TMI Blog2017 (10) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... Even the learned DR has not made any material objection in this regard. The impugned order of the Ld. CIT (A) on this issue is therefore set aside and the matter is restored to the file of the AO for deciding the same afresh in accordance with law after giving one more opportunity to the assessee to support and substantiate its claim for deduction under section 10AA. Addition on account of making charges of 22 carat gold ornaments - Held that:- The market value of 22 carat gold ornaments gets increased only when they are finally ready and it remains as good as raw gold at the semi-finished stage because of the various reasons explained by the assessee. It, therefore, follows that the market value of 22 carat gold ornaments at semi-finished stage remains equivalent to raw gold price and since the valuation of the same was done by the assessee without including making charges as per the method of cost or market whichever is lower that was being consistently followed, we find ourselves that the Ld. CIT (A) that there was no under valuation of stock of 22 carat gold ornaments in process by the assessee as alleged by the AO. The addition made by the AO on this issue, therefore, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails furnished by the assessee, all the karigars were located outside SEZ Unit and the assessee has no findings to show that the said karigars had taken permission from the Customs Authority to work within the SEZ Unit. ii. Invoices for purchase of 24 carat gold used by the assessee were issued by the bank of Nova Scotia to the address located outside the SEZ Unit and the said purchase invoices were not stamped by the Customs Authority for its entries into SEZ Unit. On the basis of the above two grounds, the AO held that no manufacturing activity was carried on by the assessee company in its SEZ Unit during the year under consideration and it was not entitled to claim deduction under section 10AA. He accordingly disallowed the claim of the assessee for such deduction amounting to ₹ 79,69,852/- in the assessment completed under section 143(3) of the act vide order dated 06.12.2010. 5. Against the order passed by the AO under section 143(3), an appeal was preferred by the assessee before the Ld. CIT (A) challenging inter alia, the disallowance made by the AO on account of its claim for deduction under section 10AA. During the course of appellate proceedings before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the SEZ unit purchases 24 carat gold bars and exported gold jewellery which are also evident from purchase sales invoices produced before him during the assessment proceedings. The Gold bars have entered the SEZ premises and have been duly stamped by the Customs Authorities. Only in case of purchases from Bank of Nova Scotia such stamping is not done because they are authorised canalizing agents to import gold and supply to the SEZ/DTA units by the Govt. of India. Similarly all the export invoices are also stamped by the Customs Authorities present at the Manikanchan SEZ. We are enclosing herewith a few sample purchase and sales invoices for your ready reference vide enclosures nos: 3, it is a matter of common knowledge that 24 ct gold bars cannot to be converted into gold/studded jewellery without the help of Karigars and machines which together form a comprehensive manufacture activity. v. An Annual Performance Report (APR) is required to be submitted to the Development Commissioner of SEZ unit, who is a central govt. appointed officer in compliance to the SEZ policy and rules. The assessee company had also submitted Annual Performance Report for the financial yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held that unless the transaction is proved as sham or not bona fide. It is not open to the tax authorities to disregard the figures of transactions shown in the assessee s books of account. Therefore, in my view, the appellant company fulfilled the conditions laid down for claim of deduction under section 10AA of the Act, the action of the Assessing Officer in rejecting the claim is not justified. The Assessing Officer is directed to allow the claim of deduction under section 10AA as made in the return of income and allow appropriate relief to the appellant accordingly. This ground of appeal is allowed accordingly. 7. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The learned DR has submitted the claim of the assessee for deduction under section 10AA in respect of profit of SEZ unit was disallowed by the AO on specific grounds and even during the course of remand proceedings, the assessee failed to meet the objections of the Assessing Officer by showing that karigars had actually worked in the SEZ unit of the assessee during the year under consideration and the 24 carat gold used by it for manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished by the assessee, it was noticed by the AO that the assessee has not included making charges paid @ ₹ 70 per gm while valuing the 22 carat semifinished gold articles. In this regard, it was explained by the assessee that the market rate of 22 carat gold ornaments in semi-finished stage is always fixed at your gold rate and the cost of making charges is not included in arriving at the valuation of stock of such items. This explanation of the assessee was not found acceptable by the AO and he revalued the closing stock of 22 carat gold ornaments in progress by including the making charges at ₹ 70/- per gm which resulted in the addition of ₹ 22,54,476/- to the total income of the assessese. 10. The addition of ₹ 22,54,476/- made by the AO on account of alleged under valuation of closing stock of 22 carat gold ornaments in semi-finished stage was challenged by the assessee in the appeal filed before the Ld. CIT (A). It was submitted on behalf of the assessee before the Ld. CIT (A) that there were two vital aspects which had been ignored by the Assessing Officer while valuing the 22 carat gold ornaments in progress. It was submitted that the semi finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt held that permissibility of valuation of stock at market value would be only if market value of stock is lower than cost of stock; where market value of stock had been taken into consideration while arriving at chargeable income although market value of stock was more than the cost value of stock, rejection of accounts maintained by assessee for valuation of closing stock by Assessing Officer was in accordance with law. The Apex Court in the case of CIT v Dynavision Ltd. (2012) 26 taxmann.com 40/210 Taxman 239 (SC); has held that where assessee had consistently been following method of valuation of closing stock which was cost or market price whichever was lower , any addition on account of undervaluation of closing stock was unjustified more so when Assessing Officer revalued closing stock without making any adjustment to opening stock. In the appellant s case, the Assessing Officer has not rejected the books of account. He has only found the method of valuation closing stock to be faulty inasmuch the making charges were not added to the cost of 22 carat gold. On the other hand, the contention of the appellant is that it has been consistently following the same method of va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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