TMI Blog2016 (9) TMI 1516X X X X Extracts X X X X X X X X Extracts X X X X ..... ance has been made by the AO has been withdrawn by the assessee and the corresponding income has been offered for taxation in the return of income filed u/s. 153C pursuant to the search action carried out in the case of Group Company. Since the assessee itself has offered the income in the subsequent return filed u/s. 153C of the Act, this ground of appeal becomes infructuous and does not need any adjudication. Addition account of valuation of closing stock - CIT-A deleted addition - HELD THAT:- Method for valuation of stock adopted by the assessee is one of the recognized methods as per the Accounting Standards. The said method has been consistently followed by the assessee. It has also been explained that the inventory was being valued at lower of cost or market value as per the accounting principles. It has also been explained that the gold jewellery is being sold or exported in domestic and overseas market on the basis of the prevailing market rates at the time of the transaction. Assessee has further submitted that the stock register was also being maintained and the tax audit report has also been submitted. Further any addition in the value of closing stock at the end of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and case laws as may be available or relied upon. - ITA No. 2329/A/2008 A.Y 2005-06 ITA No. 1142/A/2010 , ITA No. 3775/Mum/2011 A.Y. 2005-06 ITA No.3776/Mum/2011 A.Y. 2006-07 ITA No.3783/Mum/2011 A.Y. 2007-08 ITA No.4295/Mum/2013 A.Y 2007-08 - - - Dated:- 30-9-2016 - Shri G S Pannu, Accountant Member ShriSanjay Garg, Judicial Member Appellant By : Shri G M Doss CIT -DR Respondent By : S/Shri F V Irani Rajesh Shah ORDER Per Sanjay Garg ( Judicial Member ) The above captioned appeals, all by the Revenue relating to the same assessee, have been heard together and are being disposed off by this consolidated order. Before proceeding, we would like to mention that the appeals in ITA Nos.2329/A/2008 1142/A/2010 for A.Ys2005-06 2006-07 respectively have been transferred from Ahmedabad Benches to Mumbai Benches vide the order of the Hon ble President dated 24.0.2012. 2. The appeals in ITA Nos. 2329/A/2008, 1142/A/2010 4295/Mum/2013 for A.Ys. 2005-06, 2006-07 2007-08 respectively, are in respect of assessment proceedings completed u/s. 143(3) of the Act, whereas the appeals in ITA Nos. ITA No. 3775, 3776 3783/Mum/2011 for A.Ys. 2005-06 2006-07 2007-08re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act holding that the above money was introduced by the assessee itself. Being aggrieved, the assessee preferred appeal before the CIT(A). 5. The learned CIT(A) deleted the additions so made by the AO observing as under: I have considered the submissions of the A.R. carefully and gone through the cases cited by the A.R. The A.O. has made addition of share capital received from ShriAshish Jain to the tune of ₹ 1.51 crores on the ground that the appellant has not proved the creditworthiness of the share holder and genuineness of transaction. In this case the appellant has furnished a confirmation letter from ShriAshish Jain and he has stated that he is a Non Resident Indian settled in Hong Kong and the appellant has furnished copy of Certificate of foreign inward remittance issued by Standard Chartered Bank in support of receipt of money from ShriAshish Jain. However, the A.O. made addition on the ground that ShriAshish Jain did not furnish any details about his tax assessment particulars. I find from the details furnished by the A.R. that identity of the shareholder is proved and also receipt of money from ShriAshish Jain through banking channel is proved. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and the corresponding income has been offered for taxation in the return of income filed u/s. 153C pursuant to the search action carried out in the case of Group Company. Since the assessee itself has offered the income in the subsequent return filed u/s. 153C of the Act, this ground of appeal becomes infructuous and does not need any adjudication. Ground No.3 8. Vide ground nos. 3 4 the Revenue has agitated the action of the CIT(A) in deleting the addition of ₹ 89,33,998/- on account of valuation of closing stock. This issue has been dealt by the learned CIT(A) in para 4 of his order. The AO observed that the assessee was not maintaining its stock register and has valued the closing stock on the basis of weighted average method. In absence of maintenance of stock item-wise, the A.O. held that the inventory was to be valued as per FIFO method. Further, that the assessee had sold the articles at a higher price as compared to the purchase cost as on 31.3.2005. The A.O worked out the value of closing stock of raw materials and worked out the difference in valuation of ₹ 89,33,998/- after taking into account FIFO method and added the same to the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the transaction. The learned AR of the assessee has further submitted that the stock register was also being maintained and the tax audit report has also been submitted. Further any addition in the value of closing stock at the end of the year will increase the corresponding opening stock at the beginning of the next financial year. The learned CIT(A) therefore has rightly held that the addition to the closing stock made by the AO on the basis of market price of the raw material after the year ending on 31.03.2005 was not sustainable in the eyes of law. We do not find any infirmity in the order of the CIT(A) in this respect. The order of the CIT(A) on this ground is therefore, upheld. 11. Ground nos. 5 6 are general in nature and do not require any adjudication. 12. In view of our findings given above, the appeal of the Revenue is dismissed. ITA No. 1142/A/2010 for A.Y 2006-07 In this appeal, the Revenue has raised the following grounds of appeal: 1. The Ld. CIT(A) erred in law and on facts allowing the claim of deduction u/s. 10AA of the Act. 1.1 The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the assessee is not the owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not brought into India within the time of six months as envisaged in the section; (iii) The appellant filed Form No. 56F required for claiming the deduction u/s. 10AA only during the assessment proceedings. The learned CIT(A) however allowed the claim of the assessee observing as under: 6.10 As held by my Ld. Predecessor in the appellate order for the A.Y. 2005-06 there is no stipulation in section 10A or 10AA that the assessee who is claiming deduction under these sections should manufacture the goods itself by employing its machinery or equipment. It may further be pointed out that the scope of section 10AA is wider than section 10A. Sub section (1) of section 10AA provides that subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, from his unit who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April 2006 shall be allowed specified deduction. It is clear from the language of the section that the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. Therefore non filing of requisite Form along with the return of income does not impair the appellant s claim for deduction unless there are other material reasons on which such claim could be rejected. In this regard reliance is placed on the decision of Hon ble Calcutta High Court in the case of CIT vs Berger Paints (India) Ltd. 254 ITR 503 Abd the decisions of Hon ble Kerala High Court in the case of CIT vs. G.Krishnan Nair 259 ITR 727 6.14 Therefore, keeping in view the legal position as stated above I don t find any reason to deviate from the findings of my ld. Predecessor in this regard. In the given circumstances, there is no ground under which the deduction claimed by the appellant u/s. 10AA can be refused. In view of this, the A.O. is directed to allow the appellant the deduction under section 10AA of the Act accordingly. 15. Being aggrieved by the above order of the CIT(A) the Revenue has come in appeal before us. 16. The learned DR has vehemently contented before us that no manufacturing activity has been carried out by the assessee at its SEZ units. The entire work was outsourced to the third party and, therefore, the assessee was not entitled to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 credited to a reserve account (to be called the Special Economic Zone Re- investment Reserve Account ) to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (2). .. A perusal of the above provision reveals that to be eligible to claim deduction u/s. 10AA, the assessee should be an entrepreneur as referred to in clause (j) of section 2 of SEZ Act 2005. Further the income of the assessee referred to is not of the unit but the relevant words are from his unit .Thirdly, the assessee must begin to manufactureor to produce articles or things or provide any services during the relevant previous year. A perusal of the above reproduced provisions and further from the reading of the entire pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt/Development Commissioner is pleased to extend to you all the facilities and privileges admissible and subject to the provisions as envisaged in Special Economic Zone Scheme 2004-2009 for the establishment of a new undertaking at MEPZ Special Economic Zone for the manufacture trading of the following items up to the capacities specified below on the basis of maximum utilization of plant and machinery. Item(s) of manufacture/trading Unit Annual capacity Plain Gold Jewellery (for manufacture)KG 500 Cut Polished Diamonds (for trading) Carats 6000 The above permission is subject to the conditions stipulated in Annexure in addition to the following conditions: .. x) You shall be required to enter into a Legal Agreement in the prescribed form (Appendix 14-1 F) with the Development Commissioner, MEPZ- SEZ for fulfilling the terms and conditions mentioned in the LOP xi) You are requested to confirm acceptance of the above terms and conditions to the Development Commissioner, MEPZ SEZ within 45 days. xii) If you fail to comply with the condition stipulated above, this letter of approval is liable for cancellation/revocation. xiii) In the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia is also included in the Third Schedule and it has also been provided as to what amendments are made into the provisions of the Income Tax Act to give effect to the provisions of the SEZ Act 2005. Further sections 27 and 57 of the SEZ Act are also relevant in this respect which read as under: 27. The provisions of the Income-tax Act, 1961, as in force for the time being, shall apply to, or in relation to, the Developer or entrepreneur for carrying on the authorised operations in a Special Economic Zone or Unit subject to the modifications specified in the Second Schedule. 51. (1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. So a perusal of the relevant provisions reveal beyond doubt that to get the income tax benefits under the Act there must be some manufacture or production of a thing or providing of services by a unit situated in SEZ and having approval of the competent authority in this respect. The manufacturing activity or services activity should be provided by the unit situa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transport. Explanation: The expression trading , for the purposes of the Second Schedule of the Act, shall mean import for the purposes of re- export. 18. As discussed above, even the assessee has not been authorized to provide any services from its SEZ unit. Hence the contention of the Ld. AR that the assessee is entitled to deduction U/s 10AA because it is providing services is not tenable. 19. Now the question before us comes whether the production or the manufacturing activity is to be carried out in the unit itself or it can be outsourced to some other party. We find that there are provisions in this respect under the SEZ Rules 2005. The relevant part of the said Rules is reproduced as under: 41. Sub-contracting - (1) A Unit may sub-contract a part of its production or any production process, to a unit(s) in the Domestic Tariff Area or in a Special Economic Zone or Export Oriented Unit or a unit in Electronic Hardware Technology Park unit or Software Technology Park unit or Bio-technology Park unit with prior permission of the Specified Officer to be given on an annual basis and subject to following conditions, namely:- (a) the finished goods requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f raw material into finished products but only for a part of the quantity of the finished products exported during the year or in the first year of production, the value of the goods sub-contracted shall not exceed the value of goods produced by the unit in its own premises during the first year of production; (g) a Unit engaged in trading or warehousing shall not be allowed the facility of sub-contracting of production or production process in the domestic tariff area; (h) a Unit may remove, with the permission of Specified Officer, moulds or jigs or tools or fixtures or tackles or instruments or hangers and patterns and drawings to the premises of subcontractor(s), subject to the condition that these shall be brought back to the premises of the Unit immediately on expiry of such sub- contracting arrangement and submission of a quarterly verification report from the Central Excise Officer having jurisdiction over the sub-contractor that such goods are lying in the sub-contractor s premises and are being used for production of goods on account of the Unit; (i) raw materials, components and consumables excluding fuel may be sent along with these goods, or separately. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses; (c) after examination of details under sub-clause (b), the Specified Officer may grant annual permission for sub-contracting any production process or sub- contracting part of the production, as the case may be; (d) the Unit, removing raw materials, consumables excluding fuel and components, imported or domestically procured without any processing, for sub- contracting into the Domestic Tariff Area, shall furnish bank guarantee to Specified Officer to cover the duty foregone on such materials being taken out for subcontracting: Provided that bank guarantee shall not be required by a unit whose turnover is rupees one crore or above or where the unit is in the Special Economic Zone for more than a period of two years with an unblemished track record; (e) the Specified Officer or the Authorized Officer may make random checks either at the job worker s premises or after receipt of goods from the job worker at the Special Economic Zone gate for the purpose of verification of goods which were sent and received: Provided that where the precious metal in bullion form, having marking of fineness or purity or make or serial number is taken out of the Special Economic Zone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be filed in the name of the Unit and sub-contractor; (v) goods for such export shall be removed from the sub-contractor s premises under bond: Provided that in case of sub-contracting abroad, the goods shall either be returned to the Unit or may be sold to buyers in that country or any third country. (3) Waste, scrap or remnants generated during process at the subcontractor s premises may either be returned to the Unit or may be cleared on payment of duty as if the said waste or scrap or remnants have been cleared by the Unit or may be destroyed at the sub-contactor s premises in the presence of jurisdictional Central Excise Officer if the sub-contractor is a Central Excise registrant: Provided that in case of clearance of waste or scrap at subcontractor s premises on payment of duty or destruction thereof the same shall be in accordance with the Standard Input Output Norms notified for the Duty Exemption Entitlement Scheme under the Foreign Trade Policy or as fixed by Approval Committee: Provided further that where the sub-contractor s premises are located abroad, the scrap, waste or remnants generated at the sub-contractor s premises may either be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is required to be examined in the light of the provisions of SEZ Act/ SEZ Rules and also the provisions as envisaged in SEZ scheme 2007 to 2009 as referred to in the approval letter of the Development Commissioner dated 21.09.2005. A perusal of the order of the AO and the impugned order of the CIT(A) reveals that the lower authorities have not examined the issue in the light of the provisions of SEZ Act/ SEZ Rules and other related provisions. The impugned order of the CIT(A) is therefore set aside and the matter is restored on this issue to the file of the AO for decision afresh after giving reasonable of being heard to the assessee in the light of the above stated SEZ Act/Rules and case laws as may be available or relied upon. Ground No.2 21. Ground no.2 pertains to the addition on account of valuation of closing stock. This issue is identical to the one we have discussed while deciding the appeal for A.Y. 2005-06 above. For the reasons stated therein, the order of the CIT(A) on this ground is upheld and the ground is rejected. 22. In the result, this appeal is partly allowed. ITA No.4295 for A.Y. 2007-08 23. The only issue raised in this appeal is iden ..... X X X X Extracts X X X X X X X X Extracts X X X X
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