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M/s. Finestar Jewellery & Diamond Pvt. Ltd Versus The ACIT, Circle-5 (1) ,

2015 (7) TMI 1062 - ITAT MUMBAI

Exclusion of labour charges received from the profits of the business while calculating deduction u/.s 10A - Held that:- Respectfully following the decision of the Special Bench in the case of Maral Overseas [2012 (4) TMI 345 - ITAT INDORE ], it can be safely concluded that the labour charges received are eligible for calculation of deduction u/s. 10A of the Act.

Exclusion of interest received on fixed assets as profit of the business while calculating deduction u/s. 10A Held that:- A .....

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Court in the case of Indo Swiss [2005 (9) TMI 47 - BOMBAY High Court ]. We, accordingly direct the AO to treat the interest income under the head ‘Profits and gains of the business’ and for the reasons given in ground No. 1 of this appeal, we direct the AO to allow deduction u/s. 10A of the Act

Exclusion of interest received on EEFC while calculating deduction u/s. 10A - Held that:- It is not in dispute that ₹ 35,86,248/- is not interest earned but gain on the fluctuation of fo .....

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of the Act.

Excluding the exemption allowable u/s. 10A from the Book Profit taxable u/s. 115JB - Held that:- Income of units located SEZ will not be included while computing book profit for the purpose of MAT as per section 115JB(6) of the Act. In view of above, we are of the considered view that there is merit in the contention of ld A.R. that irrespective of the fact that amendment has been made in clause (f) of Explanation (1) to section 115JB(2) of the Act to apply the provisions .....

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fit taxable u/s. 115JB of the Act.

Non-exclusion of the Fringe Benefit Tax from the book profit taxable u/s. 115JB - Held that:- FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, subclause( ic) of clause (a) of Sec. 40 of the IncomeTax Act expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head “Profits an .....

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ssee. - I.T.A. No. 7371/Mum/2012 - Dated:- 15-7-2015 - SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER Appellant by: Shri Vijay Mehta Shri Sunil Hirawat Respondent by: Shri Pawan Kumar Beerla ORDER PER N.K. BILLAIYA, AM: This appeal by the assessee is preferred against the order of the Ld. CIT(A)-9, Mumbai dt. 25.9.2012 pertaining to assessment year 2009- 10. 2. The Grievances of the assessee read as under: 1.On facts and in law, the learned CIT(A) had erred in not dire .....

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7; 1,10,314/being the interest received on Fixed Deposits as profits of the business while calculating deduction u/s.10A. Under the facts and circumstances of the matter, he ought to have directed the Assessing Officer to include the said sum of ₹ 1,10,314/being the interest received on Fixed Deposits as profits of the business while calculating deduction u/s.10A 3. On facts and in law, the learned CIT(A) had failed to appreciate that RS.3S,86,248/is not interest received on EEFC, but the .....

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of the I.T. Act. Under the facts and circumstances of the matter, he ought to have directed the Assessing Officer to exclude the exemption allowable u/s.10A from the Book Profit taxable u/s.115JB of the Act. 5. On facts and in law, the learned CIT(A) had erred in not directing the Assessing Officer to exclude the Fringe Benefit Tax of RS.84,S8S/from the Book Profit taxable u/s.115JB of the I.T. Act. Under the facts and circumstances of the matter, he ought to have directed the Assessing Officer .....

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ess while calculating deduction u/.s 10A of the Act. 4. The issue finds place at para-4 on page-2 of the assessment order wherein the Assessing Officer has asked the assessee why labour charges amounting to ₹ 7,52,196/- should not be excluded from business profits while calculating deduction u/s. 10A of the Act. 4.1. The assessee filed a detailed reply vide letter dated 20.12.2011. The gist of the reply of the assessee is incorporated at para-4 of the assessment order. The reply of the ass .....

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The assessee carried the matter before the Ld. CIT(A) but without any success. 6. Before us, the Ld. Counsel for the assessee stated that the impugned issue has to be considered within the light of the provisions of Sec. 10A(1) and 10A(4) of the Act. It is the say of the Ld. Counsel that if both the sections are read together, the labour charges of the assessee would be eligible for calculating the deduction u/s. 10A of the Act. In support, the Ld. Counsel relied upon the decision of the Special .....

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to be considered is whether such profit is eligible profit for the purpose of the claim of deduction u/s. 10A of the Act. The Special Bench of the Tribunal in the case of Maral Overseas (supra) has considered this issue and has held as under: It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific formula for computing the profit deri .....

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oth sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export cannot be ignored. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. Thus notwithstanding the fact that .....

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business of the undertaking the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of s. 10B to exclude the same from the eligible profits. Once an income forms part of the business income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction under s. 10B. As per the co .....

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eceived are eligible for calculation of deduction u/s. 10A of the Act. Findings of the Ld. CIT(A) are reversed. The AO is directed to allow the deduction u/s. 10A in respect of labour charges received. Ground No. 1 is accordingly allowed. 9. Ground No. 2 relates to the exclusion of interest received on fixed assets as profit of the business while calculating deduction u/s. 10A of the Act. 10. The issue finds place at para-5 on page-3 of the assessment order. The assessee was asked to explain why .....

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the head Income from business . 10.1. The submissions of the assessee was dismissed by the AO relying upon the decisions of the Hon ble Supreme Court in the case of Pandian Chemicals Ltd. Vs CIT 262 ITR 278 and Liberty India Vs CIT 317 ITR 218 (SC). The AO treated the interest income under the head Income from other sources thereby denying the claim of deduction u/s. 10A of the Act. 11. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A) but failed to convince its claim. 12. .....

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ssessee. In our considered view, the interest earned from such deposits of the money kept apart for the purpose of business is to be taxed under the head Income from business and cannot be taxed under Income from other sources . We draw support from the decision of the Hon ble Bombay High Court in the case of Indo Swiss 284 ITR 389. We, accordingly direct the AO to treat the interest income under the head Profits and gains of the business and for the reasons given in ground No. 1 of this appeal, .....

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ng deduction u/s. 10A of the Act. However, from the working of the same, it is found that the assessee has included interest on EEFC at ₹ 35,86,248/- in its profits from business. The assessee was asked to explain why the same should not be disallowed while computing deduction u/s. 10A of the Act. The assessee filed a detailed reply vide letter dt. 20.12.2011 which is incorporated by the AO at para-6 of his order. The submissions of the assessee were rejected by the AO. The AO was of the f .....

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ssessee could not succeed before the Ld. CIT(A) and is therefore before us. 17. The Ld. Counsel for the assessee drew our attention to page-24 of the paper Book and pointed out that the gain on exchange difference on EEFC account of ₹ 35,86,248/- is not an interest but a gain on the fluctuation of foreign exchange which has been wrongly considered by the Revenue authorities as interest. It is the say of the Ld. Counsel that such exchange fluctuation has a direct nexus with the business of .....

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on which have been accepted by the Revenue authorities. We, therefore, do not find any reason for giving differential treatment to the exchange gains. In our considered opinion, the exchange gains should be taxed under the head business income. We, accordingly direct the AO to tax the exchange gain under the head business income and accordingly allow deduction u/s. 10A of the Act, for the detailed reasons given while deciding ground No. 1 of this appeal, ground No. 3 is accordingly allowed. 20. .....

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e Act. 21. Per contra, the Ld. DR could not bring any distinguishing decision in favour of the Revenue. 22. After giving a thoughtful consideration to the facts in issue, we find force in the contention of the Ld. Counsel. The Tribunal in the case of Genesys International Corpn (supra) at para-21 of its order has held as under: It is evident from above that an existing SEZ unit will also be governed by Special Economic Zones Act, 2005. Therefore, we are of the considered view that the benefits w .....

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that provisions of section 115JB shall not apply to the income accrued or arisen on or after 1.4.2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be. Hence, income of units located SEZ will not be included while computing book profit for the purpose of MAT as per section 115JB(6) of the Act. In view of above, we are of the considered view that there is merit in the contention of ld A.R. that irrespecti .....

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