Sanghavi Jewels P.Ltd, Mumbai vs Department Of Income Tax

2 M/s Sanghavi Jewels Pvt. Ltd.

u/s 10AA of the Act. The crux of arguments advanced by Shri Love kumar, ld. DR, is in support to the disallowance made by the Assessing Officer on the ground that the ld. Commissioner of Income tax (Appeals) while granting relief did not appreciate that the interest income cannot form part of profit of the export oriented unit eligible for deduction u/s 10AA of the Income Tax Act.

2. On the other hand, the ld. counsel for the assessee, Ms. Aarti Visanji, contended that the ground raised by the Revenue is misconceived for which our attention was invited to para 5.2 of the impugned order in which the identical claim/ground was withdrawn by the assessee itself.

2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee company is manufacturer and exporter of diamond studded gold and platinum jewellery. The assessee showed interest income of Rs.80,32,971/- and claimed exempt u/s 10AA of the Income Tax Act 1961, (hereinafter the Act). Without going into much deliberation, as mentioned in para 5.2 (page -6) of the impugned order, during hearing before the ld. Commissioner of Income tax (Appeals) ground no.1.1 (form no. 35 on 18/04/2012) was withdrawn by the assessee by signing the office note-sheet entry dated 18/04/2012 and 05/09/2012. This ground was dismissed as withdrawn by the ld. Commissioner of Income tax (Appeals), consequently, this ground was 3 M/s Sanghavi Jewels Pvt. Ltd.

decided against the assessee. In view of this fact, the ground raised by the Revenue does not survive as the ld. Commissioner of Income tax (Appeals) has already dismissed this ground as withdrawn.

3. The next ground pertains to deleting the disallowance of gross interest income from the claim of deduction u/s 10AA of the Act, without appreciating that the Tribunal for Assessment Year 2007-08 (ITA No.6979/Mum/2011) order dated 26/09/2012 has expressed that applicability of decision on netting of interest income for the purpose of deduction u/s 80HHC involves a debatable issue considering that provisions of section 80HHC are not 'para material' to the provision of section 10AA of the Act. The ld. DR advanced his arguments which are identical to the ground raised by defending the assessment order. On the other hand, the ld. counsel for the assessee defended the conclusion arrived at in the impugned order by submitting that the impugned issue is covered by the decision of the Tribunal in the case of assessee itself for A.Y. 2007-08 order dated 26/09/2012 (ITA No.6979/Mum/2011). This factual matrix was not controverted by the Revenue with the help of any positive material.

3.1. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 26/09/2012 for ready reference:-

4 M/s Sanghavi Jewels Pvt. Ltd.

"4. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the decision of Hon'ble Bombay High court in the case of Asian Star Trading (supra) holding that 90% of the gross interest income is liable to be excluded for the purpose of computing profits of the exports business was in the context of section 80HHC and as rightly contended by the learned counsel for the assessee, the applicability of the said decision in the context of computing deduction u/s 10AA involve a debatable issue especially considering that the provisions of section 80HHC are not para materia to the provisions of section 10AA. The learned DR has also not been able to raise any material contention to dispute this position. Moreover, the decision of Hon'ble Bombay High Court in the case of Asian Star Trading has been subsequently overruled by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P) Ltd. vs. CIT 67 DTR 205 holding that 90% of the net interest which has been included in the profits of business of the assessee is to be deducted for determining the profits of the business for the purpose of computing deduction u/s 80HHC and not the gross interest. Keeping in view the decision of Hon'ble Supreme Court in the case of ACG Associated Capsules (P) Ltd. (supra), we are of the view that there was no mistake in the appellate order dated 31-05-2011 passed by the learned CIT(Appeals) allowing the claim of the assessee for deducting only the net interest income for calculating the profit eligible for deduction u/s 5 M/s Sanghavi Jewels Pvt. Ltd.

10AA much less a mistake apparent from record calling for any rectification u/s 154. Accordingly, we set aside the impugned order passed by the learned CIT(Appeals) u/s 154 and allow this appeal of the assessee.

5. In the result, the appeal of the assessee is allowed."

3.2. If the observation made in the assessment order, conclusion drawn in the impugned order, material available on record, conclusion drawn in the order of the Tribunal and the assertion made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that in the own case of the assessee for assessment year 2007-08 interest was not allowed for deduction u/s 10AA of the Act and the Tribunal decided the issue in favour of the assessee against which no appeal was filed by the Department, meaning thereby, the order of the Tribunal, as on date, stands. The issue before us pertains to exclusion of net interest vs gross interest for the purposes of quantifying the permissible deduction u/s 10AA of the Act. We find that the basis of conclusion by the Assessing Officer is reliance upon the decision in Asian Star Company Ltd. (326 ITR 56)(Bom), wherein, it was held that no netting of interest is allowable while computing deduction u/s 80HHC of the Act, However, this decision has been overruled by the Hon'ble Apex Court in ACG Associated Capsules (P.) Ltd. vs CIT 67 DTR (SC) 205. The decision in Topman Exports vs CIT (2012) 67 DTR (SC) 185 6 M/s Sanghavi Jewels Pvt. Ltd.

further supports the case of the assessee. In view of these decisions, the Assessing Officer was directed to exclude net interest, which has been included in the profit of the business as computed under the head 'profit & gains of business or profession' with due diligence and after conducting necessary verification of the facts. It has been further directed that netting has to be restricted to the extent of nexus between the interest received and interest paid. In view of these facts, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income tax (Appeals). It is affirmed, thus, this ground of the Revenue is having no merit.

Finally, the appeal of the Revenue is disposed of in terms indicated hereinabove.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 13/01/2015.

आदे श कȧ घोषणा Ǒदनांकः 13/01/2015 को कȧ गई ।

Sd/- Sd/- (Sanjay Arora) (Joginder Singh) लेखा सदःय / ACCOUNTANT MEMBER Ûयाियक सदःय / JUDICIAL MEMBER

मुंबई Mumbai; Ǒदनांक Dated : 14/01/2015 f{x~{tÜ? P.S/.िन.स.

आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to :

1. अपीलाथȸ / The Appellant

2. ू×यथȸ / The Respondent.

3. आयकर आयुƠ(अपील) / The CIT, Mumbai.

4. आयकर आयुƠ / CIT(A)- , Mumbai

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 7 M/s Sanghavi Jewels Pvt. Ltd.

6. गाड[ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy//

उप/ उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण, मुब ं ई / ITAT, Mumbai