TMI Blog2019 (2) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... peration 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 have to maintain Rule of consistency in their approach while accepting the book result of the assessee. It, therefore, appears that the AO without bringing any material on record made the addition merely on surmises and guess work. Therefore, there was no justification to reject the book results of the assessee. The Ld. CIT(A) rightly considered and appreciated the facts and material on record for the purpose of deleting the addition. Since, assessee is admittedly entitled for deduction u/s 10AA of the Act, the AO without any justification tried to make the addition considering the addition as income from non special economic zone business without bringing any evidence against the assessee as to how the assessee was doing business activities outside the SEZ area. The findings of the AO are without any basis and without bringing any evidence on record. No d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report and audited Profit and Loss account and balance sheet which have been examined by the AO. The total turnover has been shown at ₹ 12.26 crores from which Net Profit have been shown at ₹ 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 s firm namely Sh. Ashok Jain having 90% shares and Smt. Teena Jain have 10% shares. Shri Ashok Kumar Jain partner is also engaged in the business of Manufacturing and Export of Brass items under the name and style of his proprietary concern M/s Jainsons International Exports, Moradabad. In his proprietary concern Shri Ashok Jain has shown turnover of ₹ 10.62 crores upon which GP and NP have been shown @18.86% and 12.81% respectively. While in the assessee firm which is located in Special Economic Zone Moradabad, the gross profit and net profit on the turnover have been shown @38.46% and 48.32% respectively. The AO on perusal of the books of accounts, bills and vouchers found that assessee firm had made 99% purchases from the proprietary concern of Sh. Ashok Kumar Jain which shows both having close connection bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh 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 area etc. as and when the goods are brought into SEZ area, its bills/invoices are checked and stamped by the concerned authority at the time of entry. As and when export sales goods leave the SEZ area, the invoices are duly checked and stamped. All incoming semi goods/unfinished goods, as well as outgoing finished goods/consignments are checked and stamped by SEZ Authorities. Benefit of Section 10AA is allowed only to units located in SEZ area and solely on the export turnover. It was submitted that SEZ unit can only import its raw material or procure through its suppliers/small time manufacturers and artisans who are registered with the DGFT and further licensed by Export Promotion Council for handicrafts. This licensed local market is called domestic tariff area. Other than from the aforesaid c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prietorship 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 case of proprietorship concern there were sales on account of local sales, export sales upon which different GP have been declared. Section 80-IA(8) is not applicable to the facts of the case. The assessee also explained the difference in the working of the proprietorship concern and the assessee firm because proprietorship unit is doing manufacturing as well as trading activity, however, assessee s unit is only manufacturing goods. The proprietorship unit sells, its goods in India and Abroad but assessee made exports of its goods. The proprietorship unit s economy is fully governed by local conditions, whereas the unit of assessee is dependent upon local condition partially for purchase and manufacturing but its sales are exclusively in the domain of International factors and the forex va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo 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. It is another matter though that the another unit is a sister concern of the assessee, but since the AO cannot legally take the path that he did in computing the income, the entire addition is rendered bogus being based on non appreciation of proper facts and the addition being without any cogent basis. The same deserves to be deleted especially in view of the fact that the AO has failed to find any facts and figures from the books of accounts leading to the conclusion that the SEZ unit did some other business as well calling for fresh determination of its profits and restricting the exemptions u/s 10AA. Mere recording of a finding that the assessee earns income from non SEZ business in the computation part of the order without any other relevant facts, does not allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 virtue of its registration with the Export Promotion Council of handicrafts and Director General of Foreign Trade. The provisions of Section 80-IA(8) are not applicable to the facts of the case because no material has been brought on record by the AO to show that in respect of purchases made by the assessee from the proprietorship concern, the rates at which they were purchased were not comparable with the market value. Section 80-IA(10) would not apply because no material has been brought on record by the AO to demonstrate any arrangement. The AO has accepted the trading results of proprietary concern in the order u/s 143(3) of the Act dated 27.12.2011 copy of which is filed at page 33 of the paper book for AY 2009-10 under appeal. The AO of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained 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 have to maintain Rule of consistency in their approach while accepting the book result of the assessee. It, therefore, appears that the AO without bringing any material on record made the addition merely on surmises and guess work. Therefore, there was no justification to reject the book results of the assessee. The Ld. CIT(A) rightly considered and appreciated the facts and material on record for the purpose of deleting the addition. Since, assessee is admittedly entitled for deduction u/s 10AA of the Act, the AO without any justification tried to make the addition considering the addition as income from non special economic zone business without bringing any evidence against the assessee as to how the assessee was doing business acti ..... 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