TMI Blog2014 (10) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... aried by the AO, it cannot be held that the claim for deduction u/s. 10AA has also to be accepted – CIT(A) has not dealt with the relevant observations made by the AO for deriving an adverse inference against allowability of exemption u/s. 10AA – thus, the matter is to be remitted back to the CIT(A) for fresh adjudication after passing speaking order on the issue – Decided in favour of revenue. - ITA No. 1449/Ahd/2011 - - - Dated:- 1-9-2014 - Shri G. C. Gupta And N. S. Saini,JJ. For the Petitioner : Shri M. K. Singh, Sr. D.R. For the Respondent : Shri J. P. Shah, AR ORDER Per Shri N. S. Saini, Accountant Member: This is an appeal filed by the Revenue against the order of Commissioner of Income Tax (A)-I, dated 20.01.2011. 2. The Revenue has raised following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing the exemption of ₹ 10,00,653/- claimed by the assessee u/s. 10AA despite the fact that during the assessment proceedings the assessee failed to establish the manufacturing of exported goods in its SEZ, Sachin, Surat. 2. On the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of assessment proceeding, the A.O. observed that the assessee was not maintained details of day to day purchase or consumptions of materials. The A.O. further observed that the no such installation charges shown by the assessee. 3.5 During the course of assessment proceeding, the A.O. observed that the assessee submitted the details of the creditors amounting ₹ 55,61,890/-. The A.O. had issued letter u/s. 133(6) to the various creditors for verification of genuineness and confirmation of the transaction made by the assessee. However during the proceeding no conformations except Tanvi Gems Pvt. Ltd. Ronak Gems Pvt. Ltd. Mumbai have been received. 3.6 On perusal of the ledger account of Factory Building- it was seen that TMT bars, Cement and bricks etc are purchased in order to construct the building but no Labour charges were recorded on the ledger. 3.7 The A.O. observed that the assessee had revised return its claim of deduction u/s. 10AA from ₹ 5,42,778/- to ₹ 10,06,653/- claiming that the purchase of machinery was included in the purchase a/c, but the cost of fixed assets was not raised in extent of this purchase of machinery. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts can be rejected or the exemption cannot be allowed. Both cannot be done at the same time. D) On the one hand the AO observed that the electricity consumption has been shown less by the assessee, the quantum of articles cannot be produced within such a short period of time as claimed by the assessee etc. While on other hand, he did not hesitate in accepting the sales as genuine and the profit shown by the assessee as correct. E) All the observation made by the AO in the assessment order are not in congruence with his conclusion mentioned in para 13 of he order. In view of the above fact, I am of the opinion that the assessee's claim of exemption appears to be genuine and should be allowed. Accordingly the AO is directed to allow the exemption as claimed by the appellant in its return of income. Hence the ground of appeal is allowed. AO's Remark The Ld. CIT(A) has deleted of disallowance of exemption u/s. 10AA of ₹ 10, 00,653/- made by the assessing officer. The decision of the Ld. CIT(A) is not accepted for the following reasons:-1) The Ld. CIT(A) has not appreciated that the AO has rejected the books results of assessee u/s. 145(3) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the process of manufacturing in so many process within very short time period. All the process completed within a short period of 12 days only. The assessee was also not deployed skill Labour as the required for the manufacturing process. Considering the above process as furnished by the assessee period dose not established manufacturing of goods sold. G) The assessee debited electricity consumption (45 + 125 units) of ₹ 1400/- only, totaling with two separate connections of electricity. No electricity connections charges found to be debited in books of accounts. These two less electricity consumption/expense do not justify to have manufactured the goods in its units as on lease license agreement. H) The AO observed that Jewellery manufacturing workers with a meagre salary of ₹ 4,000/- to 3,750/- per month. The assessee had shown such expense as manufacturing expenses. I) During the course of assessment proceeding the A.O. observed that the assessee had filed its revised return of income. It is further observed by the AO that merely form No. 56F have been revised, revising the profit at ₹ 10,06,653/-, without revising the annexure attached theret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s out of it takes more than 8 days. Further, the Assessing Officer observed that the electricity bill of the assessee for the period 7th February to 7th March' 2007 shows consumption of 170 units only for which the assessee paid ₹ 1400/-. In view of the above, the Assessing Officer rejected the claim of the assessee for exemption u/s. 10AA of the Act. 9. On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance of exemption u/s. 10AA by observing as under: 6. I have gone through the assessment order and the submissions of the appellant. The action of the A.O. in taxing the income exempted u/s. 10AA as claimed by the appellant cannot be approved due to following reasons: i. The A.O. in the para 13 has observed that Considering the above and defect as pointed out in above paras, the book results of the assessee is rejected u/s. 145(3) of the I.T. Act. Since, sales of the assessee is established and profit of ₹ 10,00,653/- shown by the assessee and offered for taxation, same is accepted as income of the assessee . The above remark is very general in nature as the A.O. has failed to point out the specific defects which he found out in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trovert the submission of the Departmental Representative to the effect that the order of the Commissioner of Income Tax (Appeals) is a non-speaking order and was passed without dealing with the findings of the Assessing Officer. In the above circumstances, in our considered view, the order of the Commissioner of Income Tax (Appeals) could not be sustained as nothing has been stated in the operative para of the order in respect of the merit of the issue involved. In our considered view, simply because after rejecting the books of account, if turnover and profit as claimed in the return is not varied by the Assessing Officer, it cannot be held that the claim for deduction u/s. 10AA has also to be accepted. Further, as the Commissioner of Income Tax (Appeals) has not dealt with the relevant observations made by the Assessing Officer for deriving an adverse inference against allowability of exemption u/s. 10AA, in our considered view it shall be just and fair to restore the issue back to the file of the Commissioner of Income Tax (Appeals) for adjudication afresh after passing speaking order on the issue. We order accordingly. Needless to mention that the Commissioner of Income Tax (A ..... 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