OSSIAN EXPORTS, MUMBAI V. DCIT - CC - 8(3), MUMBAI

ITA 2876/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3634 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 07-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: REEPAL TRALSHAWALA
• Keywords: Business income; Opportunity of being heard
• Section: 10; 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 2876 /MUM/201 8 (A.Y: 2013 - 14) DY. CIT , CC 8(3) 6 TH FLOOR, ROOM NO. 659, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 V. M/S. OSSI AN EXPORTS 902, JEWEL WORLD, KALABADEVI ROAD, MUMBAI 400 002 PAN: AACFO 0992 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI REEPAL TRALSHAWALA DEPARTMENT BY : SHRI RAJESH OJHA DATE OF HEARING : 21.01.2019 DATE OF PRONOUNCEMENT : 20 .02 .2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE RE VENUE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 50 MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 05.02.2018 F OR THE ASSESSMENT YEAR 2013 - 14. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: - (I) ' WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 10AA OF RS. 21,03,715/ - MADE BY THE ASSESSEE IN RESPECT O F THE PROFITS ARISING OUT OF TRADING ACTIVITY?' (II) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN TREATING THE INTEREST RECEIPTS OF RS. 15,29,31,918/ - EARNED BY THE ASSESSEE OUT OF FDS KEPT WITH BAN KS AS BUSINESS RECEPITS/INCOME 2 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS WITHOUT APPRECIATING THE FACT THAT THE SAID FDS WERE MADE OF SURPLUS BUSINESS FUNDS AVAILABLE WITH THE ASSESSEE AND NOT IMMEDIATELY REQUIRED FOR ITS BUSINESS?' (III) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN RELYING ON THE DECISION OF THE HON'BLE ITAT, MUMBAI IN ASSESSEE'S OWN CASE FOR A.Y. 2011 - 12 BY IGNORING THE FACTS THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION AND APPEAL HAS BEEN FILED BEFORE THE HON'BL E BOMBAY HIGH COURT AND THE SAME IS PENDING. 3. AT THE OUTSET , LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN GROUNDS OF APPEAL I.E. WHETHER ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 10AA OF THE ACT ON ITS TRADING ACTIVITY AND WHETHER THE INTEREST EARNED ON FIXED DEPOSITS KEPT WITH BANKS IS BUSINESS INCOME OR NOT HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEE OWN CASE FOR THE A .Y 2011 - 12 IN FAVOUR OF THE ASSESSEE IN ITA.NO. 1650/ MUM /2015 AND ITA.NO. 2024/MUM/2015 DATED 31.01.2017. COPY OF THE ORDER IS PLACED ON RECORD. 4. LD. COUNSEL FOR THE ASSESSEE REFERRING TO PARA NO . 4.3.3 OF THE SAID ORDER ARISING OUT OF THE REVENUES APPEAL FOR THE A .Y. 2011 - 12 SUBMITTED THAT THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. FURTHER REFERRING TO PARA NO . 7 OF THE TRIBUNAL ORDER WHICH IS ARISING FROM ASSESSEES APPEAL FOR THE A .Y. 2011 - 12 AND PARTICULARLY PARA NO . 7.3.3 SUBMITS THAT THE TRIBUNAL HELD THAT INTEREST RECEIPTS EARNED BY THE ASSESSEE OUT OF FIXED DEPOSITS KEPT WITH BANK BY WAY OF MARGIN MONEY MAD E FOR THE PURPOSES OF THE ASSESSEES BUSINESS OF IMPORT AND EXPORT IS ELIGIBLE FOR DEDUCTION U/S. 10AA OF THE ACT. 3 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS 5. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THERE IS NO FINDING BY THE ASSESSING OFFICER THAT WHET HER THIS INTEREST INCOME WAS EARNED ON MARGIN MONEY DEPOSITS UTILIZED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE OF AS TO WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 10AA OF THE ACT ON THE INCOME FROM TRADING ACTIVITY IN DIAMOND AND GOLD JEWELLERY HAS BEEN DECID ED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A .Y. 2011 - 12 , WHEREIN THE TRIBUNAL HELD AS UNDER: - 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 OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT THE ASSESSEE IS ELIGIBL E FOR DEDUCTION U/S. 10AA. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND AND/OR ADD NEW GROUNDS WHICH MAY BE NE CESSAR Y. THE LEARNED D.R. FOR REVENUE PLACED STRONG RELIANCE ON THE ORDER OF THE AO IN DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. 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 ALLOWING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. ACCORDING TO THE LEARNED A.R., THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN DIAMOND AND GOLD JEWELLERY AND HAD CLAIMED DEDUCTION UNDER SECTION 10 AA OF THE ACT IN RESPECT OF INCOME EARNED FROM TRADING ACTIVITY IN IMPORT/EXPORT OF CUT AND POLISHED DIAMONDS IN ITS SEZ UNIT AT SURAT. IT IS SUBMITTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) CAME TO THE VIEW THAT IN THE YE AR UNDER CONSIDERATION THE ASSESSEE HAD NEITHER MANUFACTURED OR PRODUCED ANY GOODS OR ARTICLES NOR PROVIDED ANY SERVICES, AS THE IMPORTED DIAMONDS WERE MERELY IMMEDIATELY RE - EXPORTED, THEREFORE ITS CLAIM FOR DEDUCTION UNDER SECTION 10AA WAS NOT ALLOWABLE A ND IS TO BE DISALLOWED. IN COMING TO THIS FINDING, THE AO REJECTED THE ASSESSEES CONTENTION THAT THE TERM 4 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS SERVICES AS USED IN SECTION 10AA(9) OF THE ACT SHOULD BE READ AS DEFINED IN THE SEZ ACT, 2005 WHICH WOULD OVERRIDE THE PROVISIONS OF SECTION 10AA O F THE ACT. 4.2.2 IT IS CONTENDED THAT THIS INTERPRETATION OF THE AO IS ERRONEOUS AS SECTION 51(1) OF THE SEZ ACT IS A NON - OBSTANTE CLAUSE AND WILL OVERRIDE ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW OR INSTRUMENT THAT MAY BE IN FORCE. IT I S 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 PURPOSE OF RE - EXPORT AND THEREFORE THE ASSESSEE WAS ENTITLED TO BE ALLOWED DEDUCTION UNDER SECTION 10AA AS CLAIMED. IT IS SUBMITTED THAT IN IDENTICAL FACTUAL CIRCUMSTANCES AS IN THE CASE ON HAND, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF; (I) GEETANJALI EXPORTS CORPORATION LTD. & OTHERS IN ITA NO. 6947/MUM/2011 DATED 08.05.2013, FOLLOWING THE DECISION OF THE ITAT, JAIPUR BENCH IN THE CASE OF GOENKA DIAMONDS AND JEWELLERS 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 V IEW OF THE ABOVE FACTUAL POSITION OF THE CASE ON HAND AND THE JUDICIAL PRONOUNCEMENTS CITED (SUPRA) WHICH ARE ON IDENTICAL FACTS, THE LEARNED CIT(A)S ORDER ALLOWING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10AA OF THE ACT FOLLOWING THE AFORESAID D ECISIONS OF THE ITAT (SUPRA) BE UPHELD AND REVENUES GROUNDS/APPEAL BE REJECTED. 4.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED (SUPRA). ON AN APPRECIATION OF THE MATERIAL ON RECORD, IT IS SEEN THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, WHILE EXAMINING THE ASSESSEES TRADING ACTIVITIES IN CONNECTION WITH ITS CLAIM FOR DEDUCTION UNDER SECTION 10AA OF THE ACT, THE AO OBSERVED THAT ASSESSEE HAD MERELY IMPORTE D 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 GOODS OR ARTICLES NOR PROVIDED ANY SERVICES DURING THE YEAR WHILE T RADING IN EXPORTS, DEDUCTION UNDER SECTION 10AA IS NOT ALLOWABLE. IN COMING TO THIS FINDING THE AO REJECTED THE ASSESSEES CLAIM THAT THE TERM SERVICES UNDER SECTION 10AA(9) OF THE ACT SHOULD BE READ AS DEFINED IN SECTION 2(Z) AND SECTION 51(1) OF THE SE Z ACT, 2005 AND RULE 76 OF SEZ RULES, 2006 THEREUNDER, WHICH OVERRIDES THE ACT. 4.3.2 IN THE CASE ON HAND, WE ARE INCLINED TO CONCUR 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 DOU BT THAT EXPORT TRADING FOR RE - EXPORT IS COVERED BY AND INCLUDED AS SERVICES AS DEFINED THEREUNDER. WE HAVE CAREFULLY PERUSED THE JUDICIAL PRONOUNCEMENTS CITED AND REFERRED TO BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER AND FIND THAT AN IDENTICAL FACT SIT UATION HAS BEEN CONSIDERED AND ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GEETANJALI EXPORTS CORPORATION LTD. & OTHERS IN ITA NO. 6947/MUM/2011 DATED 08.05.2013, WHEREIN FOLLOWING THE DECISION OF THE ITAT J AIPUR BENCH IN THE CASE OF GOENKA DIAMONDS AND JEWELLERS LTD. (ITA NO. 509/JA/2011 DATED 31.01.2012) IT WAS HELD AS UNDER AT PARA 22 THEREOF: - 22. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSION AND PERUSIN G THE MATERIAL ON RECORD, ITA NOS.6947, 6948,6781,6783, 6785,6787,6949&6950/2011 15 WE FOUND NO 5 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS INFIRMITY IN THE FINDING OF THE LEARNED CIT(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 ASSESSING 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 (MINISTRY OF COMMERC E & INDUSTRY). THE ASSESSING OFFICE HAS DISALLOWED DEDUCTION U/S.10AA ON THE TRADING ACTIVITY BY THE APPELLANT FROM PLOT NO.241, UNIT NO.374, SITUATED IN SURAT SEZ AREAS BECAUSE HE WAS NOT AGREEABLE WITH THE ARGUMENTS OF THE APPELLANT THAT TRADING ACTIVITY CARRIED OUT BY THE APPELLANT ARE RED BY SERVICE. THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH EXEMPTION CT IS AVAILABLE ONLY ON MANUFACTURING ACTIVITY AND NOT ON TRADING OF GOODS. HE HAS RELIED UPON THE DECISION OF DELHI HIGH COURT AND SUPREME COURT TO UNDERSTAND THE MEANING OF THE WORD 'SERVICE' BECAUSE THE SERVICE HAS NOT BEEN DENIED IN THE INCOME - TAX ACT. AFTER CONSIDERING THE ENTIRE FACTS AND CASE LAWS AS WELL AS CIRCULAR RELIED BY THE APPELLANT I FIND MERIT IN THE 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 INDIA) PARA 2 OF WHICH READS AS UNDER : - 'IN THE MEANTIME, SOURCING FROM DOMESTIC AREA MAY BE PERMITTED BY UNITS IN THE SEZS WHICH ARE ALLOWED TO DO TRADING SUBJECT TO THIS CIRCULAR BEING CITED ON PRESCRIPTION OF AN UNDERTAKING BY THE CONCERNED UNIT THAT NO INCOME - TAX BENEFIT WILL BE AVAILED BY THE UNIT FOR TRADING EXCEPT IN THE NATURE OF RE - EXPORT OF IMPOR TED 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 DEDUCTION U/S.10AA OF THE ACT TO THE UNITS CARRIED OUT FOR TRADING 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 APPELLANT HAS DONE TRADING FROM SEZ ACT OF THE IMPORTED GOODS WHICH HAVE BEEN RE - EXPORTED AFTER PROCESSING. IT IS FURTHER VERY CLEAR FROM SECTION 51 OF THE SEZ ACT WHICH PROVIDES AS UNDER: 'SECTION 51 OF THE SEZ ACT PROVIDES AS FOLLOWS: - '51(1) THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT'. HENCE, BY VIRTUE OF SECTION 51 OF THE 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 6 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS PROVISIONS OF SEZ ACT WILL BE APPLICABLE AND SI NCE THERE IS NO DOUBT THAT TRADING IS COVERED BY SERVICES AND SERVICES 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 THE APPELLANT AND THAT IS WHY GOVERNMENT HAS MADE IT CLEAR THAT LOCAL 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 ACTIVITY OF THE APPELLANT. HOWEVER, NO SUCH BENEFITS SHOULD B 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 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 MANUFACTURING ACTIVITY BUT HAS DON E 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 GOVERNMENT OF INDIA HAS ISSUES A CI RCULAR NO.17 OF 29.5 - 2006, WHICH WAS ISSUED BY EXPORT PROMOTION COUNCIL FOR EOUS & SEZ UNIT (MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA). THE CONTENTS OF THE CIRCULAR HAVE ALSO BEEN INCORPORATED IN THE FINDING OF THE LEARNED CIT(A), WHICH HAVE AL SO 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 P ROVISION 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 PROVISION CONTAINED IN ANY OTHER A CT. 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 UNDER SECTION 10AA IS ALLOWABLE. W E 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 CONSIDERED. THE DECISION OF THE HONBLE SU PREME 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, GOVERNME NT 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 S AME 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, 7 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. A LL 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 PLANK OF ARGUMENT OF LEARNED DR I S 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 SEZ ACT WILL OVERRIDE 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, THEREFORE, IN OUR VIEW, THE CONTENTI ON 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. 4.3.3. IN VIEW OF THE FACTUAL AND LEGAL MATRIX OF THE CASE AS DISCUSSED ABOVE AND FOLLOWING THE DECISION OF THE COORDINAT E 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 THE CASE ON HAND IS ELIGIBLE FOR DEDUCTION OF ITS INCOME EARNED FROM TRADING EXPORTS OF DIAMONDS UNDER SECTIO N 10AA OF THE ACT AND THEREFORE 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 DECISION OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER ON THIS ISSUE. CONSEQUENTLY, THE G ROUNDS RAISED BY REVENUE ARE DISMISSED. 7. IN VIEW OF THE DECISION OF THE TRIBUNAL ORDER IN ASSESSEE OWN CASE WE UPHOLD THE ORDER OF THE LD. CIT(A) IN ALLOWING THE CLAIM FOR DEDUCTION U/S. 10AA OF THE ACT FOR THE ASSESSEE. GROUND NO.1 OF THE GROUNDS OF APPE AL OF THE REVENUE IS DISMISSED. 8. COMING TO THE GROUND NO. 2 AND 3 I.E. WITH RESPECT TO THE INTEREST RECEIPTS ON FIXED DEPOSIT IS CONCERNED , WE OBSERVE THAT THE TRIBUNAL IN THE A .Y. 2011 - 12 HELD THAT INTEREST INCOME FROM FIXED DEPOSIT KEPT WITH BANK BY W AY OF MARGIN MONEY FOR THE PURPOSE OF BUSINESS OF IMPORT / EXPORT TRADING IN DIAMONDS C ONSTITUTES BUSINESS RECEIPTS FOR THE PURPOSE OF 8 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS DEDUCTION U/S. 10AA OF THE ACT. WHILE HOLDING SO THE TRIBUNAL OBSERVED AS UNDER: 7.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENT CITED. THE FACTS ON RECORD INDICATE THAT THE ASSESSEE IN THE COURSE OF ITS BUSINESS OF IMPORT/EXPORT TRADING IN DIAMONDS EARNED INTEREST INCOME FR OM FDS KEPT IN BANK AS PER INSTRUCTIONS OF BANK BY WAY OF MARGIN MONEY FOR THE PURPOSE OF ASSESSEES BUSINESS AND THE ASSESSEE CONSIDERING THE SAME AS BUSINESS RECEIPTS/INCOME, CLAIMED DEDUCTION THEREON UNDER SECTION 10AA OF THE ACT. REVENUE, HOWEVER, TREA TED THE SAME AS INCOME FROM OTHER SOURCES AND THEREBY DISALLOWED THE ASSESSEES CLAIM THEREON FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. 7.3.2 BEFORE US, THE LEARNED A.R. HAS SUBMITTED THAT THE SAID FDS WITH BANKS WERE NOT MADE OUT OF IT EXCESS FUNDS O R 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 REQUIREMENT S/DIRECTIONS LAID DOWN BY THE BANK, AS MARGIN MONEY, WHEN OPENING AN L/C FOR ITS BUSINESS OF IMPORT/EXPORT TRADING IN DIAMONDS. WE FIND FROM A PERUSAL OF THE CITED JUDICIAL PRONOUNCEMENT 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. 642/MUM/2013 DATED 30.09.2015) IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE, FOLLOWING, INTER ALIA, THE DECISION OF THE COORDINATE BENCH IN THE CASE OF PRESTRESS WIRE INDUSTRIES (ITA NO. 84 18/MUM/2010 AND 6312/MUM/2011 DATED 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 THAT THE ASSESSEE IS AN EXPORTER OF DIAMOND JEWELLERY AND REPORTED TH E EARNING OF INTEREST INCOME OUT THE FIXED DEPOSITS KEPT WITH THE BANKS BY WAY OF MARGIN MONEY FOR THE PURPOSE OF ASSESSEES BUSINESS. THE DISPUTE AROSE ON THE TREATMENT OF THE SAID INTEREST INCOME. ASSESSEE CONSIDERED THE SAME AS A BUSINESS RECEIPT. ASS ESSEE CLAIMED EXEMPTION U/S 10A OF THE ACT IN RESPECT OF THE SAID INTEREST RECEIPTS. PER 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 I S IN APPEAL BEFORE US. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT MADE FDS WITH THE BANK OUT HIS EXCESS FUNDS OR FOR A LONGER PERIOD WITH AN INTENTION TO EARN INTEREST INCOME. FURTHER, ELABORATING T HE SAME, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FDS MADE WERE OUT OF THE WORKING CAPITAL AND OUT OF THE BUSINESS FUNDS. IT IS THE BUSINESS REQUIREMENT 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 COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CORRESPONDENCE PLACED AT PAGE 28 ONWARD AND READ OUT THE RELEVANT INSTANCES OF THE BANK INSISTING THE ASSESSEE TO PREPARE TERM DEPOSITS IN THE BANK. FURTHER, BRIN GING OUR ATTENTION TO VARIOUS DECISIONS OF THE TRIBUNAL, WHEREIN ONE OF US (AM) TO THE ORDER IN THE CASE OF ACIT VS. M/S. PRESTRESS WIRE INDUSTRIES IN ITA NO. 8418/M/2010 (AY 2007 - 2008) AND ITA NO. 6312/M/2011 (AY 2008 - 2009) AND OTHERS DATED 9 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS 31.1.2014, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE SAID DECISION IS RELEVANT FOR THE PROPOSITION THAT, UNDER THE IDENTICAL FACTUAL MATRIX, THE RECEIPTS WERE TREATED AS BUSINESS RECEIPTS AND DECLARED AS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IN THIS REGARD, HE BROUGHT OUR ATTENTION TO THE RELEVANT PARAS 14 TO 16 OF THE SAID TRIBUNALS 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 1 0A(4) OF THE ACT. HE ALSO RELIED ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. KARNAL 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 O N VARIOUS PRECEDENTS OF THE HON'BLE SUPREME COURT AS WELL AS VARIOUS HIGH COURTS, COPIES OF WHICH ARE PLACED IN VOLUMINOUS PAPER BOOK, AND SUBMITTED THAT THE SAID JUDGMENTS WERE RELIED UPON BY THE TRIBUNAL IN ADJUDICATING THE ISSUE IN FAVOUR OF THE ASSESSE E 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 FAVOUR OF THE ASSESSEE ON THE FACTS OF THIS CASE. FOR THE SAKE OF COMPLETENESS OF THIS CASE, WE EXTRACT THE SAID PARAS 14 TO 16 OF THE SAID TRIBUNALS ORDER IN THE CASE OF M/S. PRESTRESS WIRE INDUSTRIES AND THE SAME READ AS UNDER: 14. REGARDING THE ISSUE OF INTEREST RECEIVED FROM FIXED DEPOSITS KEPT AS MARGIN MONEY FOR BANK GUARANTEES, LD COUNSEL 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 DECISIONS. I) CIT VS. VIDY UT STEEL LTD. 219 ITR 30 (AP) II) CIT VS. KOSHIKA TELECOM LTD 287 ITR 479 (DEL) III) CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD 243 ITR 2 (SC) IV) CIT VS. INDO SWISS JEWELLS LTD 284 ITR 389 (BOM) 15. ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON THE ORDER O F 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 BEFORE US. ON PERUSAL OF THE CITED JUDGMENTS OF THE HIGHER JUDICIARY, WE FI ND THAT THEY ARE RELEVANT FOR THE PROPOSITION THAT THE THERE IS NO QUESTION OF ISOLATING THE INTEREST RECEIVED ON MARGIN MONEY PAID FOR OBTAINING BANK GUARANTEE AND ASSESSING IT AS SEPARATE INCOME UNDER SECTION 56. THEREFORE, AGREE WITH THE VIEW OF THE TRI BUNAL THAT THE INCOME DERIVED ON THE MARGIN MONEY FOR OBTAINING BANK GUARANTEE CANNOT BE SEPARATELY ASSESSED 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 TH AT THE INTEREST DERIVED ON MARGIN MONEY FOR THE PURPOSE OF OBTAINING BANK GUARANTEE SHOULD BE ASSESSED AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES. ACCORDINGLY, WE DECIDE THIS PART OF THE GROUND IN FAVOUR OF THE ASSESSEE. 6. CONSIDERING TH E ABOVE SETTLED NATURE OF THE ISSUE, WE ARE OF THE OPINION THAT THE SAID INTEREST RECEIPTS CONSTITUTE BUSINESS RECEIPTS AND ARE ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 10 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS 7.3.3 FOLLOWING THE AFO RESAID DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JEWEL ARTS (SUPRA), WHICH IS ON SIMILAR FACTUAL/LEGAL MATRIX AS THE CASE ON HAND, WE ARE OF THE CONSIDERED 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 ASSESSEES BUSINESS OF IMPORT/ EXPORT TRADING IN DIAMONDS, CONSTITUTES BUSINESS RECEIPTS/INCOME AND IS THEREFORE ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. WE HOLD AND DIRECT ACCORD INGLY. CONSEQUENTLY, ASSESSEES APPEAL ON GROUNDS 1 TO 3 IS ALLOWED. 9. HOWEVER, AS RIGHTLY POINTED BY THE LD. DR, ON A PERUSAL OF THE A SSESSMENT O RDER THE RE IS NO FINDINGS BY THE ASSESSING OFFICER AS TO WHETHER THIS FIXED DEPOSITS WERE MADE IN THE COURSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND THE Y WERE NOT MADE FROM ANY SURPLUS FUNDS FOR EARNING ANY INTEREST INCOME. IN TH E ABSENCE OF AN Y SUCH FINDINGS OR ANY MATERIAL ON RECORD B EFORE US , WE ARE NOT ABLE TO GIVE A FINDING AS TO WHETHER THE SAID INTE REST INCOME I S ARISING OUT OF THE FIXED DEPOSITS FOR MARGIN MONEY UTILIZED FOR THE PURPOSE OF BUSINESS BY THE ASSESSEE. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A) ALSO , WE FIND THAT THERE IS NO INDEPENDENT FINDING BY THE LD. CIT(A) AS TO WHETH ER THIS INTEREST WAS EARNED ON F IXED DEPOSITS UTILIZED FOR MARGIN MONEY AND USED FOR THE PURPOSE OF BUSINESS. LD. CIT(A) SIMPLY EXTRACTED THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE ORDER OF THE TRIBUNAL DELETED THE INTEREST DISALLOWANCE. IN THE FACTS AND C IRCUMSTANCES, WE ARE OF THE VIEW THAT THIS ISSUE HAS TO BE REEXAMINED BY THE ASSESSING OFFICER AFTER OBTAINING THE NECESSARY INFORMATION FROM THE ASSESSEE TO PROVE THAT THIS INTEREST INCOME WAS EARNED ONLY ON FIXED DEPOSITS MADE ON MARGIN MONEY U TILIZED FOR THE PURPOSE OF BUSINESS AND NOT OUT OF ANY SURPLUS FUNDS WHICH 11 ITA NO.2876/MUM/2018 (A.Y: 2013 - 14) M/S. OSSIAN EXPORTS W ERE USED FOR EARNING INTEREST INCOME BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE EVIDENCES PRODUCED BEFORE HIM AND DECIDE IN ACCORDANCE WITH LAW AND KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN ASSESSEE OWN CASE FOR THE A .Y. 2011 - 12 , AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 10. IN THE RESULT , A PPEAL OF THE REVENUE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH FEBRUARY , 2019 SD / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 20/ 0 2 / 201 9 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM