M/S. K.G.K. JEWELLERY PVT. LTD, MUMBAI V. THE ITO WD 8(2)(2),

ITA 562/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8484 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 03-02-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAVA
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.562/MUM/2008 (ASSESSMENT YEAR: 2004-05) M/S. K.G.K. JEWELLERY PVT LTD., G-17, GEM & JEWELLERY COMPLEX, SEEPZ, ANDHERI (EAST), MUMBAI -400 096 ..ASSESSEE VS INCOME TAX OFFICER WARD -8(2)(2), MUMBAI REVENUE PAN: AAACK 4612 M ASSESSEE BY: SHRI VIJAY MEHTA REVENUE BY: SHRI R.S. SRIVASTAVA O R D E R PER R.S. PADVEKAR, JM THIS IS AN APPEAL FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A)-VIII MUMBAI DATED 29.11.20 07 FOR THE A.Y. 2004- 05. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS:- 1. ON FACTS AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE DEDUCTION U/S.10A AT ` 3,11,98,286/- AS AGAINST ` 4,64,43,771/-. UNDER THE FACTS AND CIRCUMSTANCES O F THE MATTER, HE ITA 562/M/2008 M/S. K.G.K. JEWELLERY PVT LTD. 2 OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO GIV E DEDUCTION U/S.10A AT ` 4,64,43,771/- 2. ON FACTS AND IN LAW, THE LEARNED CIT (A) ERRED I N CONFIRMING THE TOTAL TURNOVER OF THE APPELLANT AT ` 42,63,72,275/- AS AGAINST ` 32,69,63,870/- BEING THE TOTAL TURNOVER OF MANUFACT URING UNDERTAKING AS PER THE PROVISIONS OF SECTION 10A(4) OF THE I.T. ACT, 1961. UNDER THE FACTS AND CIRCUMSTANCES OF THE MAT TER, HE OUGHT TO HAVE CONFIRMED THE TOTAL TURNOVER AT ` 32,69,63,870/-. 3. ON FACTS AND IN LAW, THE LEARNED CIT (A) ERRED I N CONFIRMING THE EXCLUSION OF JOB WORK REPAIRS OF ` 3,46,895/-, RECOVERY AGAINST BREAKAGE & LOSS OF ` 15,269/- SALE OF CONSUMABLES OF ` 54,000/-, SCRAP SALES OF ` 2,03,200/- AND BAGGING CHARGES OF ` 69,862/- (TOTALING TO ` 6,89,226/-) FROM THE PROFITS OF THE BUSINESS OF TH E UNDERTAKING FOR COMPUTING DEDUCTION U/S.10A OF THE ACT. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER NOT TO EXCLUDE THE AFORESAID RECE IPTS FROM THE PROFIT FROM THE PROFIT OF THE BUSINESS FOR COMPUTING DEDUC TION U/S.10A OF THE ACT. 2. GROUND NO.1 & 2 ARE IN RESPECT OF THE DEDUCTION U/S.10A OF THE ACT. 3. THE FACTS PERTAINING TO THE ISSUE BEFORE US ARE AS UNDER. THE ASSESSEE IS IN THE MANUFACTURING AND EXPORT OF STUD DED JEWELLERY. THE ASSESSEE IS ALSO TRADING IN EXPORT OF STUDDED JEWEL LERY. THE ASSESSEE CLAIMED THE DEDUCTION U/S.10A IN RESPECT OF THE INC OME FROM EXPORT OF STUDDED JEWELLERY. THE ASSESSEE IS HAVING UNIT IN SEEPZ. THE FIRST ITA 562/M/2008 M/S. K.G.K. JEWELLERY PVT LTD. 3 ISSUE IN CONTROVERSY IS WHETHER THE TURNOVER OF THE TRADING EXPORT IS TO BE INCLUDED IN THE TOTAL TURNOVER AND IF IT HAS TO BE INCLUDED, WHETHER THE SAME IS TO BE ALSO INCLUDED IN THE EXPORT TURNOVER. THE A.O. HAS NOTED THAT WHILE CLAIMING THE DEDUCTION U/S.10A, THE ASSE SSEE HAS TAKEN THE FIGURE OF THE EXPORT TURNOVER OF ` 32,69,63,872/- IN THE NUMERATOR AS WELL AS DENOMINATOR. THE TOTAL TURNOVER OF THE ASSESSEE , AS PER FORM NO.56A (EXPORT OF THE MANUFACTURING AS WELL AS TRADING ITE MS) IS AMOUNTING TO ` 42,87,42,489/-. THE A.O. WAS OF THE OPINION THAT T HE SAID FIGURE SHOULD HAVE BEEN TAKEN IN THE DENOMINATOR WHILE WORKING TH E DEDUCTION U/S.10A. THE A.O. WAS NOT IN FAVOUR OF THE ACTION OF THE ASSESSEE EXCLUDING THE EXPORT TURNOVER IN RESPECT OF THE TRA DED GOODS. FROM THE TOTAL TURNOVER. THE A.O., THEREFORE, INTERPRETED TH E PROVISIONS OF SUB- SECTION (4) TO SECTION 10A AND TOOK THE TOTAL TURNO VER AT ` 42,87,42,489/- AS NUMERATOR BUT IN THE DENOMINATOR ONLY THE EXPORT TURNOVER OF THE MANUFACTURED GOODS WAS CONSIDERED. IT WAS ALSO NOT ICED BY THE A.O. THAT THE ASSESSEE HAS SHOWN THE LOSS IN THE EXPORT OF TH E TRADING GOODS. WE HAVE MADE CERTAIN ADJUSTMENTS TO THE PROFITS OF THE BUSINESS AND EXPORT TURNOVER WAS ONLY RESTRICTED TO THE EXPORT OF THE M ANUFACTURED GOODS, WHILE CONSIDERING THE TOTAL TURNOVER, THE A.O. CLUB BED BOTH THE TURNOVERS I.E. EXPORT OF MANUFACTURING AS WELL AS EXPORT OF T HE TRADING GOODS AND ACCORDINGLY WORKED OUT THE DEDUCTION U/S.10A AND CO NSEQUENTLY THE SAME WAS REDUCED. THE ASSESSEE CARRIED THE ISSUE B EFORE THE LD. CIT (A) BUT WITHOUT SUCCESS. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. COUNSEL EXPLAINED THE ELIGIBILITY OF THE ASSESSEE T O CLAIM THE DEDUCTION U/S.10A, WHICH IS NOT IN DISPUTE. IT IS SEEN THAT IN THE EXPORT OF TRADING GOODS, THE ASSESSEE HAS DECLARED THE LOSS OF ` 50 LAKHS APPROXIMATELY AND IN THE EXPORT OF MANUFACTURED GOODS, THE PROFIT OF ` 4.62 CRORES. AFTER CONSIDERING THE PROFIT FROM THE TRADING EXPOR T, IT WORKED OUT ` 4.14 ITA 562/M/2008 M/S. K.G.K. JEWELLERY PVT LTD. 4 CRORES. THE LD. COUNSEL ARGUED THAT THE PROFIT FRO M THE TRADING EXPORT IS ALSO ELIGIBLE FOR DEDUCTION U/S.10A AND FOR THAT PR OPOSITION HE RELIED ON THE DECISION OF THE ITAT MUMBAI IN THE CASE OF T. T WO INTERNATIONAL (P.) LTD. 122 ITD 255. HE, FURTHER, ARGUES THAT IT IS A WELL SETTLED PROPOSITION OF LAW THAT FOR WORKING OUT OF THE ALLOWABLE DEDUCT ION, THE NUMERATOR AS WELL AS THE DENOMINATOR SHOULD BE RATIONAL. HE ARG UES THAT THE ASSESSEE IS 100% EXPORTER AND WHEN THE TRADING OF EXPORT IS ELIGIBLE FOR DEDUCTION U/S.10A, THE SAID TURNOVER IS ALSO TO BE CONSIDERED IN THE EXPORT TURNOVER AND THE SAME CANNOT MERELY BE ADDED IN THE TOTAL TU RNOVER. WE HAVE ALSO HEARD THE LD. D.R. WHO ON PRINCIPLES AGREED TH AT AS PER THE DECISION OF THE TRIBUNAL IN THE CASE OF T. TWO INTERNATIONAL (P.) LTD. (SUPRA) THE PROFITS FROM THE TRADING EXPORT IS ELIGIBLE FOR DED UCTION U/S.10A, BUT, ONLY THE PRORATE DEDUCTION SHOULD BE WORKED OUT. 5. WE FIND FORCE IN THE ARGUMENT OF LD. COUNSEL. IN THE CASE OF T. TWO INTERNATIONAL (P.) LTD. (SUPRA), THE TRIBUNAL H AS CONSIDERED WHETHER PROFIT FROM THE TRADING EXPORT IS ELIGIBLE FOR CLAI MING THE DEDUCTION U/S.10A OR NOT AND HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE PRESENT CASE OF THE ASSESSEE, THE A.O. HAS INCLUDED THE TURNOVER OF THE TRADING EXPORT IN THE TOTAL TURNOVER BUT EXCLUDED T HE SAME WHILE CONSIDERING THE EXPORT TURNOVER, WHICH SHOULD BE EQ UAL TO THE TOTAL TURNOVER AS THE ASSESSEE IS A 100% EXPORTER. THE L D. COUNSEL FAIRLY CONCEDED THAT AFTER REDUCING THE LOSS FROM TRADING EXPORT THEN ONLY THE PROFIT IS TO BE CONSIDERED BUT THE AT THE SAME TIME , THE TURNOVER OF THE TRADING EXPORT ALSO SHOULD BE ADDED WITH THE EXPORT TURNOVER OF THE ASSESSEE. IN OUR OPINION, THE ARGUMENT ADVANCED BY THE LD. COUNSEL HAS TO BE ACCEPTED CONSIDERING THE SCHEME OF SECTION 10 A. IT IS WELL SETTLED PROPOSITION THAT THE NUMERATOR AND DENOMINATOR SHOU LD BE THE SAME. IF SOME AMOUNT IS INCLUDED IN TO THE DOMINATOR THEN TH E SAME AMOUNT SHOULD ALSO BE INCLUDED INTO THE NUMERATOR. WE, TH EREFORE, DIRECT THE A.O. THAT THE EXPORT TURNOVER FROM THE TRADING EXPO RT SHOULD ALSO BE ITA 562/M/2008 M/S. K.G.K. JEWELLERY PVT LTD. 5 CLUBBED WITH THE MANUFACTURING EXPORTS AND ACCORDIN GLY THE FORMULA SHOULD BE APPLIED. AT THE SAME TIME, AS THERE IS A LOSS IN THE EXPORT TRADING THAT SHOULD ALSO BE CONSIDERED AND REDUCED FROM THE PROFIT OF THE MANUFACTURING EXPORT. WE DIRECT THE A.O. TO WORK-O UT THE DEDUCTION U/S.10A AS PER ABOVE DIRECTIONS AND ACCORDINGLY GRO UND NO.1 & 2 ARE ALLOWED. 6. SO FAR AS GROUND NO.3 IS CONCERNED, THE LD. COUN SEL SUBMITTED THAT HE IS ONLY PRESSING THE GROUND PARTLY FOR CONS IDERING THE RECEIPT FROM SCRAP OF ` 2,03,200/- AND BAGGING CHARGES OF ` 69,862/-. IT IS ARGUED THAT THE SCRAP IS GENERATED FROM THE MANUFAC TURING PROCESS AND IT IS DERIVED FROM THE INDUSTRIAL UNDERTAKING HAVIN G DIRECT NEXUS WITH THE EXPORT. SO FAR AS BAGGING CHARGES ARE CONCERNED, I T IS ARGUED THAT BAGGING CHARGES ARE IN RESPECT OF THE PROCESSING CA RRIED OUT FOR THE FOREIGN CUSTOMERS. HE HAS NO OBJECTION FOR RESTORI NG THE ISSUE TO THE FILE OF THE A.O. FOR VERIFICATION. WE HAVE ALSO HEARD T HE LD. D.R. 7. AS PER THE LANGUAGE USED BY THE PARLIAMENT IN SE CTION 10A THERE SHOULD NOT BE QUARRELED WITH THE PROPOSITION THAT T HE INCOME THE TERM DERIVED FROM MANDATE THAT THERE SHOULD BE DIRECT NEXUS OF THE INCOME WITH THE EXPORTS MADE BY THE UNDERTAKING. ADMITTED LY, THE ASSESSEE IS MANUFACTURING AND EXPORTING THE STUDDED JEWELLERY. IF THE SCRAP IS GENERATED FROM THE MANUFACTURING PROCESS THEN THE S AME IS TO BE TREATED AS A DERIVED FROM THE EXPORT ACTIVITY. SO FAR AS B AGGING CHARGES ARE CONCERNED, ARGUMENT OF THE LD. COUNSEL IS THAT BAGG ING CHARGES ARE IN NATURE OF PROCESSING CHARGES IN RESPECT OF THE PROC ESSING DONE TO THE FOREIGN CUSTOMERS. THE RELEVANT EVIDENCE IS NOT BE FORE US IN RESPECT OF THIS CLAIM. WE, THEREFORE, CONSIDERED IT FIT TO RE STORE THESE ISSUES, INCOME OF SCRAP SALE AS WELL AS BAGGING CHARGES TO THE FIL E OF THE A.O. FOR FRESH ADJUDICATION. THE ASSESSEE HAS NOT PRESSED THE CLA IM IN RESPECT OF OTHER ITA 562/M/2008 M/S. K.G.K. JEWELLERY PVT LTD. 6 RECEIPTS. HENCE, TO THAT EXTENT THE ORDER OF THE L D. CIT (A) IS CONFIRMED. ACCORDINGLY, GROUND NO.3 IS PARTLY ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 5TH FEBRUARY 2011. SD/- SD/- ( T.R. SOOD ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 15TH FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) VIII, MUMBAI. 4) THE CIT, MC- VIII, MUMBAI. 5) THE D.R. H BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 562/M/2008 M/S. K.G.K. JEWELLERY PVT LTD. 7 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 04.02.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 07.02.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER