DCIT 3(2)(1), MUMBAI vs. JEWELEX INDIA P LTD, MUMBAI

The above tilted appeal by the Revenue and the cross objection thereto by the assessee have been preferred against the order dated 16.09.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09. Since the facts and issues involved therein are identical in nature, hence the same are taken together for disposal by this common order.

The brief facts relevant to the issue are that the assessee company is engaged in the business of manufacture of jewellery and export of cut and polished diamonds. The jewellery manufacturing units of the company are located in Special Economic Zone (SEZ) viz. SEEPZ, Mumbai. Assessee furnished its original e-return of income for A.Y. 2008-09 on 30.09.2008 declaring total income of Rs.12,01,91,883/- under normal provisions and book profit under section 115JB of the Act at Rs.86,553,072/-. The Assessing Officer (hereinafter referred to as the AO) completed the assessment under section 143(3) of the Act on 30.11.2010 assessing total income at Rs.12,25,52,060/- under the normal provisions. However, the AO noticed that the assessee company had quantified taxable profit at Rs.8,65,53,072/- after reducing Rs.32,04,01,165/- from book profit as income attributable to which section 10A is applicable. The AO was of the view that while computing the book profits, the assessee was not supposed to exclude the profits of the 10A eligible unit. He, therefore, reopened the assessment under section 147 of the Act by way of issuing notice dated 15.03.13 under section 148 along with reasons for reopening of the assessment. The AO observed that w.e.f. 01.04.2007, any amount of expenditure relatable to any income credited to the profit and loss account u/s.10A or section 10B is not allowed as a deduction while computing the book profit. He further observed that though the assessee had heavily relied on section 115JB(6) that was inserted by the Special Economic Zone Act, 2005 w.e.f. 10.2.2006 while arguing for the application of section 1OA/1OAA for arriving at the book profit, however, in doing so, the amendment made by the Finance Act, 2007 w.e.f. 01.04.2008 had been overlooked. That this amendment was made by the Legislature with an intention to widen the scope of Minimum Alternate Tax (MAT) to include income exempt u/s.10A and 10B of the Income tax Act. He further held that Board's Circular No.3/2008 also holds relevance on this issue wherein it is mentioned that the income to which section 10A or Section 10B applied will also be subjected to the provisions of MAT. The assessee had also relied on the 3 & CO No.81/M/2016 M/s. Jewelex India Pvt. Ltd. decision of ITAT in the case of “Genesys International Corporation Ltd. v. ACIT” in ITA Nos.6903/M/2011 and 609/M/2012. However, the A.O. held that the facts of the assessee’s case are not similar to the case of Genesys International Corporation Ltd. and as such the decision of ITAT Bench of Mumbai is not applicable to this case. He further held that while quantifying book profit, income attributable to which section 10A/10AA is applicable is not a specified adjustment, income pertaining to SEZ units cannot be treated as adjustment and reduced from book profit. Thus, the adjustment of reducing profit of 10A/10AA and SEZ from book profit is incorrect and not allowable. Being aggrieved by the above order, the assessee preferred appeal before the Ld. CIT(A).

The Ld. CIT(A), though, decided the issue relating to the validity of the reopening of the assessment under section 147 of the Act against the assessee observing that the notice under section 147 was issued and served within four years from the relevant assessment years and that the AO had reason to believe that the income of the assessee had escaped assessment. However, on merits, the Ld. CIT(A), while relying upon the decision of his predecessor, in the own case of the assessee for A.Y. 2010-11 on identical facts allowed the claim of the assessee. Being aggrieved by the above decision of the Ld. CIT(A), the Revenue has come in appeal before us raising the following grounds: “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in excluding the profits of the undertaking operating from the Special Economic Zone (SEZ) for the purpose of computing Book Profit u/s 115JB.

We have heard the rival contentions and have also gone through the records. At the outset, the Ld. Counsel for the assessee has stated that the very reopening of the assessment in this case was bad in law. He, in this respect, has invited our attention to the reasons recorded for the reopening of the assessment as extracted in para 3.2 of the impugned order which for the sake of convenience are reproduced as under: "On perusal of the record for the assessment year 2008-09,it is observed that the assessee company quantified taxable Book Profit at Rs.8,65,53,072/- after reducing Rs.32,04,01,165/- from Book Profit as income attributable to which section 10A is applicable. Since the income relatable to section 10A is not specified adjustment, the Book Profit quantified at Rs.8,65,53,072/- is not in order.

He, further, inviting our attention, has stated that the issue was squarely covered in favour of the assessee by the decision of the Tribunal in the case of “Genesys International Corporation Ltd. v. ACIT” (supra) which decision was also cited before the AO. However, the AO, without recording any distinguishing fact, has ignored the said decision. The AO, thus, was very much aware of the decision of the Tribunal dated 31.10.2012 (supra) at the time of recording reasons justifying for reopening of the assessment. The Ld. A.R. has further invited our attention to the decision of this Tribunal vide relevant to A.Y. 2009-10 in the own case of the assessee vide order dated 27.06.14 vide which the Tribunal while relying upon its decision in the case of “Genesys International Corporation Ltd. v. ACIT” (supra) has decided the issue in favour of the assessee observing as under:

From the facts, it is established that the case of the assessee as on the date of reopening was squarely covered by the decision of the Tribunal in the case of “Genesys International Corporation Ltd. v. ACIT” (supra) and thus, the AO cannot be said to be having reasons to believe that the income of the assessee has escaped assessment in the absence of any contrary decision of any higher authority. Further that the said decision was applicable to the fact and circumstances of the case of the assessee is also established, as the Tribunal in the own case of the assessee for A.Y. 2009-10 has relied upon the said decision while deciding the issue in favour of the assessee. In such circumstances, the reopening of the assessment by the AO was bad in law. We, therefore, set aside the reopening of the assessment and decide this issue raised by the assessee by way of his cross objection in favour of the assessee. Since we have already held that the reopening of the assessment was bad in law, hence the consequent additions, thus, have no legs to stand and are accordingly ordered to be deleted.

In view of our above observations, the appeal of the Revenue agitating the additions on merits has become infructuous as we have already upheld the issue regarding the validity of reopening in favour of the assessee.