A.C.I.T.-20(1), MUMBAI v. M/S. K.M.G.JEWELLERY, MUMBAI

ITA 1143/MUM/2009 | 2004-2005
Pronouncement Date: 27-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 114319914 RSA 2009
Assessee PAN AAAFM0480A
Bench Mumbai
Appeal Number ITA 1143/MUM/2009
Duration Of Justice 2 year(s) 5 month(s) 7 day(s)
Appellant A.C.I.T.-20(1), MUMBAI
Respondent M/S. K.M.G.JEWELLERY, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 27-07-2011
Assessment Year 2004-2005
Appeal Filed On 19-02-2009
Judgment Text
1 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A BEFORE SHRI D. MANMOHAN V.P. AND SHRI R.K. PANDA A.M. ITA NO. 1143/MUM/2009 ASSESSMENT YEAR 2004-05 A.C.I.T. 20(1) ROOM NO. 603 6 TH FLOOR PIRAMAL CHAMBER PAREL MUMBAI - 12. VS. M/S K.M.G. JEWELLERY G-23 GEM & JEWELLERY COMPLEX III SEEPZ ANDHERI (E) MUMBAI. PAN AAAFM0480A APPELLANT RESPONDENT APPELLANT BY SHRI P.K.B. MENON RESPONDENT BY SHRI B.V. JHAVERI DATE OF HEARING 23.06.2011 DATE OF PRONOUNCEMENT 27.07.2011 ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DT. 17.11.2008 OF CIT(A)- XX MUMBAI RELATING TO A.Y. 2004-05. 2. GROUND NO. I BY THE ASSESSEE READS AS UNDER:- THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW A ND IN THE CIRCUMSTANCES OF THE CASE IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDU CTION U/SEC. 10A DISREGARDING THE FACT THAT THERE WAS A CHANGE IN CONSTITUTION OF TH E FIRM AND THE OWNERSHIP AND BENEFICIAL INTEREST IN TRANSFERRED LEADING TO THE I MPLICATION OF THE PROVISION OF SEC. 10A(9) OF THE I.T. ACT. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF DIAMOND AND S TUDDED JEWELLERY. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED ITS RE TURN OF INCOME DECLARING TOTAL INCOME AT ` 10 26 390/- AFTER CLAIMING DEDUCTION OF ` 24 73 977/- U/S 2 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. 10A OF THE I.T. ACT. THE A.O. ASKED THE ASSESSEE T O EXPLAIN WHY THE CLAIM U/S 10A SHOULD NOT BE REJECTED IN VIEW OF THE ASSESSMEN T ORDER AND ISSUE DISCUSSED IN DETAIL FOR A.Y. 2003-04. IT IS PERTINENT TO NOTE THAT THE A.O. IN THE ASSESSMENT ORDER FOR 2003-04 HAD REJECTED THE CLAI M OF DEDUCTION U/S 10A OF THE ACT ON THE GROUND THAT IT HAS UNDERGONE A CHANG E IN CONSTITUTION DURING A.Y. 2001-02 AND 2002-03. IN THE ENTIRE PROCESS T HE SHARE OF ALL THE PARTNERS HAD UNDERGONE COMPLETE CHANGE. FURTHER THE NAME O F THE ASSESSEE FIRM HAS BEEN CHANGED FROM M/S METZ JEWELLERY TO M/S KMG JEW ELLERY. REFERRING TO THE PROVISIONS OF SECTION 10A(9) THE A.O. CAME TO THE CONCLUSION THAT EXEMPTION U/S 10A WILL NOT BE AVAILABLE TO THE ASSESSEE IN TH E A.Y. IN WHICH THE CHANGE HAS TAKEN PLACE AND ALSO IN THE SUBSEQUENT YEARS. ACCORDING TO THE A.O. THE PROVISIONS OF SECTION 10A(9) WHICH WAS OMITTED W.E. F. 1.4.2004 BY THE FINANCE ACT 2003 WILL APPLY IN RELATION TO A.Y. 2004-05 AN D SUBSEQUENT YEARS. AFTER REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE AND FOLLOWING THE ASSESSMENT ORDER OF A.Y. 2003-04 THE A.O. HELD THA T THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS LAID DOWN IN SECTION 10A I N A.Y. 2001-02 AND THEREFORE NOT ELIGIBLE TO THE BENEFIT OF DEDUCTION U/S 10A OF THE ACT. 2.1 IN APPEAL THE LD. CIT(A) FOLLOWING THE ORDER O F HIS PREDECESSOR FOR A.Y. 2003-04 DIRECTED THE A.O. TO ALLOW THE CLAIM OF TH E ASSESSEE. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE REVENUE IS IN APP EAL BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE ISSUE STANDS COVERED IN VIEW OF THE UNREPORTED DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ZYCUS INFOTECH PVT. LTD. VS. CIT IN ITA NO. 1356 OF 2007 ORDER DT. 8 TH SEPTEMBER 2009. THE LD. COUNSEL FOR THE ASSESSEE EXPLAINING THE FACTS OF THE CASE SUBMITTED THAT PRI OR TO IST APRIL 2000 THE ASSESSEE FIRM WAS KNOWN AS M/S METZ JEWELLERY WHICH WAS FORMED BY MR. VRAJLAL CHANDULAL MEHTA AND HIS SON MR. ANOOP VRAJ LAL MEHTA WHO HAD ADMITTED MASTER MOHIT ANOOP MEHTA AND MASTER DHRUV ANOOP MEHTA FOR THE 3 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. BENEFIT OF THE PARTNERSHIP. THIS FIRM WAS CARRYING ON THE BUSINESS OF MANUFACTURING OF JEWELLERY FROM ITS UNIT IN SEEPZ ANDHERI MUMBAI. WITH EFFECT FROM IST APRIL 2000 M/S K.P. SANGHVI INTER NATIONAL LIMITED AND M/S KIRTI JEWELLERY LTD. WERE ADMITTED AS PARTNERS WHIC H WERE GIVEN 33.33% SHARE EACH IN THE PROFIT AND LOSS OF THE BUSINESS WHEREAS SHRI VRAJLAL C. MEHTA AND MR. ANOOP V. MEHTA AND MASTER MOHIT ANOOP MEHTA WER E HAVING 11.11% SHARES EACH IN THE PROFIT OF THE BUSINESS AND LOSSE S WERE TO BE SHARED BY MR. VRAJLAL C. MEHTA AND MR. ANOOP V. MEHTA EACH HAVING 16.67% SHARE. BY A SUPPLEMENTARY DEED OF PARTNERSHIP DATED 12 TH MARCH 2001 THE NAME OF THE ASSESSEE FIRM WAS CHANGED FROM M/S METZ JEWELLERY T O M/S KMG JEWELLERY. THEREAFTER M/S K.P. SANGHVI INTERNATIONAL LTD. AND M/S KIRTI JEWELLERY LTD. RETIRED FROM THE PARTNERSHIP FIRM OF M/S KMG JEWELL ERY WITH EFFECT FROM 31 ST JANUARY 2002 AND THE CONTINUING PARTNERS MR. VRAJ LAL C. MEHTA AND MR. ANOOP V. MEHTA CONTINUED THE PARTNERSHIP FIRM OF M/ S KMG JEWELLERY ALONG WITH TWO MINOR SONS OF MR. ANOOP V. MEHTA NAMELY M ASTER ROHIT AND MASTER DHRUV. THEREFORE WITH EFFECT FROM IST FEBRUARY 2 002 MR. VRAJLAL C. MEHTA AND MR. ANOOP V. MEHTA WERE HAVING 40% SHARES EACH IN THE PROFIT OF THE BUSINESS WHEREAS MR. ANOOP V. MEHTA AGREED TO SHARE 60% IN THE LOSSES OF THE FIRM. THEREFORE THE ASSESSEE FIRM WAS CONSTITUTED BY THE SAME PARTNERS DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2003-04 WHO HAD ORIGINALLY FORMED THE ASSESSEE FIRM WAY BACK IN THE YEAR 1992. HE SUBMIT TED THAT THE A.O. REFERRED TO PROVISIONS OF SECTION 10A(9) AND 10A(9A) WHICH H AVE BEEN OMITTED BY THE FINANCE ACT 2003 W.E.F. 1.4.2004 AND HELD THAT THE ASSESSEE FIRM IS NOT ENTITLED TO BENEFIT U/S 10A OF THE ACT FOR THE IMPU GNED A.Y. HE SUBMITTED THAT THE PURPOSE OF SUB SECTION (9) AND (9A) OF SECTION 10A WAS THAT IF THE ASSESSEE WHO IS ENTITLED TO THE BENEFITS OF SECTION10A TRANS FERS ITS OWNERSHIP OR BENEFICIAL INTEREST IN THE UNDERTAKING IN SUCH CIR CUMSTANCES THE TRANSFEREE WILL NOT BE ENTITLED TO THE BENEFITS U/S 10A OF THE ACT. IN THE PRESENT CASE THE BENEFICIAL INTEREST IN THE ASSESSEE FIRM WAS TRANSF ERRED BY ADMITTING M/S K.P. SANGHVI INTERNATIONAL LTD. AND M/S KIRTI JEWELS LIM ITED W.E.F. 1.4.2000 AS 4 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. THESE TWO COMPANIES WERE JOINTLY GIVEN 66.66% SHARE IN THE PROFITS AND LOSSES OF THE FIRM. HOWEVER BOTH THESE COMPANIES RETIRED FROM THE PARTNERSHIP W.E.F. 31.1.2002 AND THE OLD PARTNERS HAVE CONTINUED THE A SSESSEE FIRM WITH ALL ITS ASSETS AND LIABILITIES AND ACCORDINGLY THE CONTINUI NG PARTNERS HAVE CONTINUED THE UNIT IN SEZ IN THE SAME MANNER IN WHICH IT WAS BEING RUN BY THE ORIGINAL PARTNERSHIP FIRM CONSTITUTED BY THE CONTINUING PART NERS. THEREFORE DURING THE WHOLE OF THE PREVIOUS YEAR RELEVANT TO THE A.Y. 200 4-05 THE CONSTITUTION OF THE ASSESSEE FIRM WAS THE SAME AS IT WAS EXISTING WHEN THE UNIT IN SEZ WAS COMMENCED BY THE ASSESSEE FIRM WAY BACK IN THE YEAR 1995. THEREFORE THE PROVISIONS OF SUB SECTIONS (9) AND (9A) WILL HAVE N O APPLICATION TO THE ASSESSEE AS THE ASSESSEE FIRM COMMENCED ITS UNDERTAKING IN S EZ IN THE YEAR 1995. SINCE THE PROVISIONS OF SECTION 10A ARE INSERTED W. E.F. 1.4.2000 THE SAME COULD NOT BE APPLIED TO THE UNDERTAKING WHICH WAS IN EXIS TENCE MUCH PRIOR THERETO. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ZYCUS INFOTECH PVT. LTD. VS. C IT REPORTED IN 331 ITR 72 (BOM). HE ACCORDINGLY SUBMITTED THAT THE A.O. WAS N OT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE U/S 10A. 4. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE DECISION WAS RENDERED IN THE CASE OF A PRIVATE LIMI TED COMPANY WHEREAS IN THE INSTANT CASE THE ASSESSEE IS A PARTNERSHIP FIRM. H E SUBMITTED THAT THE ASSESSEE HAS CHANGED ITS CONSTITUTION TWICE AND THE TRIBUNAL HAS ALREADY TAKEN A VIEW AGAINST THE ASSESSEE DURING THE A.Y. 2003-04 . 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES PERUSED THE ORDERS OF THE A.O. AND LD. CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND THE A.O. ON THE BASIS OF THE REASONS GIVEN IN ASSESSMENT ORDER FOR A.Y. 2003-04 DENIED THE CLAIM OF EXEMPTION U/S 10A TO TH E ASSESSEE. WE FIND THE 5 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. LD. CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR F OR A.Y. 2003-04 ALLOWED THE CLAIM OF THE ASSESSEE U/S 10A. WE FIND WHEN THE MA TTER TRAVELLED UP TO THE TRIBUNAL THE TRIBUNAL; VIDE ITS ORDER DTD. 14.1.10 IN ITA NO. 2533/M/2007 FOR A.Y. 2003-04 AT PARA NO. 2.1.4. OF THE ORDER HAS DI SCUSSED THE ISSUE AND SET ASIDE THE ORDER OF THE LD. CIT(A) BY HOLDING AS UND ER:- HOWEVER ON A CAREFUL CONSIDERATION OF THE LEGAL P ROVISIONS WE ARE UNABLE TO SUSTAIN THE ORDER OF CIT(A). THE PROVISI ONS OF SUB-SECTION (9) OF SECTION 10A ARE QUITE PLAIN AND CLEAR. AS P ER THESE PROVISIONS IN CASE OWNERSHIP OR THE BENEFICIAL INTEREST IN TH E UNDERTAKING IS TRANSFERRED BY ANY MEANS THE ASSESSEE IS DEBARRED FROM CLAIMING ANY DEDUCTION UNDER SECTION 10A IN THAT PREVIOUS YE AR AND IN SUBSEQUENT YEARS. THEREFORE ONCE THERE IS CHANGE IN THE OWNERSHIP PATTERN THE DEDUCTION CANNOT BE ALLOWED FROM THAT YEAR ONWARDS. HAD THE INTENTION OF THE LEGISLATURE BEEN TO DISENT ITLE THE ASSESSEE ONLY IN THE YEAR IN WHICH THE OWNERSHIP OR BENEFICI ARY INTEREST CHANGES THE LANGUAGE WOULD HAVE BEEN DIFFERENT AND IN THAT CASE IT WOULD HAVE BEEN PROVIDED THAT IN THE YEAR IN WHICH THERE IS CHANGE IN OWNERSHIP OR BENEFICIAL INTEREST COMPARED TO TH E ORIGINAL OWNERSHIP OR BENEFICIAL INTEREST THE ASSESSEE WILL NOT BE ALLOWED DEDUCTION IN THAT YEAR. BUT THE PROVISIONS ARE QUI TE CLEAR AND UNAMBIGUOUS WHICH PROVIDE THAT IN CASE THERE IS CHA NGE OF OWNERSHIP OR A BENEFICIAL INTEREST IN A PARTICULAR YEAR THE DEDUCTION CANNOT BE ALLOWED TO THE ASSESSEE NOT ONLY IN THAT YEAR AND ALSO IN SUBSEQUENT YEARS. IT IS A SETTLED LEGAL POSITION T HAT WHEN THE PROVISIONS OF A STATUTE ARE PLAIN AND CLEAR THE LI TERAL INTERPRETATION HAS TO BE FOLLOWED. IN THIS CASE ADMITTEDLY THERE WERE CHANGE IN OWNERSHIP OR BENEFICIARY INTEREST IN A.Y. 2002-03. THE ASSESSEE CANNOT BE ALLOWED DEDUCTION IN THAT YEAR AND IN THE SUBSEQUENT YEARS. THEREFORE IN OUR VIEW THE DISALLOWANCE OF D EDUCTION MADE BY THE A.O. HAS TO BE UPHELD. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND CONFIRM THE ACTION OF ASSESSING OFFICER. 5.1 ALTHOUGH THE DATE OF ORDER OF THE HONBLE HIGH COURT IS PRIOR TO THE DATE OF ORDER OF THE TRIBUNAL WE FIND THE SAME WAS NEIT HER CITED BEFORE THE TRIBUNAL NOR CONSIDERED BY THE TRIBUNAL. SINCE THE A.O. AND CIT(A) HAVE SIMPLY RELIED ON THE ORDER OF THE PRECEDING YEAR AND DENIED THE CLAI M THEREFORE WE IN THE INTEREST OF JUSTICE DEEM IT PROPER TO RESTORE THE M ATTER TO THE FILE OF THE A.O. FOR ADJUDICATION OF THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WHILE D ECIDING THE ISSUE HE SHALL ALSO KEEP IN MIND THE DECISION OF THE HONBLE JURIS DICTIONAL HIGH COURT CITED 6 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. SUPRA. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 6. GROUNDS OF APPEAL NO. II III IV AND V READ AS UNDER:- II. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW A ND IN THE CIRCUMSTANCES OF THE CASE IN ALLOWING THE CLAIM OF THE ASSESSEE F OR DEDUCTION U/SEC. 10A WITHOUT APPRECIATING THE FACT THAT THE ACTIVITY INDULGED I N BY THE ASSESSEE I.E. CUTTING AND POLISHING DIAMONDS DOESNT CONSTITUTE AND ACTIVITY SANCTIONED BY SEC. 10 OF THE ACT. III. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE ERRED IN NOT APPRECIATING THE RATIO OF THE SUPREME COURT DECISION IN THE CASE OF CIT VS. GEM INDIA MANUFACTURING CO. 249 ITR 307. IV. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN L AW AND IN THE CIRCUMSTANCES OF THE CASE ERRED IN DIRECTING THE A.O. TO CONSIDER THE EXCHANGE RATE DIFFERENCE FOR COMPUTATION OF DEDUCTION U/SEC. 10A THOUGH SUCH REC EIPT HAS NO NEXUS WITH THE ASSESSEES BUSINESS. V. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(AP PEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 6.1 SO FAR AS THE ABOVE GROUNDS ARE CONCERNED BOTH THE PARTIES SUBMITTED THAT THE GROUNDS RAISED BY THE REVENUE ARE NOT COMI NG OUT OF THE ORDER OF THE LD. CIT(A) AND HAVE TO BE DISMISSED. 6.2 ON A PERUSAL OF THE ORDER OF THE LD. CIT(A) WE FIND THE ABOVE GROUNDS FILED BY THE REVENUE ARE NOT COMING OUT OF THE ORDE R OF THE LD. CIT(A). ACCORDINGLY THE ABOVE GROUNDS BEING INFRUCTUOUS AR E DISMISSED. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 27.07.2011. SD/- SD/- (D. MANMOHAN) (R.K. PANDA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED 27.07.2011. 7 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XX MUMBAI 4. THE CIT -20 MUMBAI 5. THE DR BENCH A 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 8 ITA 1143 /M/2009 M/ S K.M.G. JEWELLERY.. DATE INITIALS 1 DRAFT DICTATED ON 15.7.2011 19.7.11 24.7.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 18.7.2011 19.7.11 24.7.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER