THE DY CIT RG 8(3), MUMBAI V. M/S. S B & T INTERNATIONAL LTD, MUMBAI

ITA 62/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7997 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 20-01-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 03-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Assessee Lawyers: HARIRAM GILDA
• Keywords: Business income; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.62/MUM/2008 (ASSESSMENT YEAR: 2002-03) DY. COMMISSIONER OF INCOME-TAX, RANGE 8(3), ROOM NO.204, 2ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 REVENUE VS M/S. S B & T INTERNATIONAL LTD., G-3, SEEPZ, GEMS & JEWELLERY COMPLEX, ANDHERI (EAST), MUMBAI -400 096 ASSESSEE PAN: AAACS 7275 C ASSESSEE BY: SHRI HARIRAM GILDA REVENUE BY: SHRI SUMIT KUMAR O R D E R PER R.S. PADVEKAR, JM THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) 29, MUMBAI DATED 24.10.2007 FOR THE A.Y. 2002-03. GROUND NO.1 READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT (A) ERRED IN DIRECTING THE A.O. NOT TO EXCLUDE PROFIT ON EXCHANGES DIFFERENCE WHILE COMPUTING DEDUCTION U /S.10A. 2. THE FACTS PERTAINING TO THE ISSUE REVEALED FROM THE RECORD ARE AS ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 2 UNDER. THE ASSESSEE-COMPANY IS A MANUFACTURER AND EXPORTER OF THE GOLD AND DIAMOND JEWELLERY. THE ASSESSEE HAS A JEW ELLERY DIVISION IN SEEPZ WHICH IS ELIGIBLE FOR DEDUCTION U/S.10A. THE ASSESSEE IS ALSO IN TRADING EXPORT WHICH QUALIFY FOR DEDUCTION UNDER SE C. 80HHC. IT WAS NOTICED BY THE A.O. THAT AS PER THE DETAILS FURNISH ED, THE ASSESSEE HAS INCLUDED THE EXCHANGE GAIN IN ITS TOTAL SALES TURNO VER AS UNDER:- (I) JEWELLERY DIVISION SEEPZ ` 1,35,37,976/- (II) EXPORT DIVISION ` 59,00,850/- --------------------- TOTAL ` 1,94,38,826/- ============= THE ASSESSEE INCLUDED EXCHANGE GAIN IN THE SALES PR ICE AND ACCORDINGLY DECLARED THE TOTAL SALES. THE ASSESSEE CONTENDED T HAT JEWELLERY MANUFACTURED AT SEEPZ DIVISION IS EXPORTED TO VARIO US PARTIES. THE ASSESSEE IS ALSO IN THE TRADING OF DIAMONDS AND DIA MONDS ARE EXPORTED TO VARIOUS PARTIES IN THE WORLD. BOTH THOSE DIVISIONS ARE ALSO 100%EXPORT ORIENTED UNITS. IT WAS EXPLAINED BY THE ASSESSEE T HAT DUE TO THE CHANGE IN THE EXCHANGE RATE, IT HAD REALIZED FOREIGN EXCHA NGE GAIN TO THE EXTENT OF ` 1,35,37,976/- IN RESPECT OF THE JEWELLERY DIVISION (SEEPZ) AND ` 79,00,850/- TOWARDS THE EXPORT OF THE DIAMONDS. TH E ASSESSEE CONTENDED THAT HE IS ENGAGED IN 100% EXPORT ORIENTE D ACTIVITIES AND HENCE, THE EXCHANGE GAIN IS TO BE TREATED AS DERIVE D FROM THE EXPORT OF THE GOODS AND SAME IS TO BE CONSIDERED AS A PART OF THE SALE PRICE FOR CLAIMING THE EXEMPTION U/S.10A AS WELL AS DEDUCTION U/S.80HHC. THE A.O. REJECTED THE CONTENTION OF THE ASSESSEE AS HE WAS OF THE OPINION THAT THE IMMEDIATE SOURCE OF THE BENEFIT IS NOT THE SALE INVOICE BUT THE ECONOMIC CONDITIONS DUE TO WHICH THE INDIAN RUPEES IS DEPRECIATED AND APPRECIATED THE FOREIGN CURRENCY AT THE END OF THE ACCOUNTING PERIOD AND HENCE THE SAID BENEFIT CANNOT BE TREATED AS DERIVED FROM THE INDUSTRIAL UNDERTAKING. IN RESPECT OF THE BALANCE LINE IN EEFC ACCOUNT, THE A.O. ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 3 WAS OF THE OPINION THAT THE ASSESSEE HAS ALREADY RE CEIVED THE SALE PROCEED IN THE ACCOUNT FROM THE OVERSEAS BUYERS AND THE GAIN AT THE TIME OF WITHDRAWAL OR TRANSFER OF THE SAID AMOUNT CANNOT BE TREATED AS HAVING ANY NEXUS WITH THE SALE PRICE. THE A.O., THEREFORE , HELD THAT THE EXCHANGE GAIN OF ` 1,35,37,976/- CANNOT BE CONSIDERED FOR DETERMINING THE EXEMPTION/DEDUCTION TO THE ASSESSEE U/S.10A. I N RESPECT OF THE EXCHANGE GAIN RELATING TO THE EXPORT OF THE DIAMOND FOR WHICH THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.80HHC, THE A .O. WAS OF THE OPINION THAT 90% OF THE EXCHANGE GAIN IS TO BE EXCL UDED AS PER EXPLANATION (BAA) TO SECTION 80HHC. THE A.O., ACCO RDINGLY, WORKED OUT THE DEDUCTION U/S.80HHC BY EXCLUDING 90% OF ` 59,00,850/-. SO FAR AS THE GRIEVANCE OF THE REVENUE IS CONCERNED, THAT IS IN RESPECT OF TREATMENT OF THE EXCHANGE GAIN FOR WORKING OUT QUANTUM OF EXE MPTION/DEDUCTION U/S.10A. THE LD. CIT (A) ALLOWED THE PLEA OF THE A SSESSEE THAT THE EXCHANGE GAIN SHOULD BE CONSIDERED FOR COMPUTING TH E DEDUCTION / EXEMPTION U/S.10A OF THE ACT, AS IT HAS DERIVED INC OME FROM THE EXPORT ACTIVITY. THE LD. CIT (A) RELIED ON THE DECISION O F THE SMT. SUJATA GROVER VS. DCIT 74 TTJ 347 (DEL.). AT THE SAME TIME, TO T HE EXTENT OF THE AMOUNT DEPOSITED IN EEFC ACCOUNT, THE LD. CIT (A) C ONFIRMED THE FINDING OF THE A.O. AND HELD THAT THE A.O. HAS RIGHTLY EXCL UDED THE ACCRETION TO THE BALANCE IN THE EEFC ACCOUNT. 3. WE HAVE HEARD THE PARTIES. NOW, THE ISSUE OF TH E FOREIGN EXCHANGE GAIN HAS BEEN CONSIDERED AND DECIDED BY THE HONBLE SPECIAL BENCH OF THE ITAT MUMBAI IN THE CASE OF ACIT VS. PRAKASH L. SHAH 115 ITD 167 (MUM)(SB). AFTER ELABORATE DISCUSSION, THE SPECIAL BENCH HAS HELD THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN IS PART OF TH E EXPORT TURNOVER OF THE YEAR IN WHICH THE EXPORT IS MADE. WE, THEREFORE, F OLLOWING THE RATIO / PRINCIPLES IN THE CASE OF PRAKASH L. SHAH (SUPRA) C ONFIRM THE ORDER OF THE LD. CIT (A) AND ACCORDINGLY, GROUND NO.1 IS DISMISS ED. ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 4 4. GROUND NO.2 READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S.14A OF INTEREST OF ` 78,19,971/-. 5. THE A.O. MADE THE DISALLOWANCE OF INTEREST OUT O F THE TOTAL INTEREST PAID OF ` 4,99,84,377/- AND PROPORTIONATE INTEREST DISALLOWAN CE WAS MADE AT ` 78,19,971/-. FOR MAKING THE DISALLOWANCE, THE A.O . HAS NOTED THAT THE ASSESSEE HAS MADE INTEREST FREE ADVANCES T O VARIOUS CONCERNS TO THE EXTENT OF ` 4,82,06,224/-. AS PER THE DETAILS FURNISHED BY THE ASSESSEE, IT WAS FURTHER NOTICED BY THE A.O. THAT C ERTAIN PARTIES ARE APPEARING IN SUNDRY DEBTORS WHEREAS THE ASSESSEE HA S GIVEN THEM ADVANCES. THE A.O. ASKED THE ASSESSEE WHY THE INTE REST IS NOT CHARGED ON THE SAID ADVANCES. THE A.O. ALSO NOTED THAT THE ASSESSEE HAS UTILIZED INTEREST BEARING FUND BESIDES ITS OWN CAPITAL I.E. SHARE CAPITAL AND RESERVE AND SURPLUS TOWARDS INVESTMENT AS WELL AS I NTEREST FREE ADVANCE. AS PER WORKING MADE BY THE A.O. (PAGE NO.17) IN THE ASSESSMENT ORDER, THE ASSESSEE HAD FOLLOWING DISALLOWANCES:- I) SHARE CAPITAL ` 16,50,00,000/- II) RESERVE AND SURPLUS ` 58,42,04,279/- III) SECURED LOANS ` 16,75,75,304/- IV) UNSECURED LOANS ` 4,82,06,224/- ---------------------------- TOTAL ` 94,31,52,739/- =================== THE TOTAL AMOUNT OF THE INVESTMENTS & ADVANCES ARE AS UNDER:- (A) INVESTMENT ` 9,93,48,425/- (B) INTEREST FREE ADVANCES ` 4,82,06,224/- ---------------------------- TOTAL ` 14,75,54,649/- =================== ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 5 THE A.O. MADE THE PROPORTIONATE DISALLOWANCE OUT OF THE TOTAL INTEREST PAID BY THE ASSESSEE, WHICH WAS WORKED OUT BY HIM A T ` 78,19,971/-. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD. CIT (A) AND FOUND FAVOUR AS THE SAID ADDITION WAS DELETED. NOW , THE REVENUE IS IN APPEAL BEFORE US. 6. ON PERUSAL OF THE FIGURES GIVEN BY THE A.O. IN T HE ASSESSMENT ORDER, IT IS SEEN THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS I.E. SHARE CAPITAL ` 16.50 CRORES + RESERVE & SURPLUS FUND ` 58.42 CRORES AS AGAINST WHICH INVESTMENT + INTEREST FREE ADVANCES A RE TO THE TUNE OF ` 14.75 CRORES. MOREOVER, IT APPEARS THAT ` 4.82 CRORES ARE PERTAINING TO THE BUSINESS DEALINGS ONLY. THE A.O. MERELY STATED THAT INVESTMENT IS MADE BY THE ASSESSEE BUT NOWHERE IT IS A CASE THAT IT HAS A NON-BUSINESS INVESTMENT. AS PER THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340, IF THE ASSESSEE HAS SUFFICIENT FUNDS THEN NO D ISALLOWANCE CAN BE MADE. WE HAVE PERUSED THE ORDER OF THE LD. CIT (A) WHERE THE DETAILED FIGURES ARE GIVEN. WE ARE OF THE OPINION THAT THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE A.O. BY INVOKING T HE PROVISIONS OF SECTION 14A. WE, ACCORDINGLY, CONFIRM THE SAME AND DISMISS GROUND NO.2 OF THE REVENUE. 7. GROUND NO.3 READS AS UNDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF ` 7,74,500/- MADE OUT OF LEGAL & PROFESSIONAL CHARGES WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE A.O .. ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 6 8. THE FACTS PERTAINING TO THE GROUND NO.3 WHICH RE VEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE HAS CLAIMED THE E XPENSES ON ACCOUNT OF LEGAL & PROFESSIONAL FEES. THE A.O. ISSUED NOTIC ES U/S.133(6) AS A TEST- CASE TO SOME OF THE PARTIES TO VERIFY GENUINENESS O F LEGAL AND PROFESSIONAL CHARGES,. THE FOLLOWING PARTIES DID N OT RESPOND TO THE NOTICES ISSUED BY THE A.O.:- (I) AJY DE ` 2,02,000/- (II) ASHISH SHIT ` 1,50,500/- (III) KAJAL DAS ` 4,22,000/- THE A.O. MADE THE TOTAL DISALLOWANCE OF ` 7,74,500/-. ON APPEAL BEFORE THE LD. CIT (A) THE SAID ADDITION WAS DELETED. NOW , THE REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL RELI ED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ANIS AH MED & SONS 297 ITR 441(SC). PER CONTRA, THE LD. D.R. SUPPORTED THE OR DER OF THE A.O. ON THE PERUSAL OF THE RECORD, WE FIND THAT THE PAYMENTS WE RE MADE BY THE ACCOUNT PAYEE CHEQUES. MERELY BECAUSE THE RECIPIEN T PARTY HAS NOT RESPONDED TO THE NOTICE ISSUED BY THE A.O. U/S.133( 6), THAT CANNOT BE THE REASON TO MAKE THE DISALLOWANCE IN RESPECT OF THE G ENUINENESS OF EXPENDITURE. THE A.O. HAS SUFFICIENT POWERS TO ENF ORCE ATTENDANCE OF ANY PERSON U/S.131 OF THE ACT. MOREOVER, IN THE CASE O F ANIS AHMED & SONS (SUPRA), THE APEX COURT HAS HELD THAT THE ASSESSEE COULD NOT BE HELD RESPONSIBLE FOR NON-APPEARANCE OF ANY PARTY TO WHOM NOTICES ARE ISSUED. IN OUR OPINION, THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION AND NO INTERFERENCE IS CALLED FOR. WE, ACCORDINGLY, CONFI RM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND DISMISS GROUND NO.3 10. GROUND NO.4 READS AS UNDER:- ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 7 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN CONSIDERING THE GRACE PERI OD AND DELETING THE DISALLOWANCE OF DELAYED PAYMENT OF EMP LOYERS / EMPLOYEES CONTRIBUTION TO P.F.. 11. WE HAVE HEARD THE PARTIES. THE A.O. MADE THE D ISALLOWANCE OF ` 18,81,374/- OUT OF THE EMPLOYERS / EMPLOYEES CONT RIBUTION TO THE P.F. THE DISALLOWANCE WAS MADE FOR NOT MAKING THE PAYMEN T WITHIN A DUE DATE SPECIFIED UNDER THE EMPLOYEES P.F. ACT. AS P ER THE FACTS ON RECORD, THE ASSESSEE HAD MADE THE PAYMENT WITHIN THE GRACE PERIOD. IN OUR OPINION, THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS:- (I) CIT VS. SALEM CO-OP. SPINNING MILLS -258 ITR 360 ( MAD) (II) CIT VS. SHRI GANAPATHY MILLS CO. LTD. -243 IT R 879 (MAD) IF THE ASSESSEE HAD MADE THE PAYMENTS WITHIN THE GR ACE PERIOD ALLOWED AS PER THE P.F. ACT THEN THE SAME IS TO BE TREATED AS MADE WITHIN THE DUE DATE. HENCE, NO INTERFERENCE IS CALLED FOR ON THIS ISSUE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT (A) AND DISMISS GR OUND NO.4 OF THE REVENUE. 12. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 23RD MARCH 2011. SD/- SD/- ( B. RAMAKOTAIAH ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 23RD MARCH 2011 COPY TO:- ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 8 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 29, MUMBAI. 4) THE CIT 8, MUMBAI. 5) THE D.R. J BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR *CHAVAN I.T.A.T., MUMBAI ` ITA 62/M/2008 M/S. S B & T INTERNATIONAL LTD. 9 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 07.03.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 07.03.2011 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