SHREE GANESH JEWELLERY HOUSE LTD.,KOLKATA vs. THE CIT -3, KOLKATA, KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal has been filed by the assessee relating to assessment year (AY) 2010-11is against passed by Commissioner of Income Tax-3, Kolkata under the provision of Section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide M. No. CIT-3/Kol/263/2014-15/6520-22 dated 26.03.2015. Assessment was framed by DCIT, Central Circle-VIII, Kolkata u/s 143(3) of the Act vide his order dated 22.03.2013.

Shri Kaushal Kumar Surana, Ld. Authorized Representative appeared on behalf of assessee and Shri G. Mallikarjuna, Ld. Departmental Representative appeared on behalf of Revenue.

ITA No. 1248/Kol/2015 Shree Ganesh Jewellery House Ltd Page 2 2. At the time of hearing Ld AR of assessee drew our attention that the appeal is barred by limitation for 124 days on the ground that Mr. Asit Rout an employee of the assessee-company had left the employment of the assessee-company on 15.05.2015 and subsequently M/s Surana Agarwal & Co. appointed as new Chartered Accountants and for which the delay has been occurred. Ld. DR has not raised any if the delay of condonation is considered. Hence, we condone the day and to proceed hearing of the appeal

Thereafter, ld.CIT passed impugned order u/s. 263 of the Act opined that the order passed by the AO u/s. 143(3) of the Act is erroneous in so far prejudicial to the interest of revenue by observing that the assessee during the year under consideration has earned interest income from its two [Unit-I & Unit –II] located in SEZ Manikanchan, Saltlake, Kolkata amounting to Rs. 34,76,85,253/- and Rs. 4,44,09,616/- respectively which has no direct nexus with the business

ITA No. 1248/Kol/2015 Shree Ganesh Jewellery House Ltd Page 3 undertaking and therefore these interest income were required to be excluded for the computation of exemption u/s 10AA of the Act. It was also observed by ld. CIT u/s 263 of the Act that the AO has not raised the issue of interest income in connection with the exemption claimed u/s 10AA of the Act. Thus, the ld.CIT issued notice on 22-03-2013 u/s. 263 to the assessee. In response to such notice, the assessee submitted that the assessee is engaged in the business of import of gold and export of jewelleries from its SEZ units. In the course of business, the assessee has to open Letter of Credit for the import of the gold for that they have made fixed deposits and pledged with the bank as margin money. At the same time, assessee borrowed money from the bank against the bill purchase of bills for the goods exported. Therefore, the borrowed money was partly used for making the FD as evident from the balance sheet for the year under consideration. Accordingly the interest income was earned by the assessee and interest expenditure was incurred in the course of its business. The interest paid by the assessee exceeds interest income. However, the ld. CIT disregarded the claim of assessee by holding that the assessee is not entitled for its exemption u/s. 10AA of the Act on its interest income as the AO failed to examine whether the borrowed fund was used in making FD in order to avail the Letter of Credit facility. The amount deposited in FD is nothing but investment in business. The Letter of Credit can be taken from bank on personal guarantee of a director, on pledging/hypothecation of stocks, mortgaging the fixed assets of the company with the bank. Therefore, the assessee made FDR’s with the intention of earning interest income. The interest income do not any link with the business of manufacturing and exporting of jewellery items. Thus, the interest income as earned from the fixed deposits is not entitled for exemption u/s. 10AA of the Act. The AO has failed to examine this issue, which needs to be verified in de-novo assessment. Accordingly, the ld.CIT directed the AO for the same.

ITA No. 1248/Kol/2015 Shree Ganesh Jewellery House Ltd Page 4 6. Aggrieved by the order of the ld.CIT, now the assessee is in appeal before us. 7. Before us the ld.AR for the assessee filed a paper book containing pages 1-122 and submitted that the assessment order passed u/s. 143(3) of the Act was merged with the order of the ld. CIT(A) ,CC-I, Kolkata vide order dated 12-09- 2014. Therefore, the same order cannot be revised u/s. 263 of the Act. The copy of the ld. CIT(A) order is placed on page 15 to 28 of the paper book.

On the other hand, ld. DR submitted that the issue whether the interest income was eligible for the exemption u/s 10AA of the Act was not there before the ld. CIT(A). The issue before the ld. CIT(A) was with regard to the allocation of expenses between the units entitled for the exemption u/s 10AA of the Act and the units not entitled for exemption u/s 10AA of the Act. Therefore the order of the AO was partially merged with the order of the ld. CIT(A). The order of the AO was not merged with the order of ld. CIT(A) on the specific issue raised by the ld. CIT u/s 263 of the Act. The ld. DR vehemently supported the order of the ld. CIT.

ITA No. 1248/Kol/2015 Shree Ganesh Jewellery House Ltd Page 5 income on FD claimed by the assessee have been wrongly apportioned to the different units of the assessee. On this issue, the assessee admitted the same and filed revised computation of income which was rejected by the AO in terms of Hon’ble Supreme Court decision in the case of Goetze (India) Ltd. vs. CIT (2006) 284 ITR 323(SC). The relevant extract of assessee submission before the AO is reproduced below : “7. In the written submission regarding the apportionment expenses, the assessee has also claimed that interest income from fixed deposit is also to be apportioned among different units as the FD was pledged as lien for obtaining loan.”

The relevant observation of the AO in his assessment order is reproduced below: “7.2 The mere fact that the deposit made was for purpose of obtaining loan or letters of credit which letters of credit were, in turn, used for the purpose of the business of the Unit did not establish a direct nexus between the interest and the eligible Unit. In view of the above, the assessee’s claim of apportionment of interest income from fixed deposit into various units and claim thereof u/s. 10AA is hereby rejected.”

Accordingly the matter was travelled to ld. CIT(A). The assessee before the ld. CIT(A) has raised the following issue. 2.That the AO was wrong in reducing the claim of deduction u/s 10AA of the I Tax Act, 1961, on the basis of allocation of expenses and income deemed fit by him. The expenses and income used to be allocated in the same ratio among the eligible units. The said allocation and consequent calculation of deduction u/s 10AA is not in accordance with the fact of the case and also not according to the provisions of law. Hence, the disallowance of deduction u/s. 10AA of the Act amounting to Rs.11,37,26,600/- ,may kindly be deleted.”

On the above ground of appeal we find that the ld. CIT(A) has observed as under : “…There is no dispute that the assessee company has maintained separate books of account for its head office and each unit. It was on the

ITA No. 1248/Kol/2015 Shree Ganesh Jewellery House Ltd Page 6 basis of such books of account that he as company has drawn the profit and loss account of its head office and each unit. The books of account were duly audited. The balance sheet of the head office and each unit clearly reflects as on 31-03-2010 the amount of loan outstanding and also the amount of investment in fixed deposits made against the margin to avail credit facility. In this factual background, it cannot be argued that the amount of secured/unsecured loan or investment in fixed deposits as shown in a particular balance sheet is not on actual basis but on ad- hoc basis. Similarly, it cannot be said that the interest expenditure debited or the interest income credited to a particular profit and loss account was not on actual basis. Whatever e the amount of loan and fixed deposit appearing in relation to the books of account of the head office or a unit, the same is reflected in the respective balance sheet and similarly the interest expenditure or interest income s reflected in the respective profit and loss account. …”

From the above order of Ld. CIT(A) we find that the issue of “income on FD” has been duly dealt in the order of AO and subsequently by ld. CIT(A). The AO has not accepted the plea of the assessee for allocation of the interest income on FD & interest expenses. This observation of the Assessing Officer, in our considered view, shows that the AO has admitted that the interest income on FD has direct link with the business and accordingly the same is eligible for deduction u/s 10AA of the Act. In the instant case, the impugned order passed by ld. CIT u/s 263 of the Act looks to the issue from different angle and therefore holding the order of the AO erroneous and prejudicial to the interest of Revenue. If that is allowed then there can be several dimensions to view the issue which has been overlooked by the AO at the time of assessment. Accordingly, the impugned order passed by AO after application of mind can be regarded as erroneous in so far prejudicial to the interest of revenue because the Ld. CIT will look the issue at different angle. Under the aforesaid facts & circumstances the Hon’ble ITAT Kolkata has decided the issue in favour of assessee in the case of Lok Nath PD Gupta Vs. DCIT 60 taxmann.com 306.

ITA No. 1248/Kol/2015 Shree Ganesh Jewellery House Ltd Page 7 1) CIT v. Shalimar Housing & Finance Ltd. (2010) 320 ITR 157 (MP), the head note Revision—Merger with appellate order—Issues dealt with by CIT(A)—Tribunal has adverted to the factual position in a detailed manner and found that the issues that have been taken up by the CIT while exercising jurisdiction under s. 263 have already been dealt with by the CIT(A) in the appeal against the assessment order—Thus, the order cannot be regarded as prejudicial to the interest of the Revenue and the CIT could not exercise jurisdiction under s. 263—Since the entire case hinges on facts and the Tribunal has properly dealt with it, no substantial question of law arises

2) General Beopar Co (P) Ltd. v. CIT (1987) 31 taxmann 108 (Cal) the head note- Revision—Merger with appellate order—Extent thereof—Where an appeal is preferred against an assessment order passed by ITO, and an order is passed by the appellate authority, the assessment order merges with appellate order in all respects including matters which are merely affirmed by appellate authority—CIT, therefore, has no jurisdiction to revise such orders—Further, once reassessment proceedings are initiated by issuing notice to the assessee the original order of assessment loses its finality and at this stage it is no longer open for revision by CIT—Question of setting aside of carried forward losses of earlier years was considered in the assessment and, therefore, was a matter which was within the purview of appellate authority though not touched upon by appellate authority— That apart, after rectification under s. 154 by ITO, reassessment notice under s. 147 had also been issued to the assessee—In the circumstances, the CIT was not justified in exercising his revisional jurisdiction

3) J.K. Synthetics Ltd. v. ACIT (1976) 105 ITR (344) (All) the head note- Appeal(AAC)—Powers of AAC—Appellate authority can look into and adjudicate upon findings which may have gone in favour of assessee and which may not have been challenged—Simply because Department did not have a right to file an appeal, it cannot be said that findings against Revenue are not capable of being challenged—The entire subject-matter of assessment order is within jurisdiction of AAC—Therefore, entire assessment order will merge in appellate order irrespective of points urged or decided by appellate authority

ITA No. 1248/Kol/2015 Shree Ganesh Jewellery House Ltd Page 8 order unsustainable in law, and we, therefore, quash the same. The issue gets the relief accordingly.