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2016 (1) TMI 891 - ITAT MUMBAI

2016 (1) TMI 891 - ITAT MUMBAI - TMI - Eligibility for deduction u/s 10AA - CIT(A) allowed the claim - Held that:- It is required to examine many factual aspects relating to the claim of the assessee by duly considering the submissions of the assessee, books of accounts of old and new M/s H.K.Jewels, the books of accounts of the assessee, the terms and conditions relating to Letter of Permission etc. With regard to the labour charges also, we notice that the Ld CIT(A) has not examined the crucia .....

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isdirected himself. Hence, this issue also requires fresh examination. There should not be any dispute that the law can be applied correctly only, if the relevant facts are very much clear. The foregoing discussions show that there is no clarity on facts of the present case and hence they need to be brought on record correctly.

In view of the above, we set aside the orders passed by Ld CIT(A) in all the three years under consideration and restore all the issues to the file of the asse .....

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rs dated 19.4.2010, 15.3.2011 and 20.3.2012 passed by the respective CIT(A)-26, Mumbai and they relate to the assessment years from 2007-08 to 2009-10 respectively. Since the issues urged in all these appeals are common in nature, they were heard together and are being disposed of by this consolidated order, for the sake of convenience. 2. The revenue is assailing the decision of ld. CIT(A) in holding that the assessee is eligible for deduction u/s 10AA of the Income Tax Act, 1961 without consid .....

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ated in brief. The assessee is a partnership firm formed on 14.9.2005 with four partners. 4. There was another firm by name M/s H K Jewels (for the sake of convenience M/s H.K.Jewels (old) ) which was formed on 26.8.2002 and the said firm applied for Letter of Permission (LOP) to the Development of Commissioner, SEEPZ, a Notified Special Economic Zone in order to set up a project for manufacturing of studded Jewellery. The Development Commissioner, SEEPZ granted LOP to M/s H.K. Jewels on 16.9.20 .....

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with its assets and liabilities etc and accordingly, they were assigned to the assessee herein under Deed of Assignment dated 7.10.2005. But it is stated that the Deed of Assignment came into effect from 1.4.2006 only. Upon receipt of assets and liabilities, the assessee applied for transfer of LOP to its name and the same was transferred by Development of Commissioner on 20.10.2006. Accordingly, the assessee claimed deduction u/s 10AA of the Act. 6. During the course of assessment proceedings, .....

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ection. Further, the deduction u/s 10AA will not be available if the undertaking is formed by splitting up or reconstruction of business already in existence, and also if any plant and machinery used for any purpose is transferred to the new business. For the sake of convenience, we extract below Sub-section (1) and Sub-section (4) of Section 10AA, wherein the above said conditions are specified: 10AA. (1) Subject to the provisions of this section, in computing the total income of an assessee, b .....

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he assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and c .....

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he assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking, being the Unit, which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the pe .....

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cern named M/s Vaibhav Gems Ltd located in SEEPZ. Though the assessee claimed that the labour charges have been received in Foreign currency, it did not substantiate the same with any material. 9. The Ld CIT(A), however, held that the assessee is entitled to claim deduction u/s 10AA of the Act on the following reasons:- (a) M/s H.K. Jewels did not start any business activities in SEEPZ. The assessee only has started the business of manufacture of diamond studded jewellery. (b) M/s H.K.Jewels cou .....

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onstruction of erstwhile business. Since the assessee has purchased entire project, it was a case of sale and hence the same cannot be regarded as reconstruction of the business. (e) As per the terms and conditions of LOP issued by the Development Commissioner, SEEPZ, LOP cannot be transferred by such authorities in case of reconstruction of any business. (f) Though the purchases were made in the name of M/s H.K.Jewels, the payment for the purchases has been made by the assessee only. (g) The la .....

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certain new facts also. Further, he submitted that the submissions made by the assessee before Ld CIT(A) also suffers from contradictions. He submitted that the assessee had claimed that M/s H.K. Jewels (old) and M/s H.K.Jewels (new) are one and the same firm. However, the above said firms carry different Permanent Account Numbers, viz., AADFH8907J and AACFH4846F respectively. Accordingly the ld D.R strongly supported the orders passed by the assessing officer and further submitted that the fac .....

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l aspects, we notice that there are apparent contradictions with regard to the facts prevailing in the instant case:- (a) The assessee has claimed that M/s H.K. Jewels (new) was formed to implement the project of M/s H.K. Jewels (old), even though the LOP was in the name of the later. This explanation was offered before Ld CIT(A) only and the effect of this explanation could not be examined by the AO. Further, it is not clear as to whether the person who is not holding LOP, i.e., H.K. Jewels (ne .....

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between 7.102005 to 1.4.2006, i.e., who implemented the project, what was the details of expenses, who met the expenses etc. (c) If the deed of assignment came into effect only from 1.4.2006, how the auditors of the assessee noted the date of commencement of production as 27.3.2006. It is not clear as to whether the date of commencement is required to be reported to the Development Commissioner, SEEPZ or to be certified by him or not. There should not be any doubt that the statutory auditor s c .....

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d and installed by the assessee and how trial run could take place on 27.3.2006. Apparently, these factual aspects have not been examined by Ld CIT(A). These factual aspects would also help to examine the question as to whether it was a case of reconstruction of business or not. (e) The ld D.R has pointed out that the observations of the Ld CIT(A) that the LOP cannot be transferred in case of reconstruction of business are not supported by any document. Hence the said observations of the Ld CIT( .....

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hased constitutes less than the prescribed limit of 20%. 13. The foregoing discussions would show that it is required to examine many factual aspects relating to the claim of the assessee by duly considering the submissions of the assessee, books of accounts of old and new M/s H.K.Jewels, the books of accounts of the assessee, the terms and conditions relating to Letter of Permission etc. With regard to the labour charges also, we notice that the Ld CIT(A) has not examined the crucial aspect, i. .....

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