SHANTIVIJAY JEWELS LTD, MUMBAI v. ITO 8(3)(1), MUMBAI

ITA 945/MUM/2009 | 2000-2001
Pronouncement Date: 14-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 94519914 RSA 2009
Assessee PAN AAFCS8914F
Bench Mumbai
Appeal Number ITA 945/MUM/2009
Duration Of Justice 1 year(s) 3 month(s) 3 day(s)
Appellant SHANTIVIJAY JEWELS LTD, MUMBAI
Respondent ITO 8(3)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 14-05-2010
Assessment Year 2000-2001
Appeal Filed On 11-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R.V. EASWAR SR. VICE PRESIDENT & SHRI R.K.PANDA AM I.T.A. NO. 944/MUM/2009 (ASSESSMENT YEAR 1999-2000) I.T.A. NO. 945/MUM/2009 (ASSESSMENT YEAR 2000-01) M/S. SHANTIVIJAY JEWELS LTD. GEM & JEWELLERY COMPLEX-III SEEPZ ANDHERI (EAST) MUMBAI-400 095 PAN: AAFCS8914F VS. INCOME-TAX OFFICER 8(3)(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020 APPELLANT RESPONDENT APPELLANT BY : MS. A. PURVA SHAH RESPONDENT BY : SHRI A.K. ATRI ORDER DATE OF HEARING: 29.04.2010 DATE OF ORDER: 14.05.2010 PER R.K.PANDA AM THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST THE SEPARATE ORDERS DATED 3 RD DECEMBER 2008 OF THE CIT(A)-XXIX MUMBAI RELATING TO ASSESSMENT YEARS 1999-2000 AND 2000-01. FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPO SED OF BY THIS COMMON ORDER. I.T.A. NO. 944/MUM/09 (A.Y. 1999-2000): 2. THE GROUND RAISED BY THE ASSESSEE READS AS UNDER: THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE LEV Y OF PENALTY U/S. 271(1)(C) IN RESPECT OF THE APPELLANTS CLAIM FOR A DEDUCTION U/S. 10A IN RESPECT OF INTEREST INCOME NOTWITHSTANDING THAT THE SAME WAS A LEGAL ISSUE AND DID NOT MERIT THE LEVY OF A PENALTY . HE ALSO ERRED IN NOT APPRECIATING THAT THE ITAT TOO HAD SET ASIDE TH IS ISSUE TO CONSIDER THE NETTING OF INTEREST AND HE ERRED IN AD JUDICATING THAT IF ANY ADDITION WAS SUSTAINED THEN A PENALTY SHOULD BE LEVIED. ITA NOS. 944 & 945/MUM/2009 M/S. SHANTIVIJAY JEWELS LTD. ======================= 2 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSMEN T IN THE INSTANT CASE WAS COMPLETED U/S. 147 R.W.S. 143(3) OF INCOME-TAX ACT 1961 (THE ACT) DETERMINING THE INCOME AT RS.2 22 28 960 AS AGAINST NIL INCOM E RETURNED. SUBSEQUENTLY THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS ON THREE ADDITIONS WHERE IT WAS HELD THAT INTEREST INCOME OF RS.8 87 380 SALE OF L ICENCE AMOUNTING TO RS.24 14 039 AND ERD GAIN OF RS.51 909 ARE TO BE RE DUCED FROM THE BUSINESS INCOME AND SHOULD BE TAKEN AS INCOME FROM OTHER S OURCES. NOT BEING SATISFIED WITH THE REPLY GIVEN BY THE ASSESSEE THE ASSESSING OFFICER LEVIED PENALTY U/S. 271(1)(C) OF THE ACT ON THE ABOVE ITEMS. 4. IN APPEAL THE CIT(A) SUSTAINED THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT ON ADDITION OF INTEREST INCOME ON THE GROUND TH AT THE ADDITION HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE ITAT IN PRINCIP LE AND THE TRIBUNAL HAS MERELY SET ASIDE THE ADDITION ON ACCOUNT OF INTERES T FOR VERIFICATION BY THE ASSESSING OFFICER. HE ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE ISSUE IS DEBATABLE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE DREW THE ATTEN TION OF THE BENCH TO THE ORDER OF THE TRIBUNAL VIDE I.T.A. NO. 3032/MUM/ 06 ORDER DATED 27 TH OCTOBER 2008. REFERRING TO PARA 2.3.2 OF THE SAID ORDER HE SUBMITTED THAT THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION. SINCE THE ISSUE HAS B EEN SET ASIDE TO THE ASSESSING OFFICER THE PENALTY DOES NOT SURVIVE. 6. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE OR DER OF THE CIT(A). 7. AFTER HEARING BOTH THE SIDES WE FIND THE TRIBUNAL AT PARA 2.3.2 OF THE SAID ORDER HAS RESTORED THE ISSUE TO THE FILE OF THE ASS ESSING OFFICER FOR FRESH ADJUDICATION BY HOLDING AS UNDER: 2.3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. IN CASE OF PUNIT COMMERCIAL (SUPRA) WE FIND THAT REVENUE AUTHORITIES THEMSELVES HAD INCLUDED INTEREST INCOME AS BUSINESS INCOME AND ACCORDINGLY THE HIGH COURT CONSIDERING T HE FACT THAT ASSESSEE WAS A 100% EXPORTER ALLOWED DEDUCTION UNDE R SECTION 80HHC IN RESPECT OF INTEREST INCOME. IN THIS CASE THE AUTHORITIES ITA NOS. 944 & 945/MUM/2009 M/S. SHANTIVIJAY JEWELS LTD. ======================= 3 HAVE TREATED THE INTEREST INCOME AS INCOME FROM OTH ER SOURCES. IN THE YEARS UNDER CONSIDERATION THERE IS NO MATERIAL BEFORE US TO ESTABLISH LINKAGE OR THE DEPOSITS WITH THE BUSINESS OF THE ASSESSEE. IN FACT THE ISSUE HAS NOT BEEN EXAMINED FROM THIS POIN T OF VIEW. IN CASE THE DEPOSITS HAVE BEEN MADE FOR THE BUSINESS OF THE ASSESSEE THE INCOME ARISING FROM THE DEPOSITS WILL BE CONSIDERED AS A PART OF THE BUSINESS PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTIO N 10A AND NOT OTHERWISE. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR PASSING A FRESH ORDER AFTER NECESSARY E XAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER OPPORTUN ITY TO THE ASSESSEE. 8. SINCE THE ISSUE ON WHICH PENALTY WAS LEVIED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION THEREFORE THE PENALTY DOES NOT SURVIVE. ACCORDINGLY THE ORDER OF THE CIT(A) IS SET ASIDE AND THE PENALTY UP HELD BY HIM IS CANCELLED. I.T.A. NO. 944/MUM/2009 (A.Y. 2000-01): 9. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE READS AS UN DER: THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S. 271(1)(C) IN RESPECT OF THE APPELLANTS CLAIM FOR A DEDUCTION U/S. 10A IN RESPECT OF INTEREST INCOME NOTWITHSTANDING THAT THE SAME WAS A LEGAL ISSUE AND DID NOT MERIT THE LEVY OF A PENALTY . HE ALSO ERRED IN NOT APPRECIATING THAT THE ITAT TOO HAD SET ASIDE TH IS ISSUE TO CONSIDER THE NETTING OF INTEREST AND HE ERRED IN AD JUDICATING THAT IF ANY ADDITION WAS SUSTAINED THEN A PENALTY SHOULD BE LEVIED. 10. AFTER HEARING BOTH THE SIDES WE FIND THE CIT(A) UP HELD THE PENALTY LEVIED BY THE ASSESSING OFFICER ON ACCOUNT OF THE ADDITION OF INTEREST INCOME OF RS.8 56 248 AS INCOME FROM OTHER SOURCES. WE FIN D THE TRIBUNAL IN I.T.A. NO. 3033/MUM/06 ORDER DATED 27 TH OCTOBER 2008 HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. S INCE THE ISSUE ON WHICH PENALTY IS LEVIED HAS BEEN SET ASIDE TO THE FILE OF THE ASS ESSING OFFICER FOR FRESH ADJUDICATION THEREFORE FOLLOWING OUR DECISION IN I.T.A. NO. 944/MUM/09 WE CANCEL THE PENALTY UPHELD BY THE CIT(A). 11. GROUND NO. 2 BY THE ASSESSEE READS AS UNDER: THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S. 27(1)(C) IN RESPECT OF THE APPELLANTS CLAIM FOR A DEDUCTION U/S. 10A ITA NOS. 944 & 945/MUM/2009 M/S. SHANTIVIJAY JEWELS LTD. ======================= 4 IN RESPECT OF DIVIDEND EARNED IN FOREIGN EXCHANGE F ROM A WHOLLY OWNED SUBSIDIARY WHICH WAS INEXTRICABLY CONNECTED T O THE BUSINESS OF THE UNDERTAKING WITHOUT APPRECIATING THAT THE IT AT HAD CONFIRMED THE ADDITION SINCE IN THEIR OPINION THERE WAS NO MATERIAL TO ESTABLISH THE LINKAGE OF THE INVESTMENT WITH THE BUSINESS OF THE ASSESSEE. HE ERRED IN NOT APPRECIATING THAT THIS A DJUDICATION WOULD INDICATE THAT THE ISSUE WAS WHETHER OR NOT THE INVE STMENT WAS FOR BUSINESS FURTHERANCE AND THIS WAS PURELY A MATTER O F OPINION AND COULD NOT FORM THE BASIS OF A LEVY OF PENALTY. 12. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSIN G OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSE E HAS RECEIVED DIVIDEND OF RS.38 89 260 FROM ITS WHOLLY OWNED SUBSIDIARY COMPA NY SHANTIVIJAY JEWELS INTERNATIONAL LTD. MAURITIUS. ON BEING QUESTIONED BY THE ASSESSING OFFICER IT WAS REPLIED BY THE ASSESSEE THAT DIVIDEND RECEIVED IN FOREIGN CURRENCY FROM THE WHOLLY OWNED SUBSIDIARY SHOULD BE TREATED AS EXEMPT U/S. 10A OF THE ACT BEING INCOME OF THE INDUSTRIAL UNDERTAKING. HOWEVER ACC ORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD RECEIVED DIVIDED INCOME FR OM NON-DOMESTIC COMPANY M/S. SHANTIVIJAY JEWELS INTERNATIONAL LTD. IN THE SCHEDULER SYSTEM OF TAXATION IT IS TAXABLE U/S. 56(2)(I) UNDER THE HEAD INCOME FRO M OTHER SOURCES. AS PER THE PROVISIONS OF SECTION 10A PROFIT DERIVED BY THE U NDERTAKING FROM THE EXPORT OF ARTICLE OR THING IS ONLY ELIGIBLE FOR EXEMPTION. S INCE THE DIVIDEND INCOME IS NOT PROFIT BUT IT IS A RESULT OF INVESTMENT IN FOREIGN COMPANY THEREFORE THIS IS NOT DERIVED BY THE EXPORT OF ARTICLE OR THING AND HAS N O IMMEDIATE DIRECT CONNECTION. HE ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE W HICH WAS UPHELD BY THE CIT(A) AND ALSO BY THE TRIBUNAL. THE ASSESSING OFFICER T HEREAFTER INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) AND LEVIED PENALTY ON AD DITION ON ACCOUNT OF DIVIDEND INCOME AT RS.38 90 085. THE CIT(A) ALSO UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE TRIBUNAL WHICH IS T HE HIGHEST FACT FINDING AUTHORITY HAS SUSTAINED THE ADDITION. 13. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PA GE 7 OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND SUBMITTED THAT THE TRIBUNAL CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER AND UPHELD B Y THE CIT(A) ON THE GROUND THAT THERE WAS NO MATERIAL AVAILABLE TO ESTABLISH T HE LINKAGE OF THE INVESTMENT WITH THE BUSINESS OF THE ASSESSEE. THIS ITSELF WIL L NOT BE SUFFICIENT FOR VISITING THE PROVISIONS OF PENALTY U/S. 271(1)(C) OF THE ACT. ITA NOS. 944 & 945/MUM/2009 M/S. SHANTIVIJAY JEWELS LTD. ======================= 5 14. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT S INCE THE ASSESSEE WAS NOT ABLE TO ESTABLISH THE LINKAGE BETWEEN THE INVES TMENT AND THE BUSINESS OF THE ASSESSEE THEREFORE THE PENALTY SHOULD BE LEVIED. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE ORDER OF THE TRIBUNAL WHERE THE TRIBUNAL UPHELD THE ACTION OF TH E LOWER AUTHORITIES DENYING DEDUCTION U/S. 10A IN RESPECT OF THE DIVIDEND INCOM E ON THE GROUND THAT THERE WAS NO MATERIAL TO ESTABLISH THE LINKAGE OF THE INV ESTMENT WITH THE BUSINESS OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING ALSO COULD NOT BRING ANY MATERIAL TO ESTABLISH THE LINKA GE OF THE INVESTMENT WITH THE BUSINESS OF THE ASSESSEE. 16. WE FIND THE PROVISIONS OF SECTION 10A(1) READ AS UN DER: 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWAR E AS THE CASE MAY BE SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE A SSESSEE : 17. THUS FROM THE ABOVE IT IS CLEAR THAT AN ASSESSEE I S ENTITLED TO CLAIM THE DEDUCTION U/S. 10A FROM THE EXPORT OF ARTICLES OR T HINGS OR COMPUTER SOFTWARE. HOWEVER IN THE INSTANT CASE THE ASSESSEE HAS CLAIM ED DEDUCTION U/S. 10A ON DIVIDEND INCOME RECEIVED FROM THE WHOLLY OWNED SUBS IDIARY COMPANY WHICH AGAIN IS NOT IN CONVERTIBLE FOREIGN EXCHANGE A FAC T BROUGHT ON RECORD BY THE ASSESSING OFFICER AT PAGE 9 OF THE ASSESSMENT ORDER . THUS THE ASSESSEE HAS MADE AN UNTENABLE AND A FRIVOLOUS CLAIM OF EXEMPTION U/S . 10A ON ACCOUNT OF DIVIDEND RECEIVED 18. IT HAS BEEN HELD IN VARIOUS JUDICIAL PRONOUNCEMENTS THAT PENALTY PROCEEDINGS ARE DIFFERENT FROM ASSESSMENT PROCEEDIN GS AND THE ASSESSEE MAY ADDUCE FRESH EVIDENCES DURING PENALTY PROCEEDINGS W HICH WERE NOT FURNISHED ITA NOS. 944 & 945/MUM/2009 M/S. SHANTIVIJAY JEWELS LTD. ======================= 6 DURING THE ASSESSMENT PROCEEDINGS. SINCE THE EXEMP TION WAS DENIED ON THE GROUND OF NON ESTABLISHMENT OF LINKAGE OF THE INVES TMENT WITH THE BUSINESS OF THE ASSESSEE AND IN ABSENCE OF ANY MATERIAL BEFORE US TO SUBSTANTIATE THAT THE ASSESSEE IS ELIGIBLE TO CLAIM SUCH DEDUCTION U/S.10 A WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS MADE AN UNTENABLE AND A FRIVOLOUS CLAIM FOR DEDUCTION U/S. 10A OF THE ACT ON ACCOUNT OF DIVIDEN D INCOME FROM ITS WHOLLY OWNED SUBSIDIARY COMPANY. WE THEREFORE UPHOLD TH E ORDER OF THE CIT(A) IN SUSTAINING THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT ON THIS AMOUNT. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMIS SED. 19. IN THE RESULT I.T.A. NO. 944/MUM/2009 IS ALLOWED W HEREAS I.T.A. NO. 945/ MUM/2009 IS PARTLY ALLOWED. PRONOUNCED ON 14 TH MAY 2010 SD/- (R.V. EASWAR) SR. VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI DATED 14 TH MAY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-XXIX MUMBAI 4. THE CIT-8 MUMBAI 5. THE DR E BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI TPRAO