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2015 (12) TMI 1417

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..... 77; 1,20,00,000/- made by the AO and sustained by the ld. CIT(A) was justified but the assessee is entitled for deduction u/s 10A of the Act on the said addition because the said income was directly related to the export business of the assessee. As regards to the another addition of ₹ 11 lakhs is concerned, the said amount was disclosed by the assessee itself to cover up the various discrepancies found during the course of survey but that discloser was also related to the regular business of the assessee and it was not from the sources other than the business. On the said income of ₹ 11 lakhs disclosed by the assessee, the exemption u/s 10A of the Act was available In the present case, the assessee agreed during the course of survey for the addition only when discrepancies in the loose papers were found. The assessee surrendered ₹ 11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The said surrender was related to the regular business of the assessee and it is not brought on record that the assessee earned the said income from any other source. Therefore, the deduction u/s 10A of the Act was allowable to .....

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..... ng Officer that the appellant is located in SEZ area and it is a 100% export unit. 6. The observation of CIT(A) are unwarranted, baseless and not based on the any material on record. His observations are categorically denied and the same are liable to be rejected/ignored. 7. That the additions made are unjust, unlawful and bad in law. The additions made are based on mere surmises and conjunctures and cannot be justified by any material on record. 8. That the explanations given, evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions made. 9. That the AO or the CIT(A) has not pointed out any discrepancy in the books of Account or with reference to the impounded material and in the absence of any such discrepancy no addition could have been made or sustained. 10. That the income has being illegally and wrongly assessed at ₹ 1,31,00,000/- as against Nil income returned by the Appellant. 3. From the above ground it is clear that the grievance of the assessee relates to the sustenance of addition of ₹ 1,31,00,000/- made by the AO on acc .....

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..... e amount hence asked for. Later, to further clarify the matter a semi judicial inquiry was conducted by Custom authorities, NOIDA. The inquiry continued for 3 days and after the inquiry a semi judicial judgment was passed by Dy. Commissioner of Custom. Noida wherein it was upheld that the excess gold found was on account of wastage recovery and that is erroneously omitted to be entered in books, has been accumulated from normal loss and there is no outside source of the said gold. Hence it is evident that, it was an accounting error of omission only. The gold in question has been exported since then and its export income; fully exempt u/s 10A of Income Tax Act, 1961 has been accounted for in later years. 1. The stock in question was erroneously omitted from books of accounts. 2. The stock has accumulated on account of normal loss of manufacturing process. 3. Submission of assessee before survey team was ignored. 4. Semi judicial inquiries conducted by Custom Authority, Noida have upheld that the stock has generated from normal loss during manufacturing process. 5. The stock in question is exported thereafter and income generated is ta .....

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..... unit has mentioned that excess stock is on account of recovery of gold out of wastage. However, the unit is not maintaining records of wastage, but as per interaction with their production supervisor it seems they have got knowledge facility of recovery of gold out of wastage, which they confirmed that they are recovering gold of wastage on regular basis. From the above it is clear that the wastage is being recovered on regular basis as stated by the Production Supervisor but these wastage is not accounted for in the books of accounts. For these reason the Appraiser Custom has issued warring vide letter F.No. NSEZ/CUS/07/04/Bridal/2006 dated 24.08.2006. V. The fifth point is that stock in question is exported and therefore the income generated is tax free u/s 10A of I.T. Act, 1961. The contention of the assessee is accepted and no tax is being changed on income earned on export of stock generated out of wastage. VI. The sixth point that no tax is attracted on above and hence tax got deposited by the Department during survey is refundable to the assessee is baseless. Actually the tax is being charged on the excess stock of gold generated out of recovery of wasta .....

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..... ened with dire consequences if the surrender was not made. This submission was made before the A.O. also but was ignored by him. REG: 1.2 CRORES This surrender was made since there was pressure and threat from the survey team to make the surrender for the excess gold of about 12kg found from the factory premises. The assessee is entitled to refund of the tax deposited because of the following reasons:- 1. WASTAGE RECOVERY FROM WASTAGE: The assessee is running a 100% export unit at the Noida Special Economic Zone where the jewellery manufacture takes place. The assessee is availing of the 10A exemption since A.Y 2004-05 and it is being allowed to the assessee by the department. Total exports made from F.Y 2003-04 till 31.07.2006 is 2146kg. This is evident from the annual audit reports filed with the department and the letter dt. 08.08.2006 filed with the Deputy Commissioner of Customs, Noida, SEZ. In the process of manufacture of jewellery, 1.6% to 1.85% wastage is normal and accepted. A detailed investigation was carried out by the officials from the customs department on 12.08.2006 to 14.08.2006 and a report was prepared on 14.08.2006 by the jewellery appraiser .....

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..... revenue received from the sale of this 12kg gold is also part of the regular books of accounts which were audited and produced before the AO during the course of assessment proceedings. It was emphasized that the surrender was made under undue pressure and coercion by the survey team. It was stated that the custom department made a complete investigation and prepared a report on 14.08.2006 wherein it was mentioned that that the excess gold of 12kg was a result of the wastage accumulated and recovery made there from. In the said report it was accepted that 1.6% to 1.7% was the wastage in the manufacture of the jewellery and that 25% to 35% was the recovery from the wastage collected. It was also emphasized that nowhere the custom department had stated that this gold of 12kg was purchased outside the books of accounts and no kind of penal action was initiated against the assessee. It was pointed out that Central Board of Excise and Customs in the notification no. 3/88 clearly mentioned and admitted that in the manufacture of jewellery of different kinds the percentage of wastage ranges from 1.25% to 9% depending on the nature and variety. It was further stated that 12kg gold found a .....

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..... t the survey team directed Mr. Rajan Kohli to write the surrender letter by hand as per the wordings supplied by the survey team. The surrender letter was never voluntary and was made under coercion and pressure. Mr. Rajan Kohli is also filing an affidavit stating all these facts. Hence it would be incorrect to assume that Rajan Kohli himself stated that he would not claim any further exemption or deduction from the surrendered amount. In fact in the surrender letter it is stated by Rajan Kohli himself that this surrender of excess gold is on account of wastage suppression. This was accepted by the survey team itself. 2. The SEZ unit is making only export sales. The unit was given permission to run unit at SEZ only if it achieves a minimum set target of exports. On the other hand the unit has exported more than the set targets. 3. There are no local sales made by the unit and we are also enclosing a certificate to this effect from the customs authorities. 4. Customs authorities keep a strict check and vigil on the activities of the units at SEZ. Each time a consignment leaves the unit to be exported, the customs officials verify the consignment and after inspectio .....

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..... nd, in case he was unduly forced to do so, would have filed a letter/affidavit of retraction within a day or two, or within 7 days or latest (even giving all benefits of doubt) within a month. But retracting from such surrender after more than a year, certainly indicates that appellant, strategized its defense, which took a long time, and that appellant planned its affairs before making formal retraction in form of return of income. Such belated, cooked-up retraction cannot be given any weightage. 10. The ld. CIT(A) observed that there cannot be any valid and bonafide justification of not accounting for any recovery out of the wastage, if the motive was not to earn unaccounted income. He further observed that the certificate issued by the customs department did not accept the assessee s claim of genuine possession of excess gold. He also pointed out that the issue under consideration comes under Income Tax Act and not under the Customs Act, so the fact that only a warning was given by the customs department will not weaken the case of the Income Tax Department. According to the ld. CIT(A) the assessee had eventually exported the impugned excess stock of gold jewellery, .....

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..... 20,00,000/- was not justified. As regards to the other addition of ₹ 11 lakhs, it was stated that the assessee himself agreed for the addition of ₹ 11 lakhs on account of various shortcomings to buy peace, the said income was in the normal course of business, therefore the deduction u/s 10A of the Act was allowable on the said income disclosed by the assessee. The ld. Counsel for the assessee referred to page no. 123 of the assessee s paper book which is the copy of the order sheet wherein it is mentioned that the assessee furnished purchase sales register, cashbook, bankbook etc. which were checked tallied and the assessment was framed u/s 143(3) of the Act. It was submitted that when the books of accounts were accepted wherein the amount of ₹ 1,20,00,000/- was shown on account of sale of the gold recovered from wastage, the separate addition made by the AO was not justified. It was also stated that the income of ₹ 11 lakhs disclosed by the assessee was in the regular course of export business, therefore, the exemption u/s 10A of the Act was allowable on the said income also. The ld. Counsel for the assessee referred to page nos. 56 57 of the assessee .....

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..... cumulated to the extent of 12kg. The gold recovered by the assessee from the wastage was in its regular course of business of manufacturing and export of gold jewellery and there was no local sale. The AO accepted that the assessee was eligible for deduction u/s 10A of the Act being 100% Export Oriented Unit established in Noida Special Economic Zone. The assessee disclosed the gold recovered from the wastage in its books of accounts after the survey and the same was sold which was also entered in the stock register. The department had accepted the books of accounts maintained by the assessee in its regular course of business. The assessee disclosed the sale of the gold weighing 12kg which was recovered from the wastage. When the assessee itself disclosed the sale of the gold obtained on recopying the wastage and disclosed the profit on the said sale in the books of accounts which had been accepted by the department. In our opinion, the value of 12kg gold recovered by the assessee from its customer in regular course of business was its income but the assessee was eligible for deduction u/s 10A of the Act on the said income of ₹ 1,20,00,000/-. In the present case, the deductio .....

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..... any proceeding under this Act makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. It has been further held as under: In view of the scope and ambit of the materials collected during the course of survey action under section 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the partners of the assessee firm that the disclosed income was assessable as lawful income of the assessee. 14. In the present case, the assessee agreed during the course of survey for the addition only when discrepancies in the loose papers were found. The assessee surrendered ₹ 11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The said surrender was related to the regular business of the assessee and it is not brought on record that the assessee earned the said income from any other source. Therefore, the deduction u/s 10A of the Act was allowable to the assessee being 100% Export Oriented Unit established in SEZ on this income also. We order accordingly. In vie .....

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