TARA ULTIMO P. LD, MUMBAI V. ADDL CIT RG 8(3), MUMBAI

ITA 5404/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59742 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS RAO
• Assessee Lawyers: B V JHAVERI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DU RGA RAO, J.M. ITA NO. 5404/MUM/2010 ASSESSMENT YEAR: 2005-06 TARA ULTIMO PVT. LTD., APPELLANT TARA JEWLES PVT. LTD., PLOT NO. 29(P) & 30 (P) ANDHERI (E), MUMBAI 400 096. (PAN - AABCT3846M) VS. ADDL. COMMISSIONER OF INCOME-TAX-8(3), R ESPONDENT MUMBAI APPELLANT BY : MR. B.V. JHAVERI RESPONDENT BY : MR. GOLI SRINIVAS RAO DATE OF HEARING : 12/01/2012 DATE OF PRONOUNCEMENT: 31/01/2012 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-15, MUMBAI, PASSED ON 07/05/2010 FOR THE ASS ESSMENT YEAR 2005-06. 2. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL READS AS UNDER:- YOUR APPELLANT SUBMITS THAT THE AO IS NOT JUSTIFIED IN NOT CONSIDERING INTEREST INCOME OF RS. 7,32,925/- FOR C ALCULATING DEDUCTION U/S 10A. YOUR APPELLANT SUBMITS THAT YOUR APPELLANT COMPANY HAS EARNED INTEREST ON FDS KEPT WITH THE BA NK AS PER THE REQUIREMENT OF THE BANK FOR ENJOYING VARIOUS CR EDIT FACILITIES AND FOR OBTAINING LETTERS OF CREDIT. THESE INTEREST INCOME EARNED ON FDS KEPT WITH THE BANK HAVE DIRECT NEXUS WITH TH E INTEREST PAID BY YOUR APPELLANT ON VARIOUS FACILITIES GIVEN BY THE BANK FOR ITA NO. 5404/MUM/10 TARA ULTIMO PVT. LTD. 2 THE PURPOSE OF EXPORT BUSINESS. EVEN THE SAID ISSUE WAS ALLOWED IN FAVOUR YOUR APPELLANT BY THE HONBLE TRIBUNAL FO R THE AY 1998- 99 TO AY 2001-02 IN THE CASE OF APPELLANTS SISTER CONCERN TARA JEWELS EXPORT PVT. LTD. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE & EXPORT OF STUDDED DIAMOND AND GOLD JEWELLERY. THE AO NOTICED FROM THE TDS CERTIFICATES ATTACHED BY THE ASSESSEE WITH THE RETU RN OF INCOME AND THE ANNUAL REPORT THAT THE ASSESSEE HAD RECEIVED IN TEREST INCOME OF RS. 7,32,925/- FROM BANKS OF RS. 7,31,291/- AND RS. 1,634/- AS INCOME TAX REFUND. ON BEING ASKED BY THE AO TO SHOW CAUSE AS TO WHY DEDUCTION U/S 10A SHOULD NOT BE DISALLOWED IN RELAT ION INTEREST RECEIPTS, THE ASSESSEE, IN REPLY, STATED THAT DURIN G THE YEAR ENDED 31/03/05 THE ASSESSEE COMPANY HAD RECEIVED INTEREST OF RS. 5,67,607/- ON FIXED DEPOSITS WHICH WERE KEPT WITH T HE BANK AS SECURITY FOR ENJOYING VARIOUS CREDIT FACILITIES AND FOR OBTAINING LETTERS OF CREDIT. IT WAS FURTHER STATED THAT SINCE THE ASE SSSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT ING OF GOLD AND DIAMOND STUDDED JEWELLERY, THE ASSESSEE COMPANY REQ UIRES BANK FACILITIES IN THE NATURE OF EXPORT PACKING CREDIT, POST SHIPMENT CREDIT, LETTERS OF CREDIT, MARGIN MONEY FOR PURCHASE OF GOL D ETC. THEREFORE, IN ORDER TO AVAIL THE BANK FACILITIES THE ASSESSEE COM PANY WAS REQUIRED BY THE BANK TO KEEP CERTAIN COLLATERAL SECURITY/MAR GIN MONEY WITH THE BANK IN THE FORM OF FIXED DEPOSITS. IT WAS STATED T HAT THE FIXED DEPOSITS WITH THE BANKS WERE KEPT DUE TO BUSINESS C OMPULSION TO GET THE BANK FACILITIES FOR CARRYING ON THE EXPORT BUSI NESS AT SEZ AND NOT FOR EARNING INTEREST ON SURPLUS FUNDS. THE FIXED DE POSITS WERE MADE OUT OF THE BORROWED FUNDS OF THE ASSESSEE COMPANY A ND NOT OUT OF IDLE OR SURPLUS FUNDS. IT WAS POINTED OUT THAT THE FACT THAT THE ASSESSEE COMPANY HAD PAID RS. 1,14,15,422/- AS BANK INTEREST PROVED THAT IT WOULD NOT MAKE BUSINESS SENSE TO KEEP FIXED DEPOSIT AT A RATE OF INTEREST WHICH IS LOWER THAN THE RATE OF INTEREST P AID TO THE BANK. THE ITA NO. 5404/MUM/10 TARA ULTIMO PVT. LTD. 3 ASSESSEE STATED THAT IN SIMILAR ISSUE WHICH AROSE I N THE EARLIER YEARS IN CASE OF ASSESSEES SISTER CONCERN, I.E. TARA JEW EL EXPORT P. LTD. FOR ASSESSMENT YEARS 1998-99 TO 2001-02 WHEREIN IT HAS BEEN HELD BY THE ITAT THAT IF THE INTEREST INCOME HAS DIRECT NEXUS T HE SAME SHALL BE SET OFF AGAINST INTEREST EXPENDITURE. THE COPIES OF THE TRIBUNAL ORDERS FOR THE SAID YEARS WERE ENCLOSED FOR READY REFERENCE. I T WAS STATED THAT THE DEPARTMENT HAS NOT GONE IN FURTHER APPEAL AGAIN ST THE SET OFF OF INTEREST RECEIVED AGAINST INTEREST PAID. THE CIT(A ) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESEE AND FOLLOWING THE DE CISION IN THE CASE OF LIBERTY INDIA, 317 ITR 218 HAD HELD THAT INTERES T INCOME RECEIVED BY THE ASSESSEE IS NOT PROFIT DERIVED BY AN UNDERTA KING FROM EXPORT AND, THEREFORE, NOT ELIGIBLE FOR EXEMPTION U/S 10A. HE FURTHER HELD THAT THE DECISIONS OF CIT V. DRESSER RAND INDIA P. LTD., 323 ITR 429 (BOM.) AND CIT VS. ASIAN STAR CO., 326 ITR 56 APPLI ES IN THE CONTEXT OF SECTION 10A ALSO. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE, IS NOT THE PROFIT DERIVED BY AN UNDERTAKING FROM EXPORT, B UT THE EXPENSES INCURRED TO EARN THAT INCOME HAS TO BE ALLOWED IN T HE LIGHT OF SECTION 57(III) OF THE ACT. 5. THE LEANED DR ON THE OTHER HAND SUBMITTED THAT I F THE ASSESSEE INCURRED THE EXPENSES TO EARN INTEREST INCOME, THE SAME CAN BE ALLOWABLE AFTER EXAMINING THE ISSUE. 6. AFTER HEARING THE PARTIES AND PERUSING THE RECOR D AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, WE AGREE WITH THE SUBMISSION OF THE LEARNED DR THAT THE EXPENSES INCURRED BY THE ASSESS EE TO EARN INTEREST INCOME MAY BE ALLOWED AFTER EXAMINING THE ISSUE. THEREFORE, ITA NO. 5404/MUM/10 TARA ULTIMO PVT. LTD. 4 WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE TH E ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ISSUE WHETHE R THE ASSESSEE HAS INCURRED ANY EXPENSES TO EARN INTEREST INCOME, IF S O, THE SAME CAN BE CONSIDERED IN ACCORDANCE WITH LAW, AS BOTH PARTIES AGREE THAT THE INTEREST INCOME IS ASSESSABLE UNDER THE HEAD INCOM E FROM OTHER SOURCES. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2012. SD/- SD/- (J. SUDHAKAR REDDY) (V. DU RGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 31 ST JANUARY, 2012 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, H BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.