DIAMONDS 'R' US, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 6(4), MUMBAI

ITA 536/MUM/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1029 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-10-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 28-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Proportionate interest; Commercial expediency
• Section: 10; 2; 10AA; 43; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NOs. 536, 537, 538 & 539/MUM/2018 (A.Y: 2011-12, 2012-13, 2013-14 & 2014-15) M/s. Diamonds ‘R' US C/o. Karnavat & Co. 2A Kitab Mahal, 1 st Floor 192 Dr. D.N. Road, Mumbai -400001 PAN: AAAFD4507H v. DCIT – Central Circle- 6(4) Air India Building, Nariman Point Mumbai – 400 021 (Appellant) (Respondent) ITA NO. 485/MUM/2018 (A.Y: 2011-12) DCIT – Central Circle – 6(2) Room No. 1903, 19 th Floor Air India Building, Nariman Point Mumbai – 400 021 v. M/s. Diamonds ‘R' US 1110, Prasad Chambers Opera House Mumbai - 400004 PAN: AAAFD4507H (Appellant) (Respondent) Assessee Represented by : None Department Represented by : Shri T. Shankar Date of Hearing : 04.10.2022 Date of Pronouncement : 12.10.2022 2 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals)–54, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 11.10.2017 for the A.Ys. 2011-12 to 2014-15. ITA.No. 485/Mum/2018 is the appeal filed by the Revenue for the A.Y. 2011-12. 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 536/MUM/2018 for Assessment Year 2011-12 as a lead case. 3. Assessee has raised following grounds in its appeal: - “1. On facts and in law, the learned Commissioner of Income-tax (Appeals) [hereinafter referred to as "Ld. CIT(A)") had failed to appreciate that that interest of Rs.9,36,23,619/ is allowable u/s.36(1)(iii) of the Income-tax Act as the same was incurred for the purpose of business. Under the facts and circumstances of the matter, she ought to have deleted the said disallowance of Rs.9,36,23,619/-. 2. without prejudice to the Ground of Appeal No.1 above, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the amount of disallowance of Rs.9,36,23,619/- without appreciating the fact that the advance to Shri Nirav Modi is out of interest free funds available to the appellant. 3 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US 3. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon. ITAT to decide this appeal according to law.” 4. We observed from the record that the hearing was posted since 05.01.2019 and none appeared on behalf of the assessee until today i.e., 04.10.2022. The hearing was posted 24 times and none appeared. We deem it fit and proper to proceed to dispose off the appeal as it is pending from 2019. The bench has issued notice by RPAD on 15.01.2019, 31.01.2020, 11.11.2020, 09.03.2021, 18.05.2021, 30.07.2021, 28.10.2021, 17.12.2021, 04.02.2022, 08.03.2022 and 21.04.2022. Since the assessee has not appeared in spite of the several notices, we dispose off this appeal on merits with the assistance of Ld.DR. 5. Ld. DR briefly explained the facts and supported the orders of the lower authorities. 6. Considered the submissions of Ld.DR and material placed on record. On perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order 4 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US and sustained the addition made by the Assessing Officer. While holding so, the Ld.CIT(A) observed as under: - “6. The second ground of appeal is against the disallowance of interest under section 36(1)(iii) amounting to Rs.9,36,23,619/-. 6.1 During the year, the appellant had made interest-free advances to Mr Nirav Modi who is an erstwhile partner of the appellant firm. During the year, the appellant had undertaken certain Treasury activities at SEZ. According to the learned counsel for the appellant, the interest was paid in relation to the Treasury activities. The interest free loan given to Mr Nirav Modi was sourced out of partners capital and the export proceeds realised from the customers and not from the borrowings. The assessing officer did not agree with this argument of the learned counsel. He observed that the principles of allowance of interest on borrowed capital under section 36 (1)(iii) will be allowed only if capital borrowed has been exclusively used for the purpose of business. He placed reliance on the judgements of hon'ble Madras High Court in the case of P.R.M.S Ramanathan Chettiar 72 ITR 534 and in the case of K Somasundaram and bros vs. CIT 238 ITR 939 and CIT vs. Abhishek industries Ltd 156 taxman 257(P & H). He also observed that the assessee has not stated what was the reason to divert the partners capital and realisation from sundry debtors as interest free loan to Shri Nirav Modi. The AO analysed the rates of interest of various banks and felt that rate of 7% on the loans advanced to Nirav Modi would be reasonable and made the disallowance of Rs.49,36,23,619/-. 6.2 During the course of appellate proceedings, the learned counsel for the appellant made the following submissions: 6.2.1 During the year, the Appellant had made interest- free advances to Mr Nirav Modi. Mr Nirav Modi was erstwhile partner of the Appellant firm (now the trustee of the partner of the Appellant firm). The closing balance of such interest- free advances made to Mr Nirav Modi is Rs.5,74,92,25,000/-. 6.2.2 As discussed in paras above, the Appellant had undertaken certain treasury activities at SEZ. A detailed note on the nexus of the various charges with the interest earned from the treasury activities was submitted to the learned AO vide letter dated 13.03.2015. Interest amounting to Rs.84,02,62,260/- was paid in relation to such treasury activities. 5 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US 6.2.3. As per section 36(1)(ii) of the Act, interest is allowed as a deduction if the same is paid in respect of capital borrowed for the purpose of business or profession. Given that the interest of Rs 84,02,62,260/- was Incurred for the purpose of the business of the Appellant, the same was claimed as a deduction against the total income. 6.2.4 However, the learned Assessing Officer has made disallowance of proportionate interest of Rs 9,36,23,619/- by stating the following: "It may seen from the above that all the banks are offering more than 7%. Therefore the submission of the assessee that interest rate of 6.5% can be adopted is not acceptable and rejected. Generally the banks are found to be offering interest rate between 7.25% to 7.5% as on date. Therefore, considering the depreciation in the value of rupee and Inflation etc. the interest rate of 7% as on 31.03.2010 would be reasonable to adopt and the same rate is adopted. The interest on Rs.5,74,92,25,000/- at the rate of 7% comes at Rs.49,36,23,619/- and the above amount is added back to the returned Income and assessed as income. The addition on this issue at Rs.9,36,23,619/ The learned AO relied on the following decisions to contend that interest paid on borrowed capital can be allowed only if the same is incurred for the purpose of business:  P.R.M.S Ramanathan Chettiar v CIT (1969) 72 ITR 534 (Mad)  M.S.P. Raja v CIT (1976) 105 ITR 295 (Mad)  K. Somasundaram & Bros v CIT (1999) 238 ITR 939 (Mad)  CIT v Abhishek Industries Ltd (2006) 156 Taxman 257 (P&H) 6.2.5 Detailed submission was filed vide letter dated 13.03.2015 wherein the details of all the treasury activities undertaken by the Appellant on of which aforesaid Interest was Incurred was provided. 6.2.6. It is pertinent to note that the interest-free loan given to Mr Nirav Modi was sourced out of the export proceeds realized from the customers and not from the borrowings. 6.2.7 On perusal to the profit and loss account (Annexure-C) and the detail filed in relation to interest, it is evident that there is no interest expense debited to profit and loss account but there is net interest income of Rs.62,05,57,673/-. Considering this net interest position there can be no disallowance. Moreover the capital of the partners 6 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US as on 31.3.2011 is Rs.64,48,36,689/- and along with the realisation from the debtors the overall position that emerge is that no borrowed fund is utilised. 6.2.8 In view of the above, your Honour would appreciate that the borrowings have not been utilized for the purpose of making interest-free advances and therefore, interest amounting to Rs 84,02,62,260/- has been incurred in relation to the borrowings utilized for the purpose of business of the Appellant and therefore, the same should be allowed as a deduction under section 36(1)(ii) of the Act. 6.3 The submissions of the learned counsel have been carefully considered. It is the contention of the learned counsel that the appellant has carried on Treasury activities and the interest amount in Rs.84,02,62,260/-was paid in relation to such Treasury activities. No borrowed fund has been utilized to advance interest-free loans to Mr Nirav Modi. The interest-free loan given to Mr Nirav Modi was sourced out of the export proceeds realised from the customers and the capital of the partners which was to the tune of Rs.64,48,36,689/-. He relied on the following case laws: 3.1 In this connection, the Appellant wishes to rely on the following judicial precedents:  Mujal Sales Corporation v CIT [2008] 168 TAXMAN 43 (SC) At this stage, it may be mentioned that as far back as in August/September 1991, assessee herein had given interest- free advances to its sister concerns. These advances stood reduced over a period, till assessment year 1997-98. Each year the balances stood reduced. Further, vide Order dated 3-1-2003 the Tribunal held, for assessment year 1992-93, that the assessee had given interest-free loans from its Own Funds and not from interest bearing loans taken by the firm from third parties and consequently, the assessee was entitled to claim deduction under section 36(1)(1). <>  CIT v Hotel Savera [1999] 102 TAXMAN 247 (MAD.) Even after debiting the drawings and the loss in the business, the facts showed that there were sufficient funds with the firm to cover the entire advance to the hotel. The revenue had not made any attempt before the Tribunal to show that the firm had paid interest on the amount outstanding in the accounts of the partner. Though the question raised proceeded on the basis that the firm had paid Interest to the partner on the 7 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US credit balance, there was no finding that the firm had paid interest to the partners on the credit balance. In such a situation, the position that remained was that the firm had its own funds as well as borrowed funds. It was not clear that the firm had not advanced money out of its own funds and in the absence of any material or evidence to indicate that the firm had advanced moneys to the hotel out of borrowed fund, borrowed for business purpose, the presumption would arise, where there was a common fund, that the money advanced came only out of its own funds. Further, in the facts of the case, the Tribunal had found that the money borrowed had been inextricably mixed up with the own funds of the assessee and it was not possible to delineate whichever funds were advanced to the hotel, free of interest and in that factual situation the finding of the Tribunal that no disallowance was called for, was a finding of fact and the finding of the Tribunal that it could be inferred that the firm made the advance out of its own funds and not the borrowed capital, was sustainable in law. Further, there was no finding that the money borrowed had been spent for non business purposes. In absence of any clear findings the ITO or the AAC was not justified in disallowing the interest or part of it. Hence, the Tribunal was right in deleting the sum and also in holding that no part of Interest should be disallowed.  Jt. CIT vs. Beekay Engineering Corporation (2010) 38 DTR 289/ 323 ITR 252 (Chhattisgarh) Where assessee-firm had given interest-free advance to Karta of HUF which was a partner through Karta and Tribunal's finding was that it was evident from balance sheet of assessee-firm that there was sufficient fund in account of HUF and no evidence was available on record to show that borrowed funds were not utilized by assessee for its own business but were diverted as advance to members of HUF free of interest, there was no justification in making disallowance out of interest paid on borrowed funds, Tribunal's finding being a finding of fact did not call for any interference 3.2 In view of the above discussions, the Appellant submits that the disallowance made under section 36(1)(ii) of Rs 9,36,23,619/-, in relation to interest free advances is bad-in- law and needs to be deleted. 6.4 The facts of the cases relied upon by the assessee are not similar to the facts of this case and hence cannot be applied. Even though the appellant has made a claim that the loans given to Mr 8 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US Nirav Modi are from the capital and the realisations from the debtors it is not substantiated. If the entire capital of the firm along with the realisation from the debtors is diverted to give interest-free advances/loans to Mr Nirav Modi it is not understood how the appellant is doing its business. The onus is entirely on the assessee to prove that the borrowed funds were utilised wholly and exclusively for the business purpose so that the interest expenditure incurred can be allowed under section 36 (1) (iii). The appellant has also submitted that no Interest has been debited to the P&L account and only net interest has been credited. The hon'ble Supreme Court in the case of CIT vs. VP Gopiathan 248 ITR 449 has held that earning of interest and paying of interest are two different transactions. The interest received by the assessee from the bank was income in his hands and it could stand diminished only if there is provision in law which permits such diminution. This issue has come up in the appellant's own case for the assessment years 2009-10 and 2010-11 wherein the learned CIT (A) has decided the issue against the assessee. My predecessor CIT (A) while deciding the issue for AY 2010-11 held Maas under: "I have carefully considered the matter. During the year the appellant had made interest free advances to Shri Nirav Modi in a sum of Rs. 51,11,98,543/-. At the same time, interest on borrowings aggregating Rs. 48,64,54,475/- has charged to the Profit and Loss claimed under s. 36(1)(ii) of the Act. As per the provision of 36(1)(ii) of the Act, Interest on capital borrowed for the purpose of business is to be allowed as a deduction while computing the profits exigible to tax. The A.O has very succinctly stated that no reasons have been adduced by the appellant for diverting partner's capital and realization from sundry debtors as interest free loan to Shri Nirav Modi and then borrowing loans from financial institution/bank to run its own business thereby leading to depletion of the profits that are subject to tax. The appellant has not been able to prove that advances made to Shri Nirav Modi were out of debtors realization. Even though such a submission has been made, the nexus between advances and realization from debtors stand unproved and unsubstantiated. Moreover, it is clear that the huge advances made are not for business purpose. It has been held in CIT vs. Sujani Textiles (P) Ltd., [1985] 151 ITR 653 (Mad.), CIT vs. Coimbatore Salem Transports (p) Ltd. [1966] 61 ITR 480 (Mad.) and Mr. Mohd. Ali vs. CIT [1960] 38 ITR 413 (Mad.) that it is for the assessee to prove that each of the loans on which he paid interest were utilized for business. In the case of S.A. Builders vs. CIT [2007] 158 Taxman 74 (SC), the Supreme Court has held that the presence of commercial expediency alone determines 9 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US allowability u/s. 36(1)(ii) of the Act. In respect of the appellant, there is no case that interest free advances have been made to Shri Nirav Modi as a measure of commercial expediency. The Hon'ble Supreme Court has observed that the expression "commercial expediency" is of wide import and includes such expenditure as a prudent businessman would incur for the purpose of business. The expenditure may not have expenditure if it was incurred on grounds of commercial expedience. In the instant case the appellant fails the test of commercial expediency. The addition made by the AO, amounting to Rs.3,57,83,890/- is sustained." The facts are identical in this year also. The appellant has advanced interest-free loans to Shri Nirav Modi, who was an erstwhile partner, to the tune of Rs.5,74,92,25,000/-. The source for these loans was claimed to be from the capital of the firm and the realisation from debtors for exports. However, it has not been proved how the realisation from debtors has been transferred to Shri Nirav Modi. In view of this, respectfully following the decision of my predecessor on the same issue in the appellant's own case for AY 2010-11, I confirm the disallowance of interest to the tune of Rs.9,36,23,619/- made by the AO. This ground of appeal is DISMISSED.” 7. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any reason to interfere especially when there is no representation from the assessee side. Accordingly, appeal filed by the assessee is dismissed. 8. In the result appeal filed by the assessee is dismissed. 9. Coming to the appeals relating to A.Ys. 2012-13, 2013-14 and 2014-15, since facts in these cases are mutatis mutandis, therefore the decision taken in ITA.No. 536/Mum/2018 for the A.Y. 2011-12 is 10 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US applicable to these Assessment Years also. Accordingly, these appeals are also dismissed. 10. Coming to the appeal filed by the Revenue in ITA.No.485/Mum/2018 for the A.Y. 2011-12, revenue has raised following grounds in its appeal: - 1. "Whether on the basis of facts and circumstances of the case the learned CIT (Appeals) erred in allowing the assessee's claim of deduction u/s 10AA of Rs.26,04,68,642/- based on decision of ITAT in A.Y.2009-10 ignoring the fact that department has filed appeal before Hon'ble High Court on this ground?" 11. Ld.DR briefly explained the facts of the case and vehemently supported the findings of the Assessing Officer. Ld.DR submitted that Ld.CIT(A) allowed the claim of the assessee u/s. 10AA of the Act based on decision of ITAT in A.Y. 2009-10 and he submitted that the department has not accepted the findings of the ITAT on this ground and preferred an appeal before Hon'ble High Court and the same is pending. Ld. DR prayed that the order of the Ld.CIT(A) may be set-aside. 12. Considered the submissions of Ld. DR and material placed on record. On perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment 11 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US Order and also following the decision of the ITAT in assessee’s own case allowed the claim of the assessee made u/s. 10AA of the Act. While holding so, the Ld.CIT(A) observed as under: - “5.3 The submissions of the learned counsel have been carefully considered. The assessing officer has denied deduction under section 10AA to the appellant claiming that the trading activity of the appellant is not covered under services as per section 10 AA. If he had to deny the deduction he should have denied the claim pertaining to the trading activity only. As already mentioned the appellant is in the activity of both manufacturing and trading. As could be seen from the records the appellant's export turnover from trading was Rs.3,398/- crores whereas the export turnover from manufacturing activity was Rs.43.79/- crores. The assessing officer should have allowed the appellant's claim pertaining to the manufacturing activity as he had not made any negative comments about allowability for the manufacturing activity. This is a mistake apparent from record. The assessing officer is directed to allow the claim of the assessee under section 10 AA for the manufacturing activity the turnover of which was Rs.43.79 crores. 5.4 Coming to the activity of trading which has been claimed as 'services' by the assessee it is noted that similar issue has come up for hearing in the appellant's own case for preceding years. The issue has been decided in favour of the assessee in its own case for AYS. 2006-07 and 2007-08 by the ITAT and for AYS. 2008-09, 2009-10 and 2010-11 by the CIT (A). 5.5 The deduction under section 10AA is allowable for manufacturing or for providing services. The word manufacture has been defined as having the same meaning as assigned to it in clause 'r' of section 2 of the Special Economic Zones Act, 2005. However, the word 'services' has not been defined in the Income Tax Act. 5.6 In the absence of the definition in the Income Tax Act the definition has been borrowed from the SEZ Act. Section 2 (2) of the SEZ Act defines services to include tradable services. 2. Section 2(z) of the SEZ Act defines 'services' to include tradable services. It is pertinent to note, that as per section 27 of the SEZ Act, 2005, the provisions of the Income Tax Act 1961 (43 of 1961), as in force for the time being, shall apply to, or in relation to, the developer or entrepreneur for carrying on the authorized operations in a Special Economic Zone or unit subject to the modifications is specified in Second 12 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US Schedule. Further, as per section 51 of the SEZ Act, the provisions of this Act shall have effect notwithstanding anything inconsistent there with contain 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. 3. The Central Government has defined the services in the rule 76 of the SEZ Rules, 2006 which inter alia includes trading. The extract of the rule 76 is reproduced as under (Emphasis supplied). "Trading, warehousing, research and development services, computer software services, including information enabled services such as back office operations, call centers, content development or animation, data processing, injuring and design, graphic information systems services, human resources sercices, insurance and claim processing, legal databases, medical conscription, the remote maintenance, revenue accounting, support centers and website sercices, offshore banking services, courier services, audiovisual services, construction and related services, distribution services (excluding reduced services, educational services, environmental services, financial services, hospital services, other human health services, tourism and travel related services, recreational, cultural and exporting serdsvices, entertainment services, transport services, services auxiliary to all modes of transport, pipelines transport. Explanation:- The expression "Trading" for the purposes of the second schedule of the Act, shall mean import for the purpose of export." a) Section 2(z) of the SEZ Act defines services as those tradable services which are covered under the WTO agreement or as prescribed by the Central Government and which earn foreign-exchange. b) As per rule 76 of the Special Economic Zones Rules, 2006, "services" for the purpose of (1) (clause)(z) of section 2 shall be the following namely - Trading. Explanation: The expression "Trading" for the purpose of Second Schedule of the Act, shall mean import for the purpose of re-export. c) As per section 51 of the SEZ Act, 2005, "The provisions of this Act shall have effect notwithstanding anything inconsistent herewith 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." 13 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US d) As per instruction no.4/2006 dated 24th May 2006 followed by the notification dated 10th August 2006 issued by the Ministry of commerce, the benefits u/s. 10AA will exclude trading other than trading in the nature of re-export of imported goods. 4. As per instruction no.4/2006 dated 24th of May 2006 followed by the notification order dated 10th August 2006 issued by the Ministry of Commerce, the benefits u/s. 10AA will exclude trading other than trading in the nature of re- export of imported goods. Relevant extract of the instruction are mentioned below. "This department has been receiving representations on difficulties faced by the existing SEZ unit so holding approval to do trading that their exports are adversely affected and also that several of the orders are held up due to the restrictions on trading on account of the above instruction. Taking cognizance of these representations, in partial modification of the above referred Instruction dated 24th of March 2006, it has been decided that while units in the Special Economic Zones who hold approval to do trading activities will be allowed to carry out all forms of trading activity, the benefits u/s. 10AA will exclude trading other than trading in the nature of re-export of imported goods. Appropriate amendments in this regard are being issued." 5.7 As already mentioned, the same issue has come up in the appellant's own case in the earlier years. The honourable ITAT while deciding the appellant's case for assessment year 2007-08 held as under: We find that similar issue came up in A.Y. 2006-07 in assessee's own case wherein following the decision of the ITAT in ITA in ITA No.509/JP/2011 in the case of Goenka Diamond & Jewellers Ltd. the issue has been decided in favour of the assessee by observing as under: We noted that learned CIT(A) has taken into considering the aspect and observation of the AO that deduction u/s. 10AA is not allowable for the reason that the assessee has not carried out any manufacturing activity but has done trading of goods only. For this purpose, learned AO has placed reliance on the order of Hon'ble 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 circular No. 17 of 29.05.2006, which was issued by Export Promotion Council for Eous & Sez Unit (Ministry of Commerce & Industry, 14 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US Government of India). The contents of the Circular have also been incorporated in the finding of the learned CIT(A), which have also 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). u/s. 51(1) of the SEZ Act, it has been clearly provided that the provision 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 Act. 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 u/s. 10AA is allowable. We further noted that on similar facts in case of Goenka Diamonds and Jewellery limited (suprea), 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 Hon'ble Supreme 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 Hon'ble Delhi High Court in the case of CIT vs. Vasist 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 24.03.2006 as modified by Instruction No.4 of 2006, dated 24.05.2006 issued by the Ministry of Commerce & Industry, Government 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 same the asessee was entitled deduction u/s. 10AA of the Act. Facts are similar before us, as the assessee is engaged in trading of re-export of imported goods and, therefore, the assessee is entitled for deduction u/s. 10AA of the Act. All 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 is that rules provided under the SEZ Act cannot partake the character of the section of the IT Act. We find that in the SEZ Act u/s. 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 IT Act. Under the rules, it is not provided but u/s. 51 of the SEZ Act, it is provided, 15 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US therefore, in our view, the 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 confirmed his order." 5.8 Further the honorable ITAT Mumbai in the case of Gitanjali exports Corporation Ltd ITA No.(6781 & 6783/Mum/2011) held as under: "We noted that learned CIT(A) has taken into considering the aspect and observation of the AO that deduction u/s. 10AA is not allowable for the reason that the assessee has not carried out any manufacturing activity but has done trading of goods only. For this purpose, learned AO has placed reliance on the order of Hon'ble 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 circular No. 17 of 29.05.2006, 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 also 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). u/s. 51(1) of the SEZ Act, it has been clearly provided that the provision 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 Act. 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 u/s. 10AA is allowable. We further noted that on similar facts in case of Goenka Diamonds and Jewellery limited (suprea), 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 Hon'ble Supreme Court in the case of Tax Recovery Officer vs. Custodian Appointed Under the Special Court, reported in the case of 211 CTR 369 (SC) = (2007-TIOL-148-SC-IT) and the decision of the Hon'ble Delhi High Court in the case of CIT vs. Vasist Chay Vyapar Ltd., reported in 238 CTR 142 (Delhi) = (2010-TIOL- 16 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US 781-HC-DEL-IT) were also taken into consideration and thereafter it was concluded that in view of the Instruction No.1 of 2006, dated 24.03.2006 as modified by Instruction No.4 of 2006, dated 24.05.2006 issued by the Ministry of Commerce & Industry, Government 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 same the asessee was entitled deduction u/s 10AA of the Act. Facts are similar before us, as the assessee is engaged in trading of re-export of imported goods and, therefore, the assessee is entitled for deduction u/s 10AA of the Act. All 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 is that rules provided under the SEZ Act cannot partake the 'character of the section of the I T Act. We find that in the SEZ Act u/s. 51 it has been clearly provided that the provision of Sez Act will override te prodvision of any other Act, meaning thereby the provision provided under the SEZ Act has to override on the provision of section 10AA of the IT Act. Under the rules, it is not provided but u/s. 51 of the SEZ Act, it is provided, therefore, in our view, the contention raised by the learned DR is not tenable. Moreover, the issue is squarely convered 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 confirmed his order." 5.9 Respectfully following the decision of the jurisdictional ITAT in the case of Gitanjali exports Corporation Ltd for assessment year 2006-07 & 2007-08 ITA Nos. 6781 & 6783 of the ITAT, Mumbai and also in the appellant's own case for assessment years 2006-07 and 2007-08, the disallowance made by the AO is directed to be deleted. This ground of appeal is ALLOWED.” 13. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any infirmity in the order passed by the Ld.CIT(A) in allowing the claim of deduction u/s. 10AA of the Act by 17 ITA NOs. 536, 537, 538 & 539/MUM/2018 M/s. Diamonds ‘R' US following the decision of the ITAT in assessee’s own case. Accordingly, the ground raised by the revenue is dismissed. 14. In the result, appeal filed by the Revenue is dismissed. 15. To sum-up, appeals filed by the assessee as well as revenue are dismissed. Order pronounced in the open court on 12 th October, 2022 Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 12.10.2022 Giridhar, Sr.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