DCIT 8(3), MUMBAI V. RENAISSANCE JEWELLERY LTD, MUMBAI

ITA 4972/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92402 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 03-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Business income; Search and seizure; Wrong claim; Difference of opinion
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 4972MUM/2012 ASSESSMENT YEAR: 2005-06 DCIT - 8(3) MUMBAI VS. RENAISSANCE JEWELLERY LTD. PLOT NO. 36A, & 37, MIDC MAROL, SEEPZ, ANDHERI MUMBAI 400 096 PAN:AACCR 2148 B (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI SANJAY R. PARIKH REVENUE BY : SHRI AKHILENDRA P. YADAV DATE OF HEARING : 26.03.2015 DATE OF PRONOUNCEMENT : 17 .04.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST ORDER DATED 30.05.2012, PASSED BY THE LD.CIT(A)-18, MUMBA I IN RELATION TO THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FO R THE A.Y. 2005-06, ON THE FOLLOWING GROUNDS:- ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DELETING THE PENALTY OF RS. 19,82,0 30 IMPOSED U/S 271(1)(C) WITHOUT APPRECIATING THE FACT OF THE CASE ' 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING PENALTY IMPOSED U/S 271(1) (C) RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF RELIANCE PETRO PRODUCTS (P) LTD., 322 ITR 158(SC) WITHOUT AP PRECIATING THAT THE PRINCIPLE LAID DOWN BY THE APEX COURT ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE' ITA NO. 4972MUM/2012 ASSESSMENT YEAR: 2005-06 2 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING PENALTY IMPOSED U/S 271(1) (C) WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO J USTIFY THE LOSS OF RS. 5.34 LAKHS ON SALE OF RS. 15.88 CRS FROM NON-10 A UNIT AS AGAINST PROFIT OF RS. 6.93CR. ON SALE OF RS. 180.87 CR FROM 10A UNIT, EVEN THOUGH THE END PRODUCT OF BOTH THE UNITS WAS THE SAME AND THE BUYERS WERE DEALING WITH THE ASSESSEE AS A COMPOSITE ENTITY'. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF JEWE LLERY, FROM AN UNDERTAKING LOCATED AT SEEPZ ANDHERI (E) MUMBAI. IT HAS TWO UNITS ONE OF THE UNIT IS ELIGIBLE FOR DEDUCTION U/S 10A. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCO ME OF RS.2,39,530/- AFTER CLAIMING DEDUCTION U/S 10A OF RS.6,59,80,625/ -. THE ASSESSING OFFICER NOTED THAT UNDER THE HEAD OTHER INCOME, T HE ASSESSEE HAD SHOWN FOLLOWING INCOME:- I) INTEREST INCOME OF RS.2,37,367/- II) SALE OF GOLD DUST RS.2,99,046/- III) JEWELLERY MAKING CHARGES OF RS.2,400/- HE HELD THAT SUCH AN INCOME IS NOT ELIGIBLE FOR DED UCTION U/S 10A AS THE SAME ARE NOT DERIVED FROM THE BUSINESS OPERATIONS. ACCORDINGLY, DEDUCTION OF CLAIM BY THE ASSESSEE U/S 10A WAS REDU CED. HE FURTHER OBSERVED THAT ASSESSEE WAS HAVING TWO UNITS, ONE EL IGIBLE FOR DEDUCTION UNDER SECTION 10A AND OTHER WAS NOT ELIGIBLE AND TH E FINAL ACCOUNTS WAS MADE ON CONSOLIDATED BASIS. IN THE ACCOUNTS THERE W ERE CERTAIN FINANCE COSTS OF RS.2.57 CRORES INCURRED FOR THE ENTIRE BUS INESS WHICH HAS NOT BEEN PROPERLY BIFURCATED BETWEEN TWO UNITS. ACCORDI NGLY, HE ALLOCATED THE ELIGIBLE PROFITS OF THE BUSINESS IN PROPORTION OF THE SALES TO THAT OF ITA NO. 4972MUM/2012 ASSESSMENT YEAR: 2005-06 3 THE TOTAL SALES. FINALLY, THE DEDUCTION U/S 10A WAS REDUCED TO RS.6,14,76,316/-. 3. AFTER THE APPEAL EFFECT, THE CLAIM OF EXEMPTION U/S 10A WAS REDUCED TO RS.60455801/- IN THE PENALTY PROCEEDINGS , THE AO HELD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS O N ACCOUNT OF EXCESS CLAIM OF DEDUCTION U/S 10A OF RS.55,24,824/-. 4. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT THE ALTERATION IN THE COMPUTATION OF DEDUCTION HAD UNDERGONE CHANG ES MAINLY BECAUSE OF TWO REASONS WHICH ARE AS UNDER:- A. CERTAIN INCOMES HAVE NOT BEEN CONSIDERED ELIGIB LE FOR DEDUCTION THAT IS - INTEREST ON MARGIN DEPOSIT, SAL E OR GOLD DUST AND JEWELLERY MAKING CHARGES - AND THEREFORE PENALT Y HAS BEEN IMPOSED. APPELLANT TOOK INTEREST ON MARGIN DEPOSIT AS BUSINE SS INCOME AND NETTED IT AGAINST THE INTEREST RAID FOR THE REASONS THAT THE DEPOSITS WERE KEPT AS MARGIN MONEY FOR PURCHASE OF GOLD AND THEREFORE, FOR THE PURPOSE OF BUSINESS. THIS VIEW H AS THE SUPPORT OF HONBLE SUPREME COURT DECISION IN THE CASE OF KA RNAL CO-OP. SUGAR MILL LTD. 243 ITR 2(SC) ALSO, JEWELLERY MAKING CHARGES AND SALE OF DUST ARC THE INCOME FROM OPERATIONS OF THE UNDERTAKING AND THIS VIEW FI ND SUPPORT IN THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF BANGALORE CLOTHING CO. 260 ITR 371 (BOM). THUS, THERE EXISTS A CLEAR DIFFERENCE OF OPINION ON THE ABOVE MENTIONED ISSUES AND THUS NO PENALTY COULD HAVE BEE N IMPOSED. B. SECONDLY, COMPUTATION OF DEDUCTION COMBINING THE UNDERTAKINGS IS ALSO A DIFFERENCE OF OPINION AS THE SECTION ITSELF CALLS FOR DEDUCTION QUA UNDERTAKING. FURTHER, THE B OOKS OF ACCOUNTS FOR BOTH THE UNDERTAKINGS HAVE ALSO BEEN M AINTAINED SEPARATELY. EVEN THE FINANCE COST HAS ALSO BEEN CHA RGED FOR THE UNDERTAKING SEPARATELY BASED ON THE FINANCE TAKEN F OR THE RESPECTIVE UNDERTAKINGS. ITA NO. 4972MUM/2012 ASSESSMENT YEAR: 2005-06 4 IN SUPPORT OF THE EXPLANATION, THE ASSESSEE HAD REL IED UPON ON SEVERAL CASE LAWS INCLUDING THAT ON RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158 (SC). THE LD. CIT(A), AFTER APPRECIATING THE EN TIRE FACTS DELETED THE PENALTY AFTER OBSERVING AND HOLDING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF LD. COUNSEL A ND THE CASE LAWS RELIED UPON BY HIM AND IN VIEW OF THE FACT THA T THE DISALLOWANCE OF INTEREST, SALE OF GOLD DUST AND MAK ING CHARGES- ARE ALL ISSUES ON WHICH THERE ARE TWO CONCEIVABLE O PINIONS AND THEY ARE ALL DEBATABLE ISSUES WHICH ARE PURELY OF A N INFERENTIAL NATURE AND AS HELD BY HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158 (SC) -NO PENALTY CAN BE LEVIED IN SUCH CASES WHEN A CLAIM IS MADE WH ICH IS NOT SUSTAINABLE IN LAW AND MAKING OF SUCH A CLAIM DOCS NOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS HENCE RESPECTFULLY FOLLOWING THIS DECISION OF HONBLE SUP REME COURT, THE PENALTY SO IMPOSED IS HEREBY DELETED AND THIS GROUN D OF APPEAL IS ALLOWED. 5. BEFORE US, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AND SUPPORTED THAT ULTIMATELY THE ASSESSEES CLAIM FOR DEDUCTION HAS BEEN SUBSTANTIALLY REDUCED AS MOST OF THE INCOME HAS BEE N HELD NOT ELIGIBLE FOR DEDUCTION U/S 10A. THUS, THERE WAS A CLEAR CUT FURNISHING OF INACCURATE PARTICULARS IN THE FORM OF WRONG CLAIM. 6. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THERE ARE SEVERAL DECISIONS, WHEREIN IT HAS BEEN HE LD THAT FIRSTLY, SALE OF SCRAP RESULTING FROM MANUFACTURING ACTIVITY IS PROF IT OF THE BUSINESS AND HENCE ENTITLED FOR EXEMPTION U/S 10A. IN SUPPORT OF THIS, HE RELIED UPON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF GEBE PVT. LTD. VS. ACIT REPORTED IN (2015) 371 ITR 32 ; SECONDLY, REGARDING THE ISSUE OF INTEREST HE SUBMITTED THAT THERE ARE VARIOUS DECISI ONS WHEREIN IT HAS BEEN HELD THAT, IF INTEREST HAS ACCRUED MARGIN DEPO SITS THEN SAME IS TO BE TREATED AS BUSINESS INCOME. THIS VIEW IS SUPPORT BY THE DECISION OF SUPREME COURT IN THE CASE OF KARNAL CO-OP. SUGAR 243 ITR (2) (SC); ITA NO. 4972MUM/2012 ASSESSMENT YEAR: 2005-06 5 LASTLY, ON THE ISSUE OF ALLOCATION OF EXPENSES BETW EEN ELIGIBLE UNIT AND NON ELIGIBLE UNIT AND SET OFF OF INCOME, HE POINTED OUT THAT THE ASSESSEE HAS DEBITED ACTUAL EXPENSES AND THE AO HAS MADE AD HOC ALLOCATION BASED ON THE TURN OVER SALES. THIS CANNOT BE THE GR OUND FOR LEVY OF PENALTY. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE MATERIAL ON RECORD WE FIND THAT PENALTY HAS BEEN LE VIED ON THE GROUND THAT ASSESSEES CLAIM FOR DEDUCTION HAS BEEN REDUCE D IN THE QUANTUM PROCEEDINGS, INTER ALIA BY HOLDING THAT EITHER THE INCOME SHOWN BY THE ASSESSEE IS NOT ELIGIBLE U/S 10A OR ALLOCATION OF T HE EXPENSES ARE NOT PROPER. SO FAR AS THE ISSUE OF CERTAIN INCOMES NOT CONSIDERED ELIGIBLE FOR DEDUCTION, THERE ARE VARIOUS DECISIONS IN THE FAVOU R OF THE ASSESSEE FOR INSTANCE, WITH REGARD TO THE SALE OF SCRAPS [WHICH HERE IN THIS CASE IS SALE OF GOLD DUST GENERATED DURING THE COURSE OF MA NUFACTURING OF JEWELLERY] LIKE THE ONE RELIED UPON BY THE COUNSEL OF KARNATAKA HIGH COURT IN GEBE (P) LTD. (SUPRA). REGARDING INTEREST INCOME ON MARGIN MONEY DEPOSITED AND FOR JEWELLERY MAKING CHARGES AL SO THERE ARE DECISIONS IN THE FAVOUR OF THE ASSESSEE AS STATED B Y THE ASSESSEE BEFORE THE LD. CIT(A). HENCE, IT CANNOT BE HELD THAT ASSES SEES CLAIM OF EXEMPTION DEDUCTION U/S 10A ON THESE INCOME WAS NOT BONA FIDE. ON IT LEADS TO FURNISHING OF INACCURATE PARTICULARS OF IN COME. REGARDING ALLOCATION OF EXPENSES ALSO IT CANNOT BE HELD THAT ASSESSEE HAS FURNISHED ANY INACCURATE PARTICULARS, BECAUSE THE AO HAS MERE LY ALLOCATED THE EXPENSES ON AD HOC BASIS, WHEREAS THE ASSESSEE HAS SHOWN THE ACTUAL EXPENSES DEBITED FOR OF THE UNIT WISE. MERE CLAIMIN G CERTAIN INCOME AS DEDUCTIBLE/EXEMPTED U/S 10A, DOES NOT IPSO FACTO LE AD TO A CONCLUSION THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS. THUS NO PENALTY U/S ITA NO. 4972MUM/2012 ASSESSMENT YEAR: 2005-06 6 271(1)(C) CAN BE LEVIED ON THE FACTS OF THE CASE FO R FURNISHING OF INACCURATE PARTICULARS. ACCORDINGLY, THE FINDING OF THE LD. CIT(A) DELETING THE PENALTY IS UPHELD. 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF APRIL, 2015. SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:17 .04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH // TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.