The Principal Commissioner Of Income Tax I v. M/S.jewels Magnum

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE Mr.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE Mrs.JUSTICE V.BHAVANI SUBBAROYAN The Principal Commissioner of Income Tax INo.63, Race Course RoadCoimbatore... Appellant / Respondent (in bothappeals)Versus M/s.Jewels MagnumNo.333, First Floor, Big Bazaar StreetCoimbatore – 641 001.PAN : AAG FJ 3110 Q .. Respondent / Appellant (in bothappeals) Common Prayer:- Tax Case Appeals filed under Section 260-A ofthe Income Tax Act, 1961, against the order of the Income TaxAppellate Tribunal, Madras ''C'' Bench, Chennai, dated19.02.2016 in I.T.A.No.2311/Mds/2015 and ITA.No.2312/Mds/2015,respectively against the order of the Commissioner of Income TaxAppeals II,Coimbatore dated 16.12.2015 in ITA.NO.465/2014-2015 &149/14-15 and against the order of the Assistant commissioner ofIncome Tax,circle III,Coimbatore dated 20.03.2014 and 31.10.2014made in PAN NO.AAGRFJ3110 Q for the Assessment Year 2011-2012 &2012-2013. For Appellant: Mr.T.R.Senthil Kumar(in both appeals) Senior Standing Counsel assisted by Ms.K.G.Ushnarani Junior Standing Counsel For Respondent : Mr.R.Sivaraman(in both appeals) COMMON JUDGMENT[Order of the Court was made by T.S.SIVAGNANAM, J.] These appeals filed by the Revenue, under Section 260A ofthe Income Tax Act, 1961 ('the Act' for brevity) are directed https://hcservices.ecourts.gov.in/hcservices/ against the orders, dated 19.02.2016 passed by the Income TaxAppellate Tribunal, Madras 'C' Bench, ('the Tribunal' forbrevity), in I.T.A.No.2311/Mds/2015 and ITA.No.2312/Mds/2015,for the assessment year 2011-12 & 2012-13. 2. These appeals are entertained on the followingsubstantial questions of Law: (i)Whether the Appellate Tribunal is correct ingranting deduction u/s.10AA of the I T Act, whenthe assessee has violated the terms andconditions stipulatedinagreement withDevelopment Commission, MEPZ, SEZ ? (ii) Whether the Appellate Tribunal is correct inignoring the opinion of Government Approved Valuer,wherein he differentiated between medallion, coin andpendants 3. We have elaborately heard Mr.T.R.Senthil Kumar, learnedSenior Standing Counsel assisted by Ms.K.G.Usharani, learnedcounsel for the appellant-Revenue and Mr.R.Sivaraman, learnedcounsel for the respondent-assessee. 4. The short question that falls for consideration is whether the assessee is entitled to the benefit of Section 10AAof the Act. The said provision is a special provision inrespect of newly established units in Special Economic Zone.Section 10AA of the Act states that in computing the totalincome of an assessee, being an entrepreneur as referred to inclause (j) of section (2) of the Special Economic Zones Act,2005, from his unit, who begins to manufacture or producearticles or things or provide any services during the previousyear relevant to any assessment year commencing on or after the1st day of April, 2006, but before 1[st] day of April 2011, wouldbe entitled to deductions as mentioned in 1(i) and 1(ii) inSection 10(A)(1). Thus, the assessee to be entitled to thebenefit of Section 10(A)(A), the first condition to be fulfilledis that the assessee should be an entrepreneur as defined underSection 2(j) of Special Economic Zone Act, 2005. The saidprovision defines :“ 2(j) “enterpreneur” means a person who has beengranted a letter of approval by the DevelopmentCommissioner under sub-section 9 of Section 15.” Undisputed fact is that the assessee was granted a Letter ofApproval and therefore, assessee would fall within thedefinition of an entrepreneur as defined under Section 2(j) of Undisputed fact is that the assessee was granted a Letter ofApproval and therefore, assessee would fall within thedefinition of an entrepreneur as defined under Section 2(j) of Special Economic Zones Act, 2005. The Assessing Officer soughtto deny the benefit on the ground that the assessee has violatedthe terms and conditions in the Letter of Approval, which wasgranted by the Development Commissioner, for manufacture ofbangles and pendants. The basis for arriving at such aconclusion is on the ground that the Development Commissionerinitiated proceedings under the provisions of the Foreign Trade(Development and Regulations) Act 1992, as the assessee hadviolated the conditions in the Letter of Approval, whichculminated in issuing the order of penalty to them vide orderdated 03.9.2014. 5. It is to be noted that the respondent-assessee hadchallenged the said order, by filing a writ petition inW.P.No.25765 of 2014. The said writ petition was allowed, byorder dated 11.02.2015, setting aside the order of penalty dated03.9.2014, and remanded back to the Development Commissioner,MEPZ-Special Economic Zone, Tambaram, Chennai, with a directionto the said authority to adjudicate the show cause notice. Onsuch remand, the authority took up that matter for considerationand passed an order dated 20.04.2015, imposing penalty on theassessee, under Section 13 of the Foreign Trade (Development &Regulation) Act, 1992. This order was put to challenge by wayof writ petition in W.P.No.13538 of 2015. When the writpetition was pending, the assessments were completed underSection 143(3) of the Act, for both the assessment years i.e.,AY 2011-12 and AY 2012-13 on 20.03.2014 and 31.10.2014respectively. 6. The assessee carried the matters on appeal inITA.No.419/14-15 (for AY 2011-12) and ITA.No.465/14-15 (for AY2012-13) before the Commissioner of Income Tax (Appeals), whodismissed both the appeals vide order dated 16.12.2015. Thiswas because the Development Commissioner had held that theassessee had violated the terms and condition stipulated in theLetter of Approval by manufacturing medallions instead ofpendants, and exporting the same. At that relevant time, thewrit petition filed by the assessee in W.P.No.13538 of 2015,challenging the order of penalty, appears to have been pending.Aggrieved by the dismissal order dated 16.12.2015, the assesseehad preferred appeals in ITA.Nos.2311/Mds/2015 & 2312/Mds/2015,before the Tribunal. The assessee was successful in convincingthe Tribunal to hold that there is no violation of the Letter ofApproval and there is no marked difference or distinctionbetween a pendant and a medallion. The writ petition whichwas pending before this Court came to be allowed vide order13.02.2017. 7. It is the submission of Mr.T.R.Senthil Kumar, learnedSenior Standing Counsel appearing for the appellant-Revenue that https://hcservices.ecourts.gov.in/hcservices/ the writ petition was allowed by this Court, based upon theorder of the Tribunal. 7. It is the submission of Mr.T.R.Senthil Kumar, learnedSenior Standing Counsel appearing for the appellant-Revenue that https://hcservices.ecourts.gov.in/hcservices/ the writ petition was allowed by this Court, based upon theorder of the Tribunal. 8. We have gone through the order passed in W.P.No.13538 of2015 and found that it was not the only ground on which the writpetition was allowed and the Court has also given a specificfinding that the medallion is termed as a piece of jewellery inthe shape of a medal worn as pendant. More importantly, thelearned Writ Court has referred to the letter of the CustomsDepartment dated 12.03.2014, addressed to the AssistantDevelopment Commissioner of MEPZ, SEZ, wherein they haveclarified that medallions are also pendants. This was alsotaken note of by the learned Writ Court and quashed the order ofpenalty imposed by the Development Commissioner under theprovisions of the Foreign Trade (Development and Regulations)Act 1992. Thus, the basis or the substratum, based on which theassessment was completed denying the benefit to the assessee,did not no longer survive. That apart, what is required to beseen for extending the benefit under Section of the 10AA Act is,to see whether the assessee is an entrepreneur as referred to,defined under Section 2(j) of the Special Economic Zone Act.No doubt, the assessee falls within the said definition, as theyhad been granted a Letter of Approval by the DevelopmentCommissioner under Section 15(9) of the Special Economic ZonesAct. That apart, the competent authority who intends tocertify as to what would be the date of commencement ofproduction, would be the Development Commissioner and not theIncome Tax Officer. Even in the order dated 03.9.2014, imposingpenalty on the assessee, which was subsequently quashed, theDevelopment Commissioner has recorded that the date ofcommencement of production as 14.04.2009. This date is bindingon the Income Tax Department, as the competent authority tocertify the date of production is the Development Commissionerand not the Assessing Officer. 9. It was pointed by Mr.R.Sivaraman, leaned counselappearing for the assessee/respondent that the assessee hasfullfiled the terms and conditions of the Letter of Approval andthe nett foreign exchange earning of the assessee for the years2010, 2011, 2012 & 2013 is Rs. 74.49 crores. 10. Considering all these facts, we are of the view that therelief granted by the Tribunal by interpreting as to what is thependant and medallion, cannot be interfered in an appeal filedunder Section 260-A of the Act. The argument of Mr.T.R.SenthilKumar, learned Senior Counsel appearing for the Revenue, thatthe issue goes to the root of the matter is not acceptablebecause of the subsequent developments that had taken place inthe writ petition filed by the assessee, being allowed by thisCourt and the order of penalty imposed by the Development Commissioner being set aside. The reason for setting aside theorder of penalty imposed on the assessee, is that the assesseehas not violated the terms and conditions of the Letter ofApproval and that the medallion is also classifiable as apendant. 11. Thus, for the above reasons, we find no grounds todisturb the findings of the Tribunal. In the result, both theappeals filed by the Revenue are dismissed and the substantialquestions of law are answered against the Revenue. No costs. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant RegistrardsTo :1.The Principal Commissioner of Income Tax-I Coimbatore.2.The Income Tax Appellate Tribunal Chennai, 'C' Bench.3.The Commissioner of Income Tax Appeals-2,Coimbatore. 4.The Assistant commissioner of Income Tax,circle III,Coimbatore.T.C.A.Nos.260 & 261 of 2018A.SK(06/11/2020)