TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 207
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....- 1. That on facts, and in law, the learned CIT-V, Ahmedabad has grievously erred in assuming jurisdiction u/s 263 of the Act, and setting aside the issue of deduction u/s 10AA of the Act to the file of the AO for making necessary inquiries and examination, without establishing as to how the assessment order is erroneous and prejudicial to the interest of Revenue. 2. That on facts and in law, the learned CIT-V, Ahmedabad has grievously erred in holding that the learned AO has not examined and has not done any inquiry nor any verification, whereas, in fact, the assessment order is passed u/s 143(3) of the Act after thorough inquiry through show-cause notice and replies, and verification of all the issues sought to be revised. 4. By way of the above two grounds the assessee is challenging the jurisdiction of the Commissioner of Income-tax-V, Ahmedabad in exercising his power u/s 263 of the Act. The learned Authorized Representative of the assessee referred to paper book-I filed in ITA No.945/Ahd/2014 for AY 2009-10. He then referred to the show-cause notice issued by the Assessing Officer u/s 142(1) of the Act on 04.07.2011 which is placed at page Nos.81 and 82 of the paper book a....
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.... (vii) We enclose herewith chart showing interest income of Rs. 55,25,83,303/- in Annexure-I. (viii) We enclose herewith chart showing exchange rate difference of Rs. 8,43,19,855/- in Annexure-J. (ix) The reply in respect of eligibility u/s 10AA and working of deduction is under compilation and shall be given at next hearing." 6. He then referred to page No.119 of the paper book and submitted that copy of proforma invoice of M/s. BIN SABT JEWELLERY L.L.C. is placed. He also referred to page No.125 of the paper book and submitted that the sanction letter of the bank for credit facilities allowed to the assessee is placed, which reads as under:- "... 1. Facility Details S. No. Facility Description Commissi on Security Special Terms & Conditio ns 1 Facility : Letters of Credit (LCs) Amount : INR 1,000,000,000/-(Indian Rupees One billion only) Purpose: Import of bullion Tenor: Used period-Upto 360 days Validity Period-LC Validity including usance period not to exceed 13 months Availability period-12 months subject to annual review. Rs. 15,000 per LC (all inclusive) plus applicabie taxes * 100% margin in the form of fixed deposits held under lien with YBL * The....
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.... Officer placed at page No.223-269 and by referring to page No.237, he submitted that the assessee had given the note for compliance of Section 10AA, which reads as under:- "COMPLIANE OF SECTION 10AA Section 10AA provides for a Deduction of Income of Newly established Units in SEZ. This section has various Subsections and Explanations, which are complied with as summarized below: Subsection Particulars 10AA(1) Compliance: * The deduction is available to an "Entrepreneur" as referred in clause (j) of section 2 of Special Economic Zone Act, 2005. * The income has to be from a "Unit". * The "Unit" should begin to: (a) manufacture, or (b) produce articles/things, or (c) provide any services during the previous year relevant to any assessment year commencing on or after 01/04/2006. The SEZ Unit 'provides services'. 'Services' is not defined under section 10AA of Income Tax Act. This term has been defined in SEZ Act. Rule 76 of SEZ Rules 2006, defines 'Services' which includes Trading i.e. import for the purpose of re export; We have done Trading as defined above. The details of each transaction of trading are Hied separately. The SEZ Unit has ....
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....Compliance Where such unit, being a company is transferred in a scheme of amalgamation or demerger: * No deduction shall be allowed in the year of amalgamation or demerger; and * Deduction shall be allowed on fulfillment of conditions of this section as if no amalgamation has taken place. Not applicable since no Amalgamation etc.. 10AA(6) Compliance Loss of business of Unit under section 72(1) or section 74(3)(1) shall be allowed to be carried forward and set off. No loss in Current Year 10AA(7) Compliance Under section 10AA(1) the deduction is allowed in respect of profits and gains "derived from the export' of articles or things or from services, i.e. Export profits. Section 10AA (7) provides the method of computation of export profits for the purpose of this section. Formula for the purpose of section 10AA(1) r.w.s.WAA(7): Profits derived from export of articles/things/services from= Profits of business of Undertaking being a Unit X Export turnover in respect of articles/things/services / Total Turnover of business carried on by assessee As per Audit Report enclosed 10AA(8) Compliance Compliance Applicability of provisions of Section 10A(5) and 1....
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....es at Mumbai and onwards to Surat, SEZ, unit. * No customs duty is payable since buyer Indian Party is SEZ unit. * As per terms and conditions of L/C, the payment of Foreign Supplier is to be made by Bank. * Zaveri & Co. Export is required to pay a higher purchase price (as compared to the International rate prevailing on date of shipment) to the Foreign Supplier due to the credit allowed by Foreign Supplier. 3. As per the import export policy of Government of India prevailing at the relevant time of import of bullion for trading purposes into India was permitted to SEZ unit. 4. This resulted in purchase price at a higher amount than the sale price. The sale bills issued by Foreign Suppliers were for a total price i.e. there was no segregation of any sort like spot price, interest etc. The invoices were for a composite amount. 5. As per the Mercantile Method of Accounting following by the assessee, the entire purchase price as per the sale bill of Foreign Supplier was treated as expenditure and debited to purchases. The sales price as per the sales bills issued by the assessee was treated as income and credited to sales account. 6. The L/C were opened by assessee by putting ....
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....d SEZ where as per Government Policy we have not charged import duties since the bullion is sold to SEZ unit. These sales have been made out of duty paid goods during the year. Against these sales we have availed duty free licenses for which we have imported bullion in subsequent year. We enclose herewith a chart in Annexure A which shows the working of savings in import duty next year when the gold was imported against such import licenses. The tentative working of GP is also enclosed in Annexure B. From the said tentative working it will be found that in current year there would have been profit considering the saving in import duties, which has accrued next year. * Further all our purchases and sales are made by account payee cheques through normal banking channels. Thanking you, Yours faithfully, For Zaveri & Co. Exports. (Partner)" 11. He then submitted that on page No.277 of the paper book copies of the assessment order passed by the Assessing Officer u/s 143(3) of the Act dated 26.09.2011 is placed, wherein the Assessing Officer has observed as under:- "The assessee e-filed its return of income for A.Y. 2009-10 on 26/09/2009 declaring, total income of Rs. NIL. The ret....
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....y in the prices. * We have maintained complete quantity details, which are produced before your honour verification. * Further during the year we have sold bullion to Zaveri & Co.Ltd. SEZ where as per Government Policy we have not charged import duties since the bullion is sold to SEZ unit. These sales have been made out of duty paid goods during the year. Against these sales we have availed duty free licences for which we have imported bullion in subsequent year. We enclose herewith a chart in Annexure A which shows the working of savings in Import duty next year when the gold was imported against such import licenses. The tentative working of GP is a/so enclosed in Annexure B. From the said tentative working it will be found that in current year there would have been profit considering the savings in import duties, which has accrued next year. The Profit & loss account of I.T.A.Y. 2010-11 is also enclosed which shows gross profit in that year." Further, the assessee has also furnished detailed chart showing the total "exports during the year against which imports were made during the year and in subsequent year. Further it is also explained with facts, the working of the gross....
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....Z Unit from Bin Jewellery LLC, Dubai for Rs. 145,13,14,944/-. The assessee has sold same to AI Mina Jewellers, LLC, Dubai for Rs. 136,07,06,006/- thereby Incurring a loss of Rs. 9,06,08,943/-. Vide order sheet entry dated 14/07/2011, the assessee was asked to explain the loss. In response, the assessee vide letter dated 02/08/2011 has contended that the goods are imported on a credit of 360 days and the payment to the purchaser has to be made after 360 days by the bankers of the SEZ Unit for which the assessee has obtained a letter of credit and has made a fixed deposit (margin money) of amount equivalent to the maturity value of the purchases. On the sales, immediate payment is received. Since the purchases from foreign suppliers are against L/C payment as a result the SEZ Unit pays higher price as compared to the internationally published spot price of Platinum on the date of purchase. The assessee further stated that if the interest received from the bank on FDR for the entire term of deposit i.e. 360 taken is considered as a whole then there is a profit of Rs. 3,74,61,239/- on the transaction. However, it is seen that the assessee has taken the interest accrued upto 31/03/2009 ....
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..../C amount is deposited in bank, it is gaining interest. However, since the assessee is paying more than the international spot price, it is apparent that the purchase price is inclusive of interest component. The amount of interest component cannot be derived from the sales price as per invoice. The true trading result of the bullion transaction of the accounting under consideration cannot be ascertained without taking into element of interest involved in the amount of purchase price, amount of composite invoice bills is not the only criteria to segregate amount of interest component involved in fixing the price of bullion in international transaction. Simply because the invoice doesn't separately mention the interest component, conclusion cannot be reached that purchase price has no component interest. A prudent business man will not pay higher rate for purchases than the international spot price unless he is able to gain from the transaction. The assessee is paying higher price because payment has to be made after 360 days and by depositing in bank, he is receiving more interest than being the enhanced purchase price. Hence, it is obvious that there is interest component in t....
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.... unabsorbed depreciation of Rs. 3,29,70,077/- of A.Y. 2008-09 are allowed to be carried forward for set-off for the subsequent assessment years as against claim for carry-forward of business loss of Rs. 5,16,72,250/- & Rs. 3,29,70,077/- being unabsorbed depreciation." 12. By referring to above documents as narrated above, it was the submission of the ld. AR that the Assessing Officer, after making detailed inquiry, has allowed deduction to the assessee u/s 10AA of the Act on the interest income earned on margin money kept with the bank by way of fixed deposits for opening Letter of Credit for purchases made by the assessee. Therefore, it was the submission that the Commissioner of Income-tax was not justified in holding that the Assessing Officer has not made inquiry with regard to the allowability of deduction u/s 10AA of the Act on the interest income on FDRs and by exercising the power u/s 263 of the Act holding that the order passed by the Assessing Officer has erroneous and prejudicial to interest of Revenue. He submitted that the view of the Assessing Officer was supported by the following decisions:- 1. M/s. Motorola India Electronics (P) Ltd. (Karnataka HC) order dated 11....
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.... as quasi-judicial authority is required to give reasons for any allowance. Please see para 25 & 27 of judgement. 1-13 2 CIT vs. Jawahar Bhattacharjee, 24 taxmann.com 215 (Gauhati) Assessment order passed on wrong assumption of facts, on incorrect application of law, without due application of mind - are not beyond scope of section 263. Please see page 2 of judgement 14-24 3 CIT vs. Ashok Logani, 11 taxmann.com 208 (Delhi) A.O. to properly adjudicate upon the issue and if not done or examined, it was a reasonably fit case for exercising revisionary jurisdiction u/s 263. Please see page 2 of judgement. 25-32 4 Shri Jitendra K. Desai vs. CIT, ITA No.l210/Ahd/2010, ITAT Ahmedabad order dated 27.07.2012 A.O. had not given any finding in assessment order for stock found by the police department in its raid, hence, order u/s 263 upheld. 33-38 5 Asman Invcstmnt Ltd. vs. DCIT, ITA No.l262/Ahd/2011/ ITAT Ahmedabad, order dated 06.07.2012 Assessing Officer has not applied his mind whether clause (f) of the Explanation 1 of Section 115JB of the Act was applicable or not and as also not examined the issue of eligibility of set off of carry forward speculation loss as provided i....
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....ve been the same; Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interest of the Revenue. 8 374 ITR 22 (Del) Ashok Logani Assessee having surrendered cash of Rs. 61 lacs for taxation during search but offered only a sum of Rs. 21 lacs in his return and AO having accepted the return relying on explanation of assessee without even considering the statement made by assessee during search CIT was justified in exercising his revisional jurisdiction giving another opportunity to assessee to explain the source of cash; hence order of Tribunal undertaking the exercise of satisfying itself with assessee's explanation and setting aside CIT's order could not be sustained. 9 215 ITR 81 (Guj) Minal S. Parikh Widow of deceased partner entering into partnership in place of her husband and returning 1/41* of share income of her return and ITO assessing the remaining 3/4m in the hands of three minors each, CIT's revisional order directing IT....
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....use the assessee company assured of interest of FDRs kept with the Bank against the LCs which were to be discharged after 360/90 days. The business of the unit is to import goods for re-export and not earn interest. Thus interest income is not eligible for deduction u/s 10AA of the Act. The assessee company's main or ancillary business is not of money lending or deposit business nor such activities supported by the nature of business described in the return of income, audit report and written submission filed during the assessment proceedings and during the proceedings under section 263 of the IT Act." 19. In view of above, the Commissioner of Income-tax considered the order passed by the Assessing Officer as erroneous and prejudicial to the interest of the Revenue and therefore, he set aside the assessment order passed by the Assessing Officer and directed that the Assessing Officer to reframe the assessment order. We find in the instant case that it is not in dispute that the assessee imports bullion on credit of 360/90 days. Therefore, 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....
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....y the assessee on fixed deposit receipts which are kept or pledged by the assessee with its bank for obtaining the Letter of Credit against its purchases is not in dispute. 38. On the above undisputed facts, the interest income earned by the assessee was assessed as business income of the assessee by the Assessing Officer in the assessment order. This view of the Assessing Officer was considered as not a possible view by the Commissioner of Income Tax in the impugned order passed u/s 263 of the Act and the Commissioner of Income Tax had held that the interest are mandatorily assessable under the head "income from other sources". 39. We find that in the instant case, it is not in dispute that 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. We thus find that 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, we find....
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....t and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of 'Income from Profits and Gains' incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals." 40. In view of the above, we find that 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. 41. The other connected issue is that as per the view of the Commissioner of Income Tax, the interest income in question being derived by the assessee from Indian Bank, the same is to be excluded while computing profits derived from the export of articles or things or services for the purpose of section 10AA of the Act. Sub-section (7) of section 10AA provides the manner in which the profits derived from "export ....
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....of doubt, in a manner favourable to taxpayer. Thus, we find 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. Our above view also finds support from the decision of the Bangalore Bench of the Tribunal in the case of Rajesh Exports Limited Vs. ACIT, (2008) TIOL-457-ITAT-Bangalore wherein it was held that: "In the light of the aforesaid discussion, it seems to us that the expression "profits of the business of the undertaking" appearing in section 10B(4) has to be construed in a wider sense than the expression "profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things" appearing in section 10B(1) of the Act. We have already noticed that sub-section (1) has been expressly made subject to the provisions of the Section. Therefore, the meaning to be ascribed to the words used in that sub-section should be controlled or tempered by the language used in subsection (4). So construct....