TMI Blog2019 (2) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... o whether this interest was earned on fixed deposits utilized for margin money and used for the purpose of business. Ld. CIT(A) simply extracted the submissions of the assessee and following the order of the Tribunal deleted the interest disallowance. In the facts and circumstances, we are of the view that this issue has to be reexamined by the Assessing Officer after obtaining the necessary information from the assessee to prove that this interest income was earned only on Fixed deposits made on margin money utilized for the purpose of business and not out of any surplus funds which were used for earning interest income by the assessee. Therefore, the Assessing Officer is directed to examine the issue afresh in the light of the evidences produced before him - Appeal of the Revenue is partly allowed for statistical purpose - ITA NO.2876/MUM/2018 - - - Dated:- 20-2-2019 - Shri C.N. Prasad, Hon'ble Judicial Member For the Assessee : Shri Reepal Tralshawala For the Department : Shri Rajesh Ojha ORDER PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income tax (Appeals) 50 Mumbai [hereinafter in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding by the Assessing Officer that whether this interest income was earned on margin money deposits utilized for the purpose of the business of the assessee. 6. We have heard the rival submissions, perused the orders of the Authorities below. The issue of as to whether the assessee is entitled for deduction u/s. 10AA of the Act on the income from trading activity in diamond and gold jewellery has been decided by the Tribunal in assessee s own case for the A.Y. 2011-12, wherein the Tribunal held as under: - 4.1 In this appeal Revenue has raised the following ground on the issue of deduction under section 10AA of the Act: - 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in holding that the assessee is eligible for deduction u/s. 10AA. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary. The learned D.R. for Revenue placed strong reliance on the order of the AO in disallowing the assessee s claim for deduction under section 10AA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid decisions of the ITAT (supra) be upheld and Revenue s grounds/appeal be rejected. 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited (supra). On an appreciation of the material on record, it is seen that in the course of assessment proceedings, while examining the assessee s trading activities in connection with its claim for deduction under section 10AA of the Act, the AO observed that assessee had merely imported diamonds from Dubai and the same without any value addition was immediately re-exported to Dubai. The AO was of the view that, since the assessee had neither manufactured or produced any goods or articles nor provided any services during the year while trading in exports, deduction under section 10AA is not allowable. In coming to this finding the AO rejected the assessee s claim that the term services under section 10AA(9) of the Act should be read as defined in Section 2(z) and Section 51(1) of the SEZ Act, 2005 and Rule 76 of SEZ Rules, 2006 thereunder, which overrides the Act. 4.3.2 In the case on hand, we are inclined to concur with the finding of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant because it is very clear from Circular 17 of 29.05.2006 issued by the. Export Promotion Council For EOUs SEZ Unit (Ministry of Commerce Industry, Government of India) para 2 of which reads as under :- In the meantime, sourcing from domestic area may be permitted by units in the SEZs which are allowed to do trading subject to this circular being cited on prescription of an undertaking by the concerned unit that no Income-tax benefit will be availed by the Unit for trading except in the nature of re-export of imported goods . 2.3 The appellant has filed a schedule to SEZ which clears the case with modifications to the income-tax Act, 1961 for inserting Sec.10AA of the Act. 10 Instruction No.4/2004 also clears the claim of deduction u/s.10AA of the Act to the units carried out for trading in the nature of re-export form the SEZ Act. So it is very clear from the SEZ Act that service includes trading also and appellant has done trading from SEZ Act of the imported goods which have been re- exported after processing. It is further very clear from Section 51 of the SEZ Act which provides as under: Section 51 of the SEZ Act provides as follows:- 51(1) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early provided that the provision of this Act has overriding effect in case of contradiction between the SEZ Act and other Act. Hence, by virtue of Section 51 of the SEZ Act, the provision of SEZ Act and rules will have overriding effect over the provision contained in any other Act. Learned CIT(A) has taken into consideration this circular issued by Government of India and the provision of Section 51 of the SEZ Act and found that trading done by the assessee is a service and, therefore, deduction under Section 10AA is allowable. We further noted that on similar facts in case of Goenka Diamonds and Jewellery Limited (supra), the Jaipur Bench of the Tribunal has discussed the issue in detail. The provisions of Section 51 of SEZ Act were also considered. The decision of the Hon ble Supreme Court in the case of Tax Recovery Officer Vs. Custodian Appointed Under The Special Court, reported in the case of 211 CTR 369 (SC) and the decision of the Hon ble Delhi High Court in the case of CIT Vs. Vasisth Chay Vyapar Ltd., reported in 238 CTR 142 (Delhi), were also taken into consideration and thereafter it was concluded that in view of the Instruction No.1 of 2006, dated 24- 3- 2006 as modi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently, the grounds raised by Revenue are dismissed. 7. In view of the decision of the Tribunal order in assessee own case we uphold the order of the Ld. CIT(A) in allowing the claim for deduction u/s. 10AA of the Act for the assessee. Ground No.1 of the grounds of appeal of the Revenue is dismissed. 8. Coming to the Ground No. 2 and 3 i.e. with respect to the interest receipts on fixed deposit is concerned, we observe that the Tribunal in the A.Y. 2011-12 held that interest income from fixed deposit kept with bank by way of margin money for the purpose of business of import / export trading in diamonds constitutes business receipts for the purpose of deduction u/s. 10AA of the Act. While holding so the Tribunal observed as under: 7.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited. The facts on record indicate that the assessee in the course of its business of import/export trading in diamonds earned interest income from FDs kept in Bank as per instructions of Bank by way of margin money for the purpose of assessee s business and the assessee considering the same as busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferring to various documents placed in the paper book, Ld Counsel for the assessee brought our attention to the correspondence placed at page 28 onward and read out the relevant instances of the bank insisting the assessee to prepare term deposits in the bank. Further, bringing our attention to various decisions of the Tribunal, wherein one of us (AM) to the order in the case of ACIT vs. M/s. Prestress Wire Industries in ITA No. 8418/M/2010 (AY 2007-2008) and ITA No. 6312/M/2011 (AY 2008-2009) and others dated 31.1.2014, Ld Counsel for the assessee mentioned that the said decision is relevant for the proposition that, under the identical factual matrix, the receipts were treated as business receipts‟ and declared as eligible for deduction u/s 80IA of the Act. In this regard, he brought our attention to the relevant paras 14 to 16 of the said Tribunal s order (supra). Further, bringing our attention to other decisions of the Tribunal, Ld Counsel for the assessee mentioned that they relate to prior to the amendment to section 10A(4) of the Act. He also relied on the Judgment of the Apex Court in the case of CIT vs. Karnal Cooperative Sugar Mills Ltd 243 ITR 2 (SC) and the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. 6. Considering the above settled nature of the issue, we are of the opinion that the said interest receipts constitute business receipts and are eligible for deduction u/s 10A of the Act. Accordingly, the grounds raised by the assessee are allowed. 7.3.3 Following the aforesaid decision of the Coordinate Bench of the Tribunal in the case of Jewel Arts (supra), which is on similar factual/legal matrix as the case on hand, we are of the considered opinion that the said interest receipts earned by the assessee out of FDs kept with Banks by way of margin money made for the purposes of the assessee s business of import/ export trading in diamonds, constitutes business receipts/income and is therefore eligible for deduction under section 10AA of the Act. We hold and direct accordingly. Consequently, assessee s appeal on grounds 1 to 3 is allowed. 9. However, as rightly pointed by the Ld. DR, on a perusal of the assessment order there is no findings by the Assessing Officer as to whether this fixed deposits were made in the course of carrying on the business of the assessee and they were not made from any surplus funds for earning any interest income. In the a ..... 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