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TMI Blog2014 (10) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been held 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 - the 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, there was no reason as to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee. 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. Exemption u/s 10AA - exclusion of interest income - Held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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. 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 ₹ 14.74 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee is placed, which reads as under:- 1. Facility Details S. No. Facility Description Commissi on Security Special Terms Conditio ns 1 Facility : Letters of Credit (LCs) Amount : INR 1,000,000,000/-(Indian Rupees One billion only) Purpose: Import of bullion Tenor: Used period-Upto 360 days Validity Period-LC Validity including usance period not to exceed 13 months Availability period-12 months subject to annual review. ₹ 15,000 per LC (all inclusive) plus applicabie taxes 100% margin in the form of fixed deposits held under lien with YBL The margin for the facility would be created in a way so that the principal and the accrued interest on the fixed deposit (net of TDS) on maturity is sufficient to take care of the liability under the LC. N. . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer placed at page No.223-269 and by referring 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) Compliance: 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. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew SEZ. 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 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. Not applicable, since it is a Trading business 10AA(5) Compliance Where such unit, being a company is transferred in a scheme of amalgamation or demerger: No deduction shall be allowed in the year of amalgamation or demerger; and Deduction shall be allowed on fulfillment of conditions of this section as if no amalgamation has taken place. Not applicable since no Amalgamation etc.. 10AA(6) Compliance Loss of business of Unit under section 72(1) or section 74(3)(1) shall be allowed to be carried forward and set off. No loss in Current Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehavior. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign 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 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 ₹ 145,13,14,944/-. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated 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 deposite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total interest component in the purchase value is ₹ 41,26,567/- out of which ₹ 27,51,045/- is allowable in the current financial year and the balance of ₹ 13,75,5227- pertains to income earned in AY2010-11 which requires to be disallowed . In view of the above facts, disallowance of ₹ 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 charges Rs. 13,75,522 Rs. 21,24,91,140 Less: Brought forward business loss of ₹ 2481 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharat Overseas Bank Ltd vs. CIT, 152 TTJ 546 (Chennai) A.O. allowed claim without any discussion, order was held to be both erroneous and prejudicial. Not enclosed 8 Malabar Industries Ltd. vs. CIT, 243 ITR 23 (SC) No proper inquiry on all aspects made by A.O., provision u/s 263 is 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 97ITD 277 (Chennai) Orchid Chemical Pharma - A.Y. 1997-98 - Considered old Section 10B prior to year 2000 amendment 2 85 ITD 575 (Ahd) Bio Pharma - Sec. 80HH 801 - in section 10AA different lanquaqe 3 259 ITR 402 (Mad) Men on Impex - A.Y. 85- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 215 ITR 81 (Guj) Minal S. Parikh Widow of deceased partner entering into partnership in place of her husband and returning 1/41* of share income of her return and ITO assessing the remaining 3/4m 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 any prejudice to the interests of Revenue and also because such a course would have resulted in double taxation. 10 237 ITR 579 (SC) Sterling Foods Sale consideration of import entitlement 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment 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:- 36. The next issue relates to the order of Commissioner of Income Tax whereby it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsection (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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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