DCIT 8(3), MUMBAI v. DESIGN JEWELLRY P. LTD, MUMBAI

ITA 5348/MUM/2010 | 2007-2008
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 534819914 RSA 2010
Assessee PAN AAACU0572G
Bench Mumbai
Appeal Number ITA 5348/MUM/2010
Duration Of Justice 1 year(s) 15 day(s)
Appellant DCIT 8(3), MUMBAI
Respondent DESIGN JEWELLRY P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted F
Tribunal Order Date 15-07-2011
Assessment Year 2007-2008
Appeal Filed On 30-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI B. RAMAKOTAI AH (A.M) ITA NO.5348/M/10(A.Y.2007-08) THE ACIT 8(3) ROOM NO.217 AAYKAR BHAVAN MK MARG MUMBAI 20. (APPELLANT) VS. UNI DESIGN JEWELLERY PVT. LIMITED PLOT NO.4 5&6 (PART) SEEPZ ANDHERI (EAST) MUMBAI 96. PAN:AAACU 0572G (RESPONDENT) APPELLANT BY : SHRI T.T.JACOB RESPONDENT BY : SHRI VIJAY KUMAR S. BIYANI ORDER PER N.V.VASUDEVAN J.M THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 21/4/2010OF CIT(A)-18 MUMBAI RELATING TO ASSESSMENT YEAR 2007- 08. THE GROUND OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE INTEREST PAID AGAINST INTEREST RECEIVED WHILE COMPUTING DEDUCTIO N U/S. 10A WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING JEWELLERY AND EXPORT OF THE SAME. TH E ASSESSEE HAD TWO UNITS LOCATED IN SEEPZ. UNIT NO.1 HAD ALREADY AVAILED OF THE EXEMPTION UNDER SECTION 10A OF THE INCOME TAX ACT 1961(THE ACT) FOR A PERIOD OF 10 YEARS. UNIT NO.2 WAS ENTITLED TO DEDUCTION UNDER SECTION 1 0A OF THE ACT FOR THE ASSESSMENT YEAR 2007-08. THE DEDUCTION IN RESPECT OF UNIT NO.2 UNDER ITA NO.5348/M/10(A.Y.2007-08) 2 SECTION 10A OF THE ACT WAS CLAIMED BY THE ASSESSEE AT A SUM OF RS.7 87 35 545/-. THE ASSESSEE WHILE ARRIVING AT T HE PROFITS DERIVED FROM EXPORTS WHICH ARE ELIGIBLE FOR DEDUCTION UNDER SECT ION 10A OF THE ACT INCLUDED A SUM OF RS. 2 50 161/- WHICH WAS INTEREST RECEIVED ON BANK FIXED DEPOSITS AND ANOTHER SUM OF RS.16 40 079/- WHICH WAS INTEREST RECEIVED ON MONIES LENT BY THE ASSESSEE TO M/S. UNI DESIGN INDI A PVT. LTD. OF RS. 5 84 50 000/-. THE ASSESSEE HAD PAID INTEREST ON B ORROWINGS. AFTER ADJUSTING INTEREST RECEIVED BY THE ASSESSEE REFERRE D TO ABOVE THE NET INTEREST EXPENSES OF RS. 64 97 569/- WAS CLAIMED AS EXPENDI TURE IN THE P&L ACCOUNT. THUS IN EFFECT THE ASSESSEE CLAIMED THAT THE INTEREST INCOME RECEIVED BY IT AND REFERRED TO ABOVE IS ALSO ELIGIB LE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THIS PLEA OF THE ASSESSEE WAS HOWEVER REJECTED BY THE AO. ACCORDING TO THE AO INTEREST RECEIVED ON FDS A ND INTEREST RECEIVED ON LOANS WERE TO BE ASSESSED UNDER THE HEAD INCOME FRO M OTHER SOURCES. HE HELD THAT INTEREST INCOME CANNOT BE CONSIDERED AS I NCOME DERIVED FROM EXPORT OF ARTICLE OR THINGS. IN THIS REGARD THE AO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF K. RAVINDRANAT HAN NAIR VS. DCIT 262 ITR 669(SC). THUS INTEREST INCOME TOTALLING RS. 18 90 240/- (RS. 2 50 161 + 16 40 079/-) WAS ASSESSED UNDER THE HEAD INCOME FRO M OTHER SOURCES. CONSEQUENTLY THE DEDUCTION CLAIMED UNDER SECTION 1 0A WAS REDUCED. 3. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE FD S WERE KEPT AS MARGIN MONEY FOR AVAILING CREDIT FACILITY BANK GUA RANTEE ETC. THE ASSESSEE CLAIMED THAT SINCE THE INVESTMENT IN FDS WAS MADE O WING TO BUSINESS COMPULSIONS THE SAME SHOULD BE TREATED AS INCOME F ROM BUSINESS. SIMILARLY IT WAS SUBMITTED THAT THE INTEREST RECEIV ED ON LOANS SHOULD ALSO BE CONSIDERED AS INCOME FROM BUSINESS BECAUSE THE LOAN S WERE GIVEN OWING TO COMMERCIAL EXPEDIENCY. 4. ALTERNATIVELY IT WAS SUBMITTED THAT THE LOANS GI VEN TO M/S. UNI DESIGN INDIA PVT. LTD. ON WHICH ASSESSEE RECEIVED INTERES T OF RS. 16 40 079/- WERE ITA NO.5348/M/10(A.Y.2007-08) 3 GIVEN OUT OF AMOUNTS BORROWED BY THE ASSESSEE FROM ABN AMRO BANK. IT WAS SUBMITTED THAT EVEN ASSUMING THAT THE INTEREST RECEIVED FROM UNI DESIGN INDIA PVT. LTD. IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES TO THE EXTENT THAT THE ASSESSEE PAID INTE REST TO ABN AMRO BANK ON THE AMOUNTS ADVANCED TO UNI DESIGN INDIA PVT. LTD. DEDUCTION SHOULD BE ALLOWED UNDER SECTION 57(III) OF THE ACT. 5. THE CIT(A) WAS OF THE VIEW THAT INTEREST ON FIX ED DEPOSITS CANNOT BE CONSIDERED AS INCOME DERIVED FROM THE INDUSTRIAL UN DERTAKING ON WHICH DEDUCTION UNDER SECTION 10A CAN BE ALLOWED. IN TH IS REGARD THE CIT(A) RELIED ON THE FOLLOWING DECISIONS: (1) CIT VS. MENON IMPEX PVT. LTD. 259 ITR 403 (2) INDIA CEMENT INDUSTRY VS. ITO 304 ITR 322. (3) CIT VS. K.K.JOSHI 245 ITR 849 6. WITH REGARD TO THE ALTERNATIVE CLAIM MADE BY THE ASSESSEE THAT EVEN ASSUMING INTEREST INCOME HAD TO BE BROUGHT TO TAX U NDER THE HEAD INCOME FROM OTHER SOURCES THE QUANTUM OF INTEREST INCOME THAT SHOULD BE BROUGHT TO TAX SHOULD BE THE GROSS AMOUNT OF INTEREST RECE IVED BY THE ASSESSEE AFTER DEDUCTING THEREFROM THE INTEREST PAID BY THE ASSESS EE ON FUNDS BORROWED WHICH WERE USED TO GIVEN LOANS TO UNI DESIGN INDIA PVT. LTD. THE CIT(A) DIRECTED THE AO TO VERIFY WHETHER THERE WAS A DIRE CT NEXUS BETWEEN THE INTEREST EARNED AND THE INTEREST PAID AND IF THERE IS SUCH DIRECT NEXUS INTEREST PAYMENT SHOULD BE ALLOWED AS DEDUCTION AGA INST INTEREST RECEIVED. 7. AGGRIEVED BY THE AFORESAID DIRECTION OF THE CIT( A) ON THE ALTERNATE CLAIM MADE BY THE ASSESSEE THE REVENUE HAS PREFERR ED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE SUBMISSIONS OF THE LD. D.R. W HO RELIED ON THE ORDER OF THE AO. IN OUR VIEW THE DIRECTIONS GIVEN BY THE CIT(A) DOES NOT CALL FOR ANY ITA NO.5348/M/10(A.Y.2007-08) 4 INTERFERENCE. WHEN THE INTEREST INCOME IN QUESTION IS BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES THE ASSESSEE AS A MATTER OF RIGHT WILL BE ENTITLED TO CLAIM DEDUCTION UNDER SECTION 57(III) O F THE ACT OF ANY EXPENDITURE WHICH IS NOT OF A CAPITAL NATURE WHICH LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME. THE CIT(A) WAS THEREFORE JUSTIFIED IN DIRECTING THE AO TO VE RIFY THE NEXUS BETWEEN THE INTEREST EARNED AND THE INTEREST PAID AND IF THERE IS A DIRECT NEXUS TO ALLOW INTEREST EXPENDITURE AS DEDUCTION FROM THE INTEREST INCOME RECEIVED BY THE ASSESSEE AND BRING TO TAX ONLY THE NET INTEREST INC OME UNDER THE HEAD INCOME FROM OTHER SOURCES. WE DO NOT FIND ANY GROU ND TO INTERFERE WITH THE ORDER OF THE CIT(A). CONSEQUENTLY THE GROUND RAISE D BY THE REVENUE IS DISMISSED. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 15 TH DAY OF JULY 2011. SD/- SD/- (B.RAMAKOTAIAH ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 15 TH JULY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.5348/M/10(A.Y.2007-08) 5 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 11/7/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 12/7/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER