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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI B.R. BASKARAN, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 18.07.2016 passed by the Commissioner of Income Tax (Appeals) - 53, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.
The revenue has raised the following grounds:- “1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in allowing appeal of the assessee without appreciating that the decision of the ITAT, Jaipur Bench in the case of DCIT Vs. Goenka Diamonds and Jewellers Ltd. in dtd. 31.01.2012 has not been accepted by the Department at Jaipur and appeal to the Hon’ble Rajasthan
ITA. NO. 6350/M/2016 A.Y. 2012-13 High Court has been preferred and also in the case of M/s. Gitanjali Export Corp Ltd. in is not accepted and an appeal to the Hon’ble High Court of Mumbai has been preferred.? 2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A)failed to appreciate that the three words “manufacturing “produce or provide any services used in section 10AA should be interpreted in continuity and coherently to put into effect the spirit and intention of the legislature in providing for a deduction u/s 10AA of the I.T. Act, 1961.
3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A failed to appreciate that the intention of the legislature was not to accord the benefit of deduction u/s 10AA to the trading activity of the type practiced by the assessee, by specifically choosing not to include a clause facilitating the borrowing of the meaning of the word trading or service from the SeZ Act.
Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A was justified in allowing the appeal of the assessee without appreciating the fact that the Hon’ble Rajsthan High Court decision in the case of Kota Co-operative Mrketing Society Vs. CIT 207 ITR 608 (Raj) has held that the exemption clause in the tax statue, should be construed strictly and cannot be extended beyond the clear language used in the section.
The brief facts of the case are that the assessee filed its return of income on 29.09.2012. Notice u/s 143(2) of the I.T. Act was issued on 07.08.2013 and served upon the assessee. Thereafter, notice u/s 142(1) of the I.T. Act, 1961 dated 19.08.2014 was issued and served upon the assessee. The assessee company was engaged in the manufacture of gold jewellery. The assessee was having one unit at Sachin SEZ at Surat. Shri Amrutlal G. Jain and Shri. Ritesh Jain were the partnership in the firm. They were also directors of Auro Gold Jewellery Pvt. Ltd. In the year under consideration, the assessee has undertaken trading of goods to the tune of Rs.11,05,35,640/- and raised the claim u/s 10AA(8) of the I.T. Act, 1961. The AO was of the view that the assessee was doing of work of trading which nowhere facts and controversy export of manufactured goods and ITA. NO. 6350/M/2016 A.Y. 2012-13 export of service. Therefore, notice was given and after getting reply the claim of assessee was declined and the said amount was added to the income of the assessee. The total income of the assessee was assessed to the tune of Rs.4,10,25,943/-. Thereafter, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
ISSUE NO.1 & 2:-
4. All issues are inter-connected and therefore are being taken up together for adjudication. However, under these issues, the revenue has challenged the allowance of claim of the assessee u/s 10AA of the Act. Before going further it is necessary to advert the finding of the CIT(A) on record.:-
“4.3.1. I have considered the submissions of the appellant and perused the materials available on record including copies of judicial decisions relied upon by it. The issue for adjudication is whether the AO was justified in disallowing the appellant’s claim for deduction of Rs.75,91,776/- u/s 10AA of the Act on the ground that diamond trading activity undertaken by the appellant was not eligible for such deduction. As per section 10AA of the Act, an assessee being an entrepreneur as referred to in section 2(j) of the SEZ Act, 2005 who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any A.Y. commencing on or after 01.04.2006 is entitled to deduction at prescribed rates of profits and gains derived from the exports of such articles or things or from provision of services for specified periods. Under section 2(j) of SEZ Act,2005 an entrepreneur means a person who has been granted a letter of approval by the Development Commissioner u/s 15(9) of that Act. Section 15(9) of SEZ Act provides that the Development Commissioner may, after approval of the proposal referred to in sub-section (3), grant a letter grant a letter of approval of the proposal referred to in sub-section (3), grant a letter of approval to the person concerned to set up a unit and undertake such ITA. NO. 6350/M/2016 A.Y. 2012-13 operations which the Development Commissioner may authorize and every such operation so authorized shall be mentioned in the letter of approval. IT is noticed from the record that the appellant was initially granted letter of approval dated 17.112005 by the Development Commissioner, Surat SEZ Surat 10 carry out authorized operations in respect of trading of gold in any form including jewellery studded as well as plain and manufacturing of gold medallion. 4.3.2 it is pertinent to note that Instruction No,] issued vide RS/1/200G-EPZ by the EPZ Section, Department of Commerce, Ministry of Commerce and Industry, Government of India, New Delhi on 21.03.2006 had clarified that "trading for the purposes of Rule 6 of the SF2 Rules would be confined to import of goods for exports". Thereafter, it is observed that the Ministry of Commerce & Industry, Government of India issued another Instruction No.4 dated 24.05.2006 which is reproduced as under- "This Department has been receiving representations on difficulties faced by the existing SEZ units holding approval to do trading, that their exports are adversely affected and also that several of their orders ore held up due to the restriction on trading on account of the above instruction Taking cognizance of these representations, in partial modification of the above referred Instruction dated 24'" March,2008, it has been decided that while units in (he Special Economic Zone who hold approval to do trading activities win he allowed to carry out all forms of trading activity benefit under Section I0AA will exclude trading other than trading in the nature of export of imported goods. Appropriate amendments in this regard are being issued. in the meantime, structure from domestic area may be permuted by units in the SEZ which are allowed trading, subject in this circular being cited and on production of an undertaking by the concerned unit that no income, tux benefits will be available by the unit for trading, except m the nature of re-export of imported goods." It is noticed from the record that the appellant obtained revised approval from the Development Commissioner, Surat SEZ vide letter No. SSEZ/G-13/314/2005-6/982 dated 23.03.2009 to carry on authorized operations in respect of trading of rough or polished diamonds at Us unit No366 in the SEZ at Sachin, Surat. In other words, trading and export of rough or polished
ITA. NO. 6350/M/2016 A.Y. 2012-13 diamonds was approved as "authorized operations" of the appellant by the competent authority under the SEZ Act, one of the conditions stipulated m the aforesaid letter of approval was that The benefit u/s10AA of the income-tax Act, 1961 shall exclude trading other than trading in the nature of re-export of imported goods only. Accordingly, the appellant is said to have started importing rough or polished diamonds and re-exporting the same on "as is where is" basis. 4.3.3 Thus, it is found that the appellant is an entrepreneur as defined m section 2(J) of the SEZ Act who began to carry out trading and export of rough or polished diamonds as per revised letter of approval dated 23.03.2009 issued by the Development Commissioner, Surat SEZ, The only question to be considered now is whether the activity of re-export of imported rough or polished diamonds carried on by the appellant during the relevant period is eligible for deduction u/s. l0AA of the Act or not. In this connection, is evident that the appellant is not engaged in manufacture or production of any articles or things. What remains to be seen is whether the appellant can be said to be providing any 'services' so as to be eligible for deduction u/s.l0AA of the Act. It is pertinent to mention that the word 'services' has not been defined either in section 10AA or in section 2 of the Act dealing with definitions of various words and expressions. However, it is noticed that Rule 76 of SEZ Rules as amended in 2006 defines the word "services" inter alia lo include "trading It is also noticed that Explanation to Rule 76 lays down that "the expression 'trading' for the purpose of the Second Schedule of the Act, shall mean import for (he purposes of re-export". In [his regard, 1 find merit in the appellant's plea that by virtue of section 53 of (he SEZ Act the provisions of that Act have been given overriding effect over the provisions of any other law for the time being in force including those of the Act. Section 27 of the SEZ Act also provides that the provisions of Income-tax Act, 1961, as in force for the time being. shall apply to or in relation to the developer or entrepreneur for carrying on the authorized 033 era I ions in a Special Economic Zone or unit subject the modifications specified
ITA. NO. 6350/M/2016 A.Y. 2012-13 in the Second Schedule. As the word 'services' is found to have been specifically defined in Rule 76 of the SEZ Rules, it has to be understood in that sense only. Therefore, the A.G/s view that the word 'services has to be construed by its genera! or natural meaning will not hold good. 4.3.4 It is also seen from the record that this issue is covered in favour of the appellant by various decisions of Hon'ble Tribunal cited in para 4.2.2 about the earliest decision on the point is available in the case of M/s. Goenka Diamond and Jewellers Ltd. (supra) wherein it has been held that the word 'services' as mentioned in section 1QAA cannot be construed inconsistently with The definition of 'services' given in the SEZ Act and that "under the SEZ Act, the trading is included in services provided the trading is export of imported goods". In view of this, it has been held that the assessee in that case engaged in trading of diamonds was entitled to deduction u/s. l0AA of the Act. is observed that similar view has been taken by the Mumbai, Ahmedabad and Kolkata Benches of Hon’ble Tribunal in the case cited above. Respectfully following the aforesaid decisions of various Benches of Hon’ble Tribunal, it is held that since the appellant was engaged in the activity of re-export of imported rough or polished diamonds during the relevant period, the AO was not justified in disallowing its claim for deduction u/s 10AA amounting to Rs.75,91,776/- in respect of profits and gains derived by the appellant firm from such activity. Therefore, the AO is directed to allow deduction of Rs.75,91,776/- to the appellant u/s 10AA while giving effect to this order, Grounds bearing nos.1, 2 and 3 of the present appeal are accordingly allowed.”
On appraisal of the above said order, we noticed that the CIT(A) has discussed the each and every aspects of the business of the assessee. The trading activity as well as the services of the assessee has duly been discussed and defined in accordance with the relevant provision. The CIT(A) has passed the order on the basis of the decision of Hon’ble ITAT in the case of M/s. Goenka Diamond and Jewellwers Ltd 146 TTJ (Jpr)
ITA. NO. 6350/M/2016 A.Y. 2012-13
It is specifically held that the income earned from trading involving re- export/ imported goods is eligible for deduction u/s 10AA of the Act. The CIT(A) has also placed reliance upon the order passed in case of Addl. CIT Vs. Gitanjali Exports Corporation Ltd. in & 6783/M/2011 Mumbai Bench dated 08.05.2013 and DCIT Vs. Diamond R US ITAT Mumbai Bench dated 30.10.2015 in CO No. 276/M/2014, M/s. Ossian Exports Vs. ITO 14(2)(4) in ITA. No.1650/M/2015 dated 31.01.2017. The facts are not distinguishable at this stage. No law contrary law to the law relied by the Ld. Representative of the Revenue has been produced before us. Therefore, in the said circumstances, we are of the of the view that the CIT(A) has passed the order judicially and correctly which is not liable to be interfere with at this appellate stage. Therefore, these issues are decided in favour of the assessee against the revenue.