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TMI Blog2023 (10) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... AR that section 10AA deduction cannot be denied to the assessee for the said reason. Accordingly, we hold that the assessee is entitled for deduction u/s 10AA. Interest income to be considered for deduction u/s 10AA - AR submitted that the interest income cannot be excluded for the purpose of deduction u/s 10AA - DR argued there should be nexus between the interest income and the business of the assessee - HELD THAT:- In assessee s case, we notice that the fixed deposits are held as margin money with the banks and that there is nexus between the interest earned and the business of the assessee. Therefore, respectfully following the above decision of Jardine Lloyd Thompson Private Limited [ 2023 (5) TMI 701 - ITAT MUMBAI] we hold that the interest income earned by the assessee from fixed deposits held for the purpose of margin money is eligible or deduction u/s 10AA of the Act. Income from gold dust to be considered for deduction u/s 10AA - CIT(A) held that the gold dust is generated only during the manufacturing activity of the assessee as a by-product and, therefore, intrinsically linked to the eligible business of the assessee - HELD THAT:- Plain reading of the computation mechan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory notices were duly served on the assessee. In the return of income, the assessee had claimed deduction under section 10AA of the Income-tax Act (in short, 'the Act') to the tune of Rs. 11,15,94,212/-. The Assessing Officer completed the assessment denying the benefit of section 10AA for the reason that the assessee has failed to fulfill the conditions specified in section 10AA of the Act. The Assessing Officer also held that interest from fixed deposits and receipts from sale of gold dust are not to be included while claiming the deduction under section 10AA. On appeal, the CIT(A) allowed the appeal in favour of the assessee by following the decision of the co-ordinate bench of the Tribunal in assessee's own case for A.YS 2007-08 to 2009-10. The Revenue is in appeal against the order of the CIT(A). Deduction claimed under section 10AA 4. The assessee first claimed the deduction under section 10AA in AY 2007-08. The assessing officer denied the deduction in the said assessment year for the reason that the conditions prescribed for claiming the deduction under section 10AA has not been fulfilled. For the year under consideration also the assessing officer held that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport turnover are received in India in convertible foreign exchange within the prescribed time. Accordingly, the assessee submitted that it is eligible for deduction under section 10AA. The Assessing Officer did not accept the submissions of the assessee. The assessing officer also did not accept the submission of the assessee that CIT(A), in the earlier years in assessee's own case has allowed the claim in favour of the assessee stating that the revenue is in appeal before the Tribunal against the order of the CIT(A). The Assessing Officer held that the assessee is not an entrepreneur within the meaning of section 2(j) of the SEZ Act, 2005 and also not a successor as running concern for SEZ unit in Andheri, Mumbai. Accordingly, the Assessing Officer denied the benefit of exemption under section 10AA to the assessee following the order for A.Y. 2007-08. 6. On further appeal, the CIT(A) held that the co-ordinate bench of the Tribunal in earlier assessment years i.e. A.Ys 007-08 to 2009-10 has set aside the matter back to the Assessing Officer by holding that the assessee satisfies all the conditions laid down under section 10AA and, therefore, eligible for deduction. The CIT(A) fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessing officer and further submitted that the factual aspects require examination. 11. On the contrary, the Id A.R submitted that the assessee has purchased the entire project from M/s H.K. Jewels and hence it was a case of purchase and not reconstruction. He submitted that the machinery purchased from the old firm constitues less than 20% of the total value of machineries and hence the same falls within the exception given in sec. 10AA(4) r.w.s. Explanation given under 80IA(3) of the Act. 12. Though the assessee has strongly contended on legal aspects, we notice that there are apparent contradictions with regard to the facts prevailing in the instant case:- (a) the assessee has claimed that M/s H.K. Jewels (new) was formed to implement the project of M/s HK. Jewels (old), even though the LOP was in the name of the later. This explanation was offered before Ld CIT(A) only and the effect of this explanation could not be examined by the AO. Further, it is not clear as to whether the person who is not holding LOP, i.e., H.K. Jewels (new) could implement a project in SEEPZ without letter of permission from Development Commissioner, SEEPZ. (b) It is stated that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d limit of 20%. 13. The foregoing discussions would show that it is required to exam many factual aspects relating to the claim of the assessee by d considering the submissions of the assessee, books of accounts of old c new M/s H.K Jewels, the books of accounts of the assessee, the terms 2 conditions relating to Letter of Permission etc. With regard to the lab( . charges also, we notice that the Ld CIT(A) has not examined the cruc aspect, i.e., whether the claim of the assessee that the labour chare were received in foreign exchange is correct or not. Further, we not that the various case laws referred to by Ld CIT(A) relate to the goods manufactured by the assessee by outsourcing, where as, in the instant case, M/s Vaibhav Gems Ltd has outsourced the production activities the assessee. Hence those case laws would apply to M/s Vaibhav Gems Ltd and not to the assessee. To this extent, in our view, Ld CIT(A) has misdirected himself. Hence, this issue also requires fresh examination. There should not be any dispute that the law can be applied correctly only, if the relevant facts are very much clear. The foregoing discussions show that there is no clarity on facts of the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xmann.com 359. 12. The Ld.AR submitted that the interest income cannot be excluded for the purpose of deduction under section 10AA. The Ld.AR placed reliance on the decision of the Full Bench of Karnataka High Court in the case of Hewlett Packard Global Soft Ltd (2017) 87 taxmann.com 182 (Karnataka)(FB). The Ld.AR further submitted that these decisions are followed by the Hon'ble Madras High Court in the case of Camiceria Apparels India (P.) Ltd vs ACIT (2019) 103 taxmann.com 238 (Madras) and also by the decision of the co-ordinate bench in the case of Jardine Lloyd Thompson Private Limited (ITA No.6313/Mum/2017) dated 12/05/2023. 13. The Ld.DR, on the other hand, vehemently argued that there should be nexus between the interest income and the business of the assessee. The Ld.DR further submitted that the interest income is not derived from the export business of the assessee and, therefore, cannot be held to be eligible for deduction under section 10AA of the Act. 14. We heard the parties and perused the material on record. We notice that the co-ordinate bench in the case of Jardine Lloyd Thompson Private Limited (supra) has considered the similar issue and held that - "21. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than it being a spec: character of income entitled to Deduction from Gross Total Income under Chapter VI-A under Section 8 HH, etc. The computation of income entitled to exemption under Section 10-A or 10-B of the Act is done the prior stage of computation of Income from Profits and Gains of Business as per Sections 28 to 44 under Part-D of Chapter IV before 'Gross Total Income' as defined under Section 80-B(5) is computed and after which the consideration of various Deductions under Chapter VI-A in Section 80HH etc. comes into picture. Therefore analogy of Chapter VI Deductions cannot be telescoped or imported in Section 10-A or 10-B oft Act. The words 'derived by an Undertaking' in Section 10-A or 10-B are different from 'derived from employed in Section 80-HH etc. Therefore all Profits and Gains of the Undertaking including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion than in other areas where fundamental human rights is involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [351 \ 457 : 1 L Ed 2d 1485 (1957)] where Frankfurter, J., said in his inimitable style: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. T courts have only the power to destroy, not to reconstruct. When these are added to the complexity economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and t number of times the judges have been overruled by events -- self-limitation can be seen to be the path judicial wisdom and institutional prestige and stability." The Court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that la are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry"; "that exact wisdom and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee from fixed deposits held for the purpose of margin money is eligible or deduction under section 10AA of the Act. Income from gold dust to be considered for deduction under section 10AA 16. The assessee, in the P&L Account has declared income from sale of gold dust of Rs. 1,93,950/- and job wok charges of Rs. 2,70,734/-. The assessee, in the computation of income, excluded the job work charges for the purpose of computing profit eligible for exemption under section 10AA of the Act. The Assessing Officer held that the income on sale of gold dust cannot be included in the profits eligible for deduction under section 10AA of the Act for the reason that the same has not been earned from export and that the receipt cannot be held as derived from the export of article or thing or services. The CIT(A) held that the gold dust is generated only during the manufacturing activity of the assessee as a by-product and, therefore, intrinsically linked to the eligible business of the assessee. The CIT(A), therefore, directed the Assessing Officer to grant exemption under section 10AA of the Act on the receipt from the sale of gold dust. 17. The Ld.AR submitted that there is a direct n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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