SANGHAVI JEWEL P. LTD, MUMBAI V. ASST CIT CIR 5(3), MUMBAI

ITA 6979/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8838 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 14-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Keywords: Business income
• Section: 10AA; 80HHC; 154

Judgement Text

1 ITA NO.6979/MUM/2011 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER & SHRI P.M.JAGTAP, ACCOUNTANT MEMBER. I.T.A. NO.6979/MUM/2011 ASSESSMENT YEAR : 2007-08. SANGHAVI JEWEL P. LTD., ASSTT. COMMISSIONER OF GJ 01, SEEPZ, VS. INCOME-TAX, ANDHERI (EAST), CIRCLE-5(3), MUMBAI. MUMBAI 400 096. PAN AAICS7624R APPELLANT. RESPONDENT. APPELLANT BY : MS. AARTI VISSANJI. RESPONDENT BY : SHRI V.KRISHNAMOORTHY. DATE OF HEARING : 17-09-2012 DATE OF PRONOUNCEMENT : 26-9-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF LEARNED CIT(APPEALS)-9, MUMBAI DATED 02-08-2011 PASSED U/S 154 WHEREBY HE RECTIFIED HIS APPELLATE ORDER DATED 31-05-2011. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF STUDDED JEW ELLERY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30-10-2007 DECLARING TOTAL INCOME OF RS. NIL AFTER CLAIMING DEDUCTION U/S 10A A. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO TH AT INTEREST INCOME OF RS.31,21,407/- EARNED BY THE ASSESSEE WITH FIXED DE POSITS PLACED WITH BANKS HAS 2 ITA NO.6979/MUM/2011 BEEN CONSIDERED AS FORMING PART OF PROFITS OF THE B USINESS ELIGIBLE FOR DEDUCTION U/S 10AA. ACCORDING TO THE AO, THE INTEREST INCOME EARN ED BY THE ASSESSEE ON FIXED DEPOSIT DID NOT CONSTITUTE PROFITS & GAINS DERIVED BY THE ASSESSEE FROM ITS UNIT SITUATED IN SEZ AND THE SAME, THEREFORE, COULD NOT FORM PART OF THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S 10AA. HE, THERE FORE, EXCLUDED THE INTEREST INCOME EARNED BY THE ASSESSEE ON FIXED DEPOSITS FRO M THE PROFITS ELIGIBLE FOR DEDUCTION U/S 10AA AND ACCORDINGLY RESTRICTED ITS C LAIM FOR THE SAID DEDUCTION TO THAT EXTENT. ON APPEAL, THE LEARNED CIT(APPEALS) UP HELD THE DECISION OF THE AO ON THIS ISSUE HOLDING THAT ALTHOUGH INTEREST INCOME WA S ATTRIBUTABLE TO THE BUSINESS INCOME OF THE ASSESSEE, THE SAME WAS NOT DERIVED FR OM THE EXPORT BUSINESS. HE, HOWEVER, ACCEPTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT ONLY NET INTEREST INCOME SHOULD BE REDUCED FROM THE PROFIT ELIGIBLE F OR DEDUCTION U/S 10AA AND NOT GROSS INTEREST AS TAKEN BY THE AO. ACCORDINGLY, HE DIRECTED THE AO TO DEDUCT ONLY THE NET INTEREST INCOME FROM THE ELIGIBLE PROFIT FO R THE PURPOSE OF COMPUTING DEDUCTION U/S 10AA AFTER VERIFYING THE STAND OF THE ASSESSEE THAT THERE WAS DIRECT NEXUS BETWEEN THE INTEREST EARNED AND THE INTEREST PAID. THE APPEAL OF THE ASSESSEE ON THIS ISSUE THUS WAS PARTLY ALLOWED BY THE LEARNE D CIT(APPEALS) VIDE HIS APPELLATE ORDER DATED 31-05-2011. 3. THEREAFTER THE LEARNED CIT(APPEALS) CAME TO NOTI CE THAT HIS DECISION ALLOWING THE CLAIM OF THE ASSESSEE FOR EXCLUSION OF ONLY NET INTEREST INCOME FROM THE PROFIT ELIGIBLE FOR DEDUCTION U/S 10AA WAS NOT IN CONSONANCE WITH THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR TRADING 326 ITR 56 AND THERE WAS A MISTAKE APPARENT FROM RECORD TO THAT EXTENT IN HIS APPELLATE ORDER DATED 31-05-2011. HE, THEREFORE, ISSUED A NOT ICE U/S 154 TO THE ASSESSEE REQUIRING IT TO EXPLAIN AS TO WHY THE ORDER DATED 3 1-05-2011 SHOULD NOT BE RECTIFIED TO THAT EXTENT. IN REPLY, IT WAS SUBMITTED ON BEHAL F OF THE ASSESSEE THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN S TAR TRADING (SUPRA) IS IN THE 3 ITA NO.6979/MUM/2011 CONTEXT OF DEDUCTION U/S 80HHC, THE PROVISIONS OF W HICH ARE NOT SIMILAR TO THE PROVISIONS OF SECTION 10AA OF THE ACT. IT WAS CONTE NDED THAT THE RATIO OF THE SAID DECISION, THEREFORE, IS NOT APPLICABLE IN THE CONTE XT OF COMPUTATION OF DEDUCTION U/S 10AA AND THE CLAIM OF THE ASSESSEE FOR KNITTING OF INTEREST INCOME CANNOT BE DISALLOWED RELYING ON THE SAID DECISION ESPECIALLY BY WAY OF RECTIFICATION U/S 154. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THIS CONTENTION OF THE ASSESSEE AND RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF ASIAN STAR TRADING (SUPRA) WHICH, ACCORDING TO HIM, WAS SQUARE LY APPLICABLE IN PRINCIPLE IN THE CONTEXT OF COMPUTATION OF DEDUCTION U/S 10AA, H E RECTIFIED HIS APPELLATE ORDER AND DIRECTED THE AO TO REDUCE THE GROSS INTEREST FR OM THE PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10AA OF THE ACT INSTEAD OF NET INTEREST AS DIRECTED EARLIER. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) PASSED U/S 154, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE DECISIO N OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIN STAR TRADING (SUPRA) HOLDING TH AT 90% OF THE GROSS INTEREST INCOME IS LIABLE TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING PROFITS OF THE EXPORTS BUSINESS WAS IN THE CONTEXT OF SECTION 80HHC AND A S RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE APPLICABILITY OF THE SAID DECISION IN THE CONTEXT OF COMPUTING DEDUCTION U/S 10AA INVOLVE A DEBATABLE ISSUE ESPECIALLY CONSIDERING THAT THE PROVISIONS OF SECTION 80HHC ARE NOT PARA M ATERIA TO THE PROVISIONS OF SECTION 10AA. THE LEARNED DR HAS ALSO NOT BEEN ABLE TO RAISE ANY MATERIAL CONTENTION TO DISPUTE THIS POSITION. MOREOVER, THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN STAR TRADING HAS BE EN SUBSEQUENTLY OVERRULED BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOC IATED CAPSULES (P) LTD. VS. CIT 67 DTR 205 HOLDING THAT 90% OF THE NET INTEREST WHICH HAS BEEN INCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE IS TO BE DE DUCTED FOR DETERMINING THE PROFITS 4 ITA NO.6979/MUM/2011 OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCT ION U/S 80HHC AND NOT THE GROSS INTEREST. KEEPING IN VIEW THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD. (SUPRA), WE ARE OF THE VIEW THAT THERE WAS NO MISTAKE IN THE APPELLATE ORDER DATED 31-05-2011 PAS SED BY THE LEARNED CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTING ONLY THE NET INTEREST INCOME FOR CALCULATING THE PROFIT ELIGIBLE FOR DEDU CTION U/S 10AA MUCH LESS A MISTAKE APPARENT FROM RECORD CALLING FOR ANY RECTIF ICATION U/S 154. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(APPEALS) U/S 154 AND ALLOW THIS APPEAL OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THIS 26 TH DAY OF SEPT. , 2012. SD/- SD/- (D.K. AGARWAL) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 26 TH SEPT., 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENCHES, MUMB AI. WAKODE