TMI Blog2019 (11) TMI 1100X X X X Extracts X X X X X X X X Extracts X X X X ..... no discussion about trading activity, granted relief to the assessee and the same, under the circumstances, could not be stated to be correct approach in the matter. We are of the considered opinion that Ld. CIT(A) had plenary powers in disposing off an appeal and the powers of first appellate authority were coterminous and coextensive with that of Ld. AO and nothing prevented Ld. CIT(A) to conduct further inquiry in this direction. No such exercise is shown to have been carried by learned first appellate authority and therefore, we are not convinced with the approach of Ld. CIT(A) in granting relief merely because Ld. AO failed to carry out the desired investigations. In AY 2011-12, the main focus of Ld. AO was on electricity consumption and labor charges as against the facts of the present year wherein Ld. AO has brought on record specific facts of time taken in manufacturing process, fact of abnormal profits, discrepancies in bank accounts, non-realization of export proceeds even beyond 3 years, evidence of labor operations, machineries used by the assessee to carry out manufacturing operations, electricity consumption, stamping die etc. which remained to be controverted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the instant case are entirely different form the cases relied upon. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in arriving at the decision that the A.O. has made addition on the basis of presumption and suspicion only; ignoring the fact that in the assessment order, the AO has firmly established the fact that no manufacturing activity was being carried out by the assessee at the SEZ premises. 5. For the above-mentioned reason and any other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that of the A.O. be restored. As evident from grounds of appeal, the revenue is aggrieved by grant of deduction to the assessee u/s 10AA by learned first appellate authority which was denied by Ld. AO in the assessment proceedings in view of the fact that the assessee failed to discharge the onus of proving that it carried out any manufacturing activity at its SEZ unit situated at Surat. . 2.1 Facts on record would reveal that the assessee being resident firm stated to be engaged in trading of gold ornaments and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13/03/2012 12/03/2012 84955.220 0.999473 14/03/2012 85 Kg 15/03/2012 14/03/2012 84955.220 0.999473 15/03/2012 80 Kg 16/03/2012 15/03/2012 79957.854 0.999473 19/03/2012 80 Kg 20/03/2012 19/03/2012 79957.854 0.999473 24/03/2012 80 Kg 25/03/2012 24/03/2012 79957.854 0.999473 2.3 It was further observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hickness, circular cutting, stamping, recycling of scrap etc. After each melting, the gold would be required to be cooled down to become hard for rolling and cutting etc. which would be a time taking process. To work on 80 Kg of Gold, it would take 11 cycles to have a wastage of around 3 grams. The process would require manual work at each stage and each cycle, as per experience of other similar type of cases, would take minimum of 3-4 hours approximately when the entire lot of raw material would be fed into the machines at one go. Therefore, one lot consisting of different cycles would take minimum of 33 to 44 hours of non-stop working which would double to 44 to 88 hours if one lot of 40 Kg was to be used. However, as against this, the entire manufacturing work was shown to have been completed in a span of 4.30 Hours which would lead to a conclusion that no manufacturing was done by the assessee at its SEZ unit. 2.6 Regarding nature of machineries required to carry out such operations, it was observed that as a normal practice, the said manufacturing process would require different kind of machineries in the shape of induction machine, rolling ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Salary amount for the entire year is ₹ 1,90,000 (roundly) only. 17.5 The assessee has shown large G.P. from the business of medallion business which is abnormal. As an indirect reference, as per news item above, The government had in April banned gold medallion manufacturing within SEZs and made 3-5% value addition mandatory on all gold exports in July , it is inferred that the value addition from Gold to Medallion activity is less than 3%. From the other cases / assessees also it is seen that the value addition in approx 2%. 17.6 Purchase Orders / Import Orders: Initially the assessee was not filing Purchase Orders. After repeated requests from this office, the assessee has, filed only three purchase orders (for making imports). 17.7 Viren Jewellery LLC dated 03.03.2012. The price includes the shipping costs upto the SEZ unit. 17.8 Solitaire General Trading FZE 08.03.12 it is for diamonds there is no pricing reference the purchase order issued by assessee states to be shipped by us , (whereas in actual shipment will be done by Solitaire General because it is import), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the customer. Therefore, in the assessee's case it is the labour contractor who has manufactured the articles and not the assessee. 4. The assessee does not have the sufficient machinery to do the manufacturing. 5. The electricity bills do not show the consumption in March. 6. There is no evidence of entry of labour in SEZ. 7. It is quite possible to take out the gold bars from the SEZ without getting detected. Similarly it is also possible to bring in medallions from outside SEZ without getting detected. 8 . Most of the receipts for exports are yet to be received. 3.2.1. The assessing officer made out a case based on all these presumptions held the appellant as ineligible for deduction under section 10AA. It is also to be mentioned that all along the assessing officer has doubted the manufacturing activity and he had not made any comment nor discussed the activity. However, without giving any reason he had disallowed the profit derived from the trading activity as well. 3.2.2. The appellant has received orders in March, 2012 and therefore h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of a catering contract is also not relevant to the present case. This is a case where the appellant has imported the gold and got the medallions manufactured in his premises in SEZ and has done the exports. He has engaged the labourers to do the manufacturing with his machinery under his supervision. Therefore, it cannot be said that the labourer is the manufacturer; it is the appellant who is the manufacturer. As regards the electricity bills, the learned counsel has submitted that there was a fault in the mater and as the unit was closed for most part of the year, the electricity department had issued the routine bills without checking. In fact, the reading for the consumption has been reflected in the bill for the month of May, 2012 when actually there was no consumption. A letter has also been addressed by the appellant to the electricity department regarding the faulty meter. 3.2.6. The appellant was asked about the status of the receipts for the exports. The appellant submitted that part of the receipts from Supama International DMCC have been received and the party has requested for time to make the balance payment. The appellant has initiated legal procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises. The survey party in fact noted that irregularities or discrepancies at the time of survey and not of the past. The AO has assumed that in the past as the unit was not functioning, neither there was any employee nor there was any sufficient power consumption to manufacture such a huge quantity. However, the AO has not taken into consideration the fact that the assessee is manufacturing only heavy kadas, which are purchased by the various parties in abroad. The items manufactured by the assessee, were not jewellery items but kadas only. In our view, in manufacturing kadas, power consumption is less and employees are also required less, Moreover, the import of gold made by the assessee was subject to Custom clearance and Excise Department, which were cleared after due verification. Approval was there, thereafter material was sold to abroad and again subject to custom and excise clearance which were obtained. Copies of all these details were filed before the AO as well as before the CIT(A). 15. Learned DR has contended that learned CIT(A) has accepted the additional evidence, however, nowhere we found that learned CIT(A) has accepted any additional evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graphs, we find that the manufacturing activity stated to be carried out by the assessee in its SEZ unit was under doubt and serious allegations were levelled by Ld. AO doubting the manufacturing activity. The Ld.AO brought on record specific discrepancies in assessee s submissions / documentary evidences as filed by the assessee during assessment proceedings. Some pertinent observations / adverse inferences were drawn on the basis of submissions / evidences filed by the assessee. These observations / inferences have already been summarized by us in the preceding paragraphs. It is also evident from various observations of Ld.AO that the assessee failed to adduce sufficient documentary evidences to substantiate his claim fully and only part details were filed by the assessee during assessment proceedings. We are of the considered opinion that complete onus to demonstrate fulfilment of primary conditions of Sec. 10AA was on the assessee and it was obligatory on the part of the assessee to substantiate the fact that his claim squarely fall within four corners of Sec.10AA. However, upon perusal of findings of Ld. AO with respect to time taken in manufacturing process, explanation for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted at the stage of appeals, if deemed proper by way of making or causing to be made a further inquiry in exercise of the power under Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld. 8. Proceeding further, upon perusal of assessment order as well as order of Ld. CIT(A) for AY 2011-12, as placed on record, we find that the facts were different in that year. The findings given as well as facts brought on record by Ld. AO in the current year is not pari-materia with the findings given in earlier year and the level of investigation also differs. In AY 2011-12, the main focus of Ld. AO was on electricity consumption and labor charges as against the facts of the present year wherein Ld. AO has brought on record specific facts of time taken in manufacturing process, fact of abnormal profits, discrepancies in bank accounts, non-realization of export proceeds even beyond 3 years, evidence of labor operations, machineries used by the assessee to carry out manufacturing operations, electricity consumption, stamping die etc. which remained to be controverted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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