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M/s Jeans Knit Pvt Ltd And Others Versus Asstt. Commissioner of Income-Tax, Circle-11 (5) , Bangalore And Others

2015 (6) TMI 755 - ITAT BANGALORE

Eligibility of for deduction u/s 10B - whether approval of the EOU does not automatically make the assessee eligible for deduction u/s 10B of the Act and the deduction is available only after verification? - AO came to the conclusion that it is the reconstruction of the business of FFIPL and hence the assessee was not eligible for deduction u/s 10B - CIT(A) allowed claim - Held that:- There was no transfer of old plant and machinery during the financial year 2004-05, 2005-06 and 2006-07 and furt .....

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CIT(A) held that the manufacturing activity carried on by the assessee in the assessment years earlier to assessment year 2008-09 was by use of new plant and machinery.

As regards the transfer of business premises, employees and the customers of FFIPL to the assessee, the CIT(A) observed that there was no prohibition in the use of the business premises of FFIPL by the assessee and also of the employees and customers of FFIPL and further that the transfer of employees and customers of .....

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by the assessee as well as the revenue are directed against the order of the CIT(A)-I, Bangalore, dated 24/8/2012 for the assessment year 2007-08. 2. Brief facts of the case are that the assessee-company which is engaged in the business of manufacturing and export of ready-made garments and also doing job works, filed its return of income for the relevant assessment year declaring 'nil' income after claiming the deduction of ₹ 51,04,29,715/- u/s 10B of the Income-tax Act, 1961 [her .....

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he business premises of both are related and also that both the concerns were not demarcated separately and were not distinguishable and that there was nothing to indicate that the two concerns were separate entities. It was further observed that FFIPL had started its business in 2002 and the assessee had started its business in September 2004 and while FFIPL was claiming deduction u/s 80-HHC, the assessee was claiming deduction u/s 10B of the Act. While considering the assessee's claim of d .....

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t the assessee company was formed by re-construction of the earlier FFIPL. Therefore, he issued a show cause notice to the assessee as to why the deduction u/s 10B should not be disallowed. The assessee filed a detailed submission. After considering the submissions of the assessee, the AO came to the following conclusions: i. The approval of the EOU does not automatically make the assessee eligible for deduction u/s 10B of the Act and the deduction is available only after verification. ii. Asses .....

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7 it was allowed without verification and the assessment year 2007-08 is the first time that the whole deduction claim is being verified. iii. The contention of the assessee that the old machinery from FFIPL was transferred to the assessee only in April, 2007 is not acceptable since the assessee had taken over the premises of FFIPL along with old plant and machinery available in it and they have installed the new machinery over a period of time and that the assessee had started its first unit at .....

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the assessee-company started the business of stitching i.e. job work in financial year 2004-05 and then took over the warehouse and the cutting units of FFIPL and thereafter took a new premises as a finishing unit and that it has taken over the processing unit and stitching unit of FFIPL within a short span of time. iv. The business procedure of the assessee is such that all the units are doing different jobs and only after going through all the units, the end product which is exportable is obta .....

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e inbuilt infrastructure and resources for export of garments it was completely dependent on FFIPL. 2.1 Thus, the AO came to the conclusion that the although the assessee had claimed to have started with the new unit, it had to wait for obtaining the full and already established infrastructure consisting of building and plant and machinery of FFIPL and the man-power resources of FFIPL and then it started the actual manufacturing activity. He further observed that there was a transfer of the busi .....

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expenditure of ₹ 14,75,07,255/- towards 'Info and tracking of delivery charges' and ₹ 5,62,54,364/- as sales commission during the relevant financial year. As regards 'Info and tracking of delivery charges' the AO was of the opinion that the assessee has made payments to a non-resident company M/s.Sharp Eagle International Ltd., [SEIL] incorporated in Hongkong without deduction of tax at source and that the duties of the said nonresident have not been clearly spelt ou .....

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nothing but a deliberate attempt on the part of the assessee to mislead or misdirect the authorities since such correspondence does not concern the dealings between the assessee and SEIL. Thus holding that the assessee has failed to prove the genuineness of the expenditure claimed and that the same is not allowable, he accordingly, disallowed it u/s 69C of the Act as unexplained expenditure. 2.3 Without prejudice to the above, it was also disallowed u/s 37(1) holding it to be not expended wholly .....

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83,88,732/- has been paid to Shri Anupam Kothari, the MD of the assessee company and an amount of ₹ 78,65,632/- has been paid to Hongkong Inc, USA. After considering the statements given by Shri Anupam Kothari during the course of search and after going through the details filed by the assessee for payment of commission, the AO was of the opinion that the payment of huge sum of ₹ 4.83 crores to MD Shri Anupam Kothari was unduly excessive and unreasonable as per section 40(a)(ia) of t .....

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of the Act. As regards commission paid to Honkong Inc.USA, the AO observed that the assessee had failed to produce any details pertaining to the said payment. Therefore in the absence of evidence, the amount was disallowed u/s 69C of the Act. 3. Aggrieved by the disallowance of deduction u/s 10B as well as the expenditure claimed by the assessee, the assessee preferred an appeal before the CIT(A) by filing the relevant details before him. The CIT(A) called for a remand report from the AO and aft .....

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rom giving a decision on the allowability of the expenditure claimed by the assessee. 4. Against the relief given by the CIT(A), the Revenue is in appeal before us, while against the non-giving of the decision on the disallowance of the expenditure made by the AO, the assessee is in appeal before us. 5. In the assessee's appeal, the learned counsel for the assessee submitted that the expenditure incurred by the assessee was for the business of the assessee and that the assessee has produced .....

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services and therefore the assessee has made payment for its business purposes and has to be allowed. Similarly, arguments were advanced in respect of payment of commission to the MD as well as Hongkong Inc. USA. The learned Departmental Representative, on the other hand, supported the orders of the AO as well as the CIT(A) and submitted that the burden is on the assessee to prove the genuineness as well as the business connection of the payment. Coming to the revenue's appeal, the learned .....

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the financial year 2007-08 also did not exceed 20% of the total plant and machinery of the assessee during the said financial year. He further observed that since there was no purchase of old plant and machinery from FFIPL in the earlier assessment year even as per contemporaneous records of the EOU/Customs authorities. The relevant date of the plant and machinery purchased by the assessee over the years is reproduced at para 1.2.3, page 30 of the order of the CIT(A). Thus, CIT(A) held that the .....

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