FINE PLATINUM (INDIA) LTD, MUMBAI v. ITO 5(1)(4), MUMBAI

ITA 1547/MUM/2010 | 2006-2007
Pronouncement Date: 23-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 154719914 RSA 2010
Assessee PAN AAACF4914F
Bench Mumbai
Appeal Number ITA 1547/MUM/2010
Duration Of Justice 9 month(s) 27 day(s)
Appellant FINE PLATINUM (INDIA) LTD, MUMBAI
Respondent ITO 5(1)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 23-12-2010
Assessment Year 2006-2007
Appeal Filed On 26-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI S.V. MEHROTRA ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER I.T.A.NO. 1547/MUM/2010 ASSESSMENT YEAR : 2006-07 FINE PLATINUM (INDIA) LTD. PLOT NO.52 M SEEPZ-SEZ ANDHERI (EAST) MUMBAI 400 096 PAN : AAACF 4914 F VS. INCOME-TAX OFFICER-5(1)(4) AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. (RESPONDENT) APPELLANT BY : SHRI KANTILAL PAREKH RESPONDENT BY : SHRI P. PEERYA O R D E R PER S.V. MEHROTRA AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE IMPUGNED ORDER DATED 19.01.2009 PASSED BY THE LEARNED COMMISSIONE R OF INCOME-TAX (APPEALS)- 9 MUMBAI FOR THE ASSESSMENT YEAR 2006-07 ON THE F OLLOWING GROUNDS: 2. THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF DIAMOND STUDDED GOLD JEWELLERY. THE MANUFACTURING UNIT WAS LOCATED IN SEEPZ SEZ MUMB AI. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING NIL INCOME AFTER C LAIMING DEDUCTION U/S.10A OF RS.1 10 66 777/-. THE ASSESSING OFFICER NOTICED THA T ASSESSEE HAD INTER ALIA CLAIMED DEDUCTION U/S.10A IN RESPECT OF INTEREST EA RNED OF RS. 78 199/- ON FIXED DEPOSITS PLACED WITH BANKS AND INTEREST OF RS.14 13 8/- ON SECURITY DEPOSITS. HE FURTHER NOTICED THAT ASSESSEE HAD ALSO CLAIMED DEDU CTION U/S.10A ON LABOUR CHARGES AGGREGATING TO RS. 12 05 754/- RECEIVED BY IT. AFTER CONSIDERING THE EXPLANATION IN RESPECT OF BOTH THESE ITEMS THE A.O . DID NOT ACCEPT THE ASSESSEES CONTENTION AND TAXED THE SUM OF RS. 92 337/- BEING INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND NET LABOUR JOB I NCOME OF RS. 9 87 890/- UNDER BUSINESS INCOME CONSEQUENTLY DENYING DEDUCTIO N U/S.10A. ITA NO.1547/MUM/10 M/S.FINE PLATINUM (INDIA) LTD.. 2 3. THE LEARNED CIT(A) CONFIRMED THE ORDER OF THE A. O. IN RESPECT OF BOTH THESE ISSUES. BEING AGGRIEVED THE ASSESSEE IS IN A PPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: 1. THE HONBLE CIT ON FACTS CIRCUMSTANCES AND LEG ALITY ERRED IN CONFIRMING THE ALLOWANCE OF PROPORTIONATE EXPENDITU RES FROM LABOUR CHARGES RECEIPTS BY CALCULATING ON THE BASIS OF RAT IO OF TOTAL TURNOVER TO LABOUR CHARGES RECEIVED INSTEAD OF ACTUAL EXPEND ITURES INCURRED IN CARRYING OUT THE LABOUR JOB TO OUTSIDE PARTIES FROM SEEPZ ZONE. 2. THE HONBLE CIT ON FACTS CIRCUMSTANCES AND LEGA LITY ERRED IN CONFIRMING THAT LABOUR CHARGES RECEIVED FROM EXPORT ING UNIT OF SEEPZ ZONE WHO RECEIVE THEIR SALES CONSIDERATION IN FOREI GN EXCHANGE ONLY IS NOT EXEMPT FROM INCOME TAX U/S.10A. 3. THE HONBLE CIT ON FACTS CIRCUMSTANCES AND LEGA LITY ERRED IN CONFIRMING THE INTEREST RECEIPTS ON FIXED DEPOSITS MADE FOR AVAILING CREDIT FACILITIES FOR ITS EXPORTS BUSINESSES ONLY A S INCOME FROM OTHER SOURCES NOT LIABLE TO EXEMPTION U/S.10A INSPITE OF ITS NEXUS WITH CREDIT FACILITIES GRANTED FOR EXPORTS BUSINESS THE PROFIT FROM WHICH IS EXEMPT U/S.10A. 4. BRIEF FACTS APROPOS GROUND NOS. 1 & 2 ARE THAT TH E ASSESSEE HAD RECEIVED LABOUR CHARGES OF RS.12 05 751/- FROM OUTS IDE PARTIES ON JOB WORK BASIS. THE A.O. REQUIRED THE ASSESSEE TO FURNISH THE EXPLA NATION AS TO HOW THE ABOVE INCOME HAD ANY NEXUS WITH ITS EXPORT BUSINESS. TH E ASSESSEE POINTED OUT THAT LABOUR CHARGES WERE RECEIVED FOR UNDERTAKING MANUFA CTURING OF JEWELLERY OF OTHER EXPORT UNITS FROM SEEPZ ITSELF BY UTILIZING ITS SPA RE CAPACITY FOR THE JOB WORK. IT WAS CONTENDED THAT MANUFACTURING JOB WORK WAS DONE FOR THE UNDERTAKING SITUATED WITHIN SEEPZ AND THOSE UNDERTAKINGS WERE EXPORTERS OF JEWELLERY. THEREFORE THE DEDUCTION U/S.10A WAS ALLOWABLE. THE A.O. DID NOT ACCEPT THE ASSESSEES CONTENTION INTER ALIA OBSERVING THAT THERE IS NO PROVISION IN SECTION 10A TO ALLOW DEDUCTION TO SUPPORTING MANUFACTURER AS CONTAINED I N SECTION 80HHC(1A) OF THE ACT. HE ACCORDINGLY DENIED THE ASSESSEES CLAIM. LEARNED CIT(A) CONFIRMED THE ACTION OF THE A.O. OBSERVING THAT DEDUCTION U/S.10A IS AVAILABLE ONLY ON INCOME DERIVED BY AN UNDERTAKING FROM EXPORT OF AN ARTICLE OR THINGS ETC. SUBJECT TO OTHER CONDITIONS SPECIFIED IN SECTION 10A OF THE I.T.ACT WHICH DOES NOT INCLUDE INCOME ITA NO.1547/MUM/10 M/S.FINE PLATINUM (INDIA) LTD.. 3 FROM LABOUR CHARGES. FURTHER THE ASSESSEE HAD NOT RECEIVED THE CHARGES IN FOREIGN CURRENCY. 5. LEARNED CIT(A) RELIED ON THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF LIBERTY INDIA (183 TAXMAN 349) WHEREIN IT HAS BEEN HELD THAT THE WORDS DERIVED FROM IS NARROWER IN CONNOTATION AS COMPAR ED TO THE WORDS ATTRIBUTABLE TO. IN OTHER WORDS BY USING THE EXPRESSION DERIV ED FROM THE PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGR EE. 6. THE ASSESSEE HAD TAKEN ADDITIONAL GROUND ALSO BEFOR E THE LD.CIT(A) THAT IT HAD INCURRED EXPENSES OF RS. 10 15 903/- AND TH US HAD EARNED NET PROFIT FROM JOB WORK OF RS.1 89 851/- ONLY AND NOT RS.9 89 890/ - AS COMPUTED BY THE A.O. THE LEARNED CIT(A) OBSERVED ON THIS ISSUE THAT THE A.O. HAD GIVEN OPPORTUNITY TO THE ASSESSEE TO COMPUTE THE PROFIT EARNED BY IT ON LABO UR CHARGES BUT THE ASSESSEE DID NOT FILE ANY SUBMISSION ON THIS ISSUE BEFORE T HE A.O. HE NOTED THAT IN THE ABSENCE OF ANY SUBMISSION FROM THE ASSESSEE THE A. O. ALLOCATED EXPENSES OTHER THAN RELATING TO EXPORT ON THE BASIS OF TURNOVER O F LABOUR CHARGES TO TURNOVER OF BUSINESS. HE NOTED THAT THE ASSESSEE WAS CLAIMING T HAT SINCE ITS BUSINESS TURNOVER INCLUDE COST OF GOLD AND COST OF DIAMOND ALSO THER EFORE THE BASIS ADOPTED BY THE A.O. TO ALLOCATE THE EXPENSES WAS NOT PROPER. THE A SSESSEE PROPOSED THAT SUCH EXPENSES SHOULD BE ALLOCATED ON THE BASIS OF EXPENS ES INCURRED PER GRAM OF GOLD CONSUMED. THE LEARNED CIT(A) HOWEVER DID NOT ACCE PT THE ASSESSEES CONTENTION AND OBSERVED THAT SINCE THE ASSESSEE HAD NOT TAKEN THIS STAND BEFORE THE A.O. NO RELIEF CAN BE ALLOWED AT THE APPELLATE STAGE. 7. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE LOWER REVENUE AUTHORITIES AND SUBMI TTED THAT THE ONLY GROUND FOR DENYING DEDUCTION U/S.10A IS THAT LABOUR CHARGES HA D NOT BEEN RECEIVED IN FOREIGN EXCHANGE. THE LEARNED COUNSEL FURTHER SUBMITTED THA T ON ITS ALTERNATE PLEA ITA NO.1547/MUM/10 M/S.FINE PLATINUM (INDIA) LTD.. 4 REGARDING ALLOCATION OF EXPENSES FOR EARNING JOB CH ARGES THE AO HAS NOT ADOPTED THE CORRECT BASIS. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT FOR CLAIMING DEDUCTION U/S.10A THE MANUFACTURE SHOULD BE OF ITS OWN GOODS. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSE D THE RECORDS OF THE CASE. IF WE EXAMINE THE FACTS OF THE CASE ON THE TO UCH STONE OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) WHERE A SPECIFIC TEST HAS BEEN LAID DOWN REGARDING THE MEANING DERIVED F ROM WE FIND THAT THE LABOUR CHARGES RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE DERIVED FROM EXPORT OF ARTICLES OR THINGS AND THEREFORE DO NOT COME WIT HIN THE AMBIT OF SECTION 10A BEING FROM THE SOURCES BEYOND THE FIRST DEGREE. FU RTHER UNDER SUB-SECTION (4) TO SECTION 10A A FORMULA HAS BEEN PRESCRIBED FOR COMP UTING THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS FOR THE PURPOSES OF D EDUCTION U/S.10A. THUS ALL THE PROFITS OF BUSINESS CANNOT BE SAID TO BE DERIVED FR OM EXPORT OF ARTICLES OR THINGS. WE ARE IN AGREEMENT WITH THE OBSERVATION OF THE A.O . THAT THERE IS NO PROVISION IN SECTION 10A TO ALLOW DEDUCTION TO SUPPORTING MANUFA CTURER AS IS USED UNDER SECTION 80HHC(1A). ADMITTEDLY THE JOB WORK CHARGES HAVE BEEN EARNED BY UTILIZING IDEAL CAPACITY OF THE ASSESSEE AND THERE FORE THOUGH IT IS TO BE TREATED AS BUSINESS INCOME BUT IT CANNOT QUALIFY FOR DEDUCT ION U/S.10A. 10. NOW COMING TO THE ISSUE REGARDING ALLOCATION OF EXP ENSES FOR EARNING THE JOB LABOUR CHARGES WE FIND THAT BEFORE THE ASSESSI NG OFFICER THE ASSESSEE HAD NOT SUBMITTED ANY BASIS FOR ALLOCATION OF EXPENSES BUT BEFORE THE LEARNED CIT(A) THE ASSESSEE HAS ADVANCED A PROPOSITION FOR THE SAME. T HE LEARNED CIT(A) DID NOT CONSIDER THE SAME AS THE ASSESSEE HAD NOT TAKEN THE SAME STAND BEFORE THE A.O. IN SUCH CIRCUMSTANCES WE CONSIDER IT IN THE INTER EST OF JUSTICE THAT THE ISSUE REGARDING ALLOCATION OF EXPENSES FOR EARNING JOB CH ARGES BE RESTORED TO THE FILE OF ITA NO.1547/MUM/10 M/S.FINE PLATINUM (INDIA) LTD.. 5 THE A.O. FOR CONSIDERING THE SAME DENOVO. THUS G ROUND NO.1 RAISED BY THE ASSESSEE IS PARTLY ALLOWED AND GROUND NO. 2 IS DIS MISSED. 11. AS REGARDS GROUND 3 THE ASSESSEE HAD EARNED INTER EST OF RS. 14 138/- ON SECURITY DEPOSIT AND RS. 78 199/- ON FIXED DEPOSITS . THE ASSESSEE HAD CLAIMED DEDUCTION U/S.10A ON THE GROUND THAT THE FIXED DEPO SIT WERE KEPT WITH THE BANKS FOR AVAILING CREDIT FACILITIES IN THE COURSE OF EXP ORT BUSINESS. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAD PAID INTEREST OF RS . 1 35 22 000/- DURING THE YEAR ON VARIOUS CREDIT FACILITIES AVAILED FROM BANK. THU S THERE WAS DIRECT NEXUS BETWEEN INTEREST RECEIVED AND INTEREST PAID. THE A SSESSEE HAD PLACED RELIANCE ON THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE C ASE OF LALSONS ENTERPRISES (89 ITD 25).THE ASSESSING OFFICE HOWEVER DID NOT ACCE PT THE ASSESSEES CONTENTION AND HELD THAT INTEREST INCOME EARNED FROM DEPOSIT W ITH THE BANK AND SECURITY DEPOSIT WOULD NOT BE CHARGEABLE UNDER THE HEAD IN COME FROM OTHER SOURCES AND WOULD BE ELIGIBLE FOR EXEMPTION U/S.10A. 12. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE A.O. FOLLOWING THE HONBLE SUPREME COURT DECISION IN THE CASE OF LIBERTY INDIA (183 TAXMAN 349)(SC). HE ALSO OBSERVED THAT THE ASSESSEE HAD NOT ESTABLISHED ANY NEXUS BETWEEN THE INTEREST RECEIVED AND INTEREST PAID AND THEREFORE INTEREST PAID BY THE ASSESSEE CANNOT BE SET OFF AGAINST INTEREST INCOME EARNED. 13. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO TH E DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. HYCRON INDIA LTD. (185 TAXMAN 70) TO SUBMIT THAT INTEREST INCOME WOULD FALL WITHI N THE EXPRESSION PROFITS AND GAINS AND WOULD QUALIFY FOR EXEMPTION. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDER OF THE CIT(A). 15. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND HAVE ALSO PERUSED THE RECORDS OF THE CASE. THE HONBLE RAJAST HAN HIGH COURT DECISION IN THE ITA NO.1547/MUM/10 M/S.FINE PLATINUM (INDIA) LTD.. 6 CASE OF HYCRON INDIA LTD. (SUPRA) RELIED UPON BY TH E LEARNED COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE ON FACTS. IN THE SAID D ECISION THE ASSESSEE COMPANY HAD PURCHASED GOODS FROM ITS SISTER CONCERN AND PAI D AN ADVANCE AMOUNT TO IT. IT HAD EARNED INTEREST ON THIS ADVANCE WHICH WAS HELD TO BE INCOME FROM PROFITS AND GAINS BUT IN THE PRESENT CASE THE INTEREST HAS BEE N EARNED ON FIXED DEPOSITS. HOWEVER NOW IN ANY VIEW OF THE MATTER AFTER THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) SINCE IM MEDIATE SOURCE OF INTEREST IS FIXED DEPOSIT AND NOT FROM EXPORT BUSINESS THEREFO RE THE INTEREST INCOME CANNOT BE TREATED AS INCOME FROM BUSINESS AND HENCE IT CA NNOT QUALIFY FOR DEDUCTION U/S.10A. WE ACCORDINGLY CONFIRM THE ORDER OF THE CI T(A). 16. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF DECEMBER 2010. SD. SD. (VIJAY PAL RAO ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 23 RD DECEMBER 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CITY 5 MUMBAI 4. THE CIT(A)-9 MUMBAI 5. THE DR F BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI ITA NO.1547/MUM/10 M/S.FINE PLATINUM (INDIA) LTD.. 7