Income Tax Appellate Tribunal - Ahmedabad
Zaveri & Co. Exports,, Ahmedabad vs Assessee on 5 September, 2014
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ''ए'' अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
ी एन0एस0 सैनी, लेखा सद य एवं ी कुल भारत, या यक सद य के सम
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI KUL BHARAT, JUDICIAL MEMBER
ITA Nos.945 & 946/Ahd/2014
Assessment Year : 2009-10 & 2010-11
M/s. Zaveri & Co. Exports, Vs CIT-V,
Swagat Building, Ahmedabad
C.G. Road, Ahmedabad
PAN: AAAFZ 0697 G
अपीलाथ / Appellant यथ / Respondent
Assessee(s) by : Shri Mehul K Patel, Advocate &
Shri Jayesh C. Sharedalal, CA
Revenue by : Shri Subhash Bains, CIT-DR
सुनवाई क तार ख/ Date of Hearing : 22/08/2014
घोषणा क तार ख /Date of P ronounc ement : 05/09/2014
आदे श/O R D E R
PER SHRI N.S. SAINI, ACCOUNTANT MEMBER:
These are the appeals filed by the assessee against two separate orders of the Commissioner of Income Tax-V, Ahmedabad, both dated 25.03.2013, passed u/s 263 of the Income-tax Act for the Assessment Years 2009-10 and 2010-2011 respectively.
2. At the time of hearing, the learned AR of the assessee submitted that he is arguing the appeal for AY 2009-10 in appeal No.945/Ahd/2014 and the facts for the AY 2010-11 in ITA No.946/Ahd/2014 are identical and the issue involved is also identical. Therefore, the arguments made in ITA No.945/Ahd/2014 should be taken as the arguments for the appeal in ITA ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -2- No.946/Ahd/2014 also. The learned Departmental Representative also concurred with this submission of the ld. AR.
3. Ground Nos. 1 & 2 of the appeal in ITA No.945/Ahd/2014 read as under:-
1. That on facts, and in law, the learned CIT-V, Ahmedabad has grievously erred in assuming jurisdiction u/s 263 of the Act, and setting aside the issue of deduction u/s 10AA of the Act to the file of the AO for making necessary inquiries and examination, without establishing as to how the assessment order is erroneous and prejudicial to the interest of Revenue.
2. That on facts and in law, the learned CIT-V, Ahmedabad has grievously erred in holding that the learned AO has not examined and has not done any inquiry nor any verification, whereas, in fact, the assessment order is passed u/s 143(3) of the Act after thorough inquiry through show-cause notice and replies, and verification of all the issues sought to be revised.
4. By way of the above two grounds the assessee is challenging the jurisdiction of the Commissioner of Income-tax-V, Ahmedabad in exercising his power u/s 263 of the Act. The learned Authorized Representative of the assessee referred to paper book-I filed in ITA No.945/Ahd/2014 for AY 2009-10. He then referred to the show-cause notice issued by the Assessing Officer u/s 142(1) of the Act on 04.07.2011 which is placed at page Nos.81 and 82 of the paper book and submitted that the Assessing Officer asked the assessee to furnish the following details:-
a. Supporting evidence of allotment of plot No.239, unit 363 to your firm by Surat Special Economic Zone and terms and conditions of the allotment.
b. Describe the process and manufacturing activities of precious metal produced by you, if any, in detail item-wise; c. From the copy of Annexure A of Form No.56F it is observed that no manufacturing activities was carried out but only Trading was done.
ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -3- Therefore, explain in detail the eligibility of exemption u/s 10AA claimed by you with full supporting documents and detailed working for the claim of Rs.14.74 crores;
d. Detailed working of considered for working of exemption u/s 10AA of the Act - Profit on export; Export turnover; Total turnover. e. Produce the purchase and sales bills and the details of payment; f. Supporting evidence of export of goods and details of freight & Insurance;
g. Specify the mode of remittance of export i.e. SWIFT, Foreign Currency demand draft or online money transfer. Produce the statement of bank account & certificate for the foreign currency received against the export;
h. Produce the register maintained for stock i. Supporting evidence for the addition made for the fixed deposits; j. Details of interest income of Rs.55,25,83,303/- k. Details of Exchange Rate difference Rs.8,43,19,855/-
5. He then referred to the assessee's reply dated 14.07.2011 placed at page No.83 of the paper book and pointed out that the assessee filed the reply to all the queries raised by the Assessing Officer and the same reads as under:-
"....
(3) Details of SEZ Unit:
(i) We enclose herewith supporting evidence of allotment of plot No.239, Unit No.363 by Surat SEZ in Annexure-C.
(ii) We enclose herewith purchase and sales bills on sample basis and details of payment of the invoices in Annexure-D.
(iii) We enclose herewith invoices of export of goods and details of Freight and insurance thereof in Annexure-E.
(iv) Please note that mode of remittance of export is SWIFT in our case.
ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -4- We enclose herewith certificate of Foreign Currency received against export and statement of bank account on sample basis in Annexure-F.
(v) We produce herewith stock register in Annexure-G
(vi) We enclose herewith copies of ledger accounts of bank FDR's in case of additions made during the year in Annexure-H.
(vii) We enclose herewith chart showing interest income of Rs.55,25,83,303/- in Annexure-I.
(viii) We enclose herewith chart showing exchange rate difference of Rs.8,43,19,855/- in Annexure-J.
(ix) The reply in respect of eligibility u/s 10AA and working of deduction is under compilation and shall be given at next hearing."
6. He then referred to page No.119 of the paper book and submitted that copy of proforma invoice of M/s. BIN SABT JEWELLERY L.L.C. is placed. He also referred to page No.125 of the paper book and submitted that the sanction letter of the bank for credit facilities allowed to the assessee is placed, which reads as under:-
"...
1. Facility Details S. Facility Description Commissi Security Special No. on Terms & Conditio ns 1 Facility : Letters of Rs.15,00 100% margin N.A Credit (LCs) 0 per LC in the form of (all fixed deposits inclusive) held under lien plus with YBL applicabl e taxes ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -5- The margin for Amount : INR the facility 1,000,000,000/- would be (Indian Rupees One created in a billion only) way so that the principal Purpose: Import of and the bullion accrued interest on the Tenor: fixed deposit Used period- (net of TDS) Upto 360 days on maturity is sufficient to Validity Period- take care of LC Validity including the liability usance period not to under the LC.
exceed 13 months Availability period-
12 months subject to annual review.
....."
7. He then referred to page No.140 of the paper book and submitted that the following documents were filed by the supplier of the goods from Dubai to Union Bank of India :-
"46A.. Documents required...
1. Signed final commercial invoice for 100 percent value of goods shipped certifying that the goods supplied are as per proforma invoice No.BSJ/PT/320/2008 dated 03.06.2008 of BIN SABI JEWELLERY L.L.C., Dubai.
2. Airway bills/Air consignment notes made in the name of Zaveri And Co. Exports (A SEZ Unit) Unit No.363, Plot No.239, Plot No.329, Surat Special Economic Zone, Sachin, Surat, India and marked freight prepaid. Airway bill should mention flight No. and Date.
3. Packing List
4. Air insurance policies or certificates dated not later than airway bill date, unto order, and blank endorsed, for 110 PCT of the invoice value covering institute cargo clause (A), institute war clause (cargo) and institute strike clause (cargo) warehouse to warehouse clauses with claims payable in India irrespective of percentage, ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -6- transshipment risks must be covered if goods are subject to transshipment."
8. He also referred to page No.217 of the paper book and submitted that Fixed Deposit Receipts details were filed before the Assessing Officer, which reads as under:-
"
Date Particulars Amount (Rs.)
18.07.2008 Yes Bank Ltd 28,13,90,000.00
(000781300000322)
FD No.000140600011090 dt.
18.07.08 @10.65% Mat. Amt.
Rs.312091542.41 Mat. Dt.
13.07.09
04.08.2008 Yes Bank Ltd 13,30,00,000.00
(000781300000322)
FD No.00014060001199 dt.
04.08.08 @10.95% Mat. Amt.
Rs.148111478.75 Mat. Dt.
03.08.09
05.08.2008 Yes Bank Ltd 14,38,50,000.00
(000781300000322)
FD No.000740600001181 dt.
05.08.08 @10.95% Mat. Amt.
Rs.160147603.87 Mat. Dt.
03.08.09
11.08.2008 Yes Bank Ltd 21,00,00,000.00
(000781300000322)
FD No.000740600001157 dt.
11.08.08 @11.10% Mat. Amt.
Rs.233993983.16 Mat. Dt.
07.08.09
12.08.2008 Yes Bank Ltd 3,40,00,000.00
(000781300000322)
FD No.000740600001160 dt.
12.08.08 @11.10% Mat. Amt.
Rs.37873549.92 Mat. Dt.
07.08.09
80,22,40,000.00
"
9. He then referred to the reply dated 02.08.2011 of the assessee to the notice of the Assessing Officer placed at page No.223-269 and by referring ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -7- to page No.237, he submitted that the assessee had given the note for compliance of Section 10AA, which reads as under:-
"COMPLIANE OF SECTION 10AA Section 10AA provides for a Deduction of Income of Newly established Units in SEZ. This section has various Subsections and Explanations, which are complied with as summarized below:
Subsection Particulars
10AA(1) • The deduction is available to an "Entrepreneur" as
referred in clause (j) of section 2 of Special Economic Zone Act, 2005.
• The income has to be from a "Unit".
• The "Unit" should begin to:
(a) manufacture, or
(b) produce articles/things, or
(c) provide any services during the previous year relevant to any assessment year commencing on or after 01/04/2006.
Compliance: The SEZ Unit 'provides services'. 'Services' is not defined under section 10AA of Income Tax Act. This term has been defined in SEZ Act. Rule 76 of SEZ Rules 2006, defines 'Services' which includes Trading i.e. import for the purpose of re export; We have done Trading as defined above. The details of each transaction of trading are filed separately.
The SEZ Unit has commenced on 04-12-2003 10AA(1)(i) Deduction in respect of profits and gains from "Unit".
Deduction is allowed for 15 years starting from year of commencement of Unit.
(i) Deduction of - 100% profits and gains for first 5 years
- 50% profits and gains for next 5 years
(ii)Deduction of 50% profits and gains for next 5 years, subject to fulfillment of conditions of sub section (2) regarding reserves Compliance: The SEZ Unit has commenced OH 04-12-2003 i.e. FY.
2008-09 This is the 6th Year.
10AA(2) Deduction under clause 10AA(1)(ii) shall be allowed only on fulfillment of conditions, namely:
(a) SEZ Re-investment Reserve Account to be ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -8- utilized for:
(I) The purpose of acquiring new plant and machinery before expiry of 3 years following the year of creation of reserve (II) Until acquisition of such plant and machinery it can be used for the purposes of business of unit. It cannot be utilized for:
Distribution of dividend or profits, Remittance outside India as profits, For creations of any asset outside India
(b) Particulars regarding when plant and machinery first put to use to be filled in Form No.56FF (refer Rule 16DD) along with return of Income.
Compliance Not applicable 10AA(3) Where any amount credit to SEZ RE-investment Reserve Account has not been utilized as per conditions mentioned in sub section (2) shall be deemed to be the profits of the year in which the amount was utilized for the purposes mentioned in (II) above or profits of the year immediately following the period of three years as mentioned in (I) above and shall be taxed accordingly.
Compliance Not applicable 10AA(4) Section applies to the undertaking being the Unit, which fulfills conditions as mentioned in this sub section:
Section 10AA is applicable to Units commencing after 01.04.2005 in existing or New SEZ.
Compliance The SEZ Unit has commenced on 04.12.2003 Unit is not formed by splitting up, or reconstruction of business already in existence subject to the units formed as a result of re-establishment, construction or revival of the business of any undertaking by the entrepreneur as per provisions of Section 33B Compliance The Unit is not so formed Unit is not formed by the transfer to a new business, of plant and machinery previously used for any purpose.
Compliance Not applicable, since it is a Trading business 10AA(5) Where such unit, being a company is transferred in a scheme of amalgamation or demerger:
No deduction shall be allowed in the year of ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11 -9- amalgamation or demerger; and Deduction shall be allowed on fulfillment of conditions of this section as if no amalgamation has taken place.
Compliance Not applicable since no Amalgamation etc.. 10AA(6) Loss of business of Unit under section 72(1) or section 74(3)(1) shall be allowed to be carried forward and set off.
Compliance No loss in Current Year 10AA(7) Under section 10AA(1) the deduction is allowed in respect of profits and gains 'derived from the export' of articles or things or from services. i.e. Export profits. Section 10AA (7) provides the method of computation of export profits for the purpose of this section.
Formula for the purpose of section 10AA(1) r.w.s.10AA(7):
Profits derived from export of articles/things/services from= Profits of business X Export turnover in respect of of Undertaking being articles/things/services A Unit _____________________________ Total Turnover of business carried on by assessee Compliance As per Audit Report enclosed 10AA(8) Applicability of provisions of Section 10A(5) and 10A(6) Section 10A(5) : Deduction shall be allowed only if assessee furnishes details as prescribed in Form No.56F (refer rule 16D) (report of CA certifying deduction has been claimed correctly) Compliance Audit Report obtained and copy filed with submissions filed here before Section 10(6)
1. Regarding every allowance under section 32, 32A, 35 and 36 shall apply as if full allowance or deduction had been given full effect of.
ITA Nos 945 & 946/Ahd/2014
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2. No loss under section 72(1) or 74(5) shall be carried forward and set off, so far relates to loss of business of undertaking, being a unit of the period prior to 01.04.2006.
3. No deduction shall be allowed under section 80HH or 80HHA or 80-I or 80IA or 80B regarding profits and gains of undertaking
4. For calculation of depreciation under section 32, written down value of asset used for the business of undertaking shall be computed as if full deprecation has been claimed and allowed as deduction in respect of depreciation for each year.
Compliance Stands complied with
10AA(9) Applicability of provisions of 80IA(8) and (10)
Compliance Not Applicable
"
10. He then submitted that on page Nos.271-276 of the paper book the reply of the assessee dated 06.09.2011 to the Assessing Officer is placed, which reads as under:
"From M/s.Zaveru & Co. Exports, 'Swagat', C.G. Road, Ahmedabad Date : 06.09.2011 To, Additional Commissioner of Income Tax, Range 10, Ahmedabad Respected Sir, Re: PAN AAAFZ 0697 G : I.T. A.Y. 2009-10 Further Submissions
1. Explanation for Import of Platinum on Credit:
The assessee has purchased the bullion i.e. Platinum Bars directly in SEZ unit from abroad. We have already furnished the details of ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11
- 11 -
such purchases earlier. The assessee is asked to furnish justification regarding loss incurred in respect of bullion transactions in SEZ unit. In that respect our submissions are as follows:-
2. Chronology of events in purchase of bullion:
Zaveri & Co. Exports (buyer Indian Party) approaches Foreign Supplier purchase for of Platinum.
Zaveri & Co. Exports places order with supplier at Dubai, U.A.E. The buyer Indian party makes FDR with India Bank for opening a letter of credit (L/C) with Indian Bank for the required amount of purchase value.
The goods are supplied by Foreign Supplier on credit of 360 days.
The Foreign Supplier Ships the Platinum through Air Cargo.
Platinum consignment arrives at Mumbai and onwards to Surat, SEZ, unit.
No customs duty is payable since buyer Indian Party is SEZ unit.
As per terms and conditions of L/C, the payment of Foreign Supplier is to be made by Bank.
Zaveri & Co. Export is required to pay a higher purchase price (as compared to the International rate prevailing on date of shipment) to the Foreign Supplier due to the credit allowed by Foreign Supplier.
3. As per the import export policy of Government of India prevailing at the relevant time of import of bullion for trading purposes into India was permitted to SEZ unit.
4. This resulted in purchase price at a higher amount than the sale price. The sale bills issued by Foreign Suppliers were for a total price i.e. there was no segregation of any sort like spot price, interest etc. The invoices were for a composite amount.
5. As per the Mercantile Method of Accounting following by the assessee, the entire purchase price as per the sale bill of Foreign Supplier was treated as expenditure and debited to purchases. The ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11
- 12 -
sales price as per the sales bills issued by the assessee was treated as income and credited to sales account.
6. The L/C were opened by assessee by putting margin money with their bankers by way of FDRs. On these FDRs assessee earned interest from the respective bankers.
7. The interest accrued for the period upto 31.03.2009 was intimated to the assessee by Banks by issue of TDS Certificates since the Tax was deducted from such accrued interest.
8. Since the assessee is following MERCANTILE METHOD OF ACCOUNTING, the interest accrued upto 31.03.2009 was shown as income in IT AY 2009-10 and for the period after 31.03.2009, income was shown in IT AY 2010-11.
10. Moreover, there is overall profit if the sum effect of loss arising from purchases/sales of gold is considered in relation to the earning of interest, seen as per chart submitted earlier.
11. In IT AY 2005-06, in respect of similar addition, the assessee had preferred appeal before CIT(A)-XVI, Ahmedabad. The CIT(A)- XVI vide his Appellate order dated has decided the appeal in assessee's favour. The appeal for IT AY 2008-09 is pending before CIT(A).
12. In view of the above, no amount can be disallowed towards interest loading charges.
Reasons for loss in Bullion Trading The reasons for the loss in Bullion Trading are as below:
Please note that we are dealing in an item where the prices are determined by market driven forces and are published every minute on internet. The prices are also driven by international market behavior. Hence the purchase prices and sales prices are not within the assessee's control. Our suppliers and our Buyers are aware of these published prices and hence all the transactions have to be carried out at the prevailing market prices. In our case we have carried out the purchase and sales transactions at the prevailing market prices. In support of our contention we have enclosed the daily prices of 24 carat gold as certified by Shree Chokshi Mahajan, Ahmedabad and a few copies of invoices.
ITA Nos 945 & 946/Ahd/2014
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There has been very wide fluctuation of gold prices over the entire year which is evident from the Price List of Choksi Mahajan as well as the list of dollar based bullion prices in international market from website www.ibma.org.uk. Enclosed herewith.
Thus it will be seen that the purchases as well as sales have suffered the impact of this volatility in the prices.
We have maintained complete quantity details, which are produced before Your Honour for verification. Further during the year we have sold bullion to Zaveri & Co Pvt Ltd SEZ where as per Government Policy we have not charged import duties since the bullion is sold to SEZ unit. These sales have been made out of duty paid goods during the year. Against these sales we have availed duty free licenses for which we have imported bullion in subsequent year. We enclose herewith a chart in Annexure A which shows the working of savings in import duty next year when the gold was imported against such import licenses. The tentative working of GP is also enclosed in Annexure B. From the said tentative working it will be found that in current year there would have been profit considering the saving in import duties, which has accrued next year.
Further all our purchases and sales are made by account payee cheques through normal banking channels.
Thanking you, Yours faithfully, For Zaveri & Co. Exports.
(Partner)"
11. He then submitted that on page No.277 of the paper book copies of the assessment order passed by the Assessing Officer u/s 143(3) of the Act dated 26.09.2011 is placed, wherein the Assessing Officer has observed as under:-
"The assessee e-filed its return of income for A.Y. 2009-10 on 26/09/2009 declaring, total income of Rs. NIL. The return filed was processed u/s. 143(1) of the Act. The case was selected for scrutiny through CASS with ITS details and notice u/s. 143(2) was issued on 30/08/2010. Subsequently, due to change of incumbent, a notice u/s. 143(2) / 142(1) of the Act was issued on 04/07/2011 by the ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11
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undersigned alongwith a questionnaire calling for certain details which was duly served upon the assessee.
2. In response to the notices issued u/s. 143(2) & 142(1) of the Act, Shri J. C. Sharedalal, CA duly authorised by the assessee and Shri Mrugesh Shah, Accountant of the assessee firm, attended from time to time and made submissions. The submissions of the assessee were placed on record and are duly considered.
3. During the year under consideration, the assessee-firm has four unite .Windmill (generating electricity), EOU (only income from Other Sources) & SEZ units (only trading activity). Exports and trading in Shares, Securities, Commodities and Derivatives. The assessee has shown total sales & operation income of Rs.632,76,74,095/- as against Rs,45,38,34,091/-in the immediately preceding year and has worked out gross loss at Rs.4,60,22,859/- in its Export unit instead of gross profit shown at 7.87% in-the immediately preceding year. In regards to the gross loss so arrived by the assessee in its Export unit, the assessee has clarified as under:
• '"......we are dealing In an Item where the prices are determined by market driven forces and are published every minute on Internet The prices are a/so driven by international market behavior. Hence, the purchase prices and sale prices are not within the assessee's control. Our suppliers and our buyers are aware of these published prices and hence call the transactions . . have to be carried out at the prevailing market prices. In our case we have carried out the purchase and sales transactions at the prevailing market prices. In support of our contention we have enclosed the daily prices of 24 carat gold as certified by Shree Chokshi Maria/an, Ahmedabad and a few copies of invoices.
• There has been very wide fluctuation of gold prices over the entire year which is evident from the Price List of Chokshi Mahajan as well as the list of dollar based bullion prices in international market from Website www.lbma.org. uk. Enclosed herewith.
Thus, if will be seen that the purchases as well as sales have suffered the impact of this volatility in the prices.
• We have maintained complete quantity details, which are produced before your honour verification.
• Further during the year we have sold bullion to Zaveri & Co. Ltd. SEZ where as per Government Policy we have not ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11
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charged import duties since the bullion is sold to SEZ unit. These sales have been made out of duty paid goods during the year. Against these sales we have availed duty free licences for which we have imported bullion in subsequent year. We enclose herewith a chart in Annexure A which shows the working of savings in Import duty next year when the gold was imported against such import licenses. The tentative working of GP is a/so enclosed in Annexure B. From the said tentative working it will be found that in current year there would have been profit considering the savings in import duties, which has accrued next year. The Profit & loss account of I.T.A.Y. 2010-11 is also enclosed which shows gross profit in that year."
Further, the assessee has also furnished detailed chart showing the total "exports during the year against which imports were made during the year and in subsequent year. Further it is also explained with facts, the working of the gross loss in the Export unit and .the benefit received in the subsequent year for A.Y.2010-11 against the imports and thereby contended that, if the same is considered, there will not be any loss instead there will foe only net profit. The clarification with facts & figures have been carefully perused and considered and the fact that the assessee has shown gross profit in the subsequent year in the Export unit, as explained by them, no adverse inference is drawn as far as the trading loss against the export made in the SEZ unit for the year under consideration.
4. Further on verification of the details furnished during the course of assessment proceedings, the following point emerged for disallowance as discussed below:
The assessee is asked to furnish justification regarding loss incurred in respect of bullion transactions in SEZ unit. In that respect cur submissions are as follows:-
2. Chronology of events fn purchase of bullion:
• Zaveri & Co. Exports [buyer Indian Party/ approaches foreign Supplier purchase for of Platinum.
• Zaveri & Co. Exports places order with Supplier at Dubai, U.A.E. • The buyer Indian party makes FDR with India Bank for opening a letter of credit (L/C) with Indian Bank for the required amount of purchase value.
• The goods are supplied by Foreign Supplier on credit of 360 days. • The Foreign Supplier Ships the Platinum through Air Cargo, ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11
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• Platinum consignment arrives at Mumbai and onwards to Surat, SEZ unit.
• No customs duty is payable since buyer Indian Party is SEZ unit • As per terms and conditions of L/C, the payment to Foreign Supplier is to be made by Bank, • Zaveri & Co, Export is required to pay a higher purchase price (as. compared to the International rate prevailing on date of shipment) to the Foreign Supplier due to the credit allowed by Foreign Supplier.
3. As per the import export policy of Government of India prevailing at the relevant time of import of bullion for trading purposes info India was permitted to SEZ unit.
4. This resulted in purchase price at a higher amount than the sale price. The sale bills issued by Foreign Suppliers were for a total price i.e. there was no segregation of any sort like spot price, interest etc. The invoices were for a composite amount.
On verification of the details filed by the assessee, it is seen that the assessee has purchased bullion i.e. Platinum Bars for its SEZ Unit from Bin Jewellery LLC, Dubai for Rs. 145,13,14,944/-. The assessee has sold same to AI Mina Jewellers, LLC, Dubai for Rs. 136,07,06,006/- thereby Incurring a loss of Rs.9,06,08,943/-. Vide order sheet entry dated 14/07/2011, the assessee was asked to explain the loss. In response, the assessee vide letter dated 02/08/2011 has contended that the goods are imported on a credit of 360 days and the payment to the purchaser has to be made after 360 days by the bankers of the SEZ Unit for which the assessee has obtained a letter of credit and has made a fixed deposit (margin money) of amount equivalent to the maturity value of the purchases. On the sales, immediate payment is received. Since the purchases from foreign suppliers are against L/C payment as a result the SEZ Unit pays higher price as compared to the internationally published spot price of Platinum on the date of purchase. The assessee further stated that if the interest received from the bank on FDR for the entire term of deposit i.e. 360 taken is considered as a whole then there is a profit of Rs.3,74,61,239/- on the transaction. However, it is seen that the assessee has taken the interest accrued upto 31/03/2009 of Rs.9,90,10,215/- and claimed loss of Rs. 58,17,781/- on the transaction and the remaining interest amount of Rs.4,15,57,810/- is shown in F.Y. 2009-10 (A.Y. 2010-11).
Hence, the assessee vide Order Sheet entry dated 05/09/2011 was asked to justify the loss as it is evident that there is interest component in the purchase price as the same is higher than the ITA Nos 945 & 946/Ahd/2014
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quoted market price. The assessee filed submission dated 16/09/2011 relevant excerpts of the same is reproduced below :
"I. Explanation for Import of Platinum on Credit:
• The assessee has purchased the bullion i.e. Platinum Bars directly in SEZ unit from abroad. We have already furnished the details of such purchases earlier.
5. As per the Mercantile Method of Accounting followed by the assessee, the entire purchase price as per the sale bill of Foreign Supplier was treated as expenditure and debited to purchases. The sales price as per the sales bills issued by the assessee was treated as income and credited to safes account.
6. The L/C were opened by assessee by puffing margin money with their bankers by way of FDRs. On these FDRs assessee earned interest from the respective bankers.
7. The interest accrued for the period upto 3)-03-2009 was intimated to the assessee by Banks by issue of TDS Certificates since the Tax was deducted from such accrued interest.
8. Since the assessee is following MERCANTILE METHOD OF ACCOUNTING, the interest accrued upto 31-03-2009 was shown as income in LT.A.Y. 2009-10 and for-the period after 31-03-2009, income was shown-in I.T.A.Y.20-11
9. Moreover, there is overall profit if the sum effect of loss arising from purchases /sales of gold is considered in relation to the earning of interest seen as per chart submitted earlier.
11In IT.A.Y. 2005-06, in respect of similar addition, the assessee had preferred appeal before CIT(A)-XVI, Ahmedabad. The CIT(A)-XVI vide his Appellate order dated has decided the appeal in assessee's favour. The appeal of ITAY 2008-09 is pending before CIT(A)
12.In view of the above, no amount can be disallowed towards interest loading charges." -
The assessee's contention has been perused, however, the same is not acceptable as from the details filed by the assessee, it is evident that the assessee has purchased the goods at a higher rate than the quoted international market price. The assessee has contended that since the L/C amount is deposited in bank, it is gaining interest. However, since the assessee is paying more than the international ITA Nos 945 & 946/Ahd/2014
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spot price, it is apparent that the purchase price is inclusive of interest component. The amount of interest component cannot be derived from the sales price as per invoice. The true trading result of the bullion transaction of the accounting under consideration cannot be ascertained without taking into element of interest involved in the amount of purchase price, amount of composite invoice bills is not the only criteria to segregate amount of interest component involved in fixing the price of bullion in international transaction. Simply because the invoice doesn't separately mention the interest component, conclusion cannot be reached that purchase price has no component interest. A prudent business man will not pay higher rate for purchases than the international spot price unless he is able to gain from the transaction. The assessee is paying higher price because payment has to be made after 360 days and by depositing in bank, he is receiving more interest than being the enhanced purchase price. Hence, it is obvious that there is interest component in the purchase price.
There is another source of information to collect the international being declared on Website. The website www.bba.org.uk gives various details and information in respect of daily rates of Libor. From the said website, following details have been compiled from the data made available by the assessee :
Import : Rs. 145,13,14,944/-
Export : Rs.136,07,06,006/-
Applying the Libor rate from the website www.bba.org.uk, the average Libor interest loading charges is 2:84333%. Thus, on the import of Rs.145,13,14,944/-, the Libor interest loading component is Rs.4,12,65,673/- (interest loading). In the earlier assessment years also, this issue was considered and 10% of Libor loading charges have been considered towards interest. Following the same, the rate of 10% of Libor trading charges is considered towards interest income which comes to Rs.41,26,567/- which has been incurred to earn bank FDR interest.
The assessee has shown interest income of Rs.9,90,10,215/- on accrual basis in A.Y.2009-10 and Rs. 4,15,57,810/- in subsequent financial year i.e. A.Y.2010-11, the ratio of interest on proportionate basis comes to 2:1.
In view of the above, the total interest component in the purchase value is Rs.41,26,567/- out of which Rs.27,51,045/- is allowable in the current financial year and the balance of Rs.13,75,5227- pertains to income earned in AY2010-11 which requires to be disallowed .
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In view of the above facts, disallowance of Rs.13,75,522/- is made on account of interest loading charges and added to the total income of the assessee, As the assessee has furnished inaccurate particulars, penalty proceedings u/s. 271(1)(c) of the LT, Act are being initiated separately.
Pursuant to the above remarks and subject to the details made available by the assessee, the total income of the assessee is computed as under :
Profits & Gains from Business or Profession :
As per statement of computation of income Rs. 21,11,15,618 Add: Disallowance on account of interest loading Rs. 13,75,522 charges Rs. 21,24,91,140 Less: Brought forward business loss of Rs. 21,24,91,140 Rs.248111064/-assessed as per order u/s.l43(3) of the Act for the A.Y.2008-
09 (Rs.248 1110647- +
Rs.32970077/- = Rs.281081141/-)
restricted to income available
Total Income ... ... Rs. NIL
The business loss of Rs.3,56,19,924/-- as well as unabsorbed depreciation of Rs.3,29,70,077/- of A.Y. 2008-09 are allowed to be carried forward for set-off for the subsequent assessment years as against claim for carry-forward of business loss of Rs.5,16,72,250/-- & Rs.3,29,70,077/- being unabsorbed depreciation."
12. By referring to above documents as narrated above, it was the submission of the ld. AR that the Assessing Officer, after making detailed inquiry, has allowed deduction to the assessee u/s 10AA of the Act on the interest income earned on margin money kept with the bank by way of fixed deposits for opening Letter of Credit for purchases made by the assessee.
Therefore, it was the submission that the Commissioner of Income-tax was ITA Nos 945 & 946/Ahd/2014
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not justified in holding that the Assessing Officer has not made inquiry with regard to the allowability of deduction u/s 10AA of the Act on the interest income on FDRs and by exercising the power u/s 263 of the Act holding that the order passed by the Assessing Officer has erroneous and prejudicial to interest of Revenue. He submitted that the view of the Assessing Officer was supported by the following decisions:-
1. M/s. Motorola India Electronics (P) Ltd. (Karnataka HC) order dated 11.12.2013
2. Asiatic Colour Chem Ind. Ltd., ITA No.551/Ahd/2009 (Ahd ITAT)
3. ACIT v. Motorola Industries Electronics Pvt. Ltd., 114 ITD 387 (Bang)
4. M/s. Rajesh Exports Ltd., ITA No.51/Bang/2008
5. Nirma Industries Ltd., 283 ITR 402 (Guj.)
6. CIT vs. Hycon India Ltd., 308 ITR 251 (Raj.)
7. Tessitura Monti India (Pvt) Ltd., 141 ITD 531 (Mum)
8. ITO vs. M/s. Jewelex International Pvt. Ltd., ITA No.3302/Mum/2009
9. ACIT v/s. Veritas Software (I) P. Ltd., ITA No.1278/Pune/2009
10. ITO vs. M/s. Greytrix (India) Ltd., ITA No.5787/Mumbai/2009 Hence, it was a possible view taken by the Assessing Officer.
13. On the other hand, the ld. DR supported the order of the Commissioner of Income-tax.
14. The ground No.3 of the appeal reads as under:-
3. That on facts and in law, the learned CIT-V, Ahmedabad has grievously erred in making observation in para 6.1 of order under appeal that the interest income is not eligible for deduction u/s 10AA of the Act and similarly, all other observations/findings recorded on various other points against the appellant are unwarranted and invalid.
15. The AR of the assessee argued that the assessee's case is fully covered by the order of this Bench of the Tribunal in the case of the sister concern of the assessee M/s. Zaveri & Co. Pvt. Ltd. in ITA Nos. 1395 & ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11
- 21 -
1396/Ahd/2013, order dated 07.05.2014; and further he placed reliance on the following decisions:-
1. M/s. Motorola India Electronics (P) Ltd. (Karnataka HC) order dated 11.12.2013
2. Asiatic Colour Chem Ind. Ltd., ITA No.551/Ahd/2009 (Ahd ITAT)
3. ACIT v. Motorola Industries Electronics Pvt. Ltd., 114 ITD 387 (Bang)
4. M/s. Rajesh Exports Ltd., ITA No.51/Bang/2008
5. Nirma Industries Ltd., 283 ITR 402 (Guj.)
6. CIT vs. Hycon India Ltd., 308 ITR 251 (Raj.)
7. Tessitura Monti India (Pvt) Ltd., 141 ITD 531 (Mum)
8. ITO vs. M/s. Jewelex International Pvt. Ltd., ITA No.3302/Mum/2009
9. ACIT v/s. Veritas Software (I) P. Ltd., ITA No.1278/Pune/2009
10. ITO vs. M/s. Greytrix (India) Ltd., ITA No.5787/Mumbai/2009
16. On the other hand, the ld. DR has filed written submissions which reads as under:-
"Decisions/case-laws relied upon by the CIT(DR) for the Department Sr. Citation Concise Ratio Page No. No. 1 CIT vs. Infosys A.O. allowed claim without any 1-13 Technologies Ltd., 17 discussion, order was held to be taxmann.com 203 both erroneous and prejudicial as (Kar.) quasi-judicial authority is required to give reasons for any allowance.
Please see para 25 & 27 of judgment.
2 CIT vs. Jawahar Assessment order passed on wrong 14-24 Bhattacharjee, 24 assumption of facts, on incorrect taxmann.com 215 application of law, without due (Gauhati) application of mind - are not beyond scope of section 263. Please see page 2 of judgment 3 CIT vs. Ashok Logani, A.O. to properly adjudicate upon 25-32 11 taxmann.com 208 the issue and if not done or (Delhi) examined, it was a reasonably fit case for exercising revisionary jurisdiction u/s 263. Please see page 2 of judgment.
4 Shri Jitendra K. Desai A.O. had not given any finding in 33-38 vs. CIT, ITA assessment order for stock found No.1210/Ahd/2010, by the police department in its raid, ITAT Ahmedabad hence, order u/s 263 upheld.
order dated
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AYs 2009-10 & 10-11
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27.07.2012
5 Asman Investmnt Ltd. Assessing Officer has not applied 39-58
vs. DCIT, ITA his mind whether clause (f) of the
No.1262/Ahd/2011, Explanation 1 of Section 115JB of
ITAT Ahmedabad, the Act was applicable or not and as
order dated also not examined the issue of
06.07.2012 eligibility of set off of carry forward
speculation loss as provided in
amended Section 73(4) of the Act,
hence order u/s 263 upheld.
6 CIT vs. Usha Provision u/s 263 is much broader 59-60
International Ltd., than section 148, revision is 348 ITR 485 (Delhi) justified as per criteria laid down at para 13 and 14 of the judgment 7 Bharat Overseas Bank A.O. allowed claim without any Not Ltd vs. CIT, 152 TTJ discussion, order was held to be enclosed 546 (Chennai) both erroneous and prejudicial.
8 Malabar Industries No proper inquiry on all aspects Ltd. vs. CIT, 243 ITR made by A.O., provision u/s 263 is 23 (SC) much broader, revision is justified.
The above case laws in addition to case laws mentioned in order u/s 263 may please be taken into consideration while deciding the above appeals."
17. In rejoinder, the AR of the assessee has stated that the decision relied on by the ld. CIT-DR is not applicable for the reasons as stated in the written submissions, which reads as under:-
1 97 ITD 277 (Chennai) - A.Y. 1997-98 - Considered old Section Orchid Chemical & Pharma 10B prior to year 2000 amendment 2 85 ITD 575 (Ahd) - Sec. 80HH & 80I Bio Pharma - in section 10AA different language 3 259 ITR 402 (Mad) - A.Y. 85-86 Old Section 10A Menon Impex - Prior to year 2000 amendment 4 210 Taxmann 566 (SC) - Set aside order to ITAT to decide nature Indian Commet International of interest 5 39 SOT 73 (Del) - F.D. out of surplus fund Lovlesh Jain - No link with business 6 99 ITR 375 (Del) CIT was justified in exercising his Gee Vee Enterprises revisional jurisdiction on the ground that the ITO had not made sufficient enquiries before granting registration to the firm ITA Nos 945 & 946/Ahd/2014
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and it was not necessary for the CIT to have himself made enquiries before cancelling the assessment.
7 Rampyari Devi Saraogi [67 Reliance placed by CIT in his revisional ITR 84 (SC)] order on facts not indicated or communicated to the assessee and which the assessee had no opportunity of meeting being only supporting material and not basic facts and there being ample material on record to show that the ITO made assessments in undue haste without making any enquiry, it could not be said that assessee was denied an opportunity of hearing because assessee had not in any may suffered on that count and even if those additional materials had been disclosed, the result would have been the same;
Tara Devi Agrawal [88 ITR Even where an income has not been 323 (SC)] earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interest of the Revenue.
8 374 ITR 22 (Del) Assessee having surrendered cash of Ashok Logani Rs.61 lacs for taxation during search but offered only a sum of Rs.21 lacs in his return and AO having accepted the return relying on explanation of assessee without even considering the statement made by assessee during search CIT was justified in exercising his revisional jurisdiction giving another opportunity to assessee to explain the source of cash;
hence order of Tribunal undertaking the exercise of satisfying itself with assessee's explanation and setting aside CIT's order could not be sustained.
9 215 ITR 81 (Guj) Widow of deceased partner entering into Minal S. Parikh partnership in place of her husband and returning 1/4th of share income of her return and ITO assessing the remaining 3/4th in the hands of three minors each, CIT's revisional order directing ITO to assess the 3/4th share in the hands of widow was not justified in the absence of ITA Nos 945 & 946/Ahd/2014
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any prejudice to the interests of Revenue and also because such a course would have resulted in double taxation.
10 237 ITR 579 (SC) Sale consideration of import entitlement Sterling Foods cannot be held to constitute profits and gains derived from assessee's industrial undertaking for the purpose of computing deduction under s. 80HH as the source of import entitlements is the export promotion scheme of the Central Government and not the industrial undertaking.
The wording of Section 10AA are different than section 80HH and hence the decision of SC is not applicable.
18. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee besides others also has a SEZ Unit in which it is engaged in the business of re-export of bullion, import of bullion etc. It is not in dispute that the income derived from business of aforesaid SEZ Unit qualifies for deduction u/s 10AA of the Act. In the assessment framed u/s 143(3) of the Act by the Assessing Officer for both the years under consideration, the Assessing Officer allowed deduction u/s 10AA of the Act to the assessee as claimed by the assessee. However, according to the Commissioner of Income-tax, the Assessing Officer allowed the aforesaid deduction without examining the fact that whether the interest income earned by the assessee on FDRs which were placed with the bank for obtaining Letter of Credit for the purposes of import qualifies for deduction u/s 10AA of the Act. The observation of the Commissioner of Income-tax in this aspect is recorded at paragraph 6.1 of the impugned order passed u/s 263 of the Act which reads as under:-
"6.1 In the aforesaid circumstances the income from interest primafacie is not in the nature of profits and gains derived from export of services, articles or things as envisaged as per section 10AA of the ITA Nos 945 & 946/Ahd/2014
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Act. The assessee has admitted that it has to pay higher price on import of precious metal because of credit for 360/90 days and it has to re-export the goods at lower price because of almost immediate payment received export. This fact also lead to an opinion that the assessee was very well aware about the trading loss on such transactions but it continued with the loss making transactions only because the assessee company assured of interest of FDRs kept with the Bank against the LCs which were to be discharged after 360/90 days. The business of the unit is to import goods for re-export and not earn interest. Thus interest income is not eligible for deduction u/s 10AA of the Act. The assessee company's main or ancillary business is not of money lending or deposit business nor such activities supported by the nature of business described in the return of income, audit report and written submission filed during the assessment proceedings and during the proceedings under section 263 of the IT Act."
19. In view of above, the Commissioner of Income-tax considered the order passed by the Assessing Officer as erroneous and prejudicial to the interest of the Revenue and therefore, he set aside the assessment order passed by the Assessing Officer and directed that the Assessing Officer to reframe the assessment order. We find in the instant case that it is not in dispute that the assessee imports bullion on credit of 360/90 days. Therefore, for the purpose of above imports, the assessee has to open the Letter of Credit with bank and consequently the assessee is required to make FDRs with bank which gives right to interest income in the hands of the assessee. The assessee exports the imported bullion on immediate payment basis. In the above circumstances, the issue before us is that whether the view adopted by the Assessing Officer in the assessment order to the effect that such interest income forms part of profit and gains of business of SEZ unit and therefore qualifies for deduction u/s 10AA is a possible view or not?
20. We find that this issue is squarely covered by the decision of this Tribunal vide its order dated 07.05.2014 passed in ITA Nos.1395/Ahd/2013 and 1396/Ahd/2013 in the AYs 2009-10 & 2010-11 in the case of M/s. Zaveri & Co. Pvt. Ltd., wherein it was held as under:-
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"36. The next issue relates to the order of Commissioner of Income Tax whereby it was held that interest income earned by the assessee on its fixed deposit receipts with the bank is to be taxed under the head "income from other sources" and consequentially not entitled to exemption u/s 10AA of the Act and consequentially interest income is to be excluded for calculating benefit allowable u/s 10AA of the Act.
37. The undisputed facts relating to this issue are that the assessee imports goods on credit and re-exports the same from its SEZ unit. The import is made on a credit of 360/90 days against letter of credit. For obtaining the letter of credit, the assessee is required to offer fixed deposit receipt to the bank as a security. On expiry of the letter of credit period, the bank liquidates the fixed deposit receipt and makes payment to the importer. Further, the exports are made on immediate payment basis. Therefore, as the purchases are made on credit basis, the purchase value is higher than the prevailing rate on the date of purchase from purchases which are made on immediate payment basis. The exports are made on immediate payment basis at the market value which is prevalent on the date of payment. Normally, the assessee's purchase value is therefore more than its sale value. However, as the assessee receives payment for sales immediately and the payment for purchases are made at a later date and interest income earned by the assessee during the intervening period on sale value, the transaction were considered as commercially expedient and results in overall income to the assessee. The interest income in question are interest income which are earned by the assessee on fixed deposit receipts which are kept or pledged by the assessee with its bank for obtaining the Letter of Credit against its purchases is not in dispute.
38. On the above undisputed facts, the interest income earned by the assessee was assessed as business income of the assessee by the Assessing Officer in the assessment order. This view of the Assessing Officer was considered as not a possible view by the Commissioner of Income Tax in the impugned order passed u/s 263 of the Act and the Commissioner of Income Tax had held that the interest are mandatorily assessable under the head "income from other sources".
39. We find that in the instant case, it is not in dispute that the interest income which were earned by the assessee were from fixed deposit receipts with bank which were made by the assessee in the course of its trading business of import for the purposes of re-export, for obtaining Letter of Credit for its purchases. We thus find that the ITA Nos 945 & 946/Ahd/2014
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relevant fixed deposit receipts on which interest were earned were business assets of the assessee acquired in the course and for the purposes of its business. The fixed deposit receipts being business assets, we find no reason as to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee. Our above view finds support from the recent decisions of the Hon'ble Karnataka High Court in the case of CIT & anr. Vs. Motorola India Electronics (P) Limited (2014) 265 CTR 94 (Kar.) wherein it was held that:
"No doubt Sub-section 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software. Therefore, it excludes profit and gains from export of articles. But Sub-section (4) explains what is the profit derived from export of articles as mentioned in Sub-section (1). The substituted Sub-section (4) says that profits derived from export of articles or things or computer software shall be the amount which bares to the profits of the business of the undertaking and not the profits and gains from export of articles. Therefore, profits and gains derived from export of articles are different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is interesting to note that similar provisions are not there while dealing with computation of income under Section 80HHC. On the contrary there is specific provision like Section 80HHB which expressly excludes this type of incomes. Therefore, in view of the aforesaid provisions, it is clear that, what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking.
8. In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. Though it does not partake the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of 'Income from Profits and Gains' incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated ITA Nos 945 & 946/Ahd/2014
- Zaveri & Co. Exports AYs 2009-10 & 10-11
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under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals."
40. In view of the above, we find that the view adopted by the Assessing Officer showing interest income under consideration is business income cannot be held as not a possible view and therefore, the Commissioner of Income Tax was not justified in interfering with the said view in the impugned order.
41. The other connected issue is that as per the view of the Commissioner of Income Tax, the interest income in question being derived by the assessee from Indian Bank, the same is to be excluded while computing profits derived from the export of articles or things or services for the purpose of section 10AA of the Act. Sub-section (7) of section 10AA provides the manner in which the profits derived from "export of articles or things or services" is to be computed for the purposes of section 10AA of the Act. Therefore, in view of the above specific provision in the section itself, "profits derived from the export of articles or things or services" cannot be computed in any other manner. Sub-section (7) of Section 10AA reads as under:
"For the purposes of sub-section (1), the profits derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on [by the undertaking]:
[Provided that the provisions of this sub-section [as amended by section 6 of the Finance (No. 2) Act, 2009 (33 of 2009)] shall have effect for the assessment year beginning on the 1st day of April, 2006 and subsequent assessment years.]"
42. Thus, a perusal of the aforesaid sub-section takes us to the "profits of the business of the undertakings". Now, the profits of the business of the undertakings are to be computed as per the provisions of chapter-IVD of the Act and the only adjustment which is permitted by the legislature to be made to such profits of the business is to apportion the same in the proportion of exports turnover of the eligible services to the total turnover of the business carried on by the assessee. It is significant to note here that the specific provision like explanation (baa) of section 80HHC which provides for exclusion of 90% of interest income from the profits of business to arrive at the profits of the business has not been provided by the legislature in ITA Nos 945 & 946/Ahd/2014
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section 10AA of the Act. In absence of such a provision enacted by the Parliament in section 10AA of the Act, it is not possible for any other person to read such provision in section 10AA of the Act. Hon'ble Supreme Court in the case of Sm. Tarulata Shyam Vs. CIT (1971) 108 ITR 345 (SC) held that there is no scope for importing in the statute words which are not there. Further, Hon'ble Supreme Court in the case of CIT Vs. Shann Finance Private Limited (1998) 231 ITR 308 (SC) went on to hold that in interpreting fiscal statute, court cannot proceed to make good the deficiencies if there be any. The court must interpret the statute as it stands, and in case of doubt, in a manner favourable to taxpayer. Thus, we find no provision in the statute on the basis of which it can be held that the interest income which forms part of the profits of the business is to be excluded for arriving at profits derived from "export of articles or things or services"
as prescribed under sub-section (7) of section 10AA of the Act. Our above view also finds support from the decision of the Bangalore Bench of the Tribunal in the case of Rajesh Exports Limited Vs. ACIT, (2008) TIOL-457-ITAT-Bangalore wherein it was held that:
"In the light of the aforesaid discussion, it seems to us that the expression "profits of the business of the undertaking"
appearing in section 10B(4) has to be construed in a wider sense than the expression "profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things" appearing in section 10B(1) of the Act. We have already noticed that sub-section (1) has been expressly made subject to the provisions of the Section. Therefore, the meaning to be ascribed to the words used in that sub-section should be controlled or tempered by the language used in sub- section (4). So constructed it appears to us that the profits of the business of the undertaking includes not merely the profits derived by or from the undertaking, but also include any profits or income which are incidental to the carrying on of the business of the undertaking."
To the same effect is the decision of the Hon'ble Karnataka High Court in the case of Motorola India Electronics (P) Limited (supra).
43. In view of the above, we find that the view adopted by the Assessing Officer in this regard in the assessment order of not excluding interest income which was assessed as business income of the assessee for computing "profits derived from export of articles or things or services" was a possible view and therefore, the same could not be interfered in exercise of powers available u/s 263 of the Act."
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21. As the facts involved in the instant case are similar to the facts involved in the above case; we, following the above decision of the Tribunal, hold that the view adopted by the Assessing Officer in respect of the issue under consideration was a possible view and therefore the Commissioner of Income-tax was not justified in interfering with the same in exercising the power u/s 263 of the Act. We set aside the order of Commissioner of Income-tax for both the years and allow the appeals of the assessee for both the years under consideration.
22. In the result, both the appeals of the assessee are allowed.
Order pronounced in the Court on Friday, the 5th of September, 2014 at Ahmedabad.
Sd/- Sd/-
(KUL BHARAT) ( N.S. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 05/09/2014
*Bt
TRUE COPY
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आयु त / Concerned CIT
4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad
5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad