRED IN HOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 3(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF THE APPELLANT FOR DEDUCTION U/S.10AA WITHOUT CARRYING PROPER ENQUIRY. 3(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF THE APPELLANT WITHOUT EXAMINING WHETHER APPELLANT HAS CARRIED OUT ANY MANUFACTURING ACTIVITY AT ITS SEZ UNIT AND WITHOUT EXAMININ G AS TO WHETHER IT IS POSSIBLE TO CARRY OUT OPERATION OF LARGE SCALE OF RS.53.59 CRORES WITH MEAGER EXPENSES OF RS.8,20,202/ - 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO EXAMI NE IN DETAIL AND MAKE NECESSARY ENQUIRIES AS TO WHETHER THE APPELLANT IS CARRYING OUT ANY MANUFACTURING ACTIVITY AT ITS SEZ UNIT IN SACHIN SURAT AND TO EXAMINE AS TO WHETHER APPELLANT IS RENDERING ANY OTHER SERVICES AT ITS SEZ UNIT WHICH MAY QUALIFY FOR DE DUCTION UNDER SECTION 10AA. 5. THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT THE DECISION ARRIVED AT BY THE ASSESSING OFFICER CANNOT BE MADE SUBJECT - MATTER OF REVISION UNLESS THE ASSESSING OFFICER HAS ADOPTED A VIEW WHICH IS IMPOSSIBLE OR UNSUSTAINABLE IN LAW. 3. IN THE SET ASIDE PROCEEDINGS THE AO HAS PASSED ORDER UNDER SECTION 143(3) R.W.S. 263 OF THE ACT ON 17.01.2013. AGAINST THE ORDER OF THE AO APPEAL WAS FILED BEFORE THE CONCERNED CIT(A) WHO HAS ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE. AGAINST T HE ORDER OF THE CIT(A) THE DEPARTMENT PREFERRED APPEAL BEFORE THE ITAT IN ITA NO. 276/MUM/2014/. 4. ITA NO., 276/MUM/2014 HAS BEEN FILED BY REVENUE ON FOLLOWING GROUNDS: - 3 ITA NO. 2793/MUM/2012 M/S. DIAMONDS 'R' US 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT( A) WAS JUSTIFIED, IN ALLOWING THE APPEAL OF THE ASSESSEE, AS THE LD CIT(A) HAS FAILED TO APPRECIATE THAT THE WORD 'SERVICE ' NEITHER FOR THE PURPOSES OF ENTIRE INCOME TAX ACT NOR FOR THE RESTRICTED PURPOSE OF ALLOWING RELIEF UNDER SECTION I0AA ,IS NOT DEFI NED IN THE INCOME TAX ACT 1961 OR IN SECTION IOAA AND HENCE THE AO HAS INTERPRETED THE WORD 'SERVICE' AS PER THE MEANING ATTRIBUTABLE TO IT AS PER COMMON PARLANCE AND HAS CORRECTLY DISALLOWED THE RELIEF. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED, IN ALLOWING THE APPEAL OF THE ASSESSEE , AS THE LD CIT(A) HAS FAILED TO APPRECIATE THE INTENTION OF THE LEGISLATURE THE DEDUCTION U/S IOAA IS ALLOWABLE FOR TWO ACTIVITIES IN SEZ, BEING MANUFACTURING AND P ROVIDING OF SERVICE WHICH INCLUDES TRADING OF THE NATURE OF IMPORT FOR THE PURPOSES OF RE - EXPORT THE LEGISLATURE , IN SECTION 1OAA OF THE INCOME TAX ACT HAS SPECIFICALLY SAID THE MEANING OF THE WORD 'MANUFACTURE' SHOULD BE BORROWED FROM THE SEZ ACT AND IMPO RTED THE MEANING IN THE INCOME TAX ACT. BUT IN THE CASE OF THE WORD 'SERVICE ' OR 'TRADING ' OF THE NATURE PRACTICED BY THE ASSESSEE THE LEGISLATURE HAS DELIBERATELY CHOSEN NOT TO SPECIFICALLY SAY SO. THEREFORE THE DECISION OF THE CIT(A) , IN BORROWING THE MEANING OF THE WORD 'TRADING' OR 'SERVICE' FROM THE SEZ ACT IS NOT IN ACCORDANCE WITH THE INTENTION OF THE LEGISLATURE AND THE SPIRIT OF THE ACT AND HENCE NOT ACCEPTABLE. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT( A) WAS JUSTIFIED, IN ALLO WING THE APPEAL OF THE ASSESSEE , AS THE LD CIT(A) HAS FAILED TO APPRECIATE THE INTENTION OF THE LEGISLATURE , NOT TO ACCORD THE BENEFIT OF DEDUCTION U/S 10 AA TO T HE TRADING ACTIVITY OF THE TYPE , PRACTICED BY THE ASSESSEE BY SPECIFICALLY CHOOSING, NOT TO INCLUDE A CLAUSE ,FACILITATING THE BORROWING OF THE MEANING OF THE WORDS 'TRADING' OR 'SERVICE' FROM THE SEZ ACT. 4 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED, IN ALLOWING THE APPEAL OF THE ASSESSEE, AS THE LD CIT(A) HAS FAILED TO APPRECIATE THAT THE THREE WORDS 'MANUFACTURING ' 'PRODUCE ' AND 'PROVIDING OF SERVICE S ' USED IN SECTION 10AA SHOULD BE 4 ITA NO. 2793/MUM/2012 M/S. DIAMONDS 'R' US INTERPRETED IN CONTINUITY AND COHERENTLY TO PUT INTO EFFECT THE SPIRIT AND INTENTION OF THE LEGISLATURE IN BRINGING IN THE DEDUCTION UNDER SECTION 10AA , IN THE INCOME TAX ACT 1961 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED, IN ALLOWING THE APPEAL OF THE ASSESSEE , AS THE LD CIT(A) HAS FAILED TO APPRECIATE THAT THE RELIED ON DECISION OF THE ITAT JAIPUR BENCH IN THE CASE OF DCIT VS GOENKA DIAMONDS AND JEWELLERS LTD (ITA NO - 509/JP/2011 DATED 31.01.2012, IS NOT ACCEPTED BY THE DEPARTMENT AND APPEAL U/S 260A HAS BEEN AUTHORISED BY THE CC1T JAIPUR AND ALSO IN THE CASE OF M/S.GITANJALI EXPORTS CORP. LTD. (ITA NO.69478 & 6948/MUM/2011) . IS NOT ACCEPTED BY THE DEPARTM ENT AND APPEAL U/S.260A HAS BEEN AUTHORISED BY THE CIT CENT. - I, MUMBAI. 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED , IN ALLOWING THE APPEAL OF THE ASSESSEE, AS THE LD CIT(A) HAS FAILED TO APPRECIATE, THAT AS PER THE HON'BLE RAJASTHAN HC DECISION IN THE CASE OF KOTA CO - OPERATIVE MARKETING SOCIETY VS CIT 207 ITR 608 (RAJ), THE COURT HAD HELD THAT THE EXEMP TION CLAUSE IN THE TAX STATUTE, SHOULD BE CONSTRUED STRICTLY AND CANNOT BE EXTENDED BEYO ND THE CLEAR LANGUAGE USED IN THE SECTION. 5. WE FIND THAT S I MILAR ISSUE CAME UP IN A.Y. 2006 - 07 IN ASSESSEES OWN CASE WHEREIN FOLLOWING THE DECISION OF THE ITAT IN ITA NO. 509/JP/2011 IN THE CASE OF GOENKA DIAMOND & JEWELLERS LTD. THE ISSUE HAS BEEN DECIDE D IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: - WE NOTED THAT LEARNED CIT(A) HAS TAKEN INTO CONSIDERING THE ASPECT AND OBSERVATION OF THE AO THAT DEDUCTION UNDER SECTION 10AA IS NOT ALLOWABLE FOR THE REASON THAT THE ASSESSEE HAS NOT CARRIED OUT ANY M ANUFACTURING ACTIVITY BUT HAS DONE TRADING OF GOODS ONLY. FOR THIS PURPOSE, LEARNED AO HAS PLACED RELIANCE ON THE ORDER OF HONBLE DELHI HIGH COURT. LEARNED CIT(A) HAS TAKEN INTO CONSIDERATION THESE OBSERVATION OF THE AO AND THEREAFTER HE FOUND THAT THE GO VERNMENT OF INDIA HAS ISSUES A CIRCULAR NO.17 OF 29.5 - 2006, WHICH WAS ISSUED BY EXPORT PROMOTION COUNCIL FOR EOUS & SEZ UNIT (MINISTRY OF COMMERCE & INDUSTRY, 5 ITA NO. 2793/MUM/2012 M/S. DIAMONDS 'R' US GOVERNMENT OF INDIA). THE CONTENTS OF THE CIRCULAR HAVE ALSO BEEN INCORPORATED IN THE FINDING OF THE LEARNED CIT(A), WHICH HAVE ALSO BEEN REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. THEREFORE, WE ARE NOT REPEATING THE CONTENTS OF THAT CIRCULAR ISSUED BY THE MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA). UNDER SECTION 51(1) OF THE SEZ ACT, IT HAS BEEN CLEARLY PROVIDED 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 WILL HAVE OVERRIDING EFFECT OVER THE P ROVISION CONTAINED IN ANY OTHER ACT. LEARNED CIT(A) HAS TAKEN INTO CONSIDERATION THIS CIRCULAR ISSUED BY GOVERNMENT OF INDIA AND THE PROVISION OF SECTION 51 OF THE SEZ ACT AND FOUND THAT TRADING DONE BY THE ASSESSEE IS A SERVICE AND, THEREFORE, DEDUCTION U NDER SECTION 10AA IS ALLOWABLE. WE FURTHER NOTED THAT ON SIMILAR FACTS IN CASE OF GOENKA DIAMONDS AND JEWELLERY LIMITED (SUPRA), THE JAIPUR BENCH OF THE TRIBUNAL HAS DISCUSSED THE ISSUE IN DETAIL. THE PROVISIONS OF SECTION 51 OF SEZ ACT WERE ALSO CONSIDERE D. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TAX RECOVERY OFFICER VS. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT, REPORTED IN THE CASE OF 211 CTR 369 (SC) AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD., REPORTED IN 238 CTR 142 (DELHI), WERE ALSO TAKEN INTO CONSIDERATION AND THEREAFTER IT WAS CONCLUDED THAT IN VIEW OF THE INSTRUCTION NO.1 OF 2006, DATED 24 - 3 - 2006 AS MODIFIED BY INSTRUCTION NO.4 OF 2006, DATED 24 - 5 - 2006 ISSUED BY THE MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA AND THE DEFINITION OF SERVICE GIVEN IN THE SEZ ACT, 2005, WHICH OVERRIDES THE WORD SERVICE ACCRUING IN SECTION 10AA 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. FACTS ARE SIMILAR BEFORE US, AS THE ASSESSEE IS ENGAGED IN TRADING OF RE - EXPORT OF IMPORTED GOODS AND, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. ALL THE ARGUMENTS ADVANCED BY THE LEARNED DR BEFORE US HAVE ALSO BEEN TAKEN CARE OF BY THE TRIBUNAL WHILE DISCUSSING THE APPEAL IN THE CASE OF GOENKA DIAMONDS AND JEWELLERY LIMITED (SUPRA). IT IS FURTHER NOTED THAT THE MAIN P LANK 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 BEEN CLEARLY PROVIDED THAT THE PROVISION OF 6 ITA NO. 2793/MUM/2012 M/S. DIAMONDS 'R' US SEZ ACT WILL OVERRID E THE PROVISION OF ANY OTHER ACT, MEANING THEREBY THE PROVISION PROVIDED UNDER THE SEZ ACT HAS TO OVERRIDE ON THE PROVISION OF SECTION 10AA OF THE INCOME TAX ACT. UNDER THE RULES, IT IS NOT PROVIDED BUT UNDER SECTION 51 OF THE SEZ ACT, IT IS PROVIDED, THER EFORE, IN OUR VIEW, THE CONTENTION RAISED BY THE LEARNED DR IS NOT TENABLE. MOREOVER, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN THE CASE OF GOENKA DIAMONDS AND JEWELLERY LIMITED (SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF GOENKA DIAMONDS AND JEWELLERY LIMITED (SUPRA) AND IN VIEW OF THE REASONING GIVEN BY THE LEARNED CIT(A), WE CONFIRM HIS ORDER. 6. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. T HE FACT BEING SIMILA R, FOLLOWING THE SAME REASONS WE UPHOLD THE ORDER OF THE CIT(A) WHO HAS ALLOWED THE CLAIM OF ASSESSEE OF DEDUCTION UNDER SECTION 10AA OF THE ACT. AS A RESULT REVENUES APPEAL IS DISMISSED. IN VIEW OF THIS THE ISSUE RAISED BY ASSESSEE AGAINST THE ORDER OF C IT UNDER SECTION 263 GOES ACADEMIC. SAME IS DISMISSED AS BEING INFRUCTUOUS. HOWEVER, ASSESSEE IS AT LIBERTY TO AGITATE THE SAME AS AND WHEN SITUATION ARISES FOR SAME. 7. IN THE RESULT, CO NO. 276/MUM/201 4 AS WELL AS ITA NO. 2793/MUM/2012 ARE DISMISSED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2015. 30.10.2015 SD/ - SD/ - ( RAJESH KUMAR ) ( SHAILENDRA KUMAR YADAV ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI , DATED 30 TH OCTOBER, 2015 7 ITA NO. 2793/MUM/2012 M/S. DIAMONDS 'R' US / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . / THE CIT - CENTRAL - III , MUMBAI 4 . , , / DR, D BENCH ITAT, MUMBAI 5 . / GUARD FILE . / B Y O RDER //TRUE COPY// /ASSTT. REGISTRAR) , /ITAT, MUMBAI