DCIT CC 6(4), MUMBAI V. DIAMOND R US, MUMBAI

ITA 3241/MUM/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2317 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 10AA; 263; 10

Judgement Text

INCOME TAX APPELLATE TRIBUNAL, MUMBAI- BENCH D BEFORE SH. BR BASKARAN, ACCOUNTANT MEMBER AND SH PAWAN SINGH, JUDICIAL MEMBER ITA NO. 3241/M/2016 FOR ASSESSMENT YEAR 2008 09 DCIT, CENTRAL CIRCLE-(6) (4) ROOM NO. 1952, 19 FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI, 21 VERSUS M/S DIAMOND RUS 1110, PRASAD CHAMBERS M.P. MARG OPERA HOUSE, MUMBAI- 400004 PAN- AAAFD4507H APPELLANT RESPONDENT APPELLANT REPRESENTED BY SHRI B.S. BIST (DR) RESPONDENT REPRESENTED BY SHRI ANUJ KISHANDWALA(AR) DATE OF HEARING : 25/07/2016 DATE OF PRONOUNCEMENT: /07/2016 ORDER PER PAWAN SINGH, JUDICIAL MEMBER 1. THE PRESENT APPEAL IS FILED BY REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX APPEALS, 54 DATED 16 FEBRUARY 2016 FOR AY 2008 09. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEAL WAS JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE, AS LD CIT(A) HAS FAILED TO APPRECIATE THAT THE WORD SERV ICE NEITHER FOR THE PURPOSE OF THE ENTIRE INCOME TAX ACT, NOR FOR THE RESTRICTED PURPOSE OF A LLOWING RELIEF UNDER SECTION 10AA, IS DEFINED IN THE INCOME TAX ACT 1961 OR IN SECTION 10AA AND H ENCE THE AO HAS INTERPRETED THE WORD SERVICES AS PER THE MEANING ATTRIBUTABLE TO IT, A S PER COMMON PARLANCE, AND HAS CORRECTLY DISALLOWED THE RELIEF. (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE, AS THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE INT ENTION OF THE LEGISLATURE OF ALLOWING DEDUCTION UNDER SECTION 10AA IN RESPECT OF TWO ACTI VITIES IN SEZ, NAMELY MANUFACTURER PROVIDING OF SERVICES, WHICH INCLUDES TRADING OF TH E NATURE OF IMPORT FOR THE PURPOSE OF EXPORT AND IS LEGISLATURE IN SECTION 10 AA OF THE INCOME T AX ACT, HAS SPECIFICALLY IS SAID THE MEANING OF THE WORD MANUFACTURE SHOULD BE BORROWED FROM THE SEZ ACT AND IMPORTED THE MEANING OF THE INCOME TAX ACT, WHEREAS IN CASE OF THE WORDS SERVI CES OR TRADING OF THE NATURE TASTE BY THE ASSESSEE. THE LEGISLATURE HAD DELIBERATELY CHOSEN N OT TO SPECIFICALLY SAY SO AND, THEREFORE, THE DECISION OF CIT(A), IN BORROWING THE MEANING OF THE WORDS TRADING OR SERVICE FROM THE SEZ ACT IS NOT IN ACCORDANCE WITH THE INTENTION OF THE LEGISLATURE AND SPIRIT OF THE ACT, AND HENCE NOT ACCEPTABLE. (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE, WITHOUT APPRECIATING THAT THE INTENTION OF THE LEGI SLATURE NOT TO ACCORD THE BENEFIT OF DEDUCTION ITA NO. 3241/M/2016 DIAMOND R US (AY-08-09) UNDER SECTION 10 AA TO THE 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 TH E CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS WERE JUSTIFIED I N ALLOWING THE APPEAL OF THE ASSESSEE, WITHOUT APPRECIATING THAT THE THREE WORDS MANUFACT URING AND PROVIDING OF SERVICES USED IN SECTION 10 AA SHOULD BE INTERPRETED IN CONTINUITY A ND COHERENTLY TO PUT INTO EFFECT THE SPRIT AND INTENTION OF LEGISLATURE IN BRINGING IN THE DEDUCTI ON UNDER SECTION 10 AA, IN THE INCOME TAX ACT 1961. (5) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS WERE JUSTIFIED I N ALLOWING THE APPEAL OF THE ASSESSEE, WITHOUT APPRECIATING THAT RELIANCE ON DECISION OF I TAT, JAIPUR BENCH IN CASE OF DCIT VERSUS GOENKA DIAMONDS AND JEWELLERS LTD(ITA NO. 509/JP/20 11 DATED 31 JANUARY 2012 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL UNDER SECTION 260 A HAS BEEN AUTHORISED BY THE CCIT, JAIPUR AND ALSO IN THE CASE OF GITANJALI EXPORTS CO RPORATION LTD(ITA NO 69478& AND 6948/M/2011) IS NOT ACCEPTED BY THE DEPARTMENT AND APPEAL UNDER SECTION 260 A HAS BEEN AUTHORISED BY THE CIT CENTRAL. I, MUMBAI. (6) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX APPEAL WAS JUSTIFIED, IN ALLOWING THE APPEAL OF THE ASSESSEE, WITHOUT APPRECIATING THAT AS PER THE HONBLE RAJASTHAN HIGH COURT DECISI ON IN CASE OF KOTA CO-OPERATIVE MARKETING SOCIETY VERSUS CIT (207 ITR 608) (RAJ), THE COURT H AD HELD THAT EXEMPTION CLAUSE IN THE TEXT STATUE SHOULD BE CONSTRUED STRICTLY AND CANNOT BE E XTENDED BEYOND THE CLEAR LANGUAGE USED IN THE SECTION. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED RET URN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 27 SEPTEMBER 2008, DECLARING TOTAL LOSS AT RS. 16,75,766/-. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10 AA OF THE ACT FOR A SUM OF RS. 3,46,37,392/-. THE ASSESSMENT UNDER SECTION 143 (3) WAS COMPLETED ON 30 DECEMBER 2010, DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 1,69,32,860/-. SUBSEQUENTLY, COMMISSIONER OF INCOME TAX, CENTRAL C IRCLE, III, MUMBAI, VIDE HIS ORDER UNDER SECTION 263 DATED 26 TH MARCH 2013, DIRECTED THE AO TO VERIFY THE ISSUE VIZ; (A) WHETHER THE ASSESSEE IS CARRYING OUT AN Y MANUFACTURING ACTIVITIES AT ITS SEZ UNIT IN SACHIN SURAT. (B) WHETHER THE ASSESSEE IS RENDERING ANY OTHER SERVICES AT ITS SEZ UNIT WHICH MAY QUALIFY F OR DEDUCTION UNDER SECTION 10 AA. THUS IN ACCORDANCE WITH THE DIRECTION OF COMMISSION ER OF INCOME TAX, THE AO EXAMINED BOTH THE ISSUE AND COMPLETED ASSESSMENT UN DER SECTION 143(3) RWS 263 OF THE ACT DATED 24 TH MARCH 2014, AND THE ASSESSEE WAS DENIED DEDUCTION UNDER SECTION 10 AA OF THE ACT OF RS.3,46,37,392/-. AGGRIEVED BY THE ORDER OF AO ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX APPEAL, WHEREIN THE APPEAL OF THE ASSESSEE WAS ALLOWED IN THE IMPUGNED ORDER D ATED 16, FEB 2016. THUS, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD AR OF PARTIES AND CONSIDERED T HE RECORD. AT THE OUTSET IT WAS SUBMITTED BEFORE US BY LD AR OF THE ASSESSEE THAT S IMILAR ISSUES CAME UP IN THE ASSESSMENT YEAR 200708, WHEREIN THE ASSESSMENT ORD ER WAS REVISED BY THE ITA NO. 3241/M/2016 DIAMOND R US (AY-08-09) COMMISSIONER OF INCOME TAX APPEAL AND THE DEDUCTION UNDER SECTION 10 AA WAS DENIED TO THE ASSESSEE. HOWEVER, THE FIRST APPELLAT E AUTHORITY GRANTED RELIEF TO THE ASSESSEE IN ITS ORDER DATED 29 TH MARCH 2012. AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX APPEAL, THE REVENUE FILE D APPEAL AND THE ASSESSEE FILED CROSS OBJECTIONS BEFORE ITAT MUMBAI, WHEREIN THE APPEAL OF REVENUE WAS DISMISSED VIDE ORDER DATE 31.10.2015 IN ITA NO.2793 /M/2012 AND THE CROSS OBJECTIONS OF ASSESSEE WAS DECLARED INFRACTUOUS. T HE ASSESSEE WAS ALLOWED DEDUCTION UNDER SECTION 10 AA OF THE ACT. THE LD A R OF THE ASSESSEE PLACED ON RECORD COPY OF ORDER IN ITANO. 2793/M/2012 AND CO N O. 276/M/2014 DATED 30.10.2015. LEARNED DR FOR REVENUE NOT DISPUTED THE FACT PLACED BEFORE US. 4. FROM THE ORDER PLACED BEFORE US. WE FIND THAT SIMIL AR ISSUE CAME UP N ASSESSEES OWN CASE IN AY-200708. THE COORDINATE BENCH OF THI S TRIBUNAL PASSED THE FOLLOWING ORDER: WE NOTED THAT LEARNED CIT(APPEALS) HAS T AKEN INTO CONSIDERATION THE ASPECT AND OBSERVATION OF THE AO, THE DEDUCTION UNDER SECTION 10AA IS NOT ALLOWABLE FOR THE REASON THAT ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY BUT HAS DONE TRADING OF GOODS ONLY, FOR THIS PURPOSE. LD AO HAS PLACED RELI ANCE ON THE ORDER OF HONOURABLE DELHI HIGH COURT. LD CIT (A) HAS TAKEN INTO CONSIDE RATION THESE OBSERVATIONS OF THE AO AND THEREAFTER, HE FOUND THAT GOVERNMENT OF INDIA H AS ISSUED A CIRCULAR NO. 17 OF 29 MAY 2006, WHICH WAS ISSUED BY EXPORTS PROMOTION COU NCIL FOR EOUS AND SEZ UNIT(MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA). THE CONTENTS OF THE CIRCULAR HAVE ALSO BEEN INCORPORATED IN THE FINDING OF LD COMMISSIONER OF INCOME TAX APPEAL, WHICH A ALSO BEEN REPRODUCED SOMEWHERE ABOV E IN THIS ORDER. THEREFORE, WE ARE NOT REPEATING THE CONTENTS OF THAT CIRCULAR ISS UED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA UNDER SECTION 51(1) O F THE SEZ ACT, IT HAS BEEN CLEARLY PROVIDED THAT THE PROVISION OF THIS ACT, HAS OVERRI DING EFFECT IN CASE OF CONTRADICTION BETWEEN THE SEZ ACT, THE PROVISION OF SEZ ACT WILL HAVE OVERRIDING EFFECT OVER THE PROVISIONS CONTAINED IN ANY OTHER ACT, LEARNED CIT( A) HAS TAKEN INTO CONSIDERATION THIS CIRCULAR ISSUED BY GOVERNMENT OF INDIA AND THE PROVISIONS OF SECTION 51 OF THE SEZ ACT AND FOUND THAT TRADING DONE BY THE ASSESSEE IS A SERVICE AND THEREFORE DEDUCTION UNDER SECTION 10 AA IS ALLOWABLE. WE FURTHER NOTED THAT ON SIMILAR FACTS IN THE CASE OF GOENKA DIAMONDS AND JEWELLERY. LTD (SUPRA), THE JAI PUR BENCH OF THE TRIBUNAL HAS DISCUSSED THE ISSUE IN DETAIL. THE PROVISION OF SEC TION 51 OF SEZ ACT WERE ALSO CONSIDERED. THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF TAX RECOVERY OFFICER VERSUS CUSTODIAN APPOINTED UNDER THE SPECIA L COURT, REPORTED IN THE CASE OF 211 CTR 369 (SC) AND THE DECISION OF HONOURABLE DEL HI HIGH COURT IN CASE OF CIT VERSUS VASISTH CHAY VYPAR LTD REPORTED IN 238 CTR 1 42 (DELHI), WERE ALSO TAKEN INTO CONSIDERATION AND THEREAFTER IT WAS CONCLUDED THAT IN VIEW OF THE INSTRUCTION NO. 1 OF 2006, DATED 24 TH MARCH 2006, AS MODIFIED BY INSTRUCTION NO 4 OF 2006 DATED 24 TH OF MAY 2006 ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTR Y, GOVERNMENT OF INDIA AND THE DEFINITION OF SERVICE GIVEN IN THE SEZ ACT, 2005, W HICH OVERRIDES THE WORD SERVICE OCCURRING IN SECTION 10 AA BY VIRTUE OF SECTION 51 OF THE SEZ ACT. THE ASSESSEE ENGAGED IN THE TRADING OF RE-EXPORT OF IMPORTED GOODS AND FOR THE SAME THE ASSESSEE WAS ENTITLED DEDUCTION UNDER SECTION 10 AA OF THE ACT. FACTS ARE SIMILAR BEFORE US, AS THE ITA NO. 3241/M/2016 DIAMOND R US (AY-08-09) ASSESSEE IS ENGAGED IN TRADING OF RE-EXPORT OF IMPO RTED GOODS AND, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10 AA OF THE ACT. ALL THE ARGUMENTS ADVANCED BY THE LEARNED DR BEFORE US HAVE ALSO BEEN TAKEN CARE BY THE TRIBUNAL WHILE DISCUSSING THE APPEAL IN CASE OF GOENKA DIAMONDS AN D JEWELLERY LTD (SUPRA). IT IS FURTHER NOTED THAT THE MAIN PLANK OF ARGUMENTS OF DR IS THAT RULES PROVIDED UNDER THE SEZ ACT, CANNOT PROTECT THE CHARACTER OF THE SECTIO N OF THE INCOME TAX ACT. WE FIND THAT IN THE SEZ UNDER SECTION 51, IT HAS BEEN CLEARLY PR OVIDED THAT THE PROVISION OF SEZ ACT WOULD OVERRIDE THE PROVISION OF ANY OTHER ACT, MEAN ING THEREBY THE PROVISION PROVIDED UNDER THE SEZ ACT HAS OVERRIDE EFFECT ON THE PROVIS ION OF SECTION 10 AA OF THE INCOME TAX ACT. UNDER THE RULES, IT IS NOT PROVIDED, BUT UNDER SECTION 51 OF THE SPECIAL ECONOMIC ZONE ACT, IT IS PROVIDED, THEREFORE, IN OU R VIEW, THE CONTENTION RAISED BY THE LEARNED DR IS NOT TENABLE. MOREOVER, THE ISSUE IS S QUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN CASE OF GOENKA DIAMONDS AND JEWELLERY LTD (SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T RIBUNAL IN THE CASE OF GOENKA DIAMONDS AND JEWELLERY LTD IN VIEW OF THE REASONIN G GIVEN BY THE LEARNED CIT( APPEALS), WE CONFIRM THIS ORDER. 5. THE FACTS OF THE PRESENT APPEAL ARE IDENTICAL, AN D THE IDENTICAL GROUNDS OF APPEAL ARE RAISED BY THE REVENUE. THUS, FOLLOWING THE DECISION OF COORDINATE BENCH, WITH THE SAME REASONS, WE UPHOLD THE ORDER OF COMMISSIONER O F INCOME TAX APPEAL, WHO HAS ALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION UNDER S ECTION 10 AA THE ACT. HENCE THE APPEAL FILED BY REVENUE IS DISMISSED. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ANNOUNCED IN THE OPEN COURT ON 25 TH THIS DAY OF JULY 2016. SD/- SD/- (B.R.BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 25/07/2016 COPY OF THE ORDER FORWARDED TO: BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. E COPY/