9911796707
TMI Blog2019 (2) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... the Non SEZ unit has shown GP at 18.86% and NP at 12.81%. 3. The Ld. CIT(A) has erred in holding that provision of section 80IA(10) were not applicable whereas the facts of the case clearly indicate that AO has rightly invoked the provision of Section 80IA(10) of the I.T. Act, 1961. 4. The order of the AO deserves to be sustained on the basis of facts of the case and order of the Ld. CIT(A) is erroneous and cannot be accepted. 5. Any other ground of appeal which may be taken up at the time of hearing of the appeal." 2. Briefly the facts of the case are that the assessee firm filed return of income on 30.09.2009 declaring its total income Nil after claiming deduction of Net Profit of Rs. 5.92 crores u/s 10AA of the Income Tax Act, 1961. The assessee at the assessment stage filed the written submissions along with audit report and audited Profit and Loss account and balance sheet which have been examined by the AO. The total turnover has been shown at Rs. 12.26 crores from which Net Profit have been shown at Rs. 5.92 crores. During the year under consideration, the assessee firm has made trading in manufacturing and sale of Brass items, etc. There are two partners in assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & (10) are applicable in the case of the assessee. The AO, accordingly, rejected the book results declared by assessee. The AO for the purpose of deduction claimed u/s 10AA of the Act directed to apply GP rate of 18.86% shown by the proprietorship concern of the partner and computed the profit at Rs. 2.31 crores and net profit was computed at Rs. 3.54 crores. The assessee firm has shown net profit of 5.92 crores, therefore, difference of Rs. 2,38,40,277/- was treated as income from non special economic zone business (Rs. 5.92 crores - 3.54 crores). 3. The assessee challenged the addition before Ld. CIT(A). The written submission of the assessee is reproduced in the appellate order in which the assessee briefly explained that assessee firm is 100% Export Oriented Unit (EOU), which was established afresh pursuant to coming into vogue of Special Economic Zone Act, 2005 w.e.f. 10/02/2006. It is located in SEZ and is, therefore, covered in terms of section 10AA of the Act and, therefore, eligible for 100% exemption on profit and gains derived from exports of articles manufactured and exported. The purchase of raw material/goods i.e. import or procurement of goods from domestic tariff a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced complete books of accounts, bills and vouchers to show genuine purchases have been made. The AO made the addition merely on surmises and guess work without doubting the purchases. During the assessment proceedings also, it was explained to the AO that proprietorship firm of the partner has purchased the semi finished material known in technical parlance as "Kora" at 6.26 crores from the open market. These items have been sold to the assessee firm at 6.68 crores with all the attending tax benefits. All the sales are 'H' form sales which are tax free sales. On such sales, proprietorship concern has earned net profit rate of 6.56% from the assessee. These trading results have been accepted by the AO of the proprietorship concern vide order dated 27.12.2011 u/s 143(3) of the Act. The proprietorship concern sold "Kora" (semi finished) item which it had purchased from the open market to the assessee firm and all other improvements to the "Kora" have been done by the assessee firm. The assessee firm could not have purchased these items directly from the market otherwise it would lose all the export incentive and tax concessions. The assessee has declared proper GP and NP. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leverage distinguishes the two units not only by their location but also for the reasons for their working and business. The SEZ unit can purchase its raw material/unfinished goods only from units licensed by the DGFT and located in the Domestic Tariff Area. Such a unit has no option but to only export its goods. A single violation can strip it off the privileged category list. The Non SEZ unit on the other hand can comfortably foray into the domestic market both for purchasing its raw material as well as selling its goods. I may, at its discretion, also go in for export sales and this is why the GP on export turnover and local turnover of the non SEZ unit has varied between 38.66% to 7.16% respectively. This being the determining factor, I hold that although the two units might be in the same kind of business, but their commercial operations and activities are materially different and hence the two units are incomparable. It is also seen that the Assessing Officer has test checked the accounts and failed to find any error/discrepancy in the trading results of the assessee, yet he has gone on to devise a new method of prescribing GP of another unit of an uncomparable case. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no legs to stand on and is, therefore, deleted. Grounds no. 1 to 3 are allowed." 5. Ld. DR relied upon order of the AO and submitted that there is a difference in GP and NP of both the concerns. Ld. CIT(A) did not examine the books of accounts. The AO has correctly rejected the books of accounts of the assessee, which were showing abnormal profit in SEZ unit. The Ld. CIT(A) has not examined the issue in detail, therefore, same may be restored to the file of AO for fresh assessment. The written submission of the Ld. DR is also taken on record. 5.1 On the other hand, Ld. Counsel for assessee reiterated the submissions made before authorities below. He has submitted that AO should not have by passed the audited accounts of both the concerns. The assessments of proprietorship concern have been completed by AO after satisfying himself about the facts of the case. The rates at which material was supplied by the proprietorship concern to the assessee was entirely and wholly at market rates. The facts have been verified by the Ld. CIT(A). The purchases have been made from the proprietorship concern because of the concession and privileges enjoyed by the proprietorship concern by virtu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough any evidence or material on record. The AO in the case of the proprietorship concern in the assessment order u/s 143(3) for assessment year under appeal i.e. 2009-10 accepted the trading results and did not doubt the transactions between the proprietorship concern and the assessee firm. The assessee firm explained the reasons why purchases have been made from the proprietorship concern. No specific defects have been pointed out in maintenance of the books of accounts by the assessee. The assessee also explained that it has purchased semi finished material from the proprietorship concern upon which improvements have been done by the assessee firm and rates are verifiable, which were according to the market rate. The assessee also explained that there is a difference in the activities of the proprietorship concern and the assessee firm. Therefore, their operation and activities are materially different and hence, two units are incomparable. The AO of the assessee firm in subsequent AY 2010-11 examining the same issue in the order u/s 143(3) of the Act accepted the trading results of the assessee, copy of the order is also placed on record. Therefore, Revenue- Department shall ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
