DANIA ORO JEWELLERY P.LTD, MUMBAI V. ITO 9(3)(1), MUMBAI

ITA 7635/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1025 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 23-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JENARDHAN
• Keywords: Transfer pricing; International transaction; Question of law; Competent authority; Notional interest; Revised return
• Section: 92C; 10AA; 10B

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL KBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH SOOD, JUDICIAL MEMBER ./I.T.A./7635/MUM/2014, /ASSESSMENT YEAR: 2010-11 M/S.DANIA ORO JEWELLERY PVT. LTD., GALA NO.601 & 602, BLOCK NO.I, SEEPZ-SEZ, SEEPZ ANDHERI (EAST),MUMBAI 400 096. PAN: AACCD3214E VS. THE INCOME TAX OFFICER 9(3)(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI V.JENARDHAN, DR ASSESSEE BY: SHRI ARATI VISSANJI / DATE OF HEARING: 11/10/2017 / DATE OF PRONOUNCEMENT: 03/01/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA, AM - CHALLENGING THE ORDER OF THE ASSESSING OFFICER (AO) , DATED 26/11/2014, PASSED IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL(DRP) -1,MUMBAI, DATED 20/10/2014, THE ASSESSEE HAS FILED PRESENT APPEAL.ASSESSEE-COMPANY ENGAGED I N THE BUSINESS OF MANUFACTURING OF STUDDED GOLD JEWELLERY FILED ITS RETURN OF INCOME ON 21/09/ 2010,DECLARING TOTAL INCOME OF RS.4.77 LAKHS. THE AO COMPLETED THE ASSESSMENT U/S.143(3) R.W.S. 1 44C(1) AND 144C(5) DETERMINING RS.35.40 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT ADJUSTMENT MADE ON ACCOUNT OF INTEREST ON DELAYED PAYMENT AMOUNTING TO RS.8.25 LAKHS.DURING THE ASSESSMENT PR OCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS (IT.S)W ITH ITS ASSOCIATED ENTERPRISES (AE).THEREFORE, HE MADE REFERENCE TO THE TRANSFER PRICING OFFICER ( TPO) FOR ASCERTAINING THE ARMS LENGTH PRICE (ALP) OF THE IT.S. 2.1. DURING THE TRANSFER PRICING (TP) PROCEEDINGS THE TP O FOUND THAT THE ASSESSEE HAS CARRIED OUT CERTAIN IT.S WITH ITS AE.S.HE TPO OBSERVED THAT THE MARGIN EARNED BY THE ASSESSEE ON COST WAS HIGHER THAN THE AVERAGE MARGIN OF THE COMPARABLE CO MPANIES ON THE COST, THAT THE IT.S ENTERED INTO BY THE ASSESSEE WERE AT ARMS LENGTH. ITA/7635/MUM/2014 DANIA ORO JEWELLERY PVT.LTD. 2 2.2. HE FURTHER OBSERVED IN MANY OCCASIONS THERE WAS CON SIDERABLE DELAY IN RECEIVING THE PAYMENT FROM THE OVERSEAS PARTIES.HE DIRECTED THE A SSESSEE TO FILE DETAILS IN THAT REGARD AND OBSERVED THAT THE DELAY IN REALIZATION IN CASE OF N ONAE.S WAS GREATER THAN THE DELAY IN REALIZATION IN CASE OF THE AE.S.HE FOUND THAT THE A VERAGE DELAY IN CASE OF AE.S WAS 290 DAYS (WEIGHTED AVERAGE DELAY-348 DAYS),THAT THE AVERAGE DELAY IN CASE OF NON-AE.S 340 DAYS (WEIGHTED AVERAGE DELAY-477 DAYS).HE FOUND THAT THE ASSESSEE HAS NOT CHARGED INTEREST FOR DELAYED PAYMENT FROM THE AE.S AS WELL AS THE NON-AE .S. IT WAS CLAIMED BEFOR THE TPO THAT NO ADJUSTMENT WAS REQUIRED TO BE MADE FOR INTEREST ON DELAYED DEBT FROM THE AE.S. IT WAS ALSO ARGUED THAT IN CASE ADJUSTMENT WAS MADE FOR INTERES T ON ACCOUNT OF DELAY IN REALISATION OF DEBT FROM THE AE.S THEN THE INTEREST SHOULD BE REDUCED F ROM THE OPERATING PROFIT,THAT THE OP/TC SHOULD BE REWORKED, THAT THE REWORKED OP/TC SHOULD BE COMPARED WITH THE SELECTED COMPARABLE COMPANIES.AFTER CONSIDERING THE INVOICES WHICH WERE NOT REALISED,THE TPO OBSERVED THAT FOR THE TWO PRECEDING AY.S ADJUSTMENT FOR INTEREST IN DELAY IN REALISATION OF DEBTS HAD BEEN MADE BY ADOPTING RATE OF INTEREST AT 15.68% / 15.41% RESPEC TIVELY,THAT THE RATES REPRESENTED ANNUALIZED AVERAGE YIELD FOR 1/2 YEARS FOR AN ENTITY WHOSE RAT ING WAS CLASSIFIED AS BBB BY CRISIL LTD, THAT THE DRP HAD DIRECTED TO COMPUTE THE INTEREST @7%,TH AT FOR THE A.Y. 2009-10 DRP HAS DIRECTED TO DELETE THE ADJUSTMENT MADE UNDER THE HEAD DELAY IN REALISATION OF DEBTS.THE TPO OBSERVED THAT THE AVERAGE DELAY FROM NON-AE FOR THE YEAR WAS MORE (145 DAYS) THEN THE EARLIER YEARS DELAY (115DAYS),THAT THE FACTS OF THE CASE WERE DIFFERENT FROM THE FACTS OF THE EARLIER YEAR.SO, HE DIRECTED THE ASSESSEE TO WORK OUT THE AVERAGE COST OF BORROWING IN ITS HAND WITHOUT GIVING ANY WEIGHTAGE TO INTEREST FREE FUNDS. THE ASSESSEE SUB MITTED ITS REPLY ON 07/08/2013 AND 19/08/2013 WHEREIN IT WAS MENTIONED THAT RATE OF 8.48% COULD B E APPLIED FOR DELAYED PAYMENTS FROM THE AE.S.IT WORKED OUT TO RS.6.43 LAKHS.HOWEVER, THE TP O ADOPTED THE RATE OF INTEREST ON THE BASIS OF AVERAGE YIELD FROM BBB GREY CORPORATE BONDS FOR THE A.Y 2010-11 @ 10.68%. THE ALP OF THE INTEREST FOR DELAY IN REALIZATION OF DEBTS@ 10. 68% (RS.8.10 LAKHS)WAS SUGGESTED FOR AN UPWARD ADJUSTMENT. THE AO PASSED THE DRAFT ORDER A CCORDINGLY. 2.3. AGGRIEVED BY THE ORDER OF THE TPO/AO THE ASSESSEE P REFERRED OBJECTION BEFORE THE DRP AND MADE ELABORATE SUBMISSIONS.AFTER CONSIDERING THE AV AILABLE MATERIAL,THE DRP HELD THAT THE ASSESSEE WAS ALLOWING ITS AE TO UTILIZE INTEREST FR EE FUNDS WITHOUT CORRESPONDING COMPENSATION TO ITSELF,THAT A TRADE TRANSACTION COULD NOT BE PER MITTED TO BE UTILIZED AS A FUNDING OPPORTUNITY ITA/7635/MUM/2014 DANIA ORO JEWELLERY PVT.LTD. 3 ESPECIALLY WHEN NO COMPENSATIONS WAS BEING RECEIVED , THAT THE TPO WAS CORRECT IN IDENTIFYING THE INTEREST RECEIVABLE AND MAKING UPWARD ADJUSTMEN T, THAT NON-AE INVOICES NOT REALIZED FOR LONG PERIODS COULD NOT BE CONSIDERED TO BE COMPARABLE TO THE INTEREST FREE CREDIT PERIOD ALLOWED TO ITS AE.S,THAT INTEREST WAS CHARGEABLE FROM THE AE.S ON THE INVOICES REALIZED AFTER A PERIOD OF 170 DAYS,THAT AN INTEREST FREE CREDIT PERIOD OF 170 DAY S WAS TO BE ALLOWED TO THE AE.THE DRP DIRECTED THE TPO/AO TO COMPUTE THE FIGURE OF INTERE ST ACCORDINGLY. 2.4. IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL QUESTIO N WAS DEALT WITH BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY.(ITA/802/MUM/2014/DT D.29.07.2016). WE FIND THAT FOLLOWING GOA.S WERE FILED BY AO BEFOR E THE TRIBUNAL: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE HONBLE DRP WAS CORRECT IN DELETING THE ADDITION OF RS.33,90,931 ON ACCOUNT OF NOTIONAL INTEREST DUE TO DELAYED RECOVERY OF TRADE DEBTS FROM AE BY ACCEPTING THE AS SESSEES CONTENTION WITHOUT VERIFYING FACTUAL ACCURACY OF THE SAME. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HONBLE DRP WAS CORRECT IN DELETING THE ADDITION OF RS.33,90,931 ON ACCOUNT OF NOTIONAL INTEREST DUE TO DELAYED RECOVERY OF TRADE DEBTS FROM AE WITHOUT APPRECIATIN G THE FACT THAT THE ASSESSEE BY ITS OWN ADMISSION DATED 22.12.2013 (ANNEXURE-1 IS MADE PART OF THIS AUTHORIZATION),HAS MENTIONED THAT IN THE CASE OF NON-AE IF TWO CASES OF HUGE DELAY AR E EXCLUDED, THE AVERAGE DELAY IN RESPECT OF NON-AE WOULD BE 64.54 DAYS AS AGAINST AVERAGE CREDI T PERIOD OF 145 DAYS ADVANCED TO THE ASSESSEE (CALCULATION OF INTEREST AS PER ANNEXURE-2 IS MADE PART OF THIS AUTHORI ZATION). DISMISSING THE APPEAL,FILED BY THE AO,THE TRIBUNAL HELD AS FOLLOW: 6.WE HAVE HEARD THE RIVAL CONTENTIONS,PERUSED THE F INDINGS OF THE AUTHORITIES BELOW AS WELL AS MATERIAL AVAILABLE ON RECORD. THE LD.COUNSEL FOR TH E ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT -9 VS. INDO AMERICANJEWELLERY LTD.. THE SAID HEAD NOTE IS EXTRACTED BELOW: SECTION 92C OF THE INCOME-TAX ACT, 1961- TRANSFER PRICING-COMPUTATION OF ARMS LENGTH PRICE [COMPARABLES AND ADJUSTMENTS] IN TRANSFER P RICING PROCEEDINGS, TPO WHILE DETERMINING ALP OF INTERNATIONAL TRANSACTIONS, NOTI CED THAT OUTSTANDING BALANCE FROM ASSOCIATED ENTERPRISES WAS AMOUNTING TO RS.8.76 CRO RES SAID AMOUNT WAS OUTSTANDING FOR MORE THAN YEAR AND, THUS, TAKING RATE OF INTEREST A T 10 PER CENT, TRANSFER PRICING OFFICER DETERMINED INTEREST RECEIVABLE AT RS.87.66 LAKHS AN D ADDED SAME TO INTERNATIONAL TRANSACTION COST TRIBUNAL NOTED THAT THERE WAS COMPLETE UNIFO RMITY IN ACT OF ASSESSEE IN NOT CHARGING INTEREST FROM BOTH ASSOCIATED ENTERPRISES AND NON-A SSOCIATED ENTERPRISES DEBTORS FOR DELAY IN REALIZATION OF EXPORT PROCEEDS TRIBUNAL THUS DELE TED ADDITION OF NOTIONAL INTEREST ON OUTSTANDING AMOUNT OF EXPORT PROCEEDS REALIZED BELA TEDLY WHETHER ON FACTS, NO SUBSTANTIAL QUESTION OF LAW AROSE FROM TRIBUNALS ORDER HELD, YES [PARA5] [ IN FAVOUR OF ASSESSEE] 6.1 THE ABOVE DECISION SQUARELY APPLIES TO THE PRES ENT CASE. THIS IS THE ONLY DECISION OF A HIGH COURT APPLICABLE TO THE CASE AT HAND WHICH HAS BEEN CITED BEFORE US. IN THE CASE OF DR. T.P. KAPADIA VS. CIT[1973] 87 ITR 511 (MYS.) IT HAS BEEN HELD THAT A DECISION OF A HIGH COURT WOULD HAVE BINDING FORCE IN THE STATE IN WHICH IT HAS JUR ISDICTION. 6.2 EVEN IN THE CASE OF THE ASSESSEE FOR THE ASSESS MENT YEAR 2008-09 (DANIA ORO JEWELLERY PVT. LTD. VS. ITO) RELIED ON BY THE LD. DR,WE FIND THAT IN SO ME OF THE CASES THE TERMS OF CREDIT HAS BEEN ITA/7635/MUM/2014 DANIA ORO JEWELLERY PVT.LTD. 4 EXTENDED BEYOND 700 DAYS AND IN SOME OF THE CASES, IT HAS GONE BEYOND 1200 DAYS WHEREAS IN THE CASE OF NON-AE, THE MAXIMUM DELAY IS OF 203 DAYS. I N VIEW OF THE ABOVE, THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2008-09 IS NOT APPLICABLE TO THE ISSUE AT HAND FOR THE A.Y. 2009-10. 6.3 LET US NOW EXAMINE THE FACTS IN THE PRESENT CAS E. IN A CASE LIKE THIS THE PROPER METHOD IS TO TAKE A SIMPLE AVERAGE. IF WE TAKE A SIMPLE AVERAGE THEN THERE HAS BEEN A DELAY OF 132 DAYS IN THE CASE OF AE AND 130 DAYS IN THE CASE OF NON-AES IN REALIZATI ON OF THE EXPORT PROCEEDS. THUS THERE IS UNIFORMITY IN THE ACT OF THE ASSESSEE IN NOT CHARGI NG INTEREST FROM BOTH AE AND NON-AE DEBTORS FOR DELAYED REALIZATION OF EXPORT PROCEEDS. 7. RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE B OMBAY HIGH COURT IN THE CASE OF INDO AMERICAN JEWELLERY LTD. THE APPEAL FILED BY THE REVENUE IS D ISMISSED. CONSIDERING THE ABOVE,WE DECIDE FIRST GROUND OF APP EAL IN FAVOUR OF THE ASSESSEE ,AS THERE IS UNIFORMITY IN THE ACT OF THE ASSESSEE IN NOT CHARG ING INTEREST FROM BOTH AE AND NON-AE DEBTORS FOR DELAYED REALISATION OF EXPORT PROCEEDS. 3. RECOMPUTATION OF DEDUCTION U/S.10AA OF THE ACT IS T HE SUBJECT MATTER OF THE NEXT GROUND OF APPEAL.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOU ND THAT THE ASSESSEE- COMPANY HAD DECLARED TOTAL INCOME OF RS.4,77,240/-IN THE RETUR N OF INCOME FILED ON 21.09.2010,AFTER CLAIMING DEDUCTION OF RS.80,85,924/-U/S.10AA OF THE ACT,THAT LATER ON A REVISED RETURN OF INCOME WAS FILED BY THE ASSESSEE,DECLARING TOTAL INCOME OF RS.5,37,170/-,THAT IT CLAIMED THAT DISALLOWANCES REPORTED IN THE TAX AUDI T REPORT AND SOME OF THE WRITTEN BACK OLD DEBTS HAD NOT BEEN TAKEN CARE OF WHILE MAKING THE C OMPUTATION OF TOTAL INCOME.IT ALSO REVISED THE AMOUNT OF DEDUCTION CLAIMED U/S.10AA OF THE ACT,THA T AS PER THE P&L A/C FOR THE YEAR ENDED ON 31.03.2010,OPERATING INCOME COMPRISED MAINLY OF EXPORTS AMOUNTING TO RS 27.82CRORES,THAT AS PER THE BALANCE SHEET SUNDRY DEBTORS STOOD AT RS .38.60 CRORES.ASSESSEE WAS SHOWCAUSED TO EXPLAIN THE REASON FOR SUCH DIFFERENCE AND WAS DIRE CTED TO FURNISH PARTYWISE DETAILS, OF SALES AND DATE WISE REALIZATION OF EXPORT SALE PROCEEDS IN FO REIGN-EXCHANGE TILL 31.12.2013 FOR VERIFICA - TION OF DEDUCTION U/S.10AA.TO THIS ASSESSEE,VIDE LE TTER,DATED 28.01.2014,SUBMITTED THAT THE TOTAL TURNOVER OF ASSESSEE WAS RS.29.73 CRORES,OUT OF WHI CH, EXPORT TURNOVER WAS RS. 27.89CRORES. THE AO HELD THAT ON THE TOTAL EXPORT SALES,THE ASSE SSEE HAD NOT RECEIVED/ REALISED EXPORT TURNOVER TO THE EXTENT OF RS.5,69,98,514/-.IT REQUE STED THE AO TO GIVE DIRECTIONS IN THE ORDER U/S.143(3) SO THAT AS AND WHEN THE AMOUNTS WERE TO BE REALIZED, THE ASSESSEE COMPANY SHOULD BE GRANTED DEDUCTION U/S.10AA OF THE ACT.ACC ORDINGLY,THE ADMISSIBLE DEDUCTION U/S.10AA AND THE TOTAL INCOME SHOULD BE AMENDED.REF ERRING TO THE PROVISIONS OF SECTION ,THE AO HELD THAT THE DEDUCTION U/S.10AA WAS TO BE RECOMPUT ED TAKING EXPORT TURNOVER TO THE EXTENT OF ITA/7635/MUM/2014 DANIA ORO JEWELLERY PVT.LTD. 5 EXPORT CONSIDERATION RECEIVED INTO INDIA TILL THE T IME OF PASSING OF DRAFT ORDER AND NOT AS PER THE CALCULATION ADOPTED BY THE ASSESSEE. THE DRP CONFIRMED THE ORDER OF THE AO. 3.1. BEFORE US,THE AR REFERRED TO THE CASE OF M/S. NIRU JEWELS P.LTD., (ITA/1468/MUM/2014 (AY.2008-09),DATED 27/4/16. HE ALSO REFERRED TO THE RBI CIR.NO.91,DATED 01/4/2003. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.HE AL SO RELIED UPON THE CASE OF GEMS AND JEWELLERY INDIA LTD.(330 ITR 175) OF THE BOMBAY HIGH COURT. WE FIND THAT THE ISSUE BEFORE US, INCLUDING THE U NREALISED EXPORT TURNOVER HAS BEEN DEALT BY THE TRIBUNAL IN THE CASE OF NEERU JEWELS P. LTD.(SUPRA) AS UNDER: 3.RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE COMPANY IS ENGAGED IN BUSINESS OF MANUFACTURING AND EXPORT OF DIAMOND STUDDED JEWELLERY. ITS CLAIM FOR DEDUCTION U/S.10A WAS RESTRICTED BY CIT(A ) TO THE EXTENT OF RECEIPT OF FOREIGN EXCHANGE UPTIL 30-9-2008. IT WAS ARGUED BY LD. AR THAT RBI H AS ALREADY ISSUED CIRCULAR IN RESPECT OF UNITS SITUATED IN SEZ(SPECIAL ECONOMIC ZONE), RELAXING TH E REALISATION TO THE EXPORTS PROCEEDS. RELIANCE WAS ALSO PLACED ON THE DECISION OF COORDIN ATE BENCH IN THE CASE OF TARA JEWELS EXPORTS PVT. LTD., ITA NO.662/MUM/2012, DATED 29-1-2014, WH EREIN IT WAS HELD THAT AFTER THE RBI HAVE CLARIFIED THAT IT HAS NOT STIPULATED ANY TIME PERIO D FOR THE REALISATION OF SALE PROCEEDS FOR SEZ UNITS,IT CAN ONLY BE CONSIDERED AS HAVING ALLOWED A ND INDEFINITE PERIOD FOR THE SAME. CONSEQUENTLY, IT CANNOT BE SAID THAT THE CONDITION OF SECTION 10A WAS NOT SATISFIED. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND T HAT DEDUCTION U/A.10A WAS RESTRICTED TO THE EXTENT OF EXPORT RECEIPTS REALISED UPTLL 30-9- 2008 . THE ASSESSEE COMPANY IS SITUATED IN SEZ, THE RBI, THE COMPETENT AUTHORITY, U/S.10A(3) OF THE ACT HAD VIDE ITS CIRCULAR BEARING A.P. -(DIR SERIES) CIRCULAR NO:91 DATED 1ST APRIL, 2003 RELAXE D THE REALIZATION OF EXPORT PROCEEDS, WHICH READS AS UNDER: 'IN TERMS OF PARA II(C) OF AP (DIR SERIES) CIRCULAR NO.28 DATED MARCH 30, 2001, UNITS SITUATED IN SPECIAL ECONOMIC ZONES HAVE BEEN PERMITTED TO RE ALISE AND REPATRIATE TO INDIA THE FULL VALUE OF GOODS OR SOFTWARE WITHIN A PERIOD OF TWELVE MONT HS FROM THE DATE OF EXPORT. IT HAS NOW BEEN DECIDED TO REMOVE THE STIPULATION OF TWELVE MONTHS OR EXTENDED PERIOD THEREOF FOR REALIZATION OF EXPORT PROCEEDS. ACCORDINGLY, THERE SHALL BE NO PRE SCRIPTION OF ANY TIME LIMIT FOR REALIZATION OF EXPORTS MADE BY UNITS IN SEZS. HOWEVER, THE UNITS I N SEZS WILL CONTINUE TO FOLLOW THE GR/PP/SOFTEX EXPORT PROCEDURE OUTLINED IN PART B O F ANNEXURE TO A.P .(DIR SERIES) CIRCULAR NO.12 DATED SEPTEMBER 9, 2000 AS AMENDED F ROM TIME TO TIME. FURTHER,WE FOUND THAT THE TRIBUNAL, MUMBAI BENCH, I N THE CASE OF ACIT VS. TARA JEWELS EXPORTS PVT. LTD. IN ITA NO.662/MUM/2012 FOR A.Y. 2003- 04 DATED 29TH JANUARY, 2014 HELD AS UNDER (PAGE - 9): 'ONCE, THEREFORE, THE RBI HAS CLARIFIED THAT IT HAS NOT STIPULATED ANY TIME PERIOD FOR THE REALIZATION OF THE SALE PROCEEDS FOR THE SEZ UNITS, AS THE ASSE SSEE. IT CAN-ONLY BE CONSIDERED AS HAVING ALLOWED AN INDEFINITE TIME PERIOD FOR THE SAME. CON SEQUENTLY, IT CANNOT BE SAID THAT THE CONDITION OF SECTION 10A(3) IS' NOT SATISFIED. THE OBJECTION OF THE REVENUE IS, IN OUR VIEW, NOT VALID.' IN VIEW OF THE ABOVE, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR RECOMPUTING ELIGIBLE DEDUCTION AFTER CONSIDERING THE RBI CIRCULAR AND AL SO CONSIDERING THE DECISION OF COORDINATE BENCH AS DISCUSSED ABOVE. ITA/7635/MUM/2014 DANIA ORO JEWELLERY PVT.LTD. 6 WE FIND THAT IN THE CASE OF GEMS AND JEWELLERY INDI A LTD.(SUPRA),THE HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: 7. THE EXPORT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANING AS THE EXPORT TURNOVER WHICH IS A CONSTITUENT ELEMENT OF THE TOTAL TURNOVE R IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION 'EXPORT TUR NOVER' IN EXPLANATION 2 TO SECTION 10A BY WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDE RATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED I N, OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLU DE INTER ALIA FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F THE ARTICLES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGI SLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. 8. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMP UTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION 'TOTAL TURNOVER' HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWEVER, THE EXPRESSION 'E XPORT TURNOVER' HAS BEEN DEFINED. THE DEFINITION OF 'EXPORT TURNOVER' EXCLUDES FREIGHT AN D INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLU SION OF FREIGHT AND INSURANCE, THE EXPRESSION 'EXPORT TURNOVER' CANNOT HAVE A DIFFERENT MEANING W HEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PROVISION TO THE CONTRARY. HOW EVER, NO SUCH PROVISION HAVING BEEN MADE, THE PRINCIPLE WHICH HAS BEEN ENUNCIATED EARLIER MUS T PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION VI Z. 'EXPORT TURNOVER' WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH IT HAS BEEN SPECIFICALLY EXCLUDED FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF THE NUMERATOR WOULD B E BROUGHT IN AS PART OF THE 'EXPORT TURNOVER' WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURD ITY MUST BE AVOIDED. RESPECTFULLY FOLLOWING THE ABOVE WE RESTORE THE ISS UE TO THE FILE OF THE AO FOR FRESH ADJUDICATION, WHO WOULD DECIDE IT AFTER AFFORDING A REASONABLE OP PORTUNITY OF HEARING TO THE ASSESSEE AND AFTER CONSIDERING THE ABOVE /JUDGMENT/ORDER OF THE COURT/ TRIBUNAL.GROUND NO IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 4. NEXT GROUND OF APPEAL DEALS WITH DISALLOWANCE OF DE DUCTION U/S.10AA ON OTHER INCOMES I.E.REPAIR CHARGES(RS.7.48 LAKHS),INTEREST ON ELECT RICITY DEPOSITS(RS.18,568), ASSAYING INCOME (RS.5.73LAKHS),REFINING INCOME(3200/-)AND SALE OF R ESIDUAL DUST(42, 000/- ). ASSESSEE WAS SHOW CAUSED VIDE LETTER DATED.25.01.2014 TO EXPLAIN WHY THE ABOVE SAID RECEIPTS SHOULD BE NOT CONSIDER -ED FOR THE PURPOSE OF DEDUCTION U/S.10AA OF THE ACT. IN ITS REPLY,DATED 29.01.2014,THE ASSESSEE FILED EXPLANATION IN THAT REGARD.HOWEVER,T HE AO WAS NOT SATISFIED WITH THE EXPLANATION ITA/7635/MUM/2014 DANIA ORO JEWELLERY PVT.LTD. 7 AND ADDED BACK THE ABOVE MENTIONED ITEMS TO THE TOT AL INCOME OF THE ASSESSEE,EXCEPT THE REPAIRS CHARGE(RS.7.48 LAKHS). 4.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSES FILED OBJECTIONS BEFORE THE DRP AND MADE DETAILED SUBMISSIONS.AFTER CONSIDERING THE AVAILABL E MATERIAL,HE HELD THAT INTEREST ON ELECTRICITY DEPOSIT/ASSAYING INCOME/REFINING INCOME AND SALE OF RESIDUAL DUST WAS NOT INCIDENTAL TO THE MANUFACTURING ACTIVITY NOR COULD IT BE SAID TO BE B USINESS INCOME OF THE ASSESSEE,THAT THE CLAIM FOR DEDUCTION U/S.10AA ON THESE ITEMS WAS RIGHTLY D ISALLOWED BY THE AO. 4.2. BEFORE US,THE AR STATED THAT THERE WAS NO JUSTIFICA TION IN DENYING THE DEDUCTION TO THE ASSESSEE FOR THE ABOVE REFERRED ITEMS OF INCOME.HE REFERRED TO PG.67 OF THE PB.THE DR SUPPORTED THE ORDER OF THE DRP AND STATED THAT PROVISIONS OF SECTION 10AA COULD NOT BE COMPARED WITH SECTION 10B OF THE ACT. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT INTEREST ON ELECTRICITY DEPOSIT(RS.18,568/-)WAS ON ACCOUNT OF SECURITY DEPOSITED PLACED FOR AVAILING ELECTRICITY CONNECTION FOR ITS MANUFACTURI NG UNIT AND THEREFORE,IN OUR OPINION,IT WAS ELIGIBLE FOR THE PURPOSE OF CALCULATION U/S.10AA OF THE ACT.THE DETAILS FILED BY THE ASSESSEE CLEARLY PROVE THAT ASSAYING INCOME(RS.5,73,575/-)W AS ON ACCOUNT OF VERIFYING THE CHARACTERISTICS OF GOLD,THAT REFINING INCOME(RS.3,200/-)AROSE OUT O F REFINING GOLD AND RS.42,000/-WERE RECEIV- ED ON SALE OF RESIDUAL DUST.WE HOLD THAT INCOME ARI SING OUT THE ABOVE REFERRED THREE ACTIVITIES IS DIRECTLY RELATED TO MANUFACTURING AND THEREFORE,IT IS ELIGIBLE FOR THE PURPOSE OF CALCULATION U/S.10AA OF THE ACT.CONSIDERING THE PEC ULIAR FACTS OF THE CASE UNDER APPEAL,WE ARE DECIDING GROUND NO.3 IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . . ORDER PRONOUNC ED IN THE OPEN COURT ON 3 RD JANUARY, 2018. 03 , 2018 SD/- SD/- / RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : .01.2018. S.GANGADHARA RAO, SR.PS./JV, SR.PS ITA/7635/MUM/2014 DANIA ORO JEWELLERY PVT.LTD. 8 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.