ACIT CIR 5(3), MUMBAI V. SANGHAVI JEWELS P.LTD, MUMBAI

ITA 7188/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88014 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Section: 10AA; 80HHC; 154; 2

Judgement Text

, , , , , ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.7188/MUM/2012 ASSESSMENT YEAR: 2008-09 ACIT, CIRCLE-5(3), ROOM NO.583, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S SANGHAVI JEWELS PVT. LTD. 110, RATNADEEP BLDG., 76/78, JSS RD., OPERA HOUSE, MUMBAI - 400004 ( # / REVENUE) ( $%& /ASSESSEE) P.A. NO.AAICS7624R # ' ( ' ( ' ( ' ( / REVENUE BY : SHRI LOVE KUMAR - DR $%& ' ( ' ( ' ( ' ( / // / ASSESSEE BY) MS. AARTI VISANJI ' &) / / / / DATE OF HEARING : 13 /01/2015 *+, ' &) / DATE OF PRONOUNCEMENT : 13 /01/2015 DATE OF ORDER : - - - - ' &) / 14 /01/2015 - - - - / / / / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 05/09/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI . THE FIRST GROUND RAISED PERTAINS TO DELETING THE DISALL OWANCE OF GROSS INTEREST INCOME FROM THE CLAIM OF DEDUCTIO N M/S SANGHAVI JEWELS PVT. LTD. 2 U/S 10AA OF THE ACT. THE CRUX OF ARGUMENTS ADVANCE D BY SHRI LOVE KUMAR, LD. DR, IS IN SUPPORT TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WHILE GRANTING RELIEF DID NOT APPRECIATE THAT THE INTEREST INCOME CANNOT FORM PART OF PROFIT OF T HE EXPORT ORIENTED UNIT ELIGIBLE FOR DEDUCTION U/S 10A A OF THE INCOME TAX ACT. 2. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, MS. AARTI VISANJI , CONTENDED THAT THE GROUND RAISED BY THE REVENUE IS MISCONCEIVED FOR WHICH OUR ATTENTION WAS INVITED TO PARA 5.2 OF THE IMPUGNED ORDER IN WH ICH THE IDENTICAL CLAIM/GROUND WAS WITHDRAWN BY THE ASSESSEE ITSELF. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS MANUFACTURE R AND EXPORTER OF DIAMOND STUDDED GOLD AND PLATINUM JEWELLERY. THE ASSESSEE SHOWED INTEREST INCOME OF RS.80,32,971/- AND CLAIMED EXEMPT U/S 10AA OF THE INCOME TAX ACT 1961, (HEREINAFTER THE ACT). WITHOUT GOING INTO MUCH DELIBERATION, AS MENTIONED IN PARA 5.2 (PAGE -6) OF THE IMPUGNED ORDER, DURING HEARING BEF ORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GROUND NO.1.1 (FORM NO. 35 ON 18/04/2012) WAS WITHDRAWN BY THE ASSESSEE BY SIGNING THE OFFICE NOTE-SHEET ENTRY DATED 18/04/2012 AND 05/09/2012. THIS GROUND WAS DISMISSED AS WITHDRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), CONSEQUENTLY, THIS GROUND WAS M/S SANGHAVI JEWELS PVT. LTD. 3 DECIDED AGAINST THE ASSESSEE. IN VIEW OF THIS FACT , THE GROUND RAISED BY THE REVENUE DOES NOT SURVIVE AS TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALREAD Y DISMISSED THIS GROUND AS WITHDRAWN. 3. THE NEXT GROUND PERTAINS TO DELETING THE DISALLOWANCE OF GROSS INTEREST INCOME FROM THE CLAI M OF DEDUCTION U/S 10AA OF THE ACT, WITHOUT APPRECIATING THAT THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 (ITA NO.6979/MUM/2011) ORDER DATED 26/09/2012 HAS EXPRESSED THAT APPLICABILITY OF DECISION ON NETTING OF INTEREST INCOME FOR THE PURPOSE OF DEDUCTION U/S 80HHC INVOLVES A DEBATABLE ISSUE CONSIDERING THAT PROVISIONS OF SECTION 80HHC ARE NOT PARA MATERIAL TO THE PROVISION OF SECTION 10AA OF THE ACT. THE LD. D R ADVANCED HIS ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED BY DEFENDING THE ASSESSMENT ORDER. O N THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY SUBMITTING THAT THE IMPUGNED ISSUE IS COVE RED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSE SSEE ITSELF FOR A.Y. 2007-08 ORDER DATED 26/09/2012 (ITA NO.6979/MUM/2011). THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE REVENUE WITH THE HELP OF ANY POSITIVE MATERIAL. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE AFORESAID O RDER OF THE TRIBUNAL DATED 26/09/2012 FOR READY REFERENC E:- M/S SANGHAVI JEWELS PVT. LTD. 4 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. I T IS OBSERVED THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN STAR TRADING (SUPRA ) HOLDING THAT 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 AS 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 SECTI ON 80HHC ARE NOT PARA MATERIA TO THE PROVISIONS OF SECTION 10AA. THE LEARNED DR HAS ALSO NOT BEEN ABLE TO RAISE ANY MATERIAL CONTENTION TO DISPUTE TH IS POSITION. MOREOVER, THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN STAR TRADING HAS BEEN SUBSEQUENTLY OVERRULED BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED 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 DEDUCTED FOR DETERMINING THE PROFITS OF THE BUSINES S FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC AND NOT THE GROSS INTEREST. KEEPING IN VIEW THE DECISION OF HONBLE 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 PASSED BY THE LEARNED CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTING ONLY THE NET INTEREST INCOME FOR CALCULATING THE PROFIT ELIGIBLE FOR DEDUCTION U/S M/S SANGHAVI JEWELS PVT. LTD. 5 10AA MUCH LESS A MISTAKE APPARENT FROM RECORD CALLING FOR ANY RECTIFICATION 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 ALLOWED. 3.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, CONCLUSION DRAWN IN THE ORDER OF THE TRIBUNAL AND THE ASSERTION MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT IN THE OWN CASE OF THE ASSES SEE FOR ASSESSMENT YEAR 2007-08 INTEREST WAS NOT ALLOWE D FOR DEDUCTION U/S 10AA OF THE ACT AND THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AGAINST WHICH NO APPEAL WAS FILED BY THE DEPARTMENT, MEANIN G THEREBY, THE ORDER OF THE TRIBUNAL, AS ON DATE, STA NDS. THE ISSUE BEFORE US PERTAINS TO EXCLUSION OF NET IN TEREST VS GROSS INTEREST FOR THE PURPOSES OF QUANTIFYING T HE PERMISSIBLE DEDUCTION U/S 10AA OF THE ACT. WE FIND THAT THE BASIS OF CONCLUSION BY THE ASSESSING OFFIC ER IS RELIANCE UPON THE DECISION IN ASIAN STAR COMPANY LT D. (326 ITR 56)(BOM), WHEREIN, IT WAS HELD THAT NO NET TING OF INTEREST IS ALLOWABLE WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT, HOWEVER, THIS DECISION HAS BEEN OVERRULED BY THE HONBLE APEX COURT IN ACG ASSOCIAT ED CAPSULES (P.) LTD. VS CIT 67 DTR (SC) 205. THE DECI SION IN TOPMAN EXPORTS VS CIT (2012) 67 DTR (SC) 185 M/S SANGHAVI JEWELS PVT. LTD. 6 FURTHER SUPPORTS THE CASE OF THE ASSESSEE. IN VIEW OF THESE DECISIONS, THE ASSESSING OFFICER WAS DIRECTED TO EXCLUDE NET INTEREST, WHICH HAS BEEN INCLUDED IN TH E PROFIT OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFIT & GAINS OF BUSINESS OR PROFESSION WITH DUE DILIGENCE AND AFTER CONDUCTING NECESSARY VERIFICATI ON OF THE FACTS. IT HAS BEEN FURTHER DIRECTED THAT NETTI NG HAS TO BE RESTRICTED TO THE EXTENT OF NEXUS BETWEEN THE INTEREST RECEIVED AND INTEREST PAID. IN VIEW OF TH ESE FACTS, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). IT I S AFFIRMED, THUS, THIS GROUND OF THE REVENUE IS HAVIN G NO MERIT. FINALLY, THE APPEAL OF THE REVENUE IS DISPOSED OF IN TERMS INDICATED HEREINABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 13/01/2015. - ' *+, . / 13/01/2015 + ' 5 SD/- (SANJAY ARORA) SD/- (JOGINDER SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; . DATED : 14/01/201 5 F{X~{T? P.S/. .. - ' 7&8 98,& - ' 7&8 98,& - ' 7&8 98,& - ' 7&8 98,&/ COPY OF THE ORDER FORWARDED TO : 1. :; / THE APPELLANT 2. 7<:; / THE RESPONDENT. 3. = ( ) / THE CIT, MUMBAI. 4. = / CIT(A)- , MUMBAI 5. 8?5 7& , , / DR, ITAT, MUMBAI M/S SANGHAVI JEWELS PVT. LTD. 7 6. 5@$ A / GUARD FILE. - - - - / BY ORDER, <8& 7& //TRUE COPY// B BB B/ // /C # C # C # C # (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI