TMI Blog2018 (9) TMI 2056X X X X Extracts X X X X X X X X Extracts X X X X ..... cle or thing - HELD THAT:- Respectfully following the Coordinate Bench decision in the case of Flawless Diamond India Ltd.[ 2014 (9) TMI 261 - ITAT MUMBAI] we hold that cutting and polishing of diamonds manufacturing or production of article or thing as envisaged for the purpose of claiming additional depreciation u/s. 32(1)(iia) of the Act. The Tribunal has also taken similar view in assessee s own case for the Assessment Year 2009-10 [ 2016 (9) TMI 1608 - ITAT MUMBAI] - Decided in favour of assessee. - ITA No. 2455/MUM/2017 And CO No. 237/MUM/2018 (A.Y: 2011-12) [Arising Out of ITA No. 2455/MUM/2017] - - - Dated:- 28-9-2018 - Shri C.N. Prasad, Hon'ble Judicial Member And Shri N.K. Pradhan, Hon'ble Accountant Member For the Assessee : Shri Aditya R. Ajgaonkar. For the Department : Shri Manoj Kumar Singh. ORDER PER C.N. PRASAD (JM) 1. The appeal by the Revenue and Cross Objection by assessee are filed against the order of the Learned Commissioner of Income-tax (Appeals)-30, Mumbai dated 31.01.2017 for the Assessment Year 2011-12. 2. The First ground of appeal in the appeal of the Revenue is in respect of estimating the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le ITAT that purchases were made from bogus parties since notice issued by the A.O. to these parties were allegedly received returned/unserved' and the assessee was unable to produce any confirmation from these parties. The Tribunal had held that though purchases were made from bogus parties, nevertheless, the purchases themselves were not bogus as the entire quantity of opening stock, purchases and sales were tallying and hence, only the profit margin embedded in such amount would be subjected to tax. The Hon'ble Gujarat High Court taking cognizance of the fact held that whether purchases themselves were bogus or whether parties from whom such purchases were made were bogus, is essentially a question of fact and the Tribunal having examined the evidence on record and concluded that the assessee did produce cloth and sell finished goods, the entire amount covered under such purchase would not be subjected to tax and only the profit element embedded therein was to be taxed. While coming to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 274 (Guj). 7.11 In Sanjay Oilcake Industries v. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases from the said parties were held to be bogus. The A.O. in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially ^'sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation. The tribunal for arriving the profit embedded in the transactions @ 12.5% held as under: Having heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax etc.,. It has also been informed that in this industry about 2.5% is the profit margin. Therefore, respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the margin in diamond industry was accepted to be in the range between 1 to 4.5%. Hence, the margin for the assessee in the grey market would be not more than 5% which is the same margin that is now being adopted for purchases made from dealers in the grey market by assessee and for which the bills are procured from Bhanwarlal Jain and Rajendra Jain Group concerns. Accordingly, the profit margin embedded in these transactions is taken at 5% of the value of the purchases made from the above mentioned parties and .. 7.15. As seen from the above, in the assessments completed for the A.Ys. 2009-10, 2012-13, 2013-14 2014-15, AO made the addition @ 5% as the estimated profit margin embedded on such bogus purchases. Taking into consideration all these facts and circumstances, the material available on record for this assessment year, and there is no change in the facts of the case, where the same parties are available in the assessments completed for the A.Ys. 2009-10, 2012-13, 2013-14 2014-15, and also the AOs themselves adopted 5% as the profit margin on the total purchases in the subsequent scrutiny assessments passed for the above assessment years, AO is directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing and production of an article or thing as required for claiming additional depreciation u/s. 32(1) (iia) of the Act. The AO disallowed the claim by observing that the assessee is not engaged in manufacturing or production of any article or thing. The CIT(A) relying on the decision of the Hon'ble Supreme Court in the case of Arihant tiles Marble Pvt. Ltd., 320 ITR 79 (SC) allowed the claim of the assessee vide Para 7.2 as under: - 7.2. I have carefully considered the appellant s submissions on this issue. The AO held that the appellant s activity of cutting and polishing of diamonds does not amount to manufacturing or production of goods in the light of the Hon'ble Supreme Court in the case of CIT Vs. Gen India Mfg. CO. (2001) 249 ITR 307. In this regard, I note that the aforesaid issue whether cutting and polishing of diamond would constitute manufacturing activity or not was considered in detail by the Hon'ble ITAT, Mumbai Bench in their order in the case of Sheetal Diamonds Pvt. Ltd. Vs. ITO in ITA.Nos. 6687 to 6689/Mum/2003 dated 23.03.2011 for the purpose of deduction once again u/s. 80IA of the Act. In the aforesaid order the Hon'ble Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess. Thus, in our opinion, once the entire process of cutting and polishing of diamond have not been rebutted and also the fact that the rough and polished diamond are two distinct commodity having different usage, not only in the common parlance but also in real sense, then it has to be understood that the cutting and polishing of diamond amounts to manufacturing or production of article or thing as envisaged for the purpose of claiming deduction under section 80-IC. Thus, the contention raised by the learned counsel before us is accepted that simply relying on the decision of Gem India Mfg. Co (supra) by the Revenue to deny the claim of deduction is uncalled for in the present case, especially in the wake of later decision of the Hon'ble Supreme Court in Heavens Diamond (supra) which has clarified this point. Accordingly, the decision and the conclusion drawn by the learned Commissioner (appeals) for the year under appeal i.e. Assessment Year 2008-09 are set aside and assessee s claim for deduction under section 80-IC is allowed. Respectfully following the Coordinate Bench decision in the case of Flawless Diamond India Ltd. (supra), we hold that cutting and polishin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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