PER VIKRAM SINGH YADAV:- Both these appeals have been filed by the assessee against two separate orders of the ld. CIT-1, Jaipur dated 28-03-2012 and 25-03-2013 ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 2 for the assessment years 2007-08 and 2008-09 u/s 263 of the Act respectively.ITA No. 384/JP/2013 A.Y. 2008-09 1. That the invoking of provisions of Sec. 263 of the I. T. Act, 1961 in case of the appellant by the Ld. CIT was without jurisdiction, wrong and bad in law.
2.1 The grounds raised by the assessee in both the appeals are as under:- ITA No. 365/JP/2012 A.Y. 2007-08 1. That the invoking of provisions of Sec. 263 of the I. T. Act, 1961 in case of the appellant by the Ld. CIT was without jurisdiction, wrong and bad in law.
2. That on the facts and in the circumstances of the case the Ld. CIT is wrong, unjust and has erred in law in holding that the assessment completed by the assessing officer on 10.12.2009 u/s 143 (3) of the I. T. Act, 1961 in case of the appellant was erroneous on facts and in law and prejudicial to the interest of revenue on the ground that the Assessing officer has wrongly allowed deduction of Rs. 34954102/- claimed by the appellant u/s 10AA of the I. T. Act, 1961 alleging the deduction claimed by the assessee firm pertains to the profits derived purely from trading activity while the profits derived by assessee firm were from the export of services in accordance with section 10AA of I. T. Act, 1961.
2. That on the facts and in the circumstances of the case the Ld. CIT is wrong, unjust and has erred in law in holding that the assessment completed by the assessing officer on 21.12.2009 u/s 143 (3) of the I. T. Act, 1961 in case of the appellant was erroneous on facts and in law and prejudicial to the interest of revenue on the ground that the Assessing officer has wrongly allowed deduction of Rs.70751730/- claimed by the appellant u/s 10AA of the I. T. Act, 1961 alleging the deduction claimed by the assessee firm pertains to the profits derived purely from trading activity while the profits derived by assessee firm were from the export of services in accordance with section 10AA of I. T. Act, 1961. ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 3
3.1 First of all, we take up the ground raised by the assessee in its appeal for the assessment year 2007-08. Brief facts of the case are that the assessee filed its return of income for assessment year 2007-08 on 29-10-2007 declaring income of Rs. Nil. The return of income was selected for scrutiny by issuing notice u/s 143(2) of the Act. During the year, the assessee is engaged in manufacturing and trading of precious and semi precious stones, diamond and studded gold jewellery and declared the income under the head Income from business or profession. The AO observed that the assessee firm during the year under consideration set up an undertaking in SEZ, Surat i.e. Unit No. 361, Plot No. 239, Surat Special Economic Zone, Sachin Taluka Distt. Surat (Gujarat) and commenced business and made exports thereof during the year. The assessee claimed deduction u/s 10AA amounting to Rs. 3,49,54,102/- being a 100% of profits derived from the exports amounting to Rs. 49,35,50,777/- made from the said SEZ Unit. The assessee company incurred loss under the DTA unit and claimed exemption 10AA after setting it off with the loss of the DTA unit and subsequently, the returned income of the assessee was accepted by the AO vide his order u/s 143(3) of the Act dated 10-12-2009. During the course of assessment proceedings, the AO ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 4 vide his letter No. DCIT/Cir-2/2008-9/Firm raised the following query from the assessee company u/s 142(1) of the Act:- 15. Give a note on admissibility of deduction u/s 10AA claimed with supporting. In response to query raised by the AO, the assessee firm submitted its reply as under ( as part of Paper Book) :- 1. The assessee firm is continuously engaged in the business of trading and manufacturing of precious and semi precious stones, diamond & studded gold jewellery and also dealing in shares and securities. During the year under assessment the firm has established an unit in Special Economic Zone, Surat, Gujarat. A copy of letter of permission issued by the Development Commissioner, Ministry of Commerce, Govt.of India, Surat SEZ,Sachin, Surat is enclosed. .
15. The Section 10AA of the I.T. Act, 1961 provides for exemption to newly established units in special economic zones on or after 01-04-205. The primary conditions are as follows:- (a) Assessee should be entrepreneur (i.e. person who has granted approval by Development Commissioner) as per Section 2(j) of SEZ Act, 2005 (b) Units should begin to manufacture or produce articles or things or provide any services during the previous relevant to any assessment commencing on or after 01-04-2006 ( c) Assessee should export his goods or services by any mode physical or otherwise. As submitted above the assessee firm is an approved unit of SEZ duly authorized by the competent authority i.e. ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 5 Development Commissioner, Ministry of Commerce, Govt. of India, Surat SEZ, Sachin, Surat. A copy of said approval letter is enclosed at point no. 1 of this letter. The assessee firms entire purchases are import. The entire goods are exported to foreign country. Further the assessee firm also fulfills all other terms and conditions laid down in Section 10AA of the I.T. Act , 1961 and as such deduction is claimed as per provisions of law. The ld. AR of the assessee company submitted Form No. 65 (see Rule 16D) vide his letter dated 30 th Oct. 2007 indicating therein as under ( as part of Paper Book):- 1. We have examined the account and records of M/s. Goenka Jewellers, M.S.B. Ka Rasta, Jaipur (PAN AABFG 8810 D) relating to the business of their undertaking named M/s. Goenka Jewellers (SEZ), engaged in trading / manufacturing of Diamond & Diamond Studded Gold jewellery during the year ended on the 31 st March, 2007.
2. We certify that the undertaking is located at Unit No. 361, Plot No. 239, Surat Special Economic Zone,Sachin Taluka, Distt. Surat (Gujarat), registered under SPECIAL ECONOMIC ZONE, Surat and that the deduction to be claimed by the assessee u/s 10AA of the I.T. Act, 1961, in respect of assessment year 2007-08 is Rs. 3,49,54,102/- which has been determined on the basis of details in Annexure to this Form.
3. We certify that we have collected all the relevant information necessary for computing the deduction allowable under this Section and have verified the same with reference to the accounts and records of the assessee.
4. We further Report:- ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 6 The Management is of the view that there is drafting anomaly in Section 10AA(7) of the I.T. Act , 1961 and is of the further view that the intention of the legislature is that whole of the part of SEZ undertaking is exempt from Tax. In view of the same, total turnover of the business and total profit of the business is interpreted as total turnover of the SEZ undertaking and total profit of SEZ undertaking respectively and accordingly deduction u/s 10AA has been claimed by the assessee.
5. Subject to our observation in para 4 and above, we are of the opinion and to the best of our knowledge and according to the explanation given to us, the particulars given in Annexure A are true and correct.
3.2 Further the reply of the assessee to the subsequent query raised by the DCIT , Circle- 2, Jaipur is as under ( as part of Paper Book):- With respect to further points at the last hearing the case regarding availability of exemption u/s 10AA of the I.T. Act, 1961 for the trading activities of the assessee firm submits as under:-
1. The assessee firm has been granted a letter of approval (LOA) by the Development Commissioner, Surat u/s 15(9) of the SEZ Act , 2005 to set up a unit for undertaking the authorized operations of manufacturing and trading of the Diamond and jewellery as mentioned in the LOA. (Please refer the LOA dated 10-02-2006 submitted alongwith earlier letter filed with Department.
2. As per the provisions of Section 10AA of the I.T. Act, 1961, a unit is entitled to get exemption for manufacturing and trading. The relevant portion of Section 10AA is reproduced below:- ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 7 10AA. (1)Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005 from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1 st day of April, 2006, a deduction of (i) hundred per cent of profits and gains derived from the export of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter: The word services have been defined in sub clause (z) of section 2 of SEZ Act, 2005. (z) services means such tradable services which : - (i) are covered under the General Agreement on Trade in Services annexed as IB to the Agreement establishing the World Trade Organisation concluded at Marrakes on the 15 th day of April, 1994. (ii) may be prescribed by the Central Government for the purpose of this Act: and (iii) earn foreign exchange; The Central Government has prescribed the services in the rule 76 of the SEZ Rules, 2006 which inter alia includes trading. The extract of the rule 76 is reproduced as under: Trading, warehousing, research and development services, computer software services, including information enabled services such as back-office operations, call centers, content development or animation, data processings, engineering and design, graphic information system services, human ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 8 resources services, insurance claim processings, legal data bases, medical transcription, payroll, remote maintenance, revenue accounting, support centers and web-site services, off-shore banking services, professional services (excluding legal services and accounting) rental/leasing services without operators, other business services, courier services, audio- visual services, construction and related services, distribution services (excluding retail services), educational services, environmental services, financial services, hospital services, other human health services, tourism and travel related services, recreational, cultural and sporting services, entertainment services, transport services, services auxiliary to all modes of transport, pipelines transport. The Ministry of Commerce,Govt. of India has issued a notification dated 10-08-2006 which inter alia introduced an explanation which defined the word trading Trading for the purpose of the Second Schedule of the Act, shall mean import for the purpose of re-export. Similarly, the Ministry of Commerce, Govt. of India has also clarified vide instruction no. 4/2006 that the trading activities will be allowed to carry out all forms of trading activity but the benefits u/s 10AA will be available to trading in the nature of re-export of imported goods. A copy of said instruction enclosed. The said instruction is also made available on the web site of Govt. of India www.sezindia.gov.in The assessee firm thus fulfills all the primary conditions of section 10AA for getting the deduction i.e. The assessee firm is a entrepreneur (i.e. person who has granted approval by Development Commissioner) as per sec. 2(j) of SEZ Act, 2005. (a) The unit has provided services (trading i.e. import for the purpose of re-export only) during the previous year relevant to assessment year under consideration. ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 9 (b) Assessee firm has exported goods or services by filing bills of entry/shipping bill in physical mode. In view of the above, `if imported goods are exported by a unit duly approved of Development Commissioner of concerned SEZ. The assessee firms entire purchases are import. The entire goods are exported to foreign country. Further the assessee firm also fulfills all other terms and conditions laid down in Section 10AA of the I.T. Act, 1961and as such deduction is claimed as per provisions of law and allowable as such..
3.3 The case of the assessee was taken up by the ld. CIT who passed the order u/s 263 of the Act by holding that the assessee is not entitled to claim deduction u/s 10AA of the Act on purely trading activity. The relevant extract of the observations of the ld. CIT is as under:-
4. I have considered the submission put forth by the Ld. A/R of the assessee and found that there are two issues which are to be dealt with. One is regarding legality of invoking of provision of section 263 and the other is regarding applicability of definition of word services defined in SEZ Act to IT Act. Both these issues are being discussed in the coming paras.
4.1.2 The decisions relieved upon the A/R do not support the case of the assessee because of the following reasons: - a) There was every material in the hands of reversionary authority before issuing show cause, as evident from the show cause notice dated 20.07.2010. b) In the asstt. Order passed by the AO it is clear that AO has not given any finding on the issues raised in the show cause notice dated 20.07.2010. c) The order passed by the AO was erroneous and prejudicial to the interest of revenue as the AO failed to examine the issue and same has resulted in loss of revenue.
4.2 As regards the definition of word services, the services have not been defined in the Income tax Act. The definition of service as provided in clause 2 (z) of SEZ Act ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 10 cannot be imported. Only the definition of manufacture given in Section 2(z) of SEZ Act was imported in Section 10AA of the Act. Hence, the definition of services as provided in SEZ Act can not be applied to IT Act. The reliance is also placed on the following decisions wherein it is held that the definition of expression is one statute cannot be automatically applied to another statute.
1. CIT Vs. Vasan Publication (P) Ltd. 159 ITR 381 (Mad)
2. CIT Vs. Buhari Sons (P) Ltd. 144 ITR 12 (Mad.)
3. Laxmanda Pranchand & Ors Vs. Union of India & Ors 234 ITR 261 (M.P.)
4. CIT Vs. R.J. Trivedi & Sons, 183 ITR 420 (MP)
4.2.2 A service is an interconnection between the provider and the client that creates and captures value. The trading cannot be considered as service.
4.2.3 The assessee has emphasized that section 10AA was inserted in the I. T. Act, 1961 by the SEZ Act, 2005 and not by the Finance Act. Thus, according to assessee, 10AA originates from the SEZ Act, and hence it will determine provision of section 10AA. Further, it is also mentioned that section 51 of the SEZ Act, says that it will have overriding effect over the other laws. Therefore the definition of service providing in the SEZ Act should be used for the purpose of sec. 10AA. These arguments of assessee are complete mis-construction of the legal position. Sec 10AA was introduced in the IT Act, by SEZ Act, 2005 only as a matter of legislative convenience. This does not mean that one can provide for something which the legislature did not want to provide in Sec. 10AA of the IT Act. The legislature intended only to use the definition of manufacture from the SEZ Act and not the definition of Service. If it had intended to do so it would have said so for definition of service also as it did for manufacture. Since service as defined in SEZ Act is not to be used for the purpose of section 10AA of the IT Act, therefore the definition of service as per Rule 76 of SEZ Rules 2006 can also not be used for the purpose of section 10AA. In this respect the following head note from the decision of CIT V/s Buhari Sons Pvt. Ltd. (Madras High Court) (1983) 144 ITR 12 is reproduced below, and relied on : It is well established that in the absence of any definition in the statute, words occurring in a statute will have to be understood with reference to the objects of the Act and in the context in which they occur. Consequently, the definitions given for the words in one statute cannot automatically be imported for interpreting the same words in another statute. The interpretation of the expression manufacturing process for purposes of the Factories Act, 1948, will not be relevant in construing the same expression for purposes of the Finance Act, 1966. The preparation of eatables cannot be taken to be manufacture of goods. The words goods used in s. 2 (7) (d) of the Finance act, 1966 has been used in the sense of merchandise, i.e. articles goods will not included eatables prepared in a hotel. Further, the expression manufacture does not connote a trading activity and an activity ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 11 carried on in a hotel can only be taken to be trading activity and not a manufacturing activity. In view of this clear cut decision the definitions of service as per SEZ Act 2005 cannot be imported to the I. T. Act, 1961.
4.2.4 It is wrong to presume that SEZ Act is supreme for the purpose of Section 10AA. It may be noted that section 10AA (4) (which lays down the eligibility criteria for this deduction) as introduced by the SEZ Act was substituted by the Finance Act, 2007 w.e.f. 10.02.2006, which shows that section 10AA is very much governed by the Finance Act and I. T. Act.
4.2.5 Further, as per Sec. 51 of the SEZ Act 2005, the provisions of this Act will have overriding effect over other laws but it will be so only in the matters related to implementation of the SEZ Act. It can not have overriding effect on the provisions of IT Act, 1961 in the manner related to this Act. The SEZ Act made provisions of Sec. 10AA in the IT Act and did not include the definition of service as per its section 2 (z) in this section 10AA. If now Sec, 51 of SEZ Act is used to insert this definition in the IT Act it will be violative of the SEZ Act itself.
4.2.6 It may further be noted that this meaning to the expression trading has been given through the Rules but in the main SEZ Act in the Second Schedule the terms services and trading have not been included under definitions of section 10AA of the IT Act at all. It is a well settled principle of law that something which is not provided in the main legislation (i.e. and Act) cannot be provided through a subordinate legislation (i.e. Rules). Thus when the definition of service as provided in SEZ Act is not included in Section 10AA of the IT Act then it cannot be applied for the purpose of this section.
4.2.7 The assessee has also placed reliance on the decision of Honble ITAT, Jaipur Bench in the case of Goenka Diamond & Jewels Ltd. (ITA No. 509/P/11 order dated 31.01.2012) for A.Y. 2008-09. Though the decision of Honble ITAT is blinding but since the ITAT is not the final authority to decide a legislative issue. Therefore, the decision of Honble ITAT is yet to achieve finality.
4.3 Therefore, keeping in view the above facts & discussion it is clear that the assessee is not entitled to claim deduction u/s 10AA of the I. T. Act on purely trading activity. Hence, the matter is referred back to the file of the AO for examining the issue afresh in the light of above discussion after Offering reasonable opportunity of being heard to the assessee.
3.4 The ld. AR relied on the order of the AO while the ld. DR relied on the order of ld. CIT who passed the order u/s 263 of the Act. ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 12
3.5 We have heard the rival contentions and perused the assessment order and the ld. CITs order u/s 263 of the Act. On perusal of order of the AO as well as submission filed before the AO during the assessment proceedings, it is clear that the AO has raised a specific query in relation to deduction claimed by the assessee u/s 10AA of the Act. In response, the assessee has filed the reply alongwith report u/s 10AA in form No. 56F. Thereafter, the AO has raised further enquiries and the assessee filed the detailed reply which is mentioned hereinabove. Therefore, it is clear that specific query was raised by the AO and on perusal of the details and reply submitted by the assessee, the AO allowed deduction u/s 10AA of the Act to the assessee. In this regard, it is clearly not a case where there is lack of enquiry by the AO. The second question that arises for consideration is whether the order passed by the AO is erroneous and prejudicial to the interest of revenue or not. In this regard, we have gone through the order of ld. CIT. The ld. CIT referred to the case of the Coordinate Bench in his order in the case of M/s. Goenka Diamond and Jewels Ltd. for the assessment year 2008-09 (ITA No. 509/JP/2011 dated 31-01-2012). The ld. CIT in his order has acknowledged the fact that on similar facts in the case of another assessee, the Coordinate Bench of ITAT has taken a view that deduction u/s 10AA is available in respect of trading activity. At the same ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 13 time, the ld. CIT had mentioned in his order that though the decision of ITAT is binding but since the ITAT is not the final authority to decide the legislative issue. Therefore, the decision of ITAT is yet to achieve finality and hence, he did not consider the same. So, it is clear that Coordinate Bench has taken a view (though in case of another assessee) on similar facts that deduction u/s 10AA of the Act is available in respect of trading activity. In that view of the matter, the view taken by the AO is therefore, in line with the view taken by the Coordinate Bench and it is a plausible view. It is clearly a case where AO has taken a point of view and the ld. CIT has taken a different point of view. Thus in this light of the matter, we are of the considered view that the view taken by the AO cannot be held to be erroneous and prejudicial to the interest of revenue. In this regard, the decision of Honble Apex Court in the case of Malabar Industrial Ltd. vs. CIT (2000) 243 ITR 83 (SC) is an authority on the subject. Further reference is drawn to the explanation u/s 263 of the Act wherein the term record has been defined which means record shall include and shall always be included all records relating to any proceedings of this Act at the time of examination by Principal Commissioner or Commissioner. In this light of the matter, the Coordinate Bench decision was very much on record and even it was brought to the notice of the ld. CIT and in spite of that, he held a ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 14 different point of view. It is thus clear that view in the matter of deduction u/s 10AA taken by the AO find favours with the Coordinate Bench. We have gone through the order of the Coordinate Bench and find that it is a well reasoned order wherein the matter relating to deduction u/s 10AA of the Act in relation to trading activity has been examined in detailed. Subsequently, the said decision has been followed by Coordinate Bench in case of Gitanjali Exports Corporation Ltd. (ITA No. 6947, 6948, 6949 & 6950/Mum/2011 dated 8-05-2013) and ITO vs. Midas DFS (P) Ltd. (ITA No. 30/Kol/2012 dated 13-11-2013). In light of that, even if the said decision of Coordinate Bench is not acceptable to the ld. CIT and he held a different view, the view taken by the AO cannot be held to be erroneous in law. Hence, we hold that the view taken by the AO cannot be held to be erroneous in so far as it is prejudicial to the interest of Revenue. In this view of the matter, the order of the ld. CIT cannot be sustained.
4.1 Now we take up the appeal of the assessee for the assessment year 2008-09 wherein similar ground has been raised as raised in the appeal for the assessment year 2007-08.
4.2 We have heard the rival contentions and perused the materials available on record. The issues as raised by the assessee in its appeal for the assessment year 2008-09 are similar to the issues for the assessment year ITA No. 365/JP/2012 M/s. Goenka Jewellers vs. CIT -1, Jaipur 15 2007-08 wherein the order of the AO has been allowed and the order of the ld. CIT has been dismissed. The decision taken by this Bench in the appeal of the assessee for the assessment year 2007-08 shall apply mutatis mutandis to the appeal of the assessee for the 2008-09 also.
5.0 In the result, the appeals of the assessee are allowed. Order pronounced in the open court on 30 /10/2015. Sd/- Sd/- vkj-ih-rksykuh foe flag ;kno (R.P.Tolani) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@ Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 30 /10/ 2015 *Mishra vknsk dh izfrfyfi vxzsfkr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. Goenka Jewellers, Jaipur
2. izR;FkhZ@ The Respondent- The CIT-1, Jaipur
3. vk;dj vk;qDr@ CIT,
4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
5. xkMZ QkbZy@ Guard File (ITA No.365/JP/2012) vknskkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar
