THE ITO, WARD-2(4), SURAT vs. M/S. GUNJAN EXPORTS, SURAT

-2 IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT Before Shri C.M.GARG, Judicial Member, and Shri O.P. MEENA, Accountant Member ITA No.2860LAhd/2014 Assessment_Year: 2011-12 The Income Tax Officer , Ward-2(4) , Surat. M/ s.Gunjan Exports, TI Plot No.151, Surat Special Economic Zone, Vs. Sachin, Surat 394 230 PAN: AAGFG7O30E (Appellant) (Respondent ITA No.35S50LAhd[2015 Assessment Year: 2012-13 The Assistant Commissioner of Income Tax, Circle 1(23), Surat. M/ s.Gunjan Exports, Plot No.151 Surat Special Economic Zone, Sachin, Surat 394 230 PAN: AAGFG7030E (Respondent TI Vs. (Appellant) Assessee by Revenue by Final Date of Hearing: Date of Order: Shri Kushal Gheewala CA Shri B.PKPanda, Sr DR 01.02.2018 02.2018 HC9 L O RDER Per Shri C M_Garg_JM: These appeals have been filed by the Revenue against the order of the CIT(A)-II, Surat dated 11.08.2014 for the assessment year 2011-12 and dated 04.09.2015 for the assessment year 2012-13. 2 The sole ground raised by the Revenue reads as under "[1] On facts and circumstances of the case, whether the Ld.CIT(A) was justified in holding that interest income received from FDR is a part of a business income and deduction u/s.1OAA is allowable on that. 3 On being asked by the Bench, both the parties have agreed to the fact that facts and circumstances of both the cases are similar and identical and ITA No's: 2860 & 3550 M/s.Gunjan Exports appeals that the ld.CIT(A) there is sole ground of the Revenue in both the not correct and justified in holding that interest income received from was of business income and deduction u/s.1OAA of the Income Tax FDR is a part Act 1961 (in short the 'Act) is allowable on the same. We have heard arguments of both the sides The ld.DR supporting the 4 action of the Assessing Officer submitted that the income of assessee from exemption u/s.1OAA of the Act: The interest from FDR was not allowable for the order of ITAT, Ahmedabad 'C ld.assessee 's (AR) placing reliance on assessee's own cases ITA No.2837 Ahd/2013 Bench, dated 22.11.2016 in year 2010-11 submitted that and CO.No.98/Ahd/2014 for the assessment Tribunal has dismissed appeal of the Revenue upholding the conclusion the that interest income received from FDR is part of arrived by the ld.CIT(A) u/s.1OAA of the Act is allowable on that business income and deduction asked by the Bench, the Id.DR, in fairness, candidly accepted that On being has been decided by the Revenue for the assessment year 2010-11 the issue of assessment year 2010-11 are identical and and facts and circumstances year 2011-12 and 2012-13 for which similar to subsequent assessment Revenue has filed present appeals: submissions from one Tribunal On careful consideration of above 5 2010-11 (supra), we find that the Tribunal Order for the assessment year dismissing appeal of the Revenue by upheld the order of ld.CIT(A)and observing as follows stated, the relevant material facts are like this: During the course of scrutiny 3. Briefly noted that the Profit & Loss account shows that assessment proceedings, the Assessing Officer Rs.38,72,856/- which is included in the the assessee has received bank interest income of deduction under section 10AA of the Act: The assessee was asked to explain profit eligible for not be declined in respect of the same It waS aS to why deduction under section IOAA ITA No's: 2860 & 3550 M/s.Gunjan Exports 3 submitted by the assessee that the said interest has been earned on deposits which were placed with the bank S0 aS to avail the credit facility: It was also submitted that these deposits were necessary for availing bank finance. It was thus contended that the interest s0 earned ends up reducing the interest paid on borrowed funds: His explanation did not however; satisfy; the Assessing Officer: He was of the view that interest income may be attributable to business but is not derived from export of such article or things manufactured or purchased by the assessee: He referred to and relied upon the judgement of Hon 'ble Supreme Court in the case of Pandian Chemicals Limited, 262 ITR 278 (SC) wherein it waS held that the interest on security deposit with the Electricity Board was not eligible for benefit of section 80HH A reliance waS also made to the judgement of Hon 'ble Supreme Court in demarcation attributable to and not derived from As regards the assessee '$ plea about netting of interest paid and interest received, the Assessing Officer held that such course is not permissible: It was in this backdrop that the Assessing officer made addition of Rs.38,72,856/- by declining deduction under section IOAA in respect of the Learned CIT(A) held that s0 far aS facts of the present case are concerned, the deposits were placed as security for the bank borrowing and for purchase of integral part of the business: He also referred to certain evidences filed by the assessee including letter issued by Antwerp Diamond bank NV which shows that when lien was not on these deposits and that these deposits were placed as security for working capital loan, it was in this backdrop and relying upon the decision of the Tribunal in the case of para Motor Manufacturing Company (ITA No.875/Ahd/2012), Livingstones Jewellery Pvt. Ltd. (31 SOT 323) and Tessitura Monti India Pvt. Ltd.(141 ITD 531). The learned CIT(A) held that deduction under section 10Aa is t0 be allowed on the facts of this case: The Assess ing Officer is aggrieved and is in appeal before us: We have heard the rival contentions, perused the material considered facts of the case in the light of the applicable legal position: record and duly 5 We have noted that the Assessing Officer has inter alia pleaded that 'working capital from bank has been secured against hypothecation of stock in trade, book debts and equitable mortgage of the factory building and plant & machinery; thus it cannot be Said that the interest on FDR $ was attributable to have been derived from Industrial undertaking: We; however; see little merit in this plea In the paper book filed before us, the assessee has furnished evidence of the fact that the fixed deposits were placed under lien and that these deposits were given to comply with the requirement of bank $0 aS to avail credit facilities; In these circumstances, it cannot be said, aS has been pleaded by the Revenue, that the fixed 1 question were not given aS security way of hypothecation of stock in trade deposits Or charges an assets of the company does not negate the fact of bank deposits also having been given aS collateral security: In any Capsules vs. CIT; 247 CTR 372, netting has to be allowed and once that is done, there bank is far in excess of the interest earned from banks on fixed deposits to avail these loans: We also add that a Co-ordinate bench of this Tribunal in the case of Zaveri & Co (P.) Ltd. Vs; CIT , [2014] 48 taxmann.com 153, have inter alia observed aS follows 36. The next issue relates t0 the order of Commissioner of Income Tax whereby it was held that interest income earned by the assessee on its fixed deposit receipts with the bank is to be taxed under the head "income from other sources and consequentially not entitled to exemption Ws IOAA of the Act and consequentially interest income is to be excluded for calculating benefit allowable Ws 1OAA of the Act: 37. The undisputed facts relating to this issue are that the assessee imports goods on credit and re-exports the Same from its SEZ unit. The import is made on a credit of 360/90 days against letter of credit: For obtaining the letter of credit; the assessee is required to offer fixed deposit receipt to the bank as a security. On expiry 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 ITA No's: 2860 & 3550 M/s.Gunjan Exports 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 as_ business income of the assessee by the Assessing Officer in the assessment order: This view of the Assessing Officer was considered as not possible view by the Commissioner of Income Tax in the impugned order passed us 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 no reason aS to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee. Our above view finds support from the recent decisions of the Hon'ble Karnataka High Court in the case of CIT & anr: Vs: Motorola India Electronics (P) Limited (2014) 265 CTR 94 (Kar ) wherein it was held that: "No doubt Sub-section 10(B) speaks about deduction of such profits and gains aS derived from 100% EOU from the export of articles or things or computer software. Therefore, it excludes profit and gains from export of articles But Sub- section explains what is the profit derived from export of articles as mentioned in Sub-section The substituted Sub-section says that profits derived from export of articles or things or computer software shall be the amount which bares t0 the profits of the business of the undertaking and not the profits and gains from export of articles Therefore, profits and gains derived from export of articles are different from the income derived from the profits Of the business of the undertaking: The profits of the business of the undertaking includes the profits and gains from export of the articles aS well as all other incidental incomes derived from the business of the undertaking: It is interesting to note that similar provisions are not there while dealing with computation of income under Section 8OHHC. On the contrary there is specific provision like Section 8OHHB 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. 4 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 t0 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 froii tle 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 IOB 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: 6. In view of the above discussion; as also bearing in mind entirely of the case, we uphold the conclusions rrived at by the learned CIT(A) and decline to interfere in the matter: ITA No's: 2860 & 3550 M/s Gunjan Exports 5 6 On careful perusal of the order of the ITAT, Ahmedabad 'C' Bench, dated 22.11.2016 for the assessment year 2010-11 (supra), we note that the Tribunal, after giving detailed reasoning and considering the order of the Tribunal in the case of Zaveri & Co (P.) Ltd. Vs. CIT, (2014) 48 taxmann.com 153, held that bearing in mind entirety of the case, we uphold the conclusions arrived by the ld.CIT(A) and declined to interfere in the matter. In our considered opinion, the issue is squarely covered in favour of the assessee by the order of ITAT, Ahmedabad for the assessment year 2010- 11(supra) in the case pertaining to the present assessee on the identical and similar issue Therefore, wC have no reason to take any different view and thus, respectfully following the same, we hold that the conclusion drawn by the ld.CIT(A) for subsequent assessment years 2011-12 and 2012-13 requires no interference. We are unable to see any valid reason to interfere with the first appellate order, wherein the ld.CIT(A) allowed deduction u/s.1OAA of the Act on interest income received from FDR Consequently, orders of the ld.CIT(A) for both the years are upheld and consequently sole ground of the Revenue in both appeals being devoid of merits is dismissed. 6 In the result; both the appeals of the Revenue are dismissed. Order pronounced in the open court on 01.02.2018_ | ~ S41 (O.P.Meena) (C.M:Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER St 87i /Dated 0 'February, 2018 S.Gangadhara Rao, Sr.PS Copy to: Assessee AO / Pr_ CIT / CIT (A)/ITAT (DR) / Guard file. By order Assistant Registrar, Surat