JEWELMARK INDIA P.LTD, MUMBAI V. ITO 8(2)(1), MUMBAI

ITA 431/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92324 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 02-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 20-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND N PADMANABHAN
• Keywords: Business income; Transfer pricing
• Section: 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 431/MUM/2014 / ASSESSMENT YEAR 2008-09 JEWELMARK INDIA PVT. LTD. 501, TOWER 11, SEEPZ, MIDC, MAROL, ANDHERI (EAST), MUMBAI 400096 / VS. ITO 8(2)(1), AAYKAR BHAVAN, CHURCHGATE, MUMBAI. ! ./ ./ PAN/GIR NO. : AABCJ 3769M ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) . / ITA NO. 582/MUM/2014 / ASSESSMENT YEAR 2008-09 ITO 8(2)(1), AAYKAR BHAVAN, CHURCHGATE, MUMBAI. / VS. JEWELMARK INDIA PVT. LTD. 501, TOWER 11, SEEPZ, MIDC, MAROL, ANDHERI (EAST), MUMBAI 400096 ! ./ ./ PAN/GIR NO. : AABCJ 3769M ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) ASSESSEE BY MS. AARTI VISSANJI RESPONDENT BY : S/SHRI N.K.CHAND / N. PADMANABHAN ( ) * / DATE OF HEARING : 15/04/2015 ( ) * / DATE OF PRONOUNCEMENT : 15/04/2015 . / ITA NO. 431&582/MUM/2013 / ASSESSMENT YEAR 2008-09 2 / O R D E R PER I.P.BANSAL, JM: THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST O RDER PASSED BY LD. CIT(A)-15, MUMBAI DATED 11/11/2013 FOR ASSESSMENT Y EAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: GROUNDS OF ASSESSEES APPEAL IN ITA NO.431/MUM/2014 : 1. THE LEARNED ASSESSING OFFICER HAS ERRED IN CONS IDERING FOLLOWING INCOME AS INCOME FROM OTHER SOURCES AND HOLDING THAT THESE IN COME ARE NOT ENTITLED TO BE TREATED AS INCOME FROM BUSINESS FOR COMPUTING DEDUC TION U/S. LOA. 1. BANK INTEREST RS. 1,21,299 2. JOB WORK CHARGES RS. 73,762 3. EXCHANGE DIFFERENCE RS. 37,95,975 ON LO ANS ALTERNATIVELY (I) REASONABLE EXPENSES RELATED TO JOB WORK CHARGES BE ALLOWED ON ESTIMATE BASIS AND THE AMOUNT SO ALLOWED. BE REDUCED FROM TOTAL EX PENSES AND DEDUCTION U/S. 10A BE REVISED ACCORDINGLY. (II) EXCHANGE DIFFERENCE ON LOANS BE NETTED AGAINS T RELATED INTEREST AND OTHER EXPENSES. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKIN G ADDITION OF RS. 8,36,437/- BEING INTEREST CALCULATED @ 18% ON CREDIT PERIOD TO AE BEYOND 180 DAYS ON CERTAIN EXPORT INVOICES. WITHOUT PREJUDICE : UNDER TRANSFER PRICING REGULATION, EXPORT OUTSTANDI NG IS NOT A TRANSACTION WITH AE AND HENCE NO ADDITION IS TO BE MADE. ALTERNATIVELY : THE ASSESSEE HAS ENJOYED CREDIT OF MORE THAN 180 D AYS FROM AE ON PURCHASES AND THUS, CREDIT BE GIVEN BY CALCULATING INTEREST @ 18% ON SUCH PAYMENTS. 3. YOUR APPELLANT CRAVES LEAVE, TO ADD, AMEND OR A LTER THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING 2. APROPOS GROUND NO.1 IN ASSESSEES APPEAL, IT WAS POINTED OUT BY LD. AR THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE IN ITS ENTIRETY BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 21 /3/2014 PASSED IN ITA NO.5036/MUM/2012. COPY OF THE SAID ORDER WAS PLACE D ON OUR RECORD AND . / ITA NO. 431&582/MUM/2013 / ASSESSMENT YEAR 2008-09 3 WAS ALSO GIVEN TO LD. DR. LD. DR DID NOT RAISE AN Y OBJECTION TO THE CONTENTION OF LD. AR THAT GROUND NO.1 IS COVERED BY THE AFORE MENTIONED DECISION OF THE TRIBUNAL 2.1 IT WAS OBSERVED THAT IN THE SAID CASE ASSESSEE RAISED SIMILAR GROUND, IN WHICH TOTAL DISALLOWANCE OF RS.38,91,744/- WAS AGIT ATED (RS.1,02,022/- BEING BANK INTEREST, RS.19,26,857/- BEING JOB WORK CHARGE S AND RS.18,62,865/- AS EXCHANGE DIFFERENCE ON LOANS). THE ISSUE HAS DECI DED BY THE TRIBUNAL AS UNDER: 2.1.1 REGARDING BANK INTEREST IT WAS OBSERVED THAT LD. CIT(A) HAD DECIDED THE ISSUE FOLLOWING THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. VS. CIT, 343 ITR 89 ( SC) IN WHICH NETTING WAS ALLOWED. IN VIEW OF THE DECISION OF LD. CIT(A) GRA NTING THE NETTING BENEFIT TO THE ASSESSEE THE TRIBUNAL UPHELD THE ORDER OF LD. CIT(A ). 2.1.2 IN THE PRESENT CASE LD. CIT(A) HAS NOT GRANTE D EVEN THE BENEFIT OF NETTING, THEREFORE, RESPECTFULLY FOLLOWING THE EARLIER DECI SION OF THE TRIBUNAL WE HOLD THAT AO SHOULD GRANT NETTING BENEFIT TO THE ASSESSE E AS PER DECISION OF HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULE S PVT. LTD. (SUPRA). 2.2 REGARDING JOB WORK CHARGES , THE MATTER WAS RESTORED BACK TO THE FILE OF AO WITH THE FOLLOWING DIRECTIONS: 8. FOLLOWING THE DECISION OF HONBLE HIGH COURT, WE DIRECT THE AO TO REDO THE ASSESSMENT BY CONSIDERING ONLY THE NET RECEIPT IN R ESPECT OF JOB WORK. THE EXPENDITURE IN THIS RESPECT HAS TO BE WORKED OUT ON THE BASIS OF EITHER MAN HOURS PUT IN THE JOB WORK IN COMPARISON TO THE OWN MANUFA CTURING ACTIVITY OR ON THE BASIS OF OUTPUT RATIO IN THE OWN MANUFACTURING ACTI VITY AND JOB WORK. THE ASSESSEE IS DIRECTED TO PRODUCE RELEVANT DETAILS FO R ALLOCATION OF THE EXPENDITURE REGARDING JOB WORK ACTIVITY. IF IT IS NOT POSSIBLE TO WORK OUT THE ALLOWABLE EXPENDITURE ON THE ABOVE SAID BASIS THEN THE AO SHO ULD WORK OUT ON SOME REASONABLE BASIS. . / ITA NO. 431&582/MUM/2013 / ASSESSMENT YEAR 2008-09 4 2.2.1 RESPECTFULLY FOLLOWING THE SAME WE RESTORE TH E ISSUE REGARDING DISALLOWANCE ON ACCOUNT OF JOB WORK TO THE FILE OF AO WITH SIMILAR DIRECTIONS. WE DIRECT ACCORDINGLY. 2.3 REGARDING DISALLOWANCE ON ACCOUNT OF EXCHANGE D IFFERENCE THE DIRECTIONS OF THE TRIBUNAL ARE AS UNDER: 12. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND REL EVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS HAVING TWO KIN DS OF LOAN ONE IS SHORT TERM LOAN AGAINST EXPORT BILLS WHICH IS CLEAR FROM THE SCHEDULE OF THE BALANCE SHEET AND OTHER IS TERM LOAN. EVEN IN THE S CHEDULE 4, THE ASSESSEE HAS SHOWN SECURED LOAN IN FOREIGN CURRENCY WHICH IS TERM LOAN AND FURTHER THE WORKING CAPITAL LOAN UNDER THE CATEGORY OF PECK ING CREDIT, POST SHIPMENT FOREIGN CURRENCY ACCOUNT. AS FAR AS THE WO RKING CAPITAL LOAN IS CONCERNED THE EXCHANGE GAIN ON SUCH LOAN SHOULD BE ALLOWED AS BUSINESS INCOME AND SO FAR AS THE EXCHANGE GAIN ON SECURED T ERM LOAN WHICH IS NOT FOR WORKING CAPITAL THE SAME CANNOT BE TREATED AS B USINESS INCOME FOR THE PURPOSE OF SECTION 10A. ACCORDINGLY WE DIRECT THE A O TO VERIFY THE EXACT DETAILS OF THE FOREIGN EXCHANGE GAIN IN RESPECT OF TWO KINDS OF LOAN AND THEN ALLOW THE CLAIM OF THE ASSESSEE WITH RESPECT T O THE WORKING CAPITAL LOAN. 13. IN THE RESULT APPEAL OF THE ASSESSEE IS P ARTLY RESPECTFULLY FOLLOWING THE AFOREMENTIONED OBSERVATI ONS OF THE TRIBUNAL IN ASSESSEES OWN CASE WE RESTORE THIS ISSUE ALSO TO T HE FILE OF AO WITH SIMILAR DIRECTIONS. 2.4 GROUND NO.1 IS PARTLY ALLOWED IN THE MANNER AFO RESAID. 3. APROPOS GROUND NO.2, TP ADJUSTMENT OF RS.8,36,43 7/- WAS MADE ON ACCOUNT OF DELAYED PAYMENTS RECEIVED FOR EXPORT PRO CEEDS FROM ASSOCIATED ENTERPRISE(AE) OF THE ASSESSEE. ACCORDING TO TPO, PERIOD OF 180 DAYS COULD BE ALLOWED AS REASONABLE AND BEYOND THE SAID PERIOD EX PORT REALIZATION CANNOT BE CONSIDERED TO BE AT ARMS LENGTH. IT MAY BE MENTION ED HERE THAT ASSESSEE HAS EXPORTED DIAMOND JEWELLERY TO ITS ONLY ONE AE NAME LY M/S. JAY GEMS INC. . / ITA NO. 431&582/MUM/2013 / ASSESSMENT YEAR 2008-09 5 USA. THE TPO IDENTIFIED THESE PAYMENTS WHICH HAVE BEEN TABULATED AND ARE REPRODUCED BELOW. COMPUTATION OF INTEREST ON CREDIT GRANTED TO AE BEY OND 180 DAYS. DATE INVOICE NO. INVOICE AMT. (INR) DELAYED BEYOND 180 DAYS INTEREST (INR) 23.05.2007 032 69,56, 823 131 4,49,430 23.10.2007 098 14,45,851 4 2,852 23.10.2007 099 14,70,181 4 2,900 26.10.2007 100 42,05,892 59 1,22,374 31.10.2007 101 33,41,085 11 18,124 8.11.2007 105 16,35,722 3 2,420 16.1 1.2007 106 14,39,905 56 39,765 20.11.2007 108 5,888 52 151 20.11.2007 107 15,92,833 80 62,841 26.11.2007 109 31,31,754 28 43,244 1.12.2007 110 7,66,731 78 29,493 7.12.2007 112 10,55 ,499 72 37,477 11.12.2007 113 3,85,166 68 12,916 17.12.2007 115 8,89,530 7 3,071 20.12.2007 116 2,27,392 59 6,616 24.03.2008 120 4,75,115 7 1,640 27.03.200 8 121 5,69,125 4 1,123 TOTAL INTEREST 8,36,437 ACCORDINGLY, ADJUSTMENT WAS MADE. 3.1 BEFORE US IT WAS PLEADED BY LD. AR THAT ASSESS EE IS NEITHER CHARGING INTEREST FROM ITS AE AND ALSO NOT PAYING ANY INTERE ST TO ITS AE. IT WAS SUBMITTED THAT ASSESSEE ALSO UTILIZED CREDIT IN THE SHAPE OF IMPORT PAYMENTS TO BE MADE TO ITS AE AND THESE ARE LISTED AT PAGE 133 OF THE PAPER BOOK. IT WAS SUBMITTED THAT ASSESSEE DID NOT MAKE PAYMENT EVEN F OR A PERIOD, MORE THAN EXCEEDING 1000 DAYS. IT MAY BE MENTIONED HERE THAT ON PAGE- 133 OF THE PAPER BOOK THE ASSESSEE HAS GIVEN DETAILS REGARDING WORK ING OF INTEREST ON DELAY IN IMPORT PAYMENTS. THOSE PAYMENTS IN EXCESS OF 180 DAYS ARE LISTED AS AGAINST IMPUGNED INTEREST OF RS.8,36,437/- WORKED OUT ON D ELAY IN EXPORT REALIZATION, INTEREST ON DELAY IN IMPORT PAYMENTS HAVE BEEN WORK ED OUT AT . / ITA NO. 431&582/MUM/2013 / ASSESSMENT YEAR 2008-09 6 RS.1,10,01,043/-. THUS, IT IS THE CASE OF LD. AR T HAT WHEN ASSESSEE IS NOT MAKING THE PAYMENT FOR DELAY WHICH IS MUCH MORE THA N 180 DAYS, THEN HOW ASSESSEES TRANSACTION FOR RECEIVING DELAYED EXPORT REALIZATION CAN BE CONSIDERED TO BE NOT ON ARMS LENGTH. THUS, IT WAS PLEADED BY LD. AR THAT ADJUSTMENT OF RS.8,36,437/- SHOULD BE DELETED. 3.2 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY TPO AND LD. CIT(A). 3.3 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. TO SOME EXTENT THERE IS A FORCE IN THE CONTENTION OF LD. AR THAT IF THE ASSESSEE HAS TO MAKE PAYMENT OF IMPORTS TO SAM E PARTY THEN, RECEIVING DELAYED EXPORT REALIZATION CANNOT BE SAID TO BE BEA RING INTEREST AS ASSESSEE IS ALREADY OWING MUCH MORE AMOUNT TO ITS AE ON ACCOUNT OF IMPORT PAYMENTS. THEREFORE, IN THE INTEREST OF JUSTICE, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO TO EXAMINE AND VERIFY THE FACTS AND IF ON THE DATES WHEN THE IMPUGNED INTEREST IS COMPUTED IN RESPECT O F EXPORT REALIZATION, THE ASSESSEE IS ALREADY HAVING OBLIGATION TO PAY TO ITS AE THE AMOUNT REGARDING IMPORT MADE BY IT THEN, TO THAT EXTENT INTEREST CAN NOT BE ADDED AS TP ADJUSTMENT. WE THEREFORE, RESTORE THIS MATTER TO T HE FILE OF AO WITH A DIRECTION TO RE-ADJUDICATE THIS ISSUE AS PER DIRECTIONS GIVEN ABOVE. FOR STATISTICAL PURPOSES THIS GROUND IS TREATED TO BE ALLOWED. 4. APROPOS THE ISSUE RAISED BY THE REVENUE IN ITS A PPEAL, IT WAS THE CONTENTION OF LD. AR THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF GENESYS INTERNATIONAL CORPORATION LTD. 151 TTJ(MUMBAI) 606, WHEREIN IT HAS BEEN HELD THAT A UNIT LOCATED IN SEZ IS COVERED BUY SUB-S.(6) OF S. 115JB IRRESPECTIVE OF THE FACT THAT SUCH UNIT IS CLAIMING DEDUCTION UNDER S. 10A AND, THEREFORE, THE BOOK PROFIT OF THE SEZ UNIT COULD NOT BE INCLUDED WHILE COMPUTING BOOK PROFIT UNDER S. 115JB FOR ASSESSMEN T YEAR 2008-09, DESPITE THE FACT THAT CLAUSE (F) OF EXPLN. 1 TO S. 115JB(2) HAS BEEN AMENDED TO APPLY . / ITA NO. 431&582/MUM/2013 / ASSESSMENT YEAR 2008-09 7 THE PROVISIONS OF MAT TO UNITS WHICH ARE ENTITLED T O DEDUCTION UNDER SECTION 10A. 4.1 FOLLOWING THE AFOREMENTIONED DECISION SIMILAR V IEW WAS ALSO TAKEN BY G. JEWELCRAFT LTD. 36 ITR (TRIB) 521 (MUMBAI) 4.2 IT IS SEEN THAT LD. CIT(A) HAS FOLLOWED AFOREME NTIONED DECISION OF TRIBUNAL IN THE CASE OF GENESIS INTERNATIONAL (SUPR A). RESPECTFULLY, FOLLOWING THE DECISION OF CO-ORDINATE BENCH WE DECLINE TO IN TERFERE IN THE RELIEF GRANTED BY LD. CIT(A) AND THE APPEAL FILED BY THE REVENUE I S DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS CONSIDERED TO BE PARTLY ALLOWED IN THE MANNER AFORESAID AND THE APPEAL FIL ED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/04/2015 ( 0 1 2 15/04/2015 ( SD/- SD/- ( / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 1 DATED 15/04/2015 / COPY OF THE ORDER FORWARDED TO : 1. !$ / THE APPELLANT 2. %&!$ / THE RESPONDENT. 3. 4) ( ) / THE CIT(A)- 4. 4) / CIT 5. 56 %)78 , * 78 , / DR, ITAT, MUMBAI 6. 9 / GUARD FILE. / BY ORDER, & 5) %) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS