2018 (1) TMI 1304 - HC - Income Tax

Eligibility for deduction u/s 10A - income directly related to the export business of the assessee - Held that - The assessee was liable to receive the benefit of deduction under Section 10A of the Income Tax Act. The Tribunal has recorded clear findings that no part of the income was used in the local area and that the jewellery made from the wastage was also exported ultimately. Such being the facts and circumstances of the case, we are of the view that the Tribunal has committed no error in granting the benefit of exemption under Section 10A of the Act to the assessee. We uphold the order of the Tribunal.

Issues:
1. Whether the ITAT was justified in upholding the addition of ?1,31,00,000/- while allowing exemption under Section 10A to the assessee?
2. Whether the ITAT was justified in not considering the stock kept outside books and its impact on exemption under Section 10A?
3. Whether the ITAT was justified in not considering the absence of records for recovery of wastage?
4. Whether the ITAT was justified in not considering the unaccounted gold in the manufacturing process?

Analysis:
1. The appeal pertains to the addition of ?1,31,00,000/- by the Assessing Officer due to suppression of stock and discrepancies in the books of accounts. The CIT (Appeals) and ITAT upheld this addition. The ITAT found that the assessee utilized waste gold in manufacturing jewelry, which was considered unexplained stock. The Tribunal held that the income from this activity was eligible for deduction under Section 10A as it was part of the regular business and related to export sales. The AO accepted the assessee's eligibility for Section 10A deduction, and the Tribunal affirmed this decision.

2. The ITAT's decision was based on the fact that the gold recovered from waste during manufacturing was part of the regular business activities and was directly related to export sales. The Tribunal found that the assessee disclosed the sale of this recovered gold in the books of accounts, which was accepted by the department. As the income from this activity was connected to the export business, the ITAT concluded that the assessee was entitled to deduction under Section 10A for the added income of ?1,20,00,000/-.

3. Regarding the additional ?11 lakhs disclosed by the assessee to cover discrepancies found during the survey, the ITAT determined that this amount was also related to the regular business operations and thus eligible for Section 10A exemption. The Tribunal emphasized that this income was not from sources other than the business activities. Therefore, the ITAT upheld the benefit of Section 10A deduction on this disclosed amount.

4. The Tribunal also addressed the evidentiary value of the survey conducted under Section 133A of the Income Tax Act. It noted that statements recorded during such surveys do not hold evidentiary value as sworn statements and may not be conclusive evidence. The ITAT found that the assessee's disclosure during the survey was a voluntary attempt to rectify business irregularities and did not indicate unlawful activities. Consequently, the Tribunal concluded that the assessee qualified for the Section 10A exemption based on the facts and circumstances of the case.

In conclusion, the High Court upheld the ITAT's decision, ruling in favor of the assessee and dismissing the department's appeal. The Court found no error in granting the benefit of exemption under Section 10A of the Income Tax Act to the assessee based on the facts presented during the proceedings.

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