ITO, Ward - 2(1), Kolkata, Kolkata V. Rohit Export (Jewellery) Pvt. Ltd., Kolkata

ITA 433/KOL/2012

• Counselvise Citation: 43323514 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 19-03-2012
• Court: TRIBUNAL
• Department Lawyers: M L SARDAR LD JCITSR
• Assessee Lawyers: SHANTI SWARUP GUPTAFCA
• Section: 10AA

Judgement Text

ITA NO. 433/KOL/12-C-AM M/S. ROHIT EXPORT (JEWELLER Y) P.LTD 1 , C IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH: KO LKATA ( ) , 1 , BEFORE HONBLE SRI SHAMIM YAHYA, AM & HONBLE SRI GEORGE MATHAN, JM $ / ITA NO. 433/KOL/2012 A.Y 2008-09 I.T.O WARD 2(1), KOLKATA - - - VERSUS -. M/S. ROHIT EXPORT (JEWELLERY) PVT. LTD PAN: AACCR 6773J ( % / APPELLANT ) ( &'% / RESPONDENT ) FOR THE APPELLANT/DEPARTMENT /SHRI M.L SARDAR, LD.JCIT/SR.DR FOR THE RESPONDENT/ASSESSEE: /S/ SHRI SHANTI SWARUP GUPTA,FCA & KISHOR DATTANI, FCA, LD.ARS * + /DATE OF HEARING: 14-07-2014 * + /DATE OF PRONOUNCEMENT: 7-08-2014 / ORDER , SRI SHAMIM YAHYA, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DATED 05.01.2012 PE RTAINING TO ASSESSMENT YEAR 2008-09. 2. THE GROUND OF APPEAL RAISED BY THE REVENUE READ S AS UNDER:- THAT FOR THE FA CTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEAL) ERRED IN DELETING THE DISALLOWANCE OF R S. 13,04,129/- ON ACCOUNT OF DEDUCTION CLAIMED U/S. 10AA IN RESPECT O F INTEREST ON FDS. 3. IN THIS CASE THE AO HAS DISALLOWED THE DEDUCT ION U/S. 10AA ON INTEREST INCOME OF RS.13,04,129/- AND THE INTEREST INCOME IS TAXED SEPARATELY UNDER THE HEAD OTHER SOURCES ON THE GROUND THAT THE MAKING OF FIXED DEPOSIT WAS NOT DIRECTLY RELATED TO THE PROFIT DERIVED FROM EXPORT BUT ONLY INCIDENTAL TO THE B USINESS OF THE COMPANY AS SUCH. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS REPRODU CED AS UNDER:- THE ASSESSEE CLAIMED EXEMPTION U/S. 10AA OF THE IT ACT, 1961 FOR NEWLY ESTABLISHED UNIT IN SPECIAL ECONOMIC ZONE ( SEZ) AT ITA NO. 433/KOL/12-C-AM M/S. ROHIT EXPORT (JEWELLER Y) P.LTD 2 MANIKANCHAN, SDF BUILDING SECTOR V, SALT LAKE, K OLKATA 700 091. ACCORDING TO THE SECTION 10AA, THE ASSESSEE I S ENTITLED TO HUNDRED PER CENT PROFITS AND GAINS DERIVED FROM THE EXPORT OF A UNIT IN SEZ FOR A PERIOD OF FIVE YEARS. SO, THE MATERIA L CONDITION FOR AVAILING DEDUCTION U/S. 10AA IS NOT FOR THE ENTIRE BUSINESS OR THE ENTIRE CREDIT OF AN ASSESSEE, BUT FOR THE PROFIT FROM EXPORT OF A UNIT. THE WORD DERIVE IS USUALLY FOLLOWED BY THE WORD FROM AND IT MEANS GET, TO TRACE FROM A SOURCE, ARISE FROM, ORI GINATE IN, SHOW THE ORIGIN OR FORMATION OF. THE SOURCE OF INCOME IS FRO M FIXED DEPOSIT WHICH IS INCIDENTAL TO THE BUSINESS AND NOT FROM PR OFIT DERIVED FROM EXPORT. THE MERE FACT THAT THE DEPOSIT MADE WAS FO R THE PURPOSE OF OBTAINING THE CREDIT WHICH IN TURN WAS USED FOR THE PURPOSE OF THE BUSINESS OF THE UNIT DOES NOT ESTABLISH A DIRECT N EXUS BETWEEN THE INTEREST AND THE UNIT. WHERE THE NEXUS BETWEEN PROFITS AND GAINS OF THE UNIT WAS NOT DIRECT BUT INCIDENTAL, THE INTER EST INCOME COULD NOT BE DERIVED FROM EXPORT OF THE UNIT IN SEZ. SO, TH E ASSESSEEES SUBMISSION DOES NOT HAVE ANY MATERIAL. MOREOVER, TH E ASSESSMENT OF EACH YEAR IS SEPARATE AND NOT RELATED TO ANY PROCEE DING IN EARLIER YEAR. THUS, THE MAKING OF FIXED DEPOSIT WAS NOT DIRECTLY RELATED TO THE PROFIT DERIVED FROM EXPORT BUT ONLY INCIDENTAL TO THE BUSINESS OF THE COMPANY AS SUCH. THEREFORE, THE DEDUCTION U/S. 10AA IS DISALLOWED ON INTEREST INCOME OF RS.13,04,129/- AND THE INTEREST INCOME IS TAXE D SEPARATELY UNDER THE HEAD OTHER SOURCES. 4. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED B EFORE THE LD.CIT(A). CONSIDERING THE ASSESSEES SUBMISSIONS THE LD. CIT( A) HAS HELD AS UNDER:- 3.3 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. IN VIEW OF THE FOREGOING DISCUSSION, IT IS EVIDENT THAT THE APPELLANT COMPAN Y HAS NOT PARKED ITS SURPLUS FUND TO INVEST IN KDRS WITH THE INTE NTION TO EARN INTEREST AS IS EVIDENT THAT THE CREDIT FACILITIES AVAILED FROM BANK IS MUCH MORE THAN AMOUNT KEPT IN KDRS WHICH IN TURN ARE PLEDGED WITH THE BANK AS SECURITY FOR CREDIT FACILITIES GRANTED. IN OTHER WORDS, THE SAID KAMDHENU DEPOSIT WITH THE CANARA BANK FOR RS .1,66,84,332/- WAS MADE AS A BUSINESS COMPULSION FOR GETTING THE A DVANCE GOLD FACILITY/CREDIT LIMIT FROM THE BANK OF NOVA SCOTIA AND NOT OUT OF SWEET WILL OF THE APPELLANT COMPANY AS EVIDENCED FROM THE CERTIFICATE ITA NO. 433/KOL/12-C-AM M/S. ROHIT EXPORT (JEWELLER Y) P.LTD 3 OBTAINED FROM THE CANARA BANK CERTIFYING THE PLEDG E OF KDRS AGAINST VARIOUS CREDIT FACILITIES AVAILED BY APP ELLANT COMPANY DURING THE FINANCIAL YEAR 2007-2008. INTEREST EARNE D/ACCRUED ON SUCH KDR HAS A DIRECT NEXUS WITH THE BUSINESS ACT IVITIES OF THE APPELLANT COMPANY AND THEREFORE, THE APPELLANT COM PANY IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 10AA IN RESPECT O F THIS RECEIPT OF INTEREST ON KDRS AT RS.13,04,036/-. AFTER DEDUCTING INTEREST RECEIVED FOR RS.13,04,036/- FROM INTEREST PAID AT RS.22,99,969/-, THERE REMAINS A NET DEBIT BALANCE OF THE INTEREST PAID AMOUNTING TO RS.9,95,933 (RS.22,99,969 RS.13,04,036). THUS, TH E SAID INTEREST PAYMENT OF RS.22,99,969/- HAS A DIRECT AND DISTIN CT NEXUS WITH THE INTEREST EARNING OF RS.13,04,036/- AND THERE IS NO POSITIVE INTEREST INCOME WHICH HAS ACCRUED TO THE APPELLANT COMPANY D URING THE RELEVANT FINANCIAL YEAR 2007-2008 AS THE RECEIPT A ND PAYMENT OF INTEREST BEING OF THE SAME GENESIS. CONSIDERING THE FACTS AS STATED ABOVE AND FOLLOWING THE DECISIONS OF THE HIGH COURTS AND APEX COURT (SUPRA) , THE APPELLANT GETS RELIEF ON THIS ISSUE. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORD. WE FIND THAT THE ASESSEES CASE HAS TWO LIMBS ONE, INTEREST EARNED HAS A DIR ECT NEXUS WITH THE BUSINESS ACTIVITIES OF THE ASESSEE COMPANY. THEREFORE, THE ASSESSEE COMPAN Y IS ENTITLED TO CLAIM DEDUCTION U/S. 10AA OF THE ACT IN RESPECT OF THIS RECEIPT OF INTER EST ON KDRS AT RS.13,04,036/-. ANOTHER LIMB IS THAT INTEREST RECEIVED ON KDR AMOUNTING TO RS.13,04,129 HAS BEEN TREATED AS INCOME FROM OTHER SOURCES TOTALLY IGNORING THE COR RESPONDING INTEREST PAYMENT TO BANKS AT RS.22,99,969/-. 6.1 FIRST, WE TAKE UP THE SECOND LIMB. IN THIS REG ARD, WE MAY GAINFULLY REFER TO THE ASSESSEES SUBMISSIONS MADE BEFORE THE LD.CIT(A), WHICH READS AS UNDER:- THE LD. AO COMPUTED DEDUCTION U/S. 10AA AT RS. 65 ,42,018/- BY TREATING THE INTEREST RECEIVED ON KDR FOR RS.13,04 ,036/- AS INCOME FROM OTHER SOURCES WITHOUT ALLOWING CORRESPONDING IN TEREST PAYMENT AT RS.22,99,969/- ON ACCOUNT OF INTEREST PAID TO BANKS FOR AVAILING VARIOUS CREDIT FACILITIES WHICH MEANS THAT THERE IS NO PO SITIVE INCOME ON ACCOUNT ITA NO. 433/KOL/12-C-AM M/S. ROHIT EXPORT (JEWELLER Y) P.LTD 4 OF INTEREST WHICH HAS ACCRUED TO THE APPELLANT CO MPANY DURING THE RELEVANT FINANCIAL YEAR 2007-2008 SINCE THE RECEIP T AND PAYMENT OF INTEREST BEING OF THE SAME GENESIS. IN FACT, AFTER DEDUCTING INTEREST RECEIVED FOR RS.13,04,036/- FROM INTEREST PAID A T RS.22,99,969/-, THERE REMAINS A NET DEBIT BALANCE OF THE INTEREST PAID AMOUNTING TO RS.9,95,933/- (RS.22,99,969 RS.13,04,036/-) AS TH E INTEREST PAYMENT DURING THE YEAR IS MUCH MORE THAN THE INTEREST RE CEIVED AND THERE EXISTS A DIRECT NEXUS BETWEEN INTEREST PAYMENT AND INTE REST RECEIVED. THE INTEREST EXPENDITURE AMOUNTING TO RS.22,99,969/- , WHICH IS DIRECTLY REFERABLE TO EARNING OF INTEREST INCOME AMOUNTING TO RS.13,04,036/- AND ONLY THE NET INTEREST INCOME, IF ANY, SHOULD BE EX CLUDED FROM THE PROFITS FOR THE PURPOSE OF SECTION 10AA. IN THE INSTANT CAS E, ACTUALLY SPEAKING, THERE IS NO NET INTEREST EARNING AMOUNTING TO RS .13,04,036/- AS ALLEGED BY THE LD. AO WITHOUT ADJUSTING THE SAME AGAINST THE INTEREST PAID OF RS.22,99,969/-, WHICH IS ERRONEOUS, UNJUST, ARBITRA RY, WITHOUT ANY BASIS WHATSOEVER AND BAD IN LAW AND SHOULD BE DELETED IN TOTO. 6.2 WE HAVE CAREFULLY CONSIDERED THE ABOVE. WE FIN D THAT ASSESSEE HAS EARNED INTEREST ON KDRS AT RS.13,04,036/-. THIS KDR IS PLACED FOR O BTAINING VARIOUS CREDIT FACILITIES. THE INTEREST EXPENDITURE ON THESE CREDIT FACILITIES CA ME TO RS.22,99,969/-. WE AGREE WITH THE SUBMISSIONS OF THE ASESSEE THAT BOTH RECEIPTS AND P AYMENTS OF INTEREST IN THIS CASE ARE OF SAME GENESIS. IF THE PROFITS OF BUSINESS INCLUDE C ERTAIN RECEIPTS, WHICH HAVE CORRESPONDING COSTS OR IF THE PROFITS INCLUDE CERTAIN CREDIT AND THE BUSINESS HAS ALSO DEBITS OF THE SAME NATURE AND IF THESE ARE NOT NETTED OUT AGAINST EAC H OTHER, THE PROFIT OF BUSINESS WILL PRESENT A DISTORTED FIGURE. IN THIS CASE WE AGREE THAT INT EREST EARNING OF RS.13,04,036/- ON KDR FROM BANKS HAS NOT RESULTED IN ANY POSITIVE INCOME. WE FURTHER NOTE THAT KDRS WERE PLACED AS COMPULSION OF BUSINESS FOR GETTING ADVANCED G OLD FACILITY/CREDIT LIMIT. WE FURTHER NOTE THAT SUCH NETTING OF INTEREST RECEIVED AGAINST IN TEREST ON COMMISSION PAID TO BANKS HAS BEEN DULY ALLOWED IN THE EARLIER ASSESSMENT YEARS A LSO. IN THIS REGARD, WE ALSO REFER TO THE DECISION OF THE ITAT MUMBAI IN THE CASE OF RENAISSA NCE JEWELLERY (P) LTD VS. ITO, W 8(3), MUMBAI REPORTED IN (2006) 101 ITD 380(MUM.). IN THIS CASE, IT WAS HELD THAT IN CASE OF DIRECT NEXUS BETWEEN THE INTEREST PAYMENT AND I NTEREST RECEIPT, THE INTEREST EXPENDITURE, WHICH IS DIRECTLY REFERABLE TO THE EARNING OF INTER EST AS INCOME MAY BE DEDUCTED THEREFROM AND ONLY NET INTEREST INCOME, IF ANY, MAY BE EXCLU DED FROM PROFITS FOR THE PURPOSE OF ITA NO. 433/KOL/12-C-AM M/S. ROHIT EXPORT (JEWELLER Y) P.LTD 5 SECTION 10A OF THE I.T ACT. THUS, WE AGREE WITH TH E LD.CIT(A) THAT INTEREST PAYMENT OF RS.22,99,969/- HAS A DIRECT AND DISTINCT NEXUS WIT H THE INTEREST EARNING OF RS.13,04,036/-. HENCE, THERE IS NO POSITIVE INTEREST INCOME, WHICH HAS ACCRUED TO THE ASSESSEE COMPANY DURING THE RELEVANT ASSESSMENT YEAR. IN THIS VIEW O F THE MATTER, RECEIPT OF INTEREST OF RS.13,04,036/- IS NOT LIABLE TO BE TAXED SEPARATELY . 6.3 SINCE WE HAVE ALREADY HELD THAT THE ABOVE EARNI NG OF INTEREST SHOULD BE NETTED WITH THE INTEREST EXPENDITURE AND NOT TAXED SEPARATELY, THE ISSUE AS TO WHETHER THE SAID INTEREST SHOULD FALL INTO THE COMPUTATION FOR DEDUCTION U/S . 10AA OF THE ACT IS ONLY OF ACADEMIC IN NATURE. HENCE, WE ARE NOT ADJUDICATING THE SAME. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED AS STATED ABOVE. . + ORDER PRONOUNCED IN THE OPEN COURT ON 7/08/2014 SD/- SD /- [ 1 , ] [ , ] [ GEORGE MATHAN, JUDICIAL MEMBER ] [ SHAMIM YAHYA, ACCOUNTANT MEMBER ( + ) DATED : 7/08/2014 ** PRADIP SPS * &2 32 / COPY OF THE ORDER FORWARDED TO: 1. . % / THE APPELLANT : I.T.O W 2(1), P-7 CHOWRINGHEE S Q, 7 TH , ROOM NO.21,KOL- 69. 2 &'% / THE RESPONDENT- M/S. ROHIT EXPORT (JEWELLARY) PVT. LTD. MANIKANCHAN, SDF BUILDING, MODULE NO.15, ISW, PLOT NO. CN-1, SEC TOR-V, SALT LK CITY, KOL-91. 3. 4. . / THE CIT, ( )/ THE CIT(A) 5 . & / DR, KOLKATA BENCH 6 . GUARD FILE . '2 & / TRUE COPY, / BY ORDER, / ASSTT REGISTRAR ITA NO. 433/KOL/12-C-AM M/S. ROHIT EXPORT (JEWELLER Y) P.LTD 6