2014 (10) TMI 207 - AT - Income Tax

Tribunal upholds deduction approval under Section 10AA, rejects CIT's jurisdiction challenge.

M/s. Zaveri & Co. Exports, Versus CIT-V, Ahmedabad

The Tribunal concluded that the Assessing Officer (AO) had adequately examined and approved the deduction under Section 10AA after thorough verification. ... Jurisdiction of the CIT u/s 263 – Deduction u/s 10AA - Whether the view adopted by the AO in the assessment order to the effect that such interest income forms part of profit and gains of business of SEZ unit and therefore qualifies for deduction u/s 10AA is a possible view or not – Held that:- The assessee besides others also has a SEZ Unit in which it is engaged in the business of re-export of bullion, import of bullion etc. - the income derived from business of SEZ Unit qualifies for deduction u/s 10AA of the Act - In the assessment framed u/s 143(3) of the Act by the AO for both the years allowed deduction u/s 10AA of the Act to the assessee as claimed by the assessee - the assessee imports bullion on credit of 360/90 days - for the purpose of above imports, the assessee has to open the Letter of Credit with bank and consequently the assessee is required to make FDRs with bank which gives right to interest income in the hands of the assessee - The assessee exports the imported bullion on immediate payment basis. As decided in assessee’s own case for the earlier assessment year, it has been held the interest income which were earned by the assessee were from fixed deposit receipts with bank which were made by the assessee in the course of its trading business of import for the purposes of re-export, for obtaining Letter of Credit for its purchases - the relevant fixed deposit receipts on which interest were earned were business assets of the assessee acquired in the course and for the purposes of its business - The fixed deposit receipts being business assets, there was no reason as to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee. The view adopted by the Assessing Officer showing interest income under consideration is business income cannot be held as not a possible view and therefore, the Commissioner of Income Tax was not justified in interfering with the said view in the impugned order. Exemption u/s 10AA - exclusion of interest income - Held that:- The specific provision like explanation (baa) of section 80HHC which provides for exclusion of 90% of interest income from the profits of business to arrive at the profits of the business has not been provided by the legislature in section 10AA of the Act – in Sm. Tarulata Shyam Vs. CIT [1977 (4) TMI 3 - SUPREME Court] - there is no scope for importing in the statute words which are not there – there is no provision in the statute on the basis of which it can be held that the interest income which forms part of the profits of the business is to be excluded for arriving at profits derived from “export of articles or things or services” as prescribed under sub-section (7) of section 10AA of the Act - the CIT was not justified in interfering with the same in exercising the power u/s 263 of the Act – the order of the CIT is set aside – Decided in favour of assessee. Issues Involved:1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income-tax Act.2. Examination and inquiry by the Assessing Officer (AO) regarding the deduction under Section 10AA of the Act.3. Eligibility of interest income for deduction under Section 10AA.4. Observations and findings of the CIT regarding the interest income.5. Prior judgments and case laws relevant to the issues.Detailed Analysis:1. Jurisdiction of the CIT under Section 263:The primary issue raised by the assessee was the jurisdiction of the CIT-V, Ahmedabad, in exercising his power under Section 263 of the Income-tax Act. The assessee argued that the CIT erred in assuming jurisdiction and setting aside the issue of deduction under Section 10AA to the AO for further inquiries without establishing how the assessment order was erroneous and prejudicial to the interest of Revenue.2. Examination and Inquiry by the AO:The assessee contended that the AO had thoroughly examined and verified all relevant issues before passing the assessment order under Section 143(3). The AO had issued a detailed show-cause notice under Section 142(1), and the assessee had provided comprehensive replies with supporting documents. The AO had scrutinized various aspects, including the eligibility of exemption under Section 10AA, purchase and sales bills, export details, and interest income from fixed deposits.3. Eligibility of Interest Income for Deduction under Section 10AA:The key contention was whether the interest income earned on fixed deposits, which were made as margin money for obtaining Letters of Credit for imports, qualified for deduction under Section 10AA. The assessee argued that the interest income was part of the business income of the SEZ unit and should be eligible for deduction under Section 10AA. The AO had accepted this view during the assessment.4. Observations and Findings of the CIT:The CIT observed that the interest income was not in the nature of profits and gains derived from the export of services, articles, or things as envisaged under Section 10AA. The CIT noted that the assessee continued with loss-making transactions because it was assured of interest income from FDRs. The CIT concluded that the interest income did not qualify for deduction under Section 10AA and directed the AO to reframe the assessment.5. Prior Judgments and Case Laws:The assessee cited several judgments to support its claim, including:- M/s. Motorola India Electronics (P) Ltd. (Karnataka HC)- Asiatic Colour Chem Ind. Ltd. (Ahd ITAT)- Nirma Industries Ltd. (Gujarat HC)The CIT-DR also cited various judgments to support the CIT's order, including:- CIT vs. Infosys Technologies Ltd. (Kar.)- CIT vs. Jawahar Bhattacharjee (Gauhati)Conclusion:The Tribunal found that the AO had made a detailed inquiry and allowed the deduction under Section 10AA after thorough verification. The Tribunal held that the view adopted by the AO was a possible view and supported by various judicial precedents. Therefore, the CIT was not justified in exercising jurisdiction under Section 263 and setting aside the assessment order. The Tribunal set aside the CIT's order and allowed the appeals of the assessee for both assessment years.