TMI Blog2008 (6) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. The termination of the contract of the contractor would result in their immediate eviction and loss of job. As per agreement those employees cannot work in any other units of any other person. As per definition of the workman as provided in s. 2(s) of the Industrial Disputes Act, 1947 includes any person employed in any industry or by a contractor in relation to execution of his contract with such employer included within the ambit of employees these workmen also - Therefore, we are of the view that the assessee has employed more than 20 workers during the year and therefore, satisfies the conditions contained in s. 10BA(2)(e) of the Act. Assessee further submitted that the assessee in all the preceding years has been accepted as exporter of wooden handicrafts and has been allowed (benefit) u/s. 80HHC of the Act. The assessee has also been recognized by other departments of Government of India, Handicraft Export Council of India, the Sales-tax Department of Government of Rajasthan and all other concerned authorities, all along. The assessee caters to the requirement of diverse buyers of Europe, USA, Japan, Australia, South Africa, etc. for wood based handicrafts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of artistic value even after getting some process on piece of job basis from outside but under its control. The items so produced or manufactured will be treated as manufacture or production by the assessee employing more than 20 persons. Therefore, we are of the view that the assessee has fulfilled all the conditions u/s 10BA(2) of the Act and therefore. he is entitled to deduction u/s 10BA(1) and we find no infirmity in the order of the learned CIT(A) who has rightly reversed the decision of the AO. Thus ground No. 1 of the Revenue is dismissed. Disallowance u/s. 80HHC - SFT sales (counter sales) against convertible foreign exchange - HELD THAT:- We concur with the views of the learned CIT(A) in view of the consistent decisions taken by this Bench and also the case referred by the learned CIT(A) and also the decision of Hon'ble Supreme Court of India in the case of CIT vs. Silver Arts Palace [ 2002 (12) TMI 12 - SUPREME COURT] . Therefore, we find no infirmity in the order of the ld CIT(A) who has rightly reversed the order of the AO on the issue. Thus ground No. 2 of the Revenue is dismissed. In the result the appeal of the Revenue is dismissed. - B. P. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Unclaimed export receipts 33,91,352 26,43,784 - 8. Deduction under section 80HHC claimed 4,98,10,474 5,12,12,082 1,35,14,971 9. Deduction under section 10BA claimed. - - 8,99,43,092 3. The assessee has claimed a deduction under s. 10BA of IT Act amounting to Rs. 8,99.43.092 in the following three units: S.No. Name of the Unit Amount (Rs.) 1. Kusum Sarovar Unit, Maharani Farm Near Nala, Mansarovar, Jaipur 4,07,39,801 2. Kusum Sarovar Unit-II, FCI Godown, Durgapura, Jaipur 4,36,24,323 3. Lali Unit Ramgarh Road, Delhi National Highway, Jaipur 55,78,968 Total 8,99,43,092 A survey under s. 133A of the Act was conducted on 23rd Dec., 2005. During the survey, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be applied in the assessee's case as these have no relevance with regard to interpretation of s. 10BA. As per s. 10BA, the deduction is admissible to the export concern who manufactures or produces handmade articles which are of artistic value and which require use of wood as raw material. The items exported by the assessee are furniture and other items of general utility nature just as coffee table, dinning table, shutter cabinet, bar cabinet, bookshelf, mirror frame etc. These items cannot be said to be the items having artistic value whereas as per s. 10BA of the IT Act the articles mean all handmade articles or things which are not artistic value. This unit purchased semi-finished wooden articles and got it finished through contractors on jobwork basis and no manufacturing has been done by the unit as his own level because the same is got done from contractors on jobwork basis and also labour employed by the assessee in number is 18, which is less than the prescribed limit of 20. Therefore, the arguments, submissions put forth by the assessee are not tenable and therefore, the claim of deduction under s. 10BA amounting to Rs. 4,36,24,323 is not justified and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of machinery or plant previously used for any purpose. Explanation: The provisions of Expln. 1 and Expln. 2 to sub-s. (2) of s. 80-I shall apply for the purpose of this clause as they apply for the purpose of cl. (ii) of sub-s. (2) of that section; (d) ninety per cent or more of its sales during the previous year relevant to the assessment year are by way of exports of the eligible articles or things; (e) it employs twenty or more workers during the previous year in the process of manufacture or production. 6. As regards the conditions laid down under s. 10BA(2)(a) of the Act, it is not applicable in the present case since the assessee has not used any imported raw material. 7. As regards the conditions laid down under s. 10BA(2)(b) and 10BA(2)(c) of the Act, the AO has observed that in the Kusum Sarovar Unit, Maharani Farm, Mansarovar, Jaipur (KS-1), there was an opening balance of plant and machinery as at 1st April, 2003 for an amount of Rs. 2,52,321 and as at 31st March, 2004 and 31st March, 2005, the closing balance of plant and machinery was Rs. 3,23,945 and Rs. 3,48,151 respectively. The AO observed that the assessee is running an undertaking from old plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10. To put it otherwise, the existing undertakings were not excluded from claiming the benefit under s. 10BA. This explanation of the assessee was not considered by the assessing authorities. On perusal of the provisions laid down in s. 10BA(2)(b) and 10BA(2)(c), the assessee's undertakings has not been formed by splitting up or reconstruction of a business already in existence and none of the undertakings have been formed by the transfer to a new business of machinery or plant previously used for any purpose, since the assessee has not started any new business and the assessee was carrying on the existing business. Therefore, there is no condition laid down under the Act where the existing business of the assessee having the plant and machinery can be denied deduction under s. 10BA(1) of the Act. The deduction is available for a limited period starting from asst. yr. 2004-05 to asst. yr. 2009-10. There is no mention of the commencement of the manufacture or production for claiming the deduction under s. 10BA(1) of the Act. Therefore, it appears that the AO has made wrong interpretation of the law contained in s. 10BA(2)(a) and 10BA(2)(b) of the Act. Therefore, we find no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears that the assessee was made to make the confession to withdraw, the claim under s. 10BA of the Act which was not permissible. The Departmental authorities cannot force the assessee to make such confession and if retracted when no credible evidence is found, then the Departmental authorities should collect the evidences of material during the survey operation or while framing the relevant assessment orders. The CBDT has also issued the Instruction F. No. 286/2/2003-IT(Inv. II), dt. 10th March, 2003 which is reproduced for the sake of clarity as under: 872. Confession of additional income during the course of search, and seizure and survey operation - Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search and seizure and survey operation. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing return of income. In these circumstances, such confessions during the course of search and seizure and survey operations do not serve any useful purpose. It is therefore, advised that there should be focus and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 being the amount of sales-tax which it was liable under the law to pay during the relevant accounting year. That liability did not cease to be a liability because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail. Further, the fact that the assessee had failed to debit the liability in its books of account did not debar it from claiming the sum as a deduction either under s. 10(1) or under s. 10(2)(xv). And the Hon'ble Supreme Court of India at p. 367 further held in the said decision as under: The main contention of the learned Solicitor General is that the assessee failed to debit the liability in its books of account and therefore, if was debarred from claiming the same as deduction either under s. 10(1) or under s. 10(2)(xv) of the Act. We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although, under the law, a deduction must be allowed by the ITO, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objective of the provision and not frustrate it. Therefore, in the circumstances and facts of the case and the decisions of the various Courts of law mentioned hereinbefore, we find that, the assessee has not violated the conditions laid down under s. 10BA(2)(a) and 10BA(2)(b) of the Act and the learned CIT(A) has rightly reversed the decision of the AO on this issue. 13. As regards the conditions contained in s. 10BA(2)(d) and 10BA(2)(e) of the Act, the AO has observed that the items exported by the assessee are furniture and other items of general utility and these items cannot be said to be the items having artistic value as per Expln. (b) to s. 10BA of the Act. The AO further observed that the assessee purchased semi-finished wooden articles and got it finished through contractors on job work basis and no manufacturing has been done by the assessee at his own level and the labour employed by the assessee was also less than 20. 14. The assessee has submitted the explanation as regards the employment of the persons, the definition of the workman/worker and also decisions of various Courts of law in support of its claim that the assessee has employed more than 20 workers i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard have duly been reflected in the books of account and are verifiable. We appreciate the explanation submitted by the assessee and find that in the circumstances and facts of the case, the assessee has employed the personal labour of the persons engaged through the contractor. Therefore, the said employees, in our view, should be considered as workers for the purpose of claiming the deduction under s. 10BA of the Act. Our views find support from the decision of various Courts of law as under: (1) Rajasthan Co-operative Dairy Federation Ltd. vs. Judge Industrial Tribunal and Labour Court [D.B. Civil Special Appeal No. 1248 of 1999 decided on 19th Jan., 2001 and published in Western Law Cases (Raj) pp. 128 and 130.] 11. So far as the Rajasthan is concerned the definition of 'workman' as provided in s. 2(s) of the Act of 1947 was amended by the Rajasthan Act No. 34 of 1958 through its s. 3, w.e.f. 1st July, 1960. The definition of workman under s. 2(s) of the Act of 1947 as applicable in the State of Rajasthan since said amendment included any person employed in any industry by an employer or by a contractor in relation to the execution of his contract with such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. (iv) of sub-s. (4) of s. 80J. The assessee was entitled to the special deductions under ss. 80HH and 80J. (3) Y.L. Agarwala vs. Tazihilali Union (1978) Lab. I.C. 1264 Where a worker or group of workers labours to produce goods or services and these goods or services are for the business of another, that other is in fact the employer. He has economic control over the workers 'subsistence' skill and continued employment. If he for any reason chokes off, the worker is virtually laid off. The presence of immediate contractors with whom along the workers have direct or immediate or in direct relation excontractu, is of no consequence when, on lifting the veil or looking at the conspectus factors governing employment, it is found though draped in different perfect paper arrangement, that the real employer is the management and not the immediate contractors. (4) Crown Talkies Madras vs. M.P. Seluraian (1975) 48 FJR 344 The expression 'manual work' occurring in the definition of workman according to me has been used as antithesis to mental or intellectual work so as to distinguish between work done by physical exertion of other work which is of supervisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iers (JO) and in-house simultaneously. Rejection of defective items out of the lot of semi-finished goods on receipt by in house quality check official to be redone/rectified before issue of relevant GR. (7) Goods received sent for fumigation (all in house). (8) After fumigation all goods issued for colonial finishing as per each buyer's order which is in-house. (9) Specified items issued for art painting. (All in house at KS-I, KS-II and Lali) (10) Final brass fittings by skilled workmen. (11) After quality check, goods sent for packing division for proper packaging of preparation of supervised packing list. 16. The assessee also submitted that the assessee in all the preceding years has been accepted as exporter of wooden handicrafts and has been allowed (benefit) under s. 80HHC of the Act. The assessee has also been recognized by other departments of Government of India, Handicraft Export Council of India, the Sales-tax Department of Government of Rajasthan and all other concerned authorities, all along. The assessee caters to the requirement of diverse buyers of Europe, USA, Japan, Australia, South Africa, etc. for wood based handicrafts amidst fierce co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly developed its leading position in designing colour shading artistry in hand in printing on wooden articles/things, but its wooden products are presently a brandname by itself and this is duly reflected in the continuous surge in its sales of wooden handicrafts since 2001. The brandname 'Patin' means (i) Old artistic French wooden items with special brass knobs and latches. (ii) Commod means French style drawer chest with artistic pure brass fittings. (iii) Louis 16 is a special style of wood used in green white grey shades. (iv) Trumo wooden items laced with mirror fittings/carvings etc. Manglam Arts is engaged in promoting those types of manufacturing and with those steps within the manufacturing value chain that require more people inputs that cannot be easily performed by machinery and may require less capital. The creative talent visualization and originality of its carpenters in the product development section the dexterity of its workmen (directly) employed or through contractors and job workers, the increased efficiency of our large fleet of labour in polishing, finishing packing division is the big strength of our wooden handicrafts expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 CTR (Bom) 212 : (1985) 151 ITR 296 (Bom); (18) CIT vs. Univmines (P) Ltd. (1993) 109 CTR (Del) 75 : (1993) 202 ITR 825 (Del); (19) CIT vs. U.P. State Agro Industrial Corpn. Ltd. (1991) 93 CTR (All) 214 : (1991) 188 ITR 370 (All); (20) CIT vs. Lucky Mineral (P) Ltd. (1996) 134 CTR (Raj) 541 : (1997) 226 ITR 245 (Raj). 19. Therefore, in the circumstances and facts of the case, we are of the view that the assessee has fulfilled all the conditions under s. 10BA(2) of the Act and therefore. he is entitled to deduction under s. 10BA(1) of the Act and we find no infirmity in the order of the learned CIT(A) who has rightly reversed the decision of the AO. Thus ground No. 1 of the Revenue is dismissed. Ground No. 2: The Revenue is aggrieved that the learned CIT(A) has erred in granting relief on account of disallowance of deduction of claim made under s. 80HHC on counter sales made by the assessee. 20. The brief facts of the case are that the AO has made a disallowance in respect of SFT sales (counter sales) against convertible foreign exchange amounting to Rs. 66,96,039. The learned CIT(A) reversed the order of the AO by relying upon the decision of Tribunal Jaipur Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X
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