DCIT 15 (1)(2), MUMBAI V. DUTYFREE DISTRIBUTION SERVICES PVT.LTD., MUMBAI

ITA 2855/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0939 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 07-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Transfer pricing; International transaction; Benefit of exemption; Set aside
• Section: 143(3); 10AA; 264; 13; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER) ITA NO. 2855/MUM/2018 ASSESSMENT YEAR: 2013-14 DY. COMMISSIONER OF INCOME TAX-15(1)(2), ROOM NO. 483, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. M/S DUTY FREE DISTRIBUTION SERVICES PVT. LTD. D/73-I, TTC INDUSTRIAL AREA, TURBHE, NAVI MUMBAI-400705. PAN NO. AACCD6134D APPELLANT RESPONDENT REVENUE BY : MR. ANAND MOHAN, DR ASSESSEE BY : MR. J.P. BAIRAGRA, AR DATE OF HEARING : 09/10/2019 DATE OF PRONOUNCEMENT : 02/12/2019 ORDER PER PAWAN SINGH,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER OF CIT(A)-55, MUMBAI DATED 02.02.2018 FOR ASSESSMENT YEAR 2013-14. THE A SSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN DELETING THE TP ADJUSTMENT MADE BY THE TPO (FOLL OWING THETRANSACTIONS-BY-TRANSACTION APPROACH) AND DIRECTING BENCHMARKING BY AGGREGATION OF VARIOUS PURCHASE TRANSACTIONS WITHOUT THERE BEING CIRCUMSTANCES FOR ADOPTION OF T HE AGGREGATED APPROACH TO BENCHMARKING? M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN DELETING THE TP ADJUSTMENT MADE BY THE TPO (FOLL OWING THE TRANSACTIONS-BY- TRANSACTION APPROACH) AND DIRECTING BENCHMARKING BY AGGREGATION OF VARIOUS SALE TRANSACTIONS WITHOUT THERE BEING CIRCUMSTANCES FOR ADOPTION OF THE AGGREGATED APPROACH TO BENCHMARKING? 3. A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) HAS ERRED IN DELETING THE TP ADJUSTMENT MADE BY THE TPO IGNORING THE DECISION OF THE HONBLE DELHI ITAT IN THE CASE OF ACIT VS. UE TRADE CORPORATION (INDIA) PVT. LTD. [45 SOT 197 (DEL)], WHEREIN IT WAS HELD THAT W HERE THE IMPUGNED TRANSACTIONS DID NOT CONSTITUTE A SERIES OF CONNECT ED AND INDIVISIBLE TRANSACTIONS, AND EACH TRANSACTION WAS SEPARATE, BENCHMARKING SHO ULD ALSO BE CARRIED OUT IN A TRANSACTION-BY-TRANSACTION MANNER? B. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) HAS ERRED IN DELETING THE TP ADJUSTMENT MADE BY THE TPO BY RELYING ON BETTER OPERATING PROFIT MARGINS OF THE ASSESSEE, COMPUTED UNDER TNMM, WHEN CUP AND NOT TNMM, HAD BEEN ADOPTED AS MAM VOLUNTARILY BY TH E ASSESSEE, WHICH WAS ALSO ACCEPTED BY THE TPO? C. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE TP ADJUSTMENT MADE BY THE TPO BY RELYING ON. BETTER OPERATING PROFIT MARGINS OF THE ASSESSEE, COMPUTED UNDER TNMM, WITHOUT REJECTING THE BENCHMARKING OF THE TRANSACTIONS MADE BY THE ASSESSEE AND THE TPO UNDER CUP? D. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) HAS ERRED IN DELETING THE TP ADJUSTMENT MADE BY THE TPO BY RELYING ON BETTER OPERATING PROFIT MARGINS OF THE ASSESSEE, COMPUTED UNDER TNMM, WHEN THE TRANSACTIONS HAD ALREADY BEEN BENCHMARKED UNDER CUP BY THE ASSESSEE, AND THERE IS NO PROVISION EN THE ACT OR RULES FOR BENCHMARKIN G A TRANSACTION UNDER TWO METHODS SIMULTANEOUSLY? M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 3 E. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) HAS ERRED IN DELETING THE TP ADJUSTMENT MADE BY THE TPO BY RELYING ON BETTER OPERATING PROFIT MARGINS OF THE ASSESSEE, COMPUTED UNDER TNMM, WHEN BENCHMARKING OF THE SAID TRANSACTIONS WAS AVAILABLE UNDER CUP, AND IT HAS BEEN HELD IN VARIOUS JUDICIAL PRONOUNCEMENTS THAT TRANSA CTION-BASED BENCHMARKING METHODS (LIKE CUP) ARE PREFERABLE TO PROFIT-BASED B ENCHMARKING METHODS (LIKE TNMM)? 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S. 10AA IN RESPECT OF PROF ITS OF SEZ UNIT AMOUNTING TO RS.1,27,16,447/- BY VIRTUE OF THE PROVISIONS OF THE SPECIAL ECONOMIC ZONE, 2005, CONSIDERING THAT THE ACTIVITY OF IMPORTING GOODS AN D ITS EXPORT AMOUNTED TO PROVIDING OF 'SERVICES' AS PER THE PROVISIONS OF SECTION 10AA OF THE ACT AS [HE WORD 'SERVICE' MUST BE TAKEN FROM THE SEZ ACT, 2005, IGNORING THAT THE LEG ISLATURE AND DELIBERATELY EXCLUDED THE DEFINITION OF SERVICES FROM SEZ ACT FROM ITS SCOPE AND THEREFORE, THE DEFINITION OF SERVICES COULD NOT BE IMPORTED FROM SEZ ACT. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A), M UMBAI ON THE ABOVE DIRECTIONS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A C OMPANY ENGAGED IN THE BUSINESS OF IMPORTER AND EXPORTER OF GOODS IN THE NATURE OF ALCOHOLIC PRODUCTS, CIGARETTES, CONFECTIONARIES, HIGH QUALITY WATCHES ETC. FILED IT S RETURN OF INCOME FOR ASSESSMENT YEAR 2013-14 DECLARING TOTAL INCOME OF RS.1,27,16,4 47/-. ALONG WITH RETURN OF INCOME, THE ASSESSEE FURNISHED REPORT IN FORM NO. 3 CEB REPORTING INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES (AES). CONSEQUENT UPON THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANSFER PRICING OF FICER (TPO) FOR COMPUTATION OF ARMS LENGTH WITH REGARD TO TRANSACTION REPORTED BY ASSESSEE IN ITS REPORT IN FORM NO. 3CEB. THE TPO AFTER GRANTING OPPORTUNITY TO THE ASSESSEE MADE UPWARD ADJUSTMENT OF RS.23,39,605/- IN RESPECT OF INTERNAT IONAL OF PURCHASE AND SALE WITH M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 4 ITS AES. ON RECEIPT OF REPORT OF TPO, THE ASSESSING OFFICER INCLUDED THE UPWARD ADJUSTMENT SUGGESTED BY TPO. 3. DURING THE ASSESSMENT, THE ASSESSING OFFICER ALS O NOTED THAT THE ASSESSEE HAS CLAIMED EXEMPTION AND U/S 10AA OF RS.1,27,16,447/-. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO SUBSTAN TIATE THE CLAIM OF EXEMPTION U/S 10AA. THE ASSESSEE FURNISHED ITS SUBMISSION/DETAIL REPLY AS RECORDED BY ASSESSING OFFICER IN PARA 5.1 OF HIS ORDER. AFTER CONSIDERING THE REPLY OF ASSESSEE, THE ASSESSING OFFICER TOOK THE VIEW THAT DEDUCTION U/S 10AA IS AVAILABLE ONLY IN CASE ASSESSEE IS ENGAGED EITHER IN MANUFACTURING OR PROD UCTION OF ARTICLE OR THINGS. THE WORD SERVICES HAVE NOT BEEN DEFINED IN INCOME TAX ACT. THE DEFINITION OF SERVICE IS PROVIDED IN SECTION 2(Z) OF SPECIAL ECONOMIC ZON E (SEZ) ACT WHICH CANNOT BE IMPORTED IN SECTION 10AA OF THE ACT. ACCORDINGLY, T HE ASSESSING OFFICER TOOK THE VIEW THAT MEANING OF WORD SERVICES CANNOT BE GIVE N A MEANING OF TRADING OF GOODS AS PER THE PROVISION OF SEZ ACT, 2005 AND ACC ORDINGLY, ASSESSING OFFICER DISALLOWED THE CLAIM OF SECTION 10AA.THUS, WHILE PA SSING THE DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S 144C. THE AO INCLUDED ADJUST MENT SUGGESTED BY TPO AND DISALLOWANCE OF SECTION 10AA. THE ASSESSEE INSTEAD OF EXERCISING ITS OPTION FOR FILING OBJECTION BEFORE DRP, FILED APPEAL BEFORE LD . CIT(A). THE LD. CIT(A) AFTER HEARING THE SUBMISSION OF ASSESSEE REVERSE THE ACTI ON OF ASSESSING OFFICER/TPO ON TP ADJUSTMENT AS WELL AS ON DISALLOWANCE OF EXEMPTI ON U/S 10AA. THUS, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE H AS FILED PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE SUBMISSION OF THE LD. DR OF TH E REVENUE AND LD. AR OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NO. 1 TO 3 M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 5 RELATES TO TRANSFER PRICING ADJUSTMENT. THE LD. DR OF THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER/TPO. 5. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SU BMITS THAT TPO BY RELYING BENCHMARKING OF TRANSFER PRICING ADJUSTMENT HAS DON E ADJUSTMENT FOR FOLLOWING TRANSACTIONS BY TRANSACTION APPROACH BY THE CONTENT ION OF THE ASSESSEE WAS THAT IT SHOULD BE DONE BY AGGREGATING OR INTENDING DURING T HE YEAR. FURTHER, THE TPO HAS THUS THE ADJUSTMENT IN SOME OF THE TRANSACTIONS WER E THERE IS UNFAVOURABLE TRANSACTION AND HAS NOT MADE ANY ADJUSTMENT IN RESP ECT OF TRANSACTIONS WHERE THERE FAVOURABLE TRANSACTION FOR THE ASSESSEE. ON APPEAL BEFORE CIT(A) THE ACTION OF ASSESSING OFFICER REVERSE THEREBY THE TP ADJUSTMENT AS WELL AS EXEMPTION U/S 10AA WAS GRANTED TO THE ASSESSEE. THE LD. AR FURTHE R EXPLAINED THAT WHICH ARE UNFAVOURABLE. THE TPO HAS SELECTED ONLY THOSE TRANS ACTIONS AND THEREFORE, ASSESSEE HAD SUBMITTED THAT ADJUSTMENT SHOULD BE MADE FOR AL L TRANSACTIONS AS THE ITEMS OF PURCHASE AND SALE ARE THE SAME AND ONLY PRICE IS DI FFERENT DUE TO MARKET CONDITION FROM TIME TO TIME. THE LD. AR SUBMITS THAT ASSESSEE ALSO ADOPTED TRANSACTION NET MARGIN METHOD (TNMM) IN ITS TRANSFER PRICING STUDY REPORT. ACCORDING TO WHICH OPERATING PROFIT MARGIN (OPM) WAS 2.13% WHICH IS SI GNIFICANTLY HIGHER THAN OPMTO TNMM COMPARABLE COMPANIES AT 1.66% AND 0.84% AVERAGE OF WHICH IS 1.25% AND ON BOTH THE REASONS THE LD. CIT(A) ACCEPT ED THE ADJUSTMENT IN RESPECT OF TRANSACTION OF PURCHASE AND SALE WITH ITS AES SI TUATED IN SRI LANKA AND ONLY TRANSACTION OF SALE AE SITUATED IN UAE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE ASSESSMENT , THE ASSESSING OFFICER NOTED THE ASSESSEE AS REPORTED FOLLOWING INTERNATIONAL TR ANSACTION ON PURCHASES OF TRADED GOODS WITH AES OF RS 11,20,297/- M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 6 NAME AND COUNTRY OF THE ASSOCIATED ENTERPRISES WITH WHOM THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO TOTAL AMOUNT PAID/RECEIVED METHOD USED FOR DETERMI NING THE ARMS LENGTH PRICE AS PER BOOKS OF ACCOUNT (RS.) AS COMPUTED BY THE ASSESSEE HAVING REGARD TO THE ARMS LENGTH PRICE (RS.) FLEMINGO DUTY FREE (PRIVATE) LIMITED, SRILANKA 1,11,20,297/- 1,11,20,297/- CUP METHOD AS PER ITS TRANSFER PRICING STUDY REPORT, THE ASSES SEE CLAIMED THE TRANSACTION AS TRANSACTION AS ARMS LENGTH PRICE IN THE FOLLOWI NG MANNER: NAME AND COUNTRY OF THE ASSOCIATED ENTERPRISES WITH WHOM THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO TOTAL AMOUNT PAID/RECEIVED METHOD USED FOR DETERMI NING THE ARMS LENGTH PRICE AS PER BOOKS OF ACCOUNT (RS.) AS COMPUTED BY THE ASSESSEE HAVING REGARD TO THE ARMS LENGTH PRICE (RS.) FLEMINGO DUTY FREE (PRIVATE) LIMITED, SRILANKA 1,11,20,297/- 1,19,03,916/- CUP METHOD WITH RESPECT TO INTERNATIONAL TRANSACTION OF SALES OF TRADED GOOD OF RS. 32,60,35,225/- AS PER FORM 3CEB AS UNDER; NAME AND COUNTRY OF THE ASSOCIATED ENTERPRISES WITH WHOM THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO TOTAL AMOUNT PAID/RECEIVED METHOD USED FOR DETERMI NING THE ARMS LENGTH PRICE AS PER BOOKS OF ACCOUNT (RS.) AS COMPUTED BY THE ASSESSEE HAVING REGARD TO THE ARMS LENGTH PRICE (RS.) M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 7 FLEMINGO DUTY FREE (PRIVATE) LIMITED, SRILANKA 54092077/- 54092077/- CUP METHOD FLEMINGO INTERNATIONAL UAE 27,19,43,148/- 271943148 /- CUP METHOD 326035225/- 325105028 AS PER ITS TRANSFER PRICING STUDY REPORT, THE ASSES SEE CLAIMED THE TRANSACTION AS TRANSACTION AS ARMS LENGTH PRICE IN THE FOLLOWING MANNER NAME AND COUNTRY OF THE ASSOCIATED ENTERPRISES WITH WHOM THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO TOTAL AMOUNT PAID/RECEIVED METHOD USED FOR DETERMI NING THE ARMS LENGTH PRICE AS PER BOOKS OF ACCOUNT (RS.) AS COMPUTED BY THE ASSESSEE HAVING REGARD TO THE ARMS LENGTH PRICE (RS.) FLEMINGO DUTY FREE (PRIVATE) LIMITED, SRILANKA 54092077/- 54053525/- CUP METHOD FLEMINGO INTERNATIONAL UAE 27,19,43,148/- 271051493 /- CUP METHOD 326035225/- 325105028 THE TPO ASKED THE ASSESSEE TO FURNISH, THE DETAILS OF TRANSACTION-WISE DATA OF THE PURCHASES. THE ASSESSEE FURNISHED THE REQUIRED DETAILS BEFORE THE TPO. AFTER CONSIDERING THE DETAIL FURNISHED BY ASSESSEE, THE T PO WITH REGARD TO THE PURCHASE OF GOODS WAS OF THE VIEW THAT TRANSACTION OF PURCHA SE WITH INTERNATIONAL AES IS AN EXCESS OF ALP BY RS.6,01,424/- THEREBY SUGGESTED UP WARD ADJUSTMENT OF RS.6,01,424/-. WITH REGARD TO SALE OF TRADED GOODS THE TPO CONCLUDED THAT THE TRANSACTION OF PURCHASE WITH AES ARE LESS THAN BY A LP OF RS.17,38,181/-. ACCORDINGLY THE TPO MADE THE ADJUSTMENTS OF RS.23,3 9,605/-. THE ASSESSING M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 8 OFFICER PASSED THE ASSESSMENT ORDER BY INCORPORATIN G THE SUGGESTED UPWARD ADJUSTMENT. 7. BEFORE LD. CIT(A), THE ASSESSEE MADE SIMILAR CON TENTION AS ASKED BEFORE US. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE CONCLUDED THAT THE TPO SHOULD HAVE CONSIDERED THE PURCHASE AMOUNT SALE ON ALL THE ITEMS AND THE COMPARABLE PURCHASE AMOUNT SALE AND WHENEVER COMPAR ABLE WAS NOT AVAILABLE AS COMPARED WITH PURCHASE PRICE AND FINAL SALE PRICE A S WHICH PRODUCT WAS SALE TO CUSTOMER. SIMILARLY, IN RESPECT OF SALE GOODS TRADE D, THE TPO SHOULD HAVE CONSIDERED THE TOTAL AMOUNT OF SALE. THE TOTAL AMOU NT OF COMPARABLE SALE AND IN CASE NOT COMPARABLE IS AVAILABLE THEN FINAL SALE PR ICE ON WHICH PRODUCT WAS SALE TO CUSTOMER SHOULD HAVE BEEN TAKEN. THE LD. CIT(A) ALS O CONSIDERED THE BENCHMARKING UNDER TNMM WHEREIN THE ASSESSEE DEMONS TRATED OPM AT 2.16% WHICH WAS ADMITTEDLY HIGHER THAN COMPARABLE COMPANI ES AND ALLOW THE RELIEF TO THE ASSESSEE. WE HAVE SEEN THAT THE LD. CIT(A) PASS ED THE ORDER AFTER COMPLETED FACTUAL ANALYSIS OF THE CASE, WHICH NEEDS NO INTERF ERENCE. NO CONTRARY FACT IS BROUGHT ON RECORD TO OUR NOTICE BY LD. DR TO SHOW T O DEMONSTRATE THAT THE DECISION ARRIVED BY LD. CIT(A) IS CONTRARY TO THE FACTS. NO CONTRARY LAW IS BROUGHT TO OUR NOTICE TO TAKE OTHER VIEW. THEREFORE, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER PASSED BY LD. CIT(A). 8. IN THE RESULT, GROUND NO. 1 TO 3 RAISED BY THE R EVENUE ARE DISMISSED. 9. GROUND NO. 4 AND 5 RELATES TO DISALLOWANCE OF DE TERMINATION U/S 10AA. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIED U PON THE ORDER OF ASSESSING OFFICER. THE LD. AR OF THE ASSESSEE SUBMITS THAT TH ESE GROUNDS OF APPEAL ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F TRIBUNAL IN ASSESSEES OWN M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 9 CASE FOR AY 2010-11, 2011-12 AND 2012-13. THE LD. A R FURTHER SUBMITS THAT FOR AY 2010-11 AND 2014-15 THE DEPARTMENT WAS NOT FILED ANY APPEAL. SIMILAR ORDER PASSED BY CIT(A). WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTED THAT IN ASSE SSEES OWN CASE FOR AYS 2009- 10, 2010-11, 2011-12 AND 2012-13, SIMILAR DISALLOWA NCE WAS MADE. HOWEVER, ON APPEAL BEFORE CIT(A), THE ASSESSEE WAS ALLOWED RELI EF.ON FURTHER APPEAL TO THE TRIBUNAL,THE ORDER OF CIT(A) WAS CONFIRMED. FOR COM PLETION OF THIS ORDERWE REFER THE ORDER FOR AY 2009-10 AND 2010-11 IN ITA NO. 275 3/M/2015 DATED 13.07.2016 WHEREIN ON IDENTICAL GROUND OF APPEAL, THE CO-ORDIN ATE BENCH PASSED THE FOLLOWING ORDER : 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. FACTS IN BRIEF ARE THAT THE ASSESSEE, CLAIM ED TO BE ENGAGED IN THE BUSINESS OF DUTY FREE IMPORT AND EXPORT OF GOODS, MAINLY SOLD AT DUT Y FREE SHOPS IN INDIA AND ABROAD, MAINLY IN CIGARETTES AND FOREIGN MADE LIQUOR AND CL AIMED DEDUCTION AMOUNTING TO RS.48,78,973/- UNDER SECTION 10AA OF THE ACT. DURIN G SCRUTINY PROCEEDINGS THE LEARNED ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH NEC ESSARY DETAILS WHICH WERE FILED BY THE ASSESSEE. THE ASSESSEE VIDE LETTER DATED 13.10.2012 AND 09.03.2013 MADE SUBMISSIONS CLAIMING THAT THE ASSESSEE IS A TRADING CONCERN AND ENGAGED IN TRADING SERVICE OF IMPORT AND EXPORT OF FMFL AND CIGARETTES FROM THE SEZ AND THEREFORE ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA. THE ASSESSEE PLACED RELIANCE ON SECTION 51 (1) OF THE SEZ ACT READ WITH RULE 76 OF SEZ RULES, 2006, WHEREIN THE SERVI CES HAS BEEN DEFINED TO INCLUDE TRADING. HOWEVER, THE LEARNED ASSESSING OFFICER DIS ALLOWED THE CLAIMED DEDUCTION AND TAXED THE SAME UNDER THE NORMAL PROVISIONS OF THE A CT. 3.1 ON APPEAL BEFORE THE LEARNED CIT(A) THE FACTUAL MATRIX/ SUBMISSIONS AS MENTIONED IN PARA 3.2 OF THE IMPUGNED ORDER WERE CONSIDERED AND BY FOLLOWING VARIOUS DECISIONS INCLUDING HOTEL ASHOKA (ITDC) VS. ACIT (2012) STPL (WEB) 89 (SC), GITANJALI EXPORTS M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 10 (ITA NO. 6947 & 6948/MUM/2011), GOENKA DIAMONDS AND JEWELLERS LTD. 146 TTJ 68 (JP), MIDAS DFS PVT. LTD. 37 CCH 264 (KOL.), DECIDE D IN FAVOUR OF THE ASSESSEE. THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE THIS T RIBUNAL. 3.2 IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER , LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MAT ERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXT APOSITION AND ANALYZED, WE FIND THE CLAIMED DEDUCTION UNDER SECTION 10AA OF THE ACT WAS STARTED IN 2007 FOR WHICH APPROVAL WAS GRANTED BY CSEZ DEVELOPMENT COMMISSIONER, PERMI TTING THE ASSESSEE TO ESTABLISH THE UNIT AT SEZ TO UNDERTAKE ITS TRADING ACTIVITY. THE ASSESSEE PURCHASES ITEM LIKE CIGARETTES AND FOREIGN LIQUOR, BESIDE OTHER FOREIGN SUPPLIERS, FROM FLAMINGO DFS PVT. LTD. AND FROM FLAMINGO DUTY FREE SHOP PVT. LTD. HAVING T HEIR REGISTERED OFFICE AT NAVI MUMBAI. THESE TWO CONCERNS IMPORT THE ITEM FROM ABO ARD AND FLAMINGO GOT THE LICENCE TO OPERATE DUTY FREE SHOPS AT VARIOUS AIR PORTS/SEA PORTS IN INDIA AND ALSO HAS BONDED WAREHOUSES IN DIFFERENT CITIES IN INDIA WHEREVER IT S DUTY FREE SHOPS. THE PURCHASES MADE BY THE ASSESSEE ARE BY WAY OF HIGH SEAS PURCHASES W HEREIN THE GOODS ARE SOLD BY FLAMINGO TO THE ASSESSEE, WHILE THE CARGO IS ON THE HIGH SEAS. THESE ARE DONE THROUGH HIGH SEAS SALES CONTRACT. THE NECESSARY DOCUMENTS W ERE DULY EXAMINED BY THE LEARNEDCIT(A) AND THIS FACTUAL MATRIX IS NOT CONTRO VERTED BY THE REVENUE. ORIGINAL BILL OF LADING, BILL OF ENTRY WERE ALSO EXAMINED. THE PURCH ASES WERE MADE ON THE HIGH SEAS AND NOT IN INDIA. THERE IS NOT A SINGLE INSTANCE WHERE THE LOCAL PURCHASES WERE MADE WITHIN IN INDIA. WE FIND THAT THE RATIO LAID DOWN IN THE CASE S LIKE GITANJALI EXPORTS, MIDAS DFS PVT. LTD. AND GOENKA DIAMOND AND JEWELLERS LTD. (SUPRA), SUPPORT THE CASE OF THE ASSESSEE. THE ISSUE OF ALLOWABILITY WAS DULY CONSIDERED BY TH E JAIPUR BENCH IN 146 TTJ 68 (SUPRA). THE TOTALITY OF FACTS/PROVISIONS OF SEZ ACT AND SEZ RULES PROVIDES THAT THE BENEFIT OF SECTION 10AA IS AVAILABLE ON TRADING. THE RATIO LAI D DOWN IN GITANJALI EXPORTS CORPORATION AND GITANJALI GENTS LTD. ALSO SUPPORTS THE CASE OF THE ASSESSEE. THE RELEVANT FINDINGS HAVE BEEN REPRODUCED AT PAGE 6 ON WARDS OF THE IMPUGNED ORDER. CONSIDERING THE TOTALITY OF FACTS AND THE JUDICIAL PRONOUNCEMEN TS DISCUSSED HEREINABOVE WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LEARNED CI T(A). M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 11 10. FURTHER, IN ASSESSEES APPEAL FOR AY 2009-10 AN D 2012-13, THE CO-ORDINATE BENCH PASSED THE FOLLOWING ORDER - 5. BOTH THE ISSUES ARE IN CONNECTION WITH THE ALLOW ANCE OF CLAIM OF THE ASSESSEE U/S 10AA OF THE I.T. ACT, 1961 IN RESPECT OF PROFITS OF SEZ UNIT AMOUNTING TO RS.2,82,47,713/-. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON ACCOUNT OF THIS FACT THAT THE ASSESSEE FAILED TO FURNISH FORM AS PER RULE 16D AND FORM NO. 56F OFTHE ACT WITH THE RETURN OF INCOME AND THE ASSESSEE WAS INVOLVED IN T RADING ACTIVITIES. THE ASSESSING OFFICER IS ALSO VIEW THAT THE DEDUCTION U/S 10AA OF THE ACT WAS ALLOWABLE ONLY TO THE UNDERTAKING WHICH EXPORT THE ARTICLES PRODUCTS/MANU FACTURER BY IT. THE ASSESSEE FILED AN APPEAL AGAINST THE SAID ORDER BEFORE THE CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE. THE CONTENTION OF THE LD. REPRESENTATIVE OF THE DEP ARTMENT IS THAT THE CASE OF THE ASSESSEE DOES NOT COME WITHIN THE AMBIT OF NECESSAR Y CONDITION OF SEZ FOR CLAIMING DEDUCTION US/ 10AA OF THE ACT, THEREFORE, THE CIT(A ) HAS WRONGLY ALLOWED THE EXEMPTION U/S 10AA OF THE ACT, THEREFORE, THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE AND IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. R EPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CI T(A) ON RECORD: - 2.4.2 GROUND NO. 2 IS GENERAL IN NATURE AND HENCE, NEED RIOT BE ADJUDICATED SEPARATELY. 2.4.3 BEFORE COMING TO THE MERITS OF THE DISALLOWAN CE WHICH HAS BEEN AGITATED VIDE GROUND NOS. 3 TO 5, IT IS IMPORTANT TO NOTE TH AT THE APPELLANT VIDE GROUND NO. 6 HAS REFUTED THE LD. AO'S OBSERVATION THAT IT HAD NOT OBTAINED AND FILED AUDIT REPORT IN FORM NO. 56F DURING THE COURSE OF THE ASS ESSMENT PROCEEDINGS. IN THIS REGARD, IT HAS BEEN STATED THAT UNDER THE E-FILING SYSTEM, NO ATTACHMENT CAN BE FILED WITH THE RETURN ELECTRONICALLY FILED WITH THE DEPAR TMENT AND HENCE, UNLESS THE LD AO REQUIRED AUDIT REPORT TO BE SUBMITTED, IT COULD NOT HAVE BEEN DONE FURTHER, IT HAS ALSO BEEN STATED THAT THE SAID AUDIT REPORT WAS PRODUCED BEFORE THE LD AO IN THE PROCEEDINGS U/S 263 AND OBVIOUSLY THE SAME WAS AVAILABLE BEFORE THE LD, AO M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 12 EVEN IN THE PROCEEDINGS GIVING EFFECT TOTHE ORDER U /S 263 AND HENCE, THE OBSERVATIONS MADE BY THE LD. AO ARE INCORRECT. 2.4.4 HAVING CONSIDERED THE ISSUE AND THE MATERIAL AVAILABLE ON RECORD, IT IS SEEN THAT THE AUDIT REPORT IN FORM NO. 56F WAS FILED WIT H THE AO IN THE COURSE OF PROCEEDINGS U/S 263 OF THE ACT. FURTHER, AS PER CIR CULAR NO.03/2009 OF THE CBDT, IT HAS BEEN PROVIDED THAT THE RETURNS TO BE FURNISH ED ELECTRONICALLY SHALL NOT BE ACCOMPANIED BY ANY ATTACHMENTS/ANNEXURES AND AS PER CLAUSE 7(II) THEREIN, IF CALLED FOR BY ANY INCOME TAX AUTHORITY DURING ANY P ROCEEDINGS UNDER THE ACT, IT SHALL BE INCUMBENT UPON THE ASSESSEE TO FURNISH/PRO DUCE THE DOCUMENT INCLUDING ANY STATUTORY FORM OR REPORT OF AUDIT. MOREOVER, TH E SAID AUDIT REPORT IN FORM NO.56F WAS ALSO FILED BEFORE LD. AO DURING THE COUR SE OF THE PROCEEDINGS IMPUGNED BEFORE ME, VIDE APPELLANT'S LETTER DATED 2 3.022015, A COPY OF WHICH HAS ALSO BEEN PRODUCED DURING THE COURSE OF THE CURRENT APPELLATE PROCEEDINGS. THE APPELLANT HAS ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPORT OF THE CLAIM THAT EVEN IF THE AUDIT REPORT IN FORM NO. 56F IS FILED AT THE APPELLATE STAGE, THE BENEFIT OF EXEMPTION U/S 10A CANNOT BE DENIED: 1. CIT, CENTRAL CIRCLE VS AMERICAN DATA SOLUTIONS INDIA (P) LTD. [2014] 45 TA XMANN.COM 379 (KARNATAKA) 2. ITO, WARD-2(3), KOLKATA V. LAST PEAK DATA (P) LT D. (2015) 63 TAXMANN.COM 45 (KOLKATA TRIB.) 3. CIT-II VS. MANTEC CONSULTANTS (P ) LTD. (2009) 178 TAXMAN 429 (DELHI). 2.4.5 IN VIEW OF THE ABOVE AND THE FAD THAT LD AO H AS NOT FOUND ANY FAULT WITH AUDIT REPORT IN FORM RJO.56F AVAILABLE ON HIS RECOR D DURING THE PROCEEDINGS GIVING EFFECT TO ORDER U/S 263, I AM CONSTRAINED TO HOLD THAT EXEMPTION U/S 10A COULD NOT HAVE BEEN DENIED FOR THIS REASON. HOWEVER , AS REGARDS THE MERITS, I SHALL NOW TURN TO GROUND NOS.3TO5. 2.4.6 GROUND NO. 3 IS AGAINST THE ACTION OF THE LD. AO IN NOT ALLOWING DEDUCTION CLAIMED BY THE APPELLANT U/S 10AA OF THE ACT. GROUN D NOS* 4 & 5 ARE ALSO RELATED TO THE ABOVE SAID GROUND NO. 3 AND HENCE, THESE THR EE GROUNDS ARE BEING ADJUDICATED SIMULTANEOUSLY. LD. AO DISALLOWED THE A PPELLANT'S CLAIM BY HOLDING M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 13 THAT THE APPELLANT WAS NEITHER A MANUFACTURER NOR A PRODUCER OFANY ARTICLE OR THINGS. FURTHER, HE ALSO HELD THAT THE APPELLANT'S CLAIM THAT IT WAS A SERVICE PROVIDER COULD NOT BE CONSIDERED WITH REFERENCE TO THE DEFINITION OF THE TERM 'SERVICES' AS PROVIDED IN THE SEZ ACT THAT THE APPE LLANT WANTED THE LD, AO TO FOLLOW. LD. AO FURTHER HELD THAT THE PROVISIONS OF A TAXING STATUTE DEALING WITH MACHINERY PROVISIONS HAVE TO BE CONSTRUED BY THE OR DINARY RULES OF CONSTRUCTION AND AS THE LEGISLATURE DELIBERATELY EXCLUDED THE DE FINITION OF 'SERVICES' FROM SEZ ACT TO BE IMPORTED INTO THE IT ACT, THE SAME COULD NOT BE TAKEN HELP OF BY THE APPELLANT FOR CLAIMING EXEMPTION OF ITS INCOME AS I T WAS NOT DOING ANY VALUE ADDITION. 24.7 PER CONTRA, DURING THE COURSE OF THE APPELLATE PROCEEDINGS, LD. AR STATED THAT SECTION 51 OF THE SEZ ACT CONTAINS A NONOBSTAN TE CLAUSE VIDE SUB-SECTION (1) STATING THAT PROVISIONS OF SEZ ACT SHALL HAVE EFFEC T NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW F OR THE TIME BEING IN FORCE. IT WAS ALSO BROUGHT TO MY NOTICE THAT MY LD. PREDECESS OR IN A.Y. 2010-11 IN APPEAL NO. CLT(A)-22/ITO-10(3)(IYIT-18S/2013-14 DATED 16.0 2.2015 HAD ALLOWED THE APPELLANT'S APPEAL BY HOLDING THAT SALE TO CUSTOMER S BY THE APPELLANT DONE ON A 'BOND TO BOND TRANSFER' BASIS AMOUNTS TO RE-EXPORT AND HENCE, IT WAS ELIGIBLE FOR DEDUCTION U/S 10AA OF THE ACT. SIMILARLY, IN A.Y 20 11-12 IN APPEAL NO CLT(A)- 22/DCIT(OSD)-10(3)/JT-91/14-15 DATED 19.02.2016 I H AD ALLOWED THE APPEAL FOLLOWING THE ABOVE SAID DECISION. IN THIS REGARD, FURTHER RELIANCE IS PLACED ON THE DECISIONS OF HON'BLE MUMBAI BENCH OF ITAT IN THE CA SE OF GEETANJALI EXPORTS CORPORATION LTD. AND GEETANJALI GEMS LTD. IN LTANO. 6947 & 6948/MUM/2011 DATED OB.05.2013. 2.4.8 IN VIEW OF THE FACT THAT SI MILAR ISSUE WAS ALSO ADJUDICATED IN A.YS. 2010-11 AND 2011-12 AND THERE BEING NO CHA NGE IN THE FACTS AND CIRCUMSTANCES IN THE PRESENT APPEAL, RESPECTFULLY F OLLOWING THE SAME, THE GROUND RAISED ARE ALLOWED IN FAVOUR OF THE APPELLANT. 6. ON APPRAISAL OF THE ABOVE MENTIONED ORDER, WE NO TICED THAT THE FIRSTLY THE CLAIM OF THE ASSESSEE WAS DECLINED U/S 10AA OF THE ACT ON THE GR OUND OF NON-FURNISHING THE FORM NO. M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 14 56F OF THE ACT. THE CIT(A) ANALYSIS OF RECORD AND A RRIVED AT THIS CONCLUSION THAT THE FORM NO. 56FOF THE ACT HAS BEEN FURNISHED BY ASSESSEE EV EN THE COURSE OF PROCEEDING U/S 263 OF THE ACT. THE ASSESSEE FILED THE RETURN OF INCOME ELECTRONICALLY WHICH WAS NOT ACCOMPANIED BY ANY ANNEXURE. EVEN AT THE TIME OF FI LING THE RETURN, FILING OF THE OTHER DOCUMENTS ARE NOT NECESSARY BUT ARE LIABLE TO BE PR ODUCED AS WHEN REQUIRED BY AO. THE FORM NO. 56F OF THE ACT WAS ALSO PRODUCED BY ASSESS EE BEFORE THE CIT(A) BY VIRTUE OF LETTER DATED 23.02.2015. NO DOUBT, IN THE SAID CIRC UMSTANCES, THE CLAIM OF THE ASSESSEE IS NOT LIABLE TO BE DECLINED U/S 10AA OF THE ACT. THE CIT(A) WHILE PASSING THE ORDER RELIED UPON THE LAW MENTIONED ABOVE, THEREFORE, THERE IS N O NEED TO REPEAT THE SAME. SO FAR AS DECLINE THE CLAIM OF SECTION 10AA OF THE ACT ON THE GROUND OF THAT THE ASSESSEE WAS NEITHER MANUFACTURER NOR ANY PRODUCER OF ARTICLES O R THINGS WE NOTICED THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY ON THE BASIS OF THE DECISION OF EARLIER YEAR IN THE ASSESSEES OWN CASE. THE CIT(A) ALSO OBSERVED THAT THE CLAIM OF THE ASSESSEE WAS ALSO ALLOWED BY THE CIT(A) FOR THE A.Y. 2010-11 & 2011-1 2. THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY IN FAVOUR OF THE ASSESSEE ON THE BASIS OF THE DECISION OF HONBLE ITAT MUMBAI IN THE CASE OF GEETANJALI EXPORTS CORPO RATION LTD. IN ITA. NO.6947 & 6948/M/2011 DATED 08.05.2013. NOTHING CAME INTO NOT ICE THAT THE ORDER OF THE CIT(A) HAS BEEN REVERSED OR VARIED IN THE APPEAL. NO LAW C ONTRARY TO THE LAW RELIED BY THE CIT(A) HAS BEEN PRODUCED BEFORE US. TAKING INTO ACCOUNT, A LL THE FACTS AND CIRCUMSTANCES OF THE MENTIONED ABOVE WE ARE OF THE VIEW THAT THECIT(A) H AS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINS T THE REVENUE. 10.1 CONSIDERING THE CONSISTENT OF THE TRIBUNAL WHE REIN THE ASSESSEE IS ALLOWED RELIEF ON IDENTICAL GROUNDS OF APPEAL ON SIMILAR SE T OF FACTS. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). EVEN OTHERWISE, THE LD. CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE HAS FOLLOWED THE DECISION OF TRIBUNAL IN AY 2009-10, 2010-11, 2011-12 AND 2012-13. IN THE RESUL T, THESE GROUNDS OF APPEAL ARE DISMISSED. M/S DUTY FREE DISTRIBUTION ITA NO. 2855/MUM/2018 15 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/12/2019. SD/- SD/- (SHAMIM YAHYA) (PAWAN SING H) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, (ASSISTANT REGISTRAR) ITAT, MUMBAI