TaxTMI 
TaxTMI 
2014 (10) TMI 207
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....he appeal in ITA No.945/Ahd/2014 read as under:- 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 whic....
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....copies of ledger accounts of bank FDR's in case of additions made during the year in Annexure-H. (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....
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....8.08 @11.10% Mat. Amt. Rs. 37873549.92 Mat. Dt. 07.08.09 3,40,00,000.00 80,22,40,000.00 9. He then referred to the reply dated 02.08.2011 of the assessee to the notice of the Assessing 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 define....
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....ormed as a result of re-establishment, construction or revival of the business of any undertaking by the entrepreneur as per provisions of Section 33B The Unit is not so formed * Unit is not formed by the transfer to a new business, of plant and machinery previously used for any purpose. Not applicable, since it is a Trading business 10AA(5) 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 se....
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....of events in purchase of bullion: * Zaveri & Co. Exports (buyer Indian Party) approaches Foreign Supplier purchase for of Platinum. * Zaveri & Co. Exports places order with supplier at Dubai, U.A.E. * The buyer Indian party makes FDR with India Bank for opening a letter of credit (L/C) with Indian Bank for the required amount of purchase value. * The goods are supplied by Foreign Supplier on credit of 360 days. The Foreign Supplier Ships the Platinum through Air Cargo. * Platinum consignment arrives 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 b....
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.... * There has been very wide fluctuation of gold prices over the entire year which is evident from the Price List of Choksi Mahajan as well as the list of dollar based bullion prices in international market from website www.ibma.org.uk. Enclosed herewith. Thus it will be seen that the purchases as well as sales have suffered the impact of this volatility in the prices. * We have maintained complete quantity details, which are produced before Your Honour for verification. * Further during the year we have sold bullion to Zaveri & Co Pvt 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 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,....
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....e and sales transactions at the prevailing market prices. In support of our contention we have enclosed the daily prices of 24 carat gold as certified by Shree Chokshi Maria/an, Ahmedabad and a few copies of invoices. * There has been very wide fluctuation of gold prices over the entire year which is evident from the Price List of Chokshi Mahajan as well as the list of dollar based bullion prices in international market from Website www.lbma.org. uk.Enclosed herewith. Thus, if will be seen that the purchases as well as sales have suffered the impact of this volatility 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 impo....
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....er 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 info 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. On verification of the details filed by the assessee, it is seen that the assessee has purchased bullion i.e. Platinum Bars for its SEZ 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 (mar....
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.....A.Y. 2005-06, in respect of similar addition, the assessee had preferred appeal before CIT(A)-XVI, Ahmedabad. The CIT(A)-XVI vide his Appellate order dated has decided the appeal in assessee's favour. The appeal of ITAY 2008-09 is pending before CIT(A) 12.In view of the above, no amount can be disallowed towards interest loading charges." - The assessee's contention has been perused, however, the same is not acceptable as from the details filed by the assessee, it is evident that the assessee has purchased the goods at a higher rate than the quoted international market price. The assessee has contended that since the L/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 segrega....
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....remarks and subject to the details made available by the assessee, the total income of the assessee is computed as under : Profits & Gains from Business or Profession : As per statement of computation of income Rs. 21,11,15,618 Add: Disallowance on account of interest loading charges Rs. 13,75,522 Rs. 21,24,91,140 Less: Brought forward business loss of Rs. 248111064/-assessed as per order u/s. 143(3) of the Act for the A. Y.2008-09 (Rs.248 1110647- + Rs. 32970077/- = Rs. 281081141/-) restricted to income available Rs. 21,24,91,140 Total Income... ... Rs. NIL The business loss of Rs. 3,56,19,924/-- as well as 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 incom....
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.... Ltd., ITA No.51/Bang/2008 5. Nirma Industries Ltd., 283 ITR 402 (Guj.) 6. CIT vs. Hycon India Ltd., 308 ITR 251 (Raj.) 7. Tessitura Monti India (Pvt) Ltd., 141 ITD 531 (Mum) 8. ITO vs. M/s. Jewelex International Pvt. Ltd., ITA No.3302/Mum/2009 9. ACIT v/s. Veritas Software (I) P. Ltd., ITA No.1278/Pune/2009 10.ITO vs. M/s. Greytrix (India) Ltd., ITA No.5787/Mumbai/2009 16. On the other hand, the ld. DR has filed written submissions which reads as under:- "Decisions/case-laws relied upon by the CIT(DR) for the Department Sr. No. Citation Concise Ratio Page No. 1 CIT vs. Infosys Technologies Ltd., 17 taxmann.com 203 (Kar.) A.O. allowed claim without any discussion, order was held to be both erroneous and prejudicial 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....
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.... CIT was justified in exercising his revisional jurisdiction on the ground that the ITO had not made sufficient enquiries before granting registration to the firm and it was not necessary for the CIT to have himself made enquiries before cancelling the assessment. 7 Rampyari Devi Saraogi [67 ITR 84 (SC)] Tara Devi Agrawal [88 ITR 323 (SC)] Reliance placed by CIT in his revisional order on facts not indicated or communicated to the assessee and which the assessee had no opportunity of meeting being only supporting material and not basic facts and there being ample material on record to show that the ITO made assessments in undue haste without making any enquiry, it could not be said that assessee was denied an opportunity of hearing because assessee had not in any may suffered on that count and even if those additional materials had been disclosed, the result would have 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....
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....ssee on FDRs which were placed with the bank for obtaining Letter of Credit for the purposes of import qualifies for deduction u/s 10AA of the Act. The observation of the Commissioner of Income-tax in this aspect is recorded at paragraph 6.1 of the impugned order passed u/s 263 of the Act which reads as under:- "6.1 In the aforesaid circumstances the income from interest primafacie is not in the nature of profits and gains derived from export of services, articles or things as envisaged as per section 10AA of the Act. The assessee has admitted that it has to pay higher price on import of precious metal because of credit for 360/90 days and it has to re-export the goods at lower price because of almost immediate payment received export. This fact also lead to an opinion that the assessee was very well aware about the trading loss on such transactions but it continued with the loss making transactions only because 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....
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....of the letter of credit period, the bank liquidates the fixed deposit receipt and makes payment to the importer. Further, the exports are made on immediate payment basis. Therefore, as the purchases are made on credit basis, the purchase value is higher than the prevailing rate on the date of purchase from purchases which are made on immediate payment basis. The exports are made on immediate payment basis at the market value which is prevalent on the date of payment. Normally, the assessee's purchase value is therefore more than its sale value. However, as the assessee receives payment for sales immediately and the payment for purchases are made at a later date and interest income earned by the assessee during the intervening period on sale value, the transaction were considered as commercially expedient and results in overall income to the assessee. The interest income in question are interest income which are earned by 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 ....
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....on 80HHB which expressly excludes this type of incomes. Therefore, in view of the aforesaid provisions, it is clear that, what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking. 8. In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. Though it does not partake the character of a profit 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 bene....
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....n by the assessee. It is significant to note here 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 absence of such a provision enacted by the Parliament in section 10AA of the Act, it is not possible for any other person to read such provision in section 10AA of the Act.Hon'ble Supreme Court in the case of Sm. Tarulata Shyam Vs. CIT (1971) 108 ITR 345 (SC) held that there is no scope for importing in the statute words which are not there. Further, Hon'ble Supreme Court in the case of CIT Vs. Shann Finance Private Limited (1998) 231 ITR 308 (SC) went on to hold that in interpreting fiscal statute, court cannot proceed to make good the deficiencies if there be any. The court must interpret the statute as it stands, and in case 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 f....