TMI Blog2012 (4) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... see filed appeal before the Tribunal or not in AY 2002-03. Decided in favor of the assessee by way of remand to AO Regarding deduction u/s 14A of the Act - AO noticed that the assessee had total funds available including loan funds were Rs. 55.59 crores as on 31/03/2003, which included loan funds of Rs. 24.34 crores - Held that: similar issue arose before the Tribunal in assessee's case for AY 2002-03 – Decided in favor of the assessee by way of remand to AO - ITA No.2257/Mum/2007, ITA No.2295/Mum/2007 - - - Dated:- 16-3-2012 - P M Jagtap, V Durga Rao, JJ. For Appellant: Mr B V Jhaveri For Respondent: Mr Kusum Ingale ORDER Per: V Durga Rao: These are the cross appeals directed against the order of CIT(A)- XXIX, Mumbai, passed on 22/12/2006 for the assessment year 2003-04. ITA No.2257/Mum/2007 - appeal by the assessee 2. Ground No. 1 is pertaining to deduction u/s 10A of the Act. 3. The facts relating to raise this ground are that the assessee is a pvt. Ltd. company engaged in the business of manufacturing and export of studded diamond and gold jewellery. The assessee filed its return of income for the year under consideration declaring total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of assessment proceedings. The AO, therefore, has estimated the ineligible portion of the export turnover relatable to job work activities on proportionate basis at 15,15,99,085/- being 44.35% of Rs. 34,18,24,319/- of export turnover is generated from the ineligible activities outside the SEZ. Accordingly, the claim of deduction u/s 10A worked out to Rs. 68,82,598/- was denied on the ground that the same was derived from such activities which were not carried out inside the location. Aggrieved, the assessee carried the matter in appeal before the CIT(A). 4. Before the CIT(A), the assessee had filed written submissions vide letter dated 12/12/2006, the contents of which were reproduced by the CIT(A) in his order at pages 3,4 5, are extracted below:- 2. While checking the working of deduction claimed by the assessee company u/s 10A at Rs. 4,83,99,550/- the AO referred to the following in his order. (a) The assessee company had paid labour charges of Rs. 1,88,71,966/- during the year ended 31 March. 2003 as against only Rs. 3,30,221/- paid in the immediately preceding year. (b) Out of the labour charges of Rs. 1,88,71,966/-, the assessee company had paid labour c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... things or computer software; (b) There should be profits and gains from such activity of export; (c) The deduction of such profit and gains of the undertaking is allowed for a period of ten consecutive assessment years beginning with the assessment ear in which the undertaking begins to manufacture or produce such articles or things. 5. It is submitted that all the ingredients referred to hereinabove are satisfied in the present case. Therefore, the assessee should get deduction in respect of its entire profit which may be the result of the workers working in the assessee s own unit at SEZ or the same unit which is located in SEZ gives raw materials to outsiders for fashioning the products according to its specifications. What is important is not that the entire work is carried on in such a unit inside SEZ but the work may be executed by outside parties who are provided with the required raw materials by the SEZ unit which are fashioned into articles capable of being exported outside India by the unit in the SEZ. 6. In respect of the Circular No. 694, dated 23rd November, 1994 issued by CBDT may be referred to, which is as under: ii. Treatment of on-site devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the plain meaning of the statute. The meaning and wording of the statute cannot be twisted to enlarge the scope of exemption/deduction. However, once deduction/exemption is allowable as per the plain meaning, full benefit should be given. Appellant has completely ignored the fact that heading of section 10A which states as follows: Special provision in respect of newly established undertaking in free trade zone, etc. If appellant s arguments are accepted then, according to appellant, the heading of the section is redundant and useless and has been put by the legislature without any. purpose because in view of the appellant, once foreign exchange are received in respect of the sale proceeds, it as Immaterial as to whether the manufacturing process has taken place In SEZ or not Such interpretation has to be rejected at outset. It is not open to anybody to suggest that legislature did not know ItS mind when it put the above heading over section 1OA. Section WA is in respect of only those undertakings which are set up and manufacturing or processing articles or things or computer software within the free trade zone etc. Appellant s claim that undertaking may be involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 1OA. The contention of the appellant is self contradictory. If the only criteria for granting deduction u/s 1OA is that the unit should manufacture articles or things which are exported then there is no reason for such elaborate provision under the heading Special pro vision in respect of newly established undertakings in free trade zone, etc. The provision should have been very simple and should have been as follows: If any undertaking brings in foreign exchange in respect of exports made, it will be entitled for deduction u/s 10A It is correct that the legislature wants to encourage exports but this encouragement in the form of tax deduction and exemption are based on certain conditions and compliance of various provisions. The government s aim is not simply to grant all and every benefit merely on the basis of fact that foreign exchange has come to the country. Had it been so, there would have been no reason for various government agencies monitoring havala transactions. Therefore, the submission pf the appellant that the AO should only see that the foreign exchange has come to the country and the unit has done some manufacturing and nothing beyond tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 10A it is not required that every piece of jewellery must be manufactured in SEZ, as the assessee the raw material received by the assessee may be given to outsiders for the process. He therefore contended that the view taken by the AO that, the assessee is not manufactured the entire process inside the SEZ, is not correct. The learned counsel for the assessee relied upon the Circular No. 694 dated 23rd November'94 issued by the CBDT and submitted that the above Circular supports the case of the assessee. He further relied upon the Explanation 3 to section 10A, as per which, the assessee need not manufacture everything inside the SEZ and manufacturing can be done outside SEZ also. In this connection, he referred pages 76 to 79 of the paper book where all the details are filed pertaining to work given outside on sub-contract and, therefore, the learned counsel submitted that the claim of deduction of the assessee should not be denied. The learned counsel for the assessee contended that the AO while deciding the claim of the assessee has not considered the case laws relied upon by the assessee. He referred to one of the case law decided by the Hon'ble Kerala High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are necessary to examine the issue, namely, what was the work done by the assessee inside the SEZ and outside the SEZ were not filed before the AO. The AO, therefore, held that the assessee has to do some manufacturing work within the SEZ for claiming deduction u/s 10A of the Act. We find force and justification in the argument of the learned DR. Therefore, after considering the facts of the case under consideration, restore the issue to the file of the AO with a direction to decide the afresh in accordance with law after considering the case laws relied upon by the assessee before him and the CBDT Circular, after providing reasonable opportunity of hearing to the assessee. We direct the Assessee to file the details as required by the revenue (supra) in support of its case. Thus, this ground of appeal of the assessee is treated as allowed for statistical purposes. 9. Ground No.2 is pertaining to interest income charged under the head 'income from other sources'. 10. During the course of assessment proceedings, the AO had observed that the assessee had claimed interest and other income of Rs. 25,44,225/- as part of the profit derived from the undertaking for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee incurred any expenses to earn the income, the same may be verified and allowed in view of the section 57(iii) of the Act. 12. Ground No. 3 is in respect of inter-unit transfer. 13. During the course of assessment proceedings, the AO noticed that the assessee had not considered inter-unit transfer as a part of total turnover. Following his decision in AY 2002-03 in assessee's case, the AO held that such inter-unit transfers are to be considered as a part of total turnover in determining the extent of profits eligible for deduction u/s 10A. The CIT(A) also upheld the action of the AO following his decision in AY 2002-03. Aggrieved, the assesee is in appeal before us. 14. After hearing both the parties and perusing the material on record as well as the orders of the authorities below, We find that the AO has not brought any material on record to show that whether the assessee filed appeal before the Tribunal or not in AY 2002-03. We, therefore, restore the issue to the file of the AO to consider the issue based on the outcome of the order of the Tribunal in AY 2002-03 and in case the assssee has not filed any appeal before the Tribunal against the order of the CIT(A) in AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA NO. 2295/Mum/07- by the revenue 20. Ground No. 1 is directed against the action of the CIT(A) in directing the AO to allow deduction u/s 10A of the Act on account of sales tax refund after verifying that the item of income represents sales tax refund of 10A Unit. 21. The AO held that the assessee failed to establish that the sales tax refund belongs to SEZ Units and, therefore the AO did not allow deduction of the sales tax refund u/s 10 A applying the analogy in AY 2002-03 in assessee's case. On appeal, the CIT(A) directed the AO to verify the fact and if it is found that the above item of income emerging from 10A unit, then deduction u/s 10A is allowed. Aggrieved, the revenue is in appeal before us. 22. Before us, the assessee submitted that the issue is covered by the decision of the Tribunal in assessee's own case for AY 2002-03. The learned DR, on the other hand, agreed with the submissions of the learned counsel for the assessee. 23. After hearing the parties and perusing the record, we find that the Tribunal in assessee's own case for AY 2002-03 (supra) following the decision in earlier year in assessee's own case vide ITA No. 6325/Mum/05 restored the issue to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
