M/S. E. JEWELLERY, v. THE ITO 20(3)-1,

ITA 3014/MUM/2004 | misc
Pronouncement Date: 29-10-2010

Appeal Details

RSA Number 301419914 RSA 2004
Bench Mumbai
Appeal Number ITA 3014/MUM/2004
Duration Of Justice 40 year(s) 9 month(s) 27 day(s)
Appellant M/S. E. JEWELLERY,
Respondent THE ITO 20(3)-1,
Appeal Type Income Tax Appeal
Pronouncement Date 29-10-2010
Appeal Filed By Assessee
Assessment Year misc
Appeal Filed On 01-01-1970
Judgment Text
E JEWELLERY VS ITO AND VICE VERSA PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR AM AND SMT ASHA VIJAYRAG HAVAN JM ITA NO. 3014/MUM/04 ASSESSMENT YEAR 2001-02 E JEWELLERY .APPELLANT G 10 GEMS AND JEWELLERY COMPLEX II SEEPZ ANDHERI (EAST) MUMBAI 400 096 VS. INCOME TAX OFFICER WARD 20(3)-1 MUMBAI . RESPONDENT ITA NO. 4172/MUM/04 ASSESSMENT YEAR 2001-02 INCOME TAX OFFICER WARD 20(3)-1 MUMBAI .APPELLANT VS. E JEWELLERY . RESPONDENT G 10 GEMS AND JEWELLERY COMPLEX II SEEPZ ANDHERI (EAST) MUMBAI 400 096 ITA NO. 7265/MUM/05 AND 3079/MUM/06 ASSESSMENT YEAR 2002-03 AND 03-04 E JEWELLERY .APPELLANT G 10 GEMS AND JEWELLERY COMPLEX II SEEPZ ANDHERI (EAST) MUMBAI 400 096 VS. INCOME TAX OFFICER WARD 20(3)-1 MUMBAI . RESPONDENT E JEWELLERY VS ITO AND VICE VERSA PAGE 2 OF 8 ASSESSEE BY : SHRI S E DASTUR REVENUE BY : SHRI A K SINHA O R D E R PER PRAMOD KUMAR : 1. THESE FOUR APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVE SOME COMMON ISSUES AND WERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE THEREFORE ALL THE FOUR APPEALS ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. WE WILL FIRST TAKE UP ITA NO. 3014/MUM/04 AND 41 72/MUM/04 I.E. CROSS APPEALS OF THE ASSESSEE AS ALSO THE ASSESSIN G OFFICER FOR THE ASSESSMENT YEAR 2001-02. 3. THE RELEVANT MATERIAL FACTS SO FAR AS THESE APP EALS ARE CONCERNED ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS AS MANUFACTURER AND EXPORTER OF DIAMOND STUDDED GOLD JEWELLERY FROM SE EPZ MUMBAI. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A FO R THE ASSESSMENT YEAR 2001-02 IN RESPECT OF SEEPZ UNIT. WHILE SCRUTINIZIN G THIS CLAIM THE ASSESSING OFFICER NOTICE THAT ASSESSEES ASSETS OF RS 1.36 CRORE INCLUDED COST OF PLANT AND MACHINERY AMOUNTING TO RS 1 00 3 7 227 AND AIR- CONDITIONING PLANT AMOUNTING TO RS 5 10 310. THE A SSESSING OFFICER NOED THAT THESE ASSETS WERE PURCHASED BY THE ASSESSEE FR OM M/S C I JEWELS LIMITED WHICH IS A PARTNER IN THE ASSESSEES FIRM. OUT OF THIS THE ASSETS WERE WORTH RS 81 13 000 WERE PURCHASED BY C I JEWEL S LTD FROM ADDISION JEWELLERY PVT LTD (AJPL). AJPL HAD ACCORDING TO TH E ASSESSING OFFICER PURCHASED THESE ASSETS BETWEEN 1992 TO 1995 AND AL SO CLAIMED DEPRECIATION THEREON. THE ASSESSING OFFICER WAS THU S OF THE VIEW THAT THE ASSESSEE HAD USED OLD PLANT AND MACHINERY AND DEDUC TION UNDER SECTION 10 A IS THEREFORE INADMISSIBLE. THE ASSESSING OFFICE R NOTED THAT THE E JEWELLERY VS ITO AND VICE VERSA PAGE 3 OF 8 MACHINERY WAS IMPORTED BY AJPL AND THE LAW DOES NOT ALSO PERMIT USE OF MACHINERY BY A PERSON OTHER THAN THE PERSON WHO HAS IMPORTED THE SAME. IT WAS NOTED THAT ANY NEW BUSINESS CREATED BY THE T RANSFER OF PLANT AND MACHINERY PREVIOUSLY USED FOR ANY PURPOSE IS NOT EL IGIBLE FOR DEDUCTION UNDER SECTION 10 A. IT WAS FURTHER HELD THAT IN AN Y EVENT INTEREST ON SECURITY DEPOSITS IN RESPECT OF WHICH ALSO DEDUCTI ON UNDER SECTION 10 A WAS CLAIMED CANNOT BE TREATED AS BUSINESS INCOME THAT IT HAS TO BE TAXED AS INCOME FROM OTHER SOURCES AND THAT FOR THE SAI D REASON IT IS NOT ENTITLED TO DEDUCTION UNDER SECTION 10 A. THE ASSE SSING OFFICER ALSO MADE ADHOC DISALLOWANCES OF CONVEYANCE EXPENSES OTHER EXPENSES AND STAFF WELFARE EXPENSES . AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CI(A) UPHELD THE ACTION OF THE ASS ESSING OFFICER REGARDING DECLINING DEDUCTION UNDER SECTION 10A IN PRINCIPLE BUT ALLOWED ASSESSEES ALTERNATE CLAIM REGARDING ADMISSIBILITY OF DEDUCTION UNDER SECTION 80 HHC. THE ADHOC DISALLOWANCES WERE ALSO C ONFIRMED BUT QUANTUM OF DISALLOWANCES WAS REDUCED TO RS RS 5 000 IN RESPECT OF CONVEYANCE EXPENSES RS 15 000 IN RESPECT OF OTHER EXPENSES AND RS 25 000 IN RESPECT OF STAFF WELFARE EXPENSES. NONE O F THE PARTIES IS SATISFIED. THE ASSESSEE IS AGGRIEVED THAT THE CIT(A ) OUGHT TO HAVE ALLOWED THE ASSESSEE DEDUCTION UNDER SECTION 10A AND OUGHT TO HAVE FURTHER HELD THAT INTEREST INCOME ON THE FACTS OF THIS CASE WA S ALSO ELIGIBLE FOR DEDUCTION UNDER SECTION 10A THE ASSESSING OFFICER IS AGGRIEVED OF THE DEDUCTION UNDER SECTION 80 HHC BEING ALLOWED TO THE ASSESSEE EVEN AS THE ASSESSEE DID NOT FILE REQUISITE AUDITOR CERTIFICATE BEFORE THE ASSESSING OFFICER AND DID NOT EVEN MAKE THAT CLAIM BEFORE THE ASSESSING OFFICER. THE ASSESSEE IS ALSO AGGRIEVED OF THE ADHOC DISALLOWANC ES BEING PARTIALLY CONFIRMED BY THE CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF TH E CASE AS ALSO THE APPLICABLE LEGAL POSITION. E JEWELLERY VS ITO AND VICE VERSA PAGE 4 OF 8 5. WE HAVE NOTED THAT AS FAR AS ADMISSIBILITY OF DE DUCTION UNDER SECTION 10 A IS CONCERNED THE ASSESSEE HAS SOUGHT A LIMITED RELIEF TO THE EXTENT THAT THE MATTER REGARDING ELIGIBILITY FO R DEDUCTION UNDER SECTION 10 A SHOULD BE CONSIDERED AFRESH IN THE LI GHT OF THE FACT THAT THE DEDUCTION IS UNIT SPECIFIC THAT THE DEDUCTION IN RESPECT OF THE UNIT ORIGINALLY OWNED BY AJPL WAS ONLY AVAILED FOR EIGH T YEARS BEFORE THE ASSESSEE CAME TO OWN IT AND THAT THE UNIT WAS PURC HASED BY THE ASSESSEE AS AN INDEPENDENT UNIT. LEARNED COUNSEL HA S ALSO TAKEN US THROUGH THE SCHEME OF THE SECTION TO DEMONSTRATE TH AT THE DEDUCTION IS UNIT SPECIFIC AND NOT ASSESSEE SPECIFIC AND HAS AL SO MOVED AN APPLICATION SEEKING ADMISSION OF ADDITIONAL EVIDENC E WHICH SEEKS TO ESTABLISH THE FACTUAL ELEMENTS EMBEDDED IN HIS SUBM ISSIONS REGARDING AVAILING OF DEDUCTION UNDER SECTION 10 A FOR EIGHT YEARS AND OTHER RELATED ASPECTS. IT IS ALSO SUBMITTED THAT THIS ASP ECT OF THE MATTER HAS NOT BEEN ADJUDICATED IN THE RIGHT PERSPECTIVE BY TH E AUTHORITIES BELOW AND THEREFORE THE ASSESSEE HAS NO OBJECTION TO TH E MATTER BEING RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR T HAT PURPOSE. LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND VEH EMENTLY RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMIT S THAT WHEN A UNIT IS SOLD AS SUCH AS IS NOW THE CASE OF THE ASSESEE ENTIRE ASSETS AND LIABILITIES OF THE UNIT NEED TO BE TRANSFERRED WHE REAS ON THE FACTS OF THE PRESENT CASE THERE IS AN UNCONTROVERTED FINDIN G OF THE LOWER AUTHORITIES THAT ALL THE ASSETS AND LIABILITIES WER E NOT TRANSFERRED. IF AT ALL THE MATTER NEEDS TO BE REMITTED TO THE FILE OF ONE OF THE LOWER AUTHORITIES ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE IT SHOULD BE RESTORED TO THE FILE OF THE CIT(A). 6. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE RI VAL CONTENTIONS WE ARE OF THE CONSIDERED VIEW THAT THE MATTER SHOULD I NDEED BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINA TION OF THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE CLAIM THAT THE UNI T SPECIFIC DEDUCTION E JEWELLERY VS ITO AND VICE VERSA PAGE 5 OF 8 WAS CLAIMED ONLY FOR EIGHT YEARS BY THE AJPL THAT ENTIRE UNIT WAS PURCHASED BY THE ASSESSEE AND THAT THE EVIDENCES T HAT THE ASSESSEE MAY FURNISH IN SUPPORT OF THIS POSITION. THE MERE F ACT THAT ALL THESE FACTS WERE NOT PLACED BEFORE THE LOWERS AUTHORITIES EARLIER MUST NOT DENUDE ASSESSEE OF HIS CLAIM FOR A RIGHTFUL DEDUCTI ON IF ADMISSIBLE ON MERITS. IN CASE THE UNIT IS ACTUALLY PURCHASED AS AN INDEPENDENT SET THE QUESTION OF USE OF OLD MACHINERY DOES BECOME RE DUNDANT. WE MAY HOWEVER CLARIFY THAT THE MATTER IS REMITTED ONLY T O THE EXTENT OF CLAIMING DEDUCTION UNDER SECTION 10 A IN RESPECT OF THE OLD UNIT AND NOT WITH RESPECT OF ENTIRE DEDUCTION INCLUDING TH E NEW UNIT AS WELL. AS REGARDS THE QUESTION OF INTEREST BEING INCLUDED IN PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10 A THAT ASPECT OF THE MA TTER IS ACADEMIC AT THIS STAGE AND WE THEREFORE DECLINE TO ADDRESS OU RSELVES TO THE SAME. WITH THESE OBSERVATIONS AND IN THE MANNER INDICATE D ABOVE THE ISSUE REGARDING ADMISSIBILITY OF DEDUCTION UNDER SECTION 10A IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ADHOC DISAL LOWANCES HAVING BEEN MADE WITHOUT ANY COGENT REASONS AND PURELY ON SURMI SES AND CONJECTURES ARE ONLY FIT TO BE DELETED. WE DO SO. THAT LEAVES US WITH THE QUESTION WHETHER CIT(A)S GRANTING DEDUCTION UNDER SECTION 80 HHC WAS JUSTIFIED EVEN AS THIS ISSUE WAS NOT RAISED BE FORE THE ASSESSING OFFICER AND EVEN AS THE REQUISITE AUDIT REPORT WAS FILED FOR THE FIRST TIME BEFORE THE CIT(A). RELIANCE HAS ALSO BEEN PLA CED ON HONBLE SUPREME COURTS JUDGMENT IN GOETZE INDIA PVT LTD VS CIT (284 ITR 323). WE HAVE NOTED THAT THIS CASE SPECIFICALLY STATES THAT IT DEALS ONLY WITH THE POWERS OF THE ASSESSING AUTHORITY AND NOT THE APPELLATE AUTHO RITY. IN GOETZES CASE THE SUPREME COURT HELD THAT THE ASSESSEE CAN MAKE A CLA IM FOR DEDUCTION WHICH HAS NOT BEEN CLAIMED IN THE RETURN ONLY BY FILING A RE VISED RETURN WITHIN THE TIME ALLOWED. IN THIS DECISION IT IS MADE CLEAR THAT TH E POWER OF THE TRIBUNAL TO ADMIT AN ADDITIONAL GROUND UNDER S. 254 IS NOT AFFECTED B Y ITS DECISION. IT IS ALSO CLARIFIED THAT THE CASE WAS CONCERNED WITH ONLY THE POWER OF THE ASSESSING AUTHORITY AND NOT THE APPELLATE AUTHORITY. UNDER S. 250(5) THE CIT(A) HAS THE POWER TO ALLOW THE APPELLANT TO GO INTO ANY GROUND OF APPEAL NOT SPECIFIED IN E JEWELLERY VS ITO AND VICE VERSA PAGE 6 OF 8 THE GROUNDS OF APPEAL IF HE SATISFIED THAT THE OMIS SION OF THE GROUND FROM THE FORM OF APPEAL WAS NOT WILFUL AND UNREASONABLE. DEA LING WITH SUCH A POWER THE BOMBAY HIGH COURT IN CIT VS. PRABHU STEEL INDUSTRIE S (P) LTD. (1988) 171 ITR 530 (BOM) HELD THAT WHERE A CLAIM FOR SPECIAL DEDU CTION WAS MADE BY THE ASSESSEE NOT IN HIS RETURN BUT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE ITO FAILED TO CONSIDER THE SAME IT WAS OPEN TO THE AAC TO ENTERTAIN THE CLAIM. IN CIT VS. KANPUR COAL SYNDICATE (1964) 53 I TR 225 (SC) IT WAS HELD BY THE SUPREME COURT THAT THE POWERS OF THE CIT(A) SIT TING IN APPEAL OVER AN ASSESSMENT WERE PLENARY AND CONTERMINOUS WITH THOSE OF THE AO AND THAT HE CAN DO WHAT THE ITO CAN DO AND ALSO DIRECT HIM TO D O WHAT HE HAS FAILED TO DO. IN VIEW OF THESE DISCUSSIONS THE CIT(A) INDEED HAD TH E POWERS TO EXAMINE THE ASSESSEES CLAIM ON MERITS BY VIRTUE OF HIS CO-EXTE NSIVE POWER OVER THE ASSESSMENT PROCEEDINGS AND ALSO BY VIRTUE OF S. 250 (5). WE THUS SEE NO INFIRMITY IN THE ACTION OF THE CIT(A) IN EXAMINING THE CLAIM OF DEDUCTION UNDER SECTION 80 HHC. IN ANY EVENT SINCE THE CLAIM OF DEDUCTION UND ER SECTION 80 HHC BECAME RELEVANT ONLY UPON REJECTION OF DEDUCTION UNDER SEC TION 10A BY THE ASSESSING OFFICER THERE WAS NO WAY THE ASSESSEE COULD HAVE R AISED THIS CLAIM BEFORE THE ASSESSING OFFICER AND FILE THE REQUISITE CERTIFICAT E. THEREFORE AS FAR AS GRANT OF DEDUCTION UNDER SECTION 80 HHC IS CONCERNED WE SEE NO INFIRMITY IN THE SAME. TO SUM UP OUR CONCLUSIONS FOR THE ASSESSMENT YEAR 2001-02 ARE AS FOLLOWS : THE ISSUE OF ADMISSIBILITY OF DEDUCTION UNDER SEC TION 10 A IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR F RESH EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE. THE ADHOCK DISALLOWANCES OF EXPENSES ARE DELETED. THE ACTION OF THE CIT(A) IS GRANT OF DEDUCTION UN DER SECTION 80 HHC BY ADMITTING THE CLAIM ON MERITS AND THE REQUISITE AUDIT AT THE APPELLATE STAGE IS UPHELD. 7. IN THE RESULT ASSESSEES APPEAL (ITA NO. 3014/M UM/04) AND IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE AND TH E APPEAL OF THE REVENUE (ITA NO. 4172/MUM/04) IS DISMISSED. 8. IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 200 2-03 ( I.E. ITA NO. 7265/MUM/05) GRIEVANCES OF THE ASSESSEE ARE THE SA ME AS IN THE E JEWELLERY VS ITO AND VICE VERSA PAGE 7 OF 8 ASSESSMENT YEAR 2001-02 DEALT WITH ABOVE. LEARNED R EPRESENTATIVES ALSO AGREE THAT WHATEVER IS DECIDED IN ASSESSEES A PPEAL FOR THE ASSESSMENT YEAR 2001-02 WILL APPLY MUTATIS MUTANDI HERE AS WELL. FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 2001-02 WE HOLD THAT (A) ISSUE OF ADMISSIBILITY OF DEDUCTION UNDER SECTION 1 0 A IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND THAT (B)THE ADHOCK DIS ALLOWANCES OF EXPENSES ARE DELETED. 9. IN THE RESULT ASSESSEES APPEAL FOR THE ASSESSM ENT YEAR 2002-03 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 10. IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2 003-04 (ITA NO. 3079/MUM/06) THE ONLY ISSUE PRESSED BEFORE US IS A GAINST CIT(A)S CONFIRMING THE ADHOC DISALLOWANCE OF RS 50 000 OUT OF STAFF WELFARE EXPENSES. FOLLOWING THE VIEW TAKEN BY US FOR THE AS SESSMENT YEARS 2001-02 AND 2002-03 WE DELETE THE IMPUGNED DISALLO WANCE. THE ASSESSEE GETS RELIEF TO THAT EXTENT. 11. IN THE RESULT ASSESSEES APPEAL FOR THE ASSESS MENT YEAR 2003-04 (ITA NO. 3079/MUM/06) IS ALSO PARTLY ALLOWED. TO SU M UP WHILE ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED APPEAL BY THE ASSESSING OFFICER IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 29 TH DAY OF OCTOBER 2010. SD/- SD/- (ASHA VIJAYRAGHAVAN] [PRAMOD KUMAR] JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 29 TH DAY OF OCTOBER 2010. E JEWELLERY VS ITO AND VICE VERSA PAGE 8 OF 8 COPIES TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE CIT MUMBAI 4. THE CIT(A) MUMBAI 5. DR H BENCH ITAT MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI