2015 (4) TMI 1310 - AT - Income Tax

Assessee's Appeal Partly Allowed with Specific Directions for Re-assessment

Jewelmark India Pvt. Ltd. Versus ITO 8 (2) (1), Aaykar Bhavan, Churchgate, Mumbai And Vice-Versa

The appeal filed by the assessee was partly allowed with specific directions for re-assessment by the AO on certain issues. The Tribunal directed the AO ... Computation of deduction u/s 10A - HELD THAT:- Regarding bank interest respectfully following the earlier decision of the Tribunal we hold that AO should grant netting benefit to the assessee as per decision of Hon’ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd [2012 (2) TMI 101 - SUPREME COURT] Disallowance of job work charges - We direct the AO to redo the assessment by considering only the net receipt in respect of job work. The expenditure in this respect has to be worked out on the basis of either man hours put in the job work in comparison to the own manufacturing activity or on the basis of output ratio in the own manufacturing activity and job work. The assessee is directed to produce relevant details for allocation of the expenditure regarding job work activity. If it is not possible to work out the allowable expenditure on the above said basis then the AO should work out on some reasonable basis. Disallowance on account of exchange difference - we find that the assessee is having two kinds of loan one is short term loan against export bills which is clear from the schedule of the balance sheet and other is term loan. Even in the schedule 4, the assessee has shown secured loan in foreign currency which is term loan and further the working capital loan under the category of pecking credit, post shipment foreign currency account. As far as the working capital loan is concerned the exchange gain on such loan should be allowed as business income and so far as the exchange gain on secured term loan which is not for working capital the same cannot be treated as business income for the purpose of section 10A. Accordingly we direct the AO to verify the exact details of the foreign exchange gain in respect of two kinds of loan and then allow the claim of the assessee with respect to the working capital loan TP Adjustment - addition being interest calculated @ 18% on credit period to AE beyond 180 days on certain export invoices - whether Under transfer pricing regulation, export outstanding is not a transaction with AE and hence no addition is to be made? - HELD THAT:- To some extent there is a force in the contention of Ld. AR that if the assessee has to make payment of imports to same party then, receiving delayed export realization cannot be said to be bearing interest as assessee is already owing much more amount to its AE on account of import payments. Therefore, in the interest of justice, we consider it just and proper to restore this issue to the file of AO to examine and verify the facts and if on the dates when the impugned interest is computed in respect of export realization, the assessee is already having obligation to pay to its AE the amount regarding import made by it then, to that extent interest cannot be added as TP adjustment. We therefore, restore this matter to the file of AO with a direction to re-adjudicate this issue as per directions given above. For statistical purposes this ground is treated to be allowed. Applicability of MAT provisions - HELD THAT:- This issue is covered in favour of the assessee by the decision of Genesys International Corporation Ltd. [2012 (12) TMI 491 - ITAT MUMBAI] wherein it has been held that a unit located in SEZ is covered buy sub-s.(6) of s. 115JB irrespective of the fact that such unit is claiming deduction under s. 10A and, therefore, the book profit of the SEZ unit could not be included while computing book profit under s. 115JB for assessment year 2008-09, despite the fact that clause (f) of Expln. 1 to s. 115JB(2) has been amended to apply the provisions of MAT to units which are entitled to deduction under section 10A. Following the aforementioned decision similar view was also taken by G. Jewelcraft Ltd. [2014 (11) TMI 980 - ITAT MUMBAI] It is seen that Ld. CIT(A) has followed aforementioned decision of Tribunal in the case of Genesis International (supra). Respectfully, following the decision of Co-ordinate Bench we decline to interfere in the relief granted by Ld. CIT(A) and the appeal filed by the Revenue is dismissed. Issues Involved:1. Classification of income as 'Income from other sources' vs. 'Income from business' for computing deduction under Section 10A.2. Addition of interest on delayed export payments under Transfer Pricing regulations.3. Application of Minimum Alternate Tax (MAT) provisions to units located in Special Economic Zones (SEZ).Detailed Analysis:1. Classification of Income for Section 10A Deduction:*Ground No. 1 in Assessee's Appeal:*The assessee contested the classification of bank interest, job work charges, and exchange difference on loans as 'Income from other sources' instead of 'Income from business' for Section 10A deduction purposes.- Bank Interest: The Tribunal upheld the decision of the CIT(A) that allowed netting of bank interest as per the Supreme Court decision in ACG Associated Capsules Pvt. Ltd. vs. CIT, 343 ITR 89 (SC). The Tribunal directed the AO to grant netting benefit to the assessee.- Job Work Charges: The Tribunal restored the matter to the AO with directions to redo the assessment by considering only the net receipt for job work. The AO was instructed to allocate expenses based on man-hours or output ratio, or on a reasonable basis if the former is not possible.- Exchange Difference on Loans: The Tribunal directed the AO to differentiate between exchange gains on working capital loans (to be treated as business income) and secured term loans (not to be treated as business income for Section 10A). The AO was instructed to verify the details and allow claims accordingly.2. Addition of Interest on Delayed Export Payments:*Ground No. 2 in Assessee's Appeal:*The assessee challenged the addition of Rs. 8,36,437/- as interest on delayed export payments to its AE, arguing that such transactions were not at arm's length.- The Tribunal acknowledged the assessee's argument that it neither charged nor paid interest to its AE and that it had significant delayed import payments to the same AE. The Tribunal found merit in the contention that if the assessee owed more to the AE on import payments, then delayed export realization should not bear interest. The issue was restored to the AO to verify if the assessee had obligations to pay the AE on import dates corresponding to the delayed export payments. The AO was directed to re-adjudicate the issue accordingly.3. Application of MAT Provisions to SEZ Units:*Revenue's Appeal:*The Revenue contested the exclusion of book profit of SEZ units from MAT computation under Section 115JB, citing the amendment to clause (f) of Explanation 1 to Section 115JB(2).- The Tribunal upheld the CIT(A)'s decision, which followed the precedent set by Genesys International Corporation Ltd. and G. Jewelcraft Ltd., where it was held that SEZ units are covered by sub-section (6) of Section 115JB and thus, their book profit should not be included in MAT computation for the assessment year 2008-09. The appeal by the Revenue was dismissed.Conclusion:- The appeal filed by the assessee was partly allowed with specific directions for re-assessment by the AO on certain issues.- The appeal filed by the Revenue was dismissed, affirming the CIT(A)'s decision on the exclusion of SEZ unit profits from MAT computation.Order Pronouncement:The order was pronounced in the open court on 15/04/2015.