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TMI Blog2017 (2) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 10AA of the Act. Income earned from out of FDs made with Banks for business purposes constitutes business receipts/income and is therefore eligible for deduction under section 10AA - ITA No. 1650/Mum/2015, ITA No. 2024/Mum/2015 - - - Dated:- 31-1-2017 - Shri Jason P. Boaz, Accountant Member and Shri Ram Lal Negi, Judicial Member For The Appellant : Shri Reepal Tralshawala For The Respondent : Ms. Anju Garodia ORDER Per Jason P. Boaz, A.M. These are cross appeals, by the assessee and Revenue, directed against the order of the CIT(A)-29, Mumbai dated 12.01.2015 for A.Y. 2011-12. 2. The facts of the case, briefly stated, are as under: - 2.1 The assessee, a firm, inter alia, engaged in trading and import/ export of polished diamonds, gold and gold jewellery, filed its return of income for A.Y. 2011-12 on 29.09.2011 declaring Nil income after claiming deduction of ₹ 3,61,19,032/- under section 10AA of the Income Tax Act, 1961 (in short 'the Act'). The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port/export of cut and polished diamonds in its SEZ unit at Surat. It is submitted that in the course of assessment proceedings, the Assessing Officer (AO) came to the view that in the year under consideration the assessee had neither manufactured or produced any goods or articles nor provided any services, as the imported diamonds were merely immediately re-exported, therefore its claim for deduction under section 10AA was not allowable and is to be disallowed. In coming to this finding, the AO rejected the assessee s contention that the term services as used in section 10AA(9) of the Act should be read as defined in the SEZ Act, 2005 which would override the provisions of section 10AA of the Act. 4.2.2 It is contended that this interpretation of the AO is erroneous as section 51(1) of the SEZ Act is a non-obstante clause and will override anything inconsistent therewith contained in any other law or instrument that may be in force. It is further contended that services as defined in Rule 76 of the SEZ Rules, 2006 and the Explanation thereto state that the expression trading shall mean import for the purpose of re-export and therefore the assessee was entitled to be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined thereunder. We have carefully perused the judicial pronouncements cited and referred to by the learned CIT(A) in the impugned order and find that an identical fact situation has been considered and adjudicated in favour of the assessee by the Coordinate Bench of the Tribunal in the case of Geetanjali Exports Corporation Ltd. Others in ITA No. 6947/Mum/2011 dated 08.05.2013, wherein following the decision of the ITAT Jaipur Bench in the case of Goenka Diamonds and Jewellers Ltd. (ITA No. 509/JA/2011 dated 31.01.2012) it was held as under at para 22 thereof: - 22. We have heard rival submissions and considered them carefully. After considering the submission and perusing the material on record, ITA Nos.6947, 6948,6781,6783, 6785,6787,6949 6950/2011 15 we found no infirmity in the finding of the learned CIT(A). The finding of the learned CIT(A) have been recorded in para 2.2 2.3 at page 9 and 10, which are as under :- I have carefully considered the findings of the Assessing Officer and submissions of the appellant. I have also gone through the relevant sections as well as provisions of SEZ Act and Circular NoAI2006 issued by the Government of India (Ministr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 51 (1) of SEZ Act the provisions of the SEZ Act and Rules has overriding effect in case of contradiction between the SEZ Act and other Act. Thus the provisions of SEZ Act will be applicable and since there is no doubt that trading is covered by services and services include trading as per SEZ Act. Therefore the appellant is fully entitled for deduction u/s.10M of the Act on goods imported and reexported from SEZ Act. However, no such deduction will be available on the local purchase and sales made by the Appellant and that is why Government has made it clear that local purchase and sale will not be entitled for benefit. Therefore, the Assessing Officer is directed to allow benefit and deduction u/s.10M of the Act on the import-export trading activity of the appellant. However, no such benefits should e given in the local purchase and sale made by the appellant. He should ensure this fact again while giving effect to this order. Hence, this ground of appeal is allowed. We noted that learned CIT(A) has taken into considering the aspect and observation of the AO that deduction under Section 10AA is not allowable for the reason that the assessee has not carried out any manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Facts are similar before us, as the assessee is engaged in trading of re-export of imported goods and, therefore, the assessee is entitled for deduction under Section 10AA of the Act. All the arguments advanced by the learned DR before us have also been taken care of by the Tribunal while discussing the appeal in the case of Goenka Diamonds and Jewellery Limited (supra). It is further noted that the main plank of argument of learned DR is that rules provided under the SEZ Act cannot partake the character of the Section of the Income Tax Act. We find that in the SEZ Act under Section 51, it has been clearly provided that the provision of SEZ Act will override the provision of any other Act, meaning thereby the provision provided under the SEZ Act has to override on the provision of Section 10AA of the Income Tax Act. Under the rules, it is not provided but under Section 51 of the SEZ Act, it is provided, therefore, in our view, the contention raised by the learned DR is not tenable. Moreover, the issue is squarely covered by the decision of the coordinate Bench in the case of Goenka Diamonds and Jewellery Limited (supra). Therefore, respectfully following the decision of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence and the same is therefore allowable as deduction under section 10AA of the Act. The learned A.R. of the assessee submitted that the FD in question was not made out of assessee s excess funds or with an intention to earn interest, but was for its export business. The assessee in the course of its business of import/export trading in diamonds opened a Letter of Credit (L/C) with Corporation Bank, Surat Branch and as per the terms and conditions specified by the Bank in this regard vide letter dated 29.12.2010, the assessee made an FD (as margin money) equivalent to 95% of the transaction value to assure that the maturity amount of FD would cover 100% value of L/C on the date of payment (copy placed at page 75 of the paper book). According to the learned A.R., this clearly establishes that the income earned from the aforesaid FD has a clear nexus with the assessee s business and being a part of business receipts would constitute business income. This income would, therefore, be eligible for deduction under section 10AA of the Act. In support of this proposition, the learned A.R. of the assessee, inter alia, placed reliance and submitted that in similar factual situation, the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of assessee s business. The dispute arose on the treatment of the said interest income. Assessee considered the same as a business receipt . Assessee claimed exemption u/s 10A of the Act in respect of the said interest receipts. Per contra, Revenue Authorities treated the same as income from other sources ‟ and denied the benefit of deduction u/s 10A of the Act. Aggrieved with the same, assessee is in appeal before us. 4. During the proceedings before us, Ld Counsel for the assessee submitted that the assessee has not made FDs with the bank out his excess funds or for a longer period with an intention to earn interest income. Further, elaborating the same, Ld Counsel for the assessee submitted that the FDs made were out of the working capital and out of the business funds. It is the business requirement of the assessee that the FDs are to be made with the directions of the bank. Referring to various documents placed in the paper book, Ld Counsel for the assessee brought our attention to the correspondence placed at page 28 onward and read out the relevant instances of the bank insisting the assessee to prepare term deposits in the bank. Further, bringing our at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and perused the orders of the Revenue Authorities as well as citations quoted by the Ld Counsel along with the relevant material placed before us. On perusal of the cited judgments of the higher judiciary, we find that they are relevant for the proposition that the there is no question of isolating the interest received on margin money paid for obtaining bank guarantee and assessing it as separate income under section 56. Therefore, agree with the view of the Tribunal that the income derived on the margin money for obtaining bank guarantee cannot be separately assessed under section 56. Considering the binding judgments given by the Hon'ble High Courts as well as the Hon'ble Supreme Court, we are of the opinion that the interest derived on margin money for the purpose of obtaining bank guarantee should be assessed as business income instead of income from other sources . Accordingly, we decide this part of the ground in favour of the assessee. 6. Considering the above settled nature of the issue, we are of the opinion that the said interest receipts constitute business receipts and are eligible for deduction u/s 10A of the Act. Accordingly, the grounds raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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