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2022 (5) TMI 668 - AT - Income TaxDeduction u/s 10AA - Denial of claim as appellant is not carrying on the activity of manufacturing - as argued appellant is carrying on the activity of assembling and contract manufacturing at the factory. The word assembling is covered under definition of manufacturing as per SEZ rules, 2005 - HELD THAT:- Undoubtedly, finished goods have moved out from the SEZ units only for the purpose of exports. We observe that the assessee has imported the key materials and sourced the local material thru their Mumbai unit and assembled the solar lantern, Ld AR demonstrated sample parts which goes into the lantern which consist of battery and other components which includes several tiny parts, which was assembled in the SEZ unit following a standard process. We observe that as per the definition of the manufacture, assemble or process which bring into existence, more of hands and less of machine work in the case of the assessee, new product namely solar lantern, which is distinct from the raw material used in the assembling of the lantern. Therefore, the process demonstrated by the Ld AR and process sheet shown by the assessee falls within the established definition of the Manufacture. The AO has raised doubt on the existence of the proper machinery compared to Mumbai units, we observe that the assembling process does not need much of the machinery except tools which is used to assemble the lantern. Ld AR demonstrated the purchase of tools in the expenses booked under the head consumables. Ld AR has elaborately addressed all the issues raised by AO and CIT(A). CIT(A) casually observed that import and export transactions are carried out on the basis of self-declaration, under mining the appointment of inspector for movement of various goods inside or outside the SEZ, without the knowledge and verification of the custom documents, nothing can be removed or deposited. There is fixed system and formalities prescribed in the SEZ manual. Revenue authorities cannot undermine the Customs formalities. Further we observe that the Mumbai unit has produced 68190 pcs during this year compared to 75680 pcs in the previous AY. It clearly shows that the Mumbai unit worked almost full capacity this year under consideration and presuming that the quantity exported by the SEZ unit must have produced in Mumbai unit is farfetched. As such, we are of considered view that the CIT(A) was not justified in denying the deduction under section 10AA. Further, the decisions relied upon by the Department Representative are actually distinguishable particularly on the aspect of assembly and process aspect. Accordingly, we direct the Assessing Officer to allow the deduction claimed under section 10AA Disallowance of labour charges - HELD THAT:- We do not find any merit in the action of the Assessing Officer inasmuch as the assessee has actually availed the labour services for which necessary labour charges have been paid. The Assessing Officer and the Ld.CIT(A) has not disputed the aforesaid fact, however, made the disallowance only for the reason that some bills were raised in the name of husband. Further, the Assessing Officer has not allowed the assessee opportunity of cross examination and as such there is gross violation of principles of natural justice. Accordingly, we direct the Assessing Officer to delete the aforesaid disallowance. Appeal of assessee allowed.
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