ADDL CIT RG 5(1), MUMBAI V. CREATION JEWELLERY MFG, P. LTD, MUMBAI

ITA 5835/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8598 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 18-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 10AA; 10

Judgement Text

ITA NO.5835 OF 2011 CREATION JEWELLERY MFG. PVT. LT D MUMBAI PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.5835/MUM/2011 (ASSESSMENT YEAR: 2008-09) ADDL. CIT, RANGE 5(1), ROOM NO.568, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020 VS. CREATION JEWELLERY MFG. (P) LTD., G-26 COMPLEX-III, SEEPZ ANDHERI (E), MUMBAI 400009 PAN: AABCC 4835 B (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI RAJARSHI DWIVEDY, DR ASSESSEE BY: MS. AARTI VISSANJI DATE OF HEARING: 04/10/2012 DATE OF PRONOUNCEMENT: 19/10/2012 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUE APPEAL AGAINST THE ORDERS OF THE CIT (A)-9 MUMBAI, DATED 31/05/2011 ON THE ISSUE OF REDUCING I NTEREST INCOME WHILE ALLOWING DEDUCTION UNDER SECTION 10AA OF THE INCOME TAX ACT. 2. BRIEFLY STATED, ASSESSEE CLAIMED DEDUCTION UNDER SE CTION 10AA AND AO NOTICED THAT ASSESSEE HAD SHOWN INTERES T INCOME OF ` .43,62,498/- ON FIXED DEPOSIT AND ASKED ASSESSEE WH Y THE INTEREST INCOME SHOULD NOT BE EXCLUDED FOR THE PURPOSE OF CA LCULATION OF ADMISSIBLE DEDUCTION UNDER SECTION 10AA OF THE ACT. ASSESSEE CONTENDED THAT THE BUSINESS OF ASSESSEE BEING THAT OF MANUFACTURE AND EXPORT OF STUDDED JEWELLERY, PARKING OF FUNDS I N FIXED DEPOSIT WITH BANK WAS NECESSITATED FOR AVAILING CREDIT FACI LITIES. THEREFORE, ITA NO.5835 OF 2011 CREATION JEWELLERY MFG. PVT. LT D MUMBAI PAGE 2 OF 3 INTEREST INCOME HAS RESULTED IN CARRYING OF THE MAI N BUSINESS OF THE ASSESSEE COMPANY. WITH REFERENCE TO THE SOURCE OF F UNDS, ASSESSEE EXPLAINED THAT THE INTEREST INCOME OF ` .35,27,993/- WAS EARNED ON FIXED DEPOSIT OF ` .1,01,30,000/- WHICH IS SOURCED FROM INTEREST BEARING FUND AND INTEREST OF ` .8,34,505/- WAS EARNED ON INTEREST FREE FUNDS ON A DEPOSIT OF ` .3,33,70,000/-. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS PAID AN INTEREST AMOUNT OF ` .26,74,729/- ON FIXED DEPOSITS WHICH HAVE BEEN PLACED WITH BANKS BY UTILI ZING THE BORROWED FUNDS. ASSESSEE ALSO RECONCILED THE INTERE ST INCOME ON FIXED DEPOSIT WITH THE BANK DETAILS. HOWEVER, AO EX CLUDED THE GROSS INTEREST WHILE COMPUTING DEDUCTION UNDER SECTION 10 AA. 3. THE CIT (A) WHILE UPHOLDING THAT THE INTEREST INCOM E CAN NOT BE ALLOWED AS DEDUCTION UNDER SECTION 10AA HOWEVER, DIRECTED AO TO CONSIDER EXCLUSION OF NET INTEREST AS ASSESSEE E XPLAINED THAT BORROWED FUNDS WERE UTILIZED FOR EARNING THE INTERE ST ON FIXED DEPOSITS. THE REVENUE IS CONTESTING THE ABOVE DIREC TION OF THE CIT (A). 4. AT THE OUTSET IT WAS SUBMITTED THAT THE ISSUE IS CO VERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F ACG ASSOCIATED CAPSULES PVT. LTD. VS COMMISSIONER OF IN COME TAX, 343 ITR 89 (SC) GIVEN IN THE CONTEXT OF DETERMINING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SECTION 80HHC. SINC E THE PRINCIPLES ARE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WIT H THE ORDER OF THE CIT (A). MOREOVER AS SEEN FROM THE DETAILS FILED WI TH AO, THE NEXUS OF MAKING FIXED DEPOSIT WAS ESTABLISHED WITH THE BO RROWED FUNDS AND AS AGAINST EARNING INCOME OF ` .35,27,993/- ASSESSEE PAID AN INTEREST OF ` .26,74,729/-. IT WAS ALSO ADMITTED THAT THE DEPOSIT OF ` .3.3 CRORES WITH THE BANK WAS OUT OF INTEREST FREE FUNDS ON WHICH ONLY INTEREST OF ` .8,34,505/- WAS EARNED DURING THE YEAR. AS THERE IS ITA NO.5835 OF 2011 CREATION JEWELLERY MFG. PVT. LT D MUMBAI PAGE 3 OF 3 A NEXUS WITH THE EARNING OF INTEREST AND PAYMENT OF INTEREST ON THE BORROWED FUNDS, EVEN ON FACTS THE ORDER OF THE CIT (A) CANNOT BE FAULTED. THEREFORE, THE GROUNDS ARE DISMISSED. 5. IN THE RESULT APPEAL FILED BY THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER, 2012. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 19 TH OCTOBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI