New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (10) TMI 8 - ITAT AHMEDABAD

2016 (10) TMI 8 - ITAT AHMEDABAD - TM - Deduction u/s 10AA eligibility - Assessee is engaged in the business of manufacturing of cut & polished diamonds and its unit is situated in SEZ - Held that:- We are of the considered view that assessee in the course of running its undertaking in SEZ is allowed to send raw material outside the SEZ area for getting it in a finished form on job work basis through outside labourers and further this activity of getting goods manufactured through outside source .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

depends on the business strategy, quality of goods sold, rates negotiated with the buyers and optimum utilization of the resources including the employees and machines. We do not find any reason to interfere with the finding of ld. CIT(A). We uphold the same. Accordingly, ground no.1 is dismissed. - Secondly, the alternate view taken by ld. Assessing Officer for proportionately denying deduction u/s 10AA of the Act for goods manufactured from outside parties cannot stand for in view of our a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Shri S. S. Godara, JM, and Shri Manish Borad, AM. For The Appellant : Shri Prasoon Kabra, Sr.DR For The Respondent : Shri Rasesh Shah, AR ORDER PER Manish Borad, Accountant Member. This appeal by the Revenue is directed against the order of ld. CIT(A) -V, Surat, dated 28.10.2010 in appeal no. CAS-V/227/09-10 passed against order under section 143(3) of IT Act, 1961(in short the Act) framed on 30/12/2009 by the Jt.CIT, Range-8, Surat. 2. Briefly stated facts of the case are that assessee is a pa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he partnership firm. Return of income for Asst. Year 2007-08 was filed on 31.10.2007 declaring income at Rs.NIL after claiming deduction u/s 10A of the Act at ₹ 1,59,72,013/- being 100% profits earned from running the undertaking in the SEZ. During the course of assessment proceedings ld. Assessing Officer observed that assessee has shown gross profit rate of 19.76% and net profit rate of 18.94% which as per his view were abnormally high in comparison to other assessees engaged in similar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

90/- u/s section 10AA of the Act and alternatively also calculated deduction u/s 10AA of the Act at ₹ 1,10,73,625/- on the basis of his working towards export turnover from self-manufactured activities and denied the deduction for the remaining amount. In all income was assessed at ₹ 1,42,78,266/- after allowing deduction u/s 10AA at ₹ 16,86,590/- being reasonable profits estimated by him. 3. Aggrieved, assessee went in appeal before ld. CIT(A) and succeeded as the additions ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

contention-of assessing officer that assessee has not fully booked all the expenditure required for carrying on the business activity and for making such a contention, he placed reliance on the G.P & N.P ratios of certain entities. In this context, it has been argued by appellant that the results of said entities are not comparable as said entities tire carrying out the business activity in Domestic Tariff Area and not in SEZ. Further, appellant in his letter dated 28/12/2Q09 also asked asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in that case, it is very much necessary to supply complete data of comparable cases to assessee. In this regard, I find that the decision of Honourable Supreme Court in case of Dhakeswari Cotton Mills Ltd. V. CIT - 26 ITR 775 is squarely applicable. In this case. Honourable Supreme Court has made following observations:- \ "The estimate of the gross rate of profit on sales, both by the ITO and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprisin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t show the information given by the representative of the Department to the appellant, but it refused even to look at the trunk load of books and papers which assessee produced before the Accountant Member in his chamber. No harm would have been done if after notice to the Department the trunk had been opened and some time devoted to see what it contained. The assessment in this case and in the connected appeal, we are tolc1, was above the figure of ₹ 55 lakhs and it was meet and proper wh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed to act on material which may not be accepted as evidence in & Court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-s. (3) of s. 23, the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under s. 23(3)." It is seen that in the instant case, assessing officer has not supplied complet .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mukh. Gems - sister concern of assessee, I agree with the contention of appellant that comparison of selling, administrative and financial expenses cannot be made as various factors affecting the business, capital structure, policy decision etc. are not the same. As regard operating expenses, it is seen that difference-is only of 6.53% and therefore, in absence of any evidence on record, the above expenditure ratios cannot be taken as the basis for estimating the N.P only to the extent of 2% as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he profit on the basis of comparable cases can. arise only when book results of assessee are not capable of any independent verification either because of substantial defects in the same or because the same are not supported by proper bills, vouchers and other documents. However, same is not at all the case as it is seen that no defect whatsoever in the maintenance of books of accounts and other records have been pointed out. AS such book results are required to be accepted & in fact it is s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ction between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profit and gains of such eligible business for the purposes of the deduction under this section, take the a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nclusion that profits have been inflated by assessee. I am of the opinion that there is no cogent evidence which indicates that assessee has inflated profit by arranging transactions with group concerns in such a manner which results in higher profit to assessee. Even otherwise, the addition in such a case can be made only in respect of transactions carried out, with sister concern and not in respect of entire business. In my opinion the provisions of section 80IA(10) can be invoked only if ther .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ofit which was claimed as deduction u/s 10A of the Act. Further addition in said case was made by invoking provisions of section 10A(7) which refers to provisions of section 80IA(10) of the Act and it was held that the same was not valid as no material was brought on record regarding alleged connection between assessee and customers leaving apart establishing any close connection between these two persons. As such ratio of said decision is directly applicable to the instant case as no such close .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s & circumstances of the case, I am of the considered opinion that there is no cogent basis for curtailing deduction u/s 10AA by invoking provisions of section 80IA(10) of the Act & there is no justification in estimating N.P at 2%. Accordingly, addition made by assessing officer is hereby deleted and this ground of appeal is allowed. As regards the alternate contention of assessing officer that deduction u/s 10AA should be allowed only on the export of goods which has been manufactured .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

find that case laws relied upon by learned AR also indicates that such disallowance cannot be made. In case of Addl. CIT V. A. Mukherjee & Co. (P) Ltd. - 113 ITR 718 (Cal.), the assessee was a publisher of books and was not having printing press. The printing was entrusted to a press and binding was also done by outside book binders. In that case, it was held that; printer is a mere contractor and assessee was held to be engaged in manufacturing or processing of goods. Similarly, in case of. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

625/- only on the export value of goods manufactured by assessee on his own is not tenable. Hence, the deduction u/s 10AA of the Act is to be allowed as per the claim made in the return of income and addition made is hereby deleted and this ground of appeal is allowed. 4. Aggrieved, Revenue is now in appeal before the Tribunal by taking following grounds :- 1. On the facts and in the circumstances of the case and in law the Id. C1T(A) has erred in deleting the addition of ₹ 1,42.85.423/- m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has erred in deleting the addition of ₹ 1.42.85.423/- made b\ the A.O. on account of disallowance of deduction u/s 10 AA despite the fact that assesses had returned abnormally higher profits in comparison to other concerns engaged in the similar line of business in order to claim higher deduction u/s 10 AA of the I.T. Act. 3. It is therefore. prayed that the order of the Id. CIT (A) be set aside and the Assessing Officer's order dated 30712/2009 be restored. 5. Ld. DR submitted that - .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f rough diamonds were manufactured by the assessee. Majority diamonds were polished by his sister concerns through job work. 2. Besides, the AO found that the assessee has disclosed G P @ 19.76% and N P @ 18.94% whereas in the line of business average GP @ 5% to @ 6% and NP @ 2% to @ 3% is disclosed by various assesses. Therefore, the AO issued show cause notice on 22.12.1999 asking the assessee as to why claim of deduction u/s. 10AA should not be restricted to the extent of 2% as against 18.94% .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O. can recompute profit in the case of business transactions of the assessee, who produces more profit than ordinary profit in the line of business. 4. The A O alternatively worked out the deduction u/s 10AA of the Act to the extent of ₹ 16,86,590/- as against ₹ 1,10,73,590/- claimed by the assessee. The A.O. relied upon the judgement of the Hon'ble Supreme Court in the case of Streling Foods Vs CIT 237 ITR 579 and Cambay Electric Supply Ind Company 113 ITR 84 held that the deduc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ication in estimating the NP @ 2% as there is no cogent basis on the part of the Assessing Officer for curtailing deduction u/s. 10AA by invoking provisions of Section 801A (10) of the Act. The Ld CIT ( Appeals) allowed the appeal of the assessee and deleted the addition made by the A.O. 6. The decision of the CIT (Appeals) is not acceptable. The Ld CIT (Appeals) has not considered the facts of the case as mentioned in the assessment order by the A.O. as well as the judgements of the Hon'ble .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r correctly re-computed the working of deduction u/s. 10AA of I.T. Act and these facts were not considered by the Ld. CIT (A)V, Surat. Therefore, to keep the issue alive, the decision of the CIT(A) requires to be challenge before the Hon'ble ITAT, Ahmedabad as per the grounds of appeal. 6. On the other hand ld. AR relied on the findings of ld. CIT(A) and submitted that as far as invoking of provisions of sec.10AA(9) of the Act is concerned it is to bring to notice that assessee has not enter .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, Range-1 (Del-ITAT) 50 taxmann.com 26 (Del-Tri)2014 Further as regards the issue relating to not treating the goods manufactured on job work basis as manufactured goods, it has been held in several judgments and decisions that goods got manufactured on job work basis are duly covered under manufacturing activities. In support of his submissions ld. AR referred and relied on the following judgments :- 1. ACIT vs. Mukherjee & Co. (P) Ltd. 113 ITR 0718 (Cal) 2. CIT vs. Anglo French Drug Co.(Ea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. Solitary grievance of the Revenue in this appeal is against the action of ld. CIT(A) deleting the disallowance u/s 10AA of the Act at ₹ 1,42,85,423/- on profits earned from running the unit under SEZ. We find that Revenue has raised two grounds which are inter connected against the order of ld. CIT(A) wherein it has been held that both the alternatives namely invoking of provisions of section 10AA(9) r.w.s. 80IA(10) of the Act was not justified on the part of Assessing Officer and second .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. We find that ld. Assessing Officer gathered information relating to gross profit rates and net profit rates of other assessees engaged in similar kind of business activities relating to manufacturing and export of cutting and polished diamonds and observed great variation in relation to GP and NP rates as well as operating expenditure. On the basis of these statistics of ld. Assessing Officer was of the belief that assessee intentionally tried to show huge profits in order to form capital as t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

curred outside the books or excess revenue has been achieved from the foreign buyers. It seems that ld. Assessing Officer has made presumption by applying results of other industries/sister concern on an estimate basis without pointing out any defect in the business transaction entered by the assessee. 7.2 We further find that in the case of CIT vs. Schmetz India (P) Ltd. (2012) 26 taxmann.com 336 (Bom) has held as under :- With regard to the first issue it is found that the Tribunal has conside .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

raded by the Mumbai division are different from those manufactured and exported by (he Kandla division. Consequently, this also negatives any arrangement between the parties to show extraordinary profits in respect of its Kandla division so as to claim deduction under section 10A. These are findings one of fact. The revenue have not been able to show that the findings are perverse or arbitrary. In the circumstances, issues raised by the revenue do not raise substantial questions of law in the in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the disallowance of the part of the amount of deduction u/s 10A, without firstly showing that there existed any arrangement between the assessee and its overseas related party, by which the transactions were so arranged as to produce more than the ordinary profits in the hands of the assessee. The assessment year under consideration is 2009-10. Neither the proviso to sub-section (10) existed at that time, nor such a proviso can be applied as we are dealing with an international transaction and n .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and it is directed to allow deduction as claimed. 8. Now going into the aspects raised in second ground as to whether assessee is eligible for deduction u/s 10AA for goods manufactured from outside source on job work basis by way of sending raw material for cutting and polishing and in the case of SEZ, we find that there are some practical aspects attached with the SEZ. Units of Special Economic Zone are normally located little far from the main city which happens to be so in the case of assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

w material to outside labour parties for getting them manufactured in a finished form. It is also known that the SEZ is a custom bound area and every movement of goods/ material/asset has to pass through the check of officer of the Central Excise and Customs Department deputed at the gates and the details of such goods/raw material/asset are entered therein. Therefore, had there been any violation of SEZ rules then such movement would have been restricted. Further in order to examine this aspect .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d that all the conditions to qualify for deduction u/s 80IB of the Act is found to have been fulfilled by the assessee, inasmuch as, first conditions of employing 10 or more labour when use of power is not disputed has been fulfilled because courts have held that contract labour also qualifies for deduction as envisaged under relevant provisions and useful reference can be made by the decision of Hon'ble Gujarat High Court in the case of CIT vs. Prithviraj Bhoorchand, 280 ITR 94, head notes .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

end product is otherwise eligible for deduction. So far as deduction u/s 80IB of manufacturing of card board boxes from kraft paper is concerned, it is settled law that transforming in the corrugated sheets after having transformed in the shape of a box and the box is again in a flat position for easy transportation when flat position paper corrugated boxes are the final products which is eligible for deduction and our this view can be fortified by Hon'ble Madras High Court decision in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e production of corrugated boxes from kraft sheets as manufacture for the purpose of Section 80IB of the Act, is valid? 2. To appreciate the stand of the appellant, it is necessary to refer to the brief facts of the case. The respondent/assessee company claims that it is engaged in the activity of manufacturing of paper corrugated boxes and on that basis claimed deduction under Section 80IB of the Income-tax Act, on the profits derived in its business. According to the respondent/assesses, it pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ppellant, since the corrugated sheet in the process of being folded into a box, it has not lost its original characteristics of corrugated sheet, no manufacturing activity had taken place and therefore, the ingredients of Section 80IB of the Act, are not attracted. 4. The Commissioner of Income-tax (Appeals) however differed from the Assessing Authority and took the view that the corrugated sheets once are shaped into corrugated boxes, that would amount to a 'manufacturing activity* and ther .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

corrugated sheets are put into the designing machine in order to chisel them into different shapes and pin them at the folded points to convert the plain sheets into corrugated boxes. 6. We are also convinced that such an activity of transforming the plain corrugated sheets into a different product of boxes, though to gain space for transportation, such boxes are kept in a folded position, one cannot say that the boxes continue to retain its original characteristics of corrugated sheets. Theref .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er the relevant provisions have been complied with, therefore, we are of the view that the action of the authorities below in not allowing the claim of the assessee u/s 801B is unwarranted and uncalled for. As such, while accepting the appeal of the assessee, we direct to grant deduction u/s 801B of the Act as claimed by the assessee. 9. We further observe that ld. AR has relied on the decision of Hon. Bombay High Court in the case of CIT vs. Anglo French Drug Co.(Eastern) Ltd.191 ITR 0092 (Bom) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ervisory staff or exercise direct supervision over the manufacturing process. It is sufficient if, on an overall view of the matter, it is found that it was the assessee-company which was the real manufacturer and the assessee had merely employed the agency of someone else through whom the goods were caused to be manufactured. It is also not necessary that the assessee must pay the wages of the workers employed in the manufacturing process.-CIT vs. Neo Pharma Pvt. Ltd. (1982) 28 CTR (Bom) 223 : .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

owner of a printing press or to be a book-binder himself. A paper is not a book, though it is printed on papers. A publisher may get the books printed from any printer but the printer is not the manufacturer but a mere contractor. The findings of the Tribunal conclusively show that the assessee was carrying on the activity of manufacturing and also of processing of books which are also goods.-CIT vs. Casino (P) Ltd. (1973) 91 ITR 289 (Ker) : TC24R.272#1 concurred with; CIT vs. Commercial Laws of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

getting goods manufactured through outside sources is duly covered under the manufacturing activities. 12. We have also come across the assessment orders u/s 143(3) of the Act in the case of assessee for Asst. Years 2008-09, 2009-10 & 2010-11 and observe that no disallowance has been made in the deduction claimed u/s 10AA of the Act and GP rates of 19.92%, 17.84% and 16.46% and NP rates of 14.47%, 13.64% and 13.73% respectively have been accepted by the Assessing Officer and no proportionat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version