ACIT, CIRCLE-24(1), MUMBAI, MUMBAI V. BOMBAY JEWELLERY MANUFACT URERS, MUMBAI

ITA 4308/MUM/2024

AI Insights

The case involves Bombay Jewellery Manufacturers, a partnership firm with two units engaged in the export of diamond-studded jewellery, which claimed deductions under section 10AA of the Income Tax Act for the Assessment Year 2022-23. The Assessing Officer (AO) disallowed these deductions, suspecting that expenses were improperly allocated between the two units to maximize deductions. The Commissioner of Income Tax (Appeals) reversed the AO's decision, leading to the revenue's appeal to the Tribunal. The Tribunal upheld the CIT(A)'s decision, finding that the assessee had properly allocated expenses and deducted TDS as required by law.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312356 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2022-2023
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH JOTWANI; LEYAQAT ALI AAFAQUI
• Keywords: TDS; FORM 26AS
• Section: 143(3); 40(a)(ia); 194C; 10AA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VP & MS PADMAVATHY S, AM I.T.A. No. 4308/Mum/2024 (Assessment Year: 2022-23) ACIT, Circle-24(1), 601, 6th Floor, Piramal Chambers, Lalbaug, Parel, Mumbai-400012. Vs. Bombay Jewellery Manufacturers, G-47, Gems and Jewellery Complex I, Seepz, Andheri (E), Mumbai-400096. PAN: AAAFB6763B Appellant) : Respondent) Appellant /Assessee by : Shri Prakash Jotwani, AR Revenue / Respondent by : Shri Leyaqat Ali Aafaqui- Sr. DR Date of Hearing : 24.04.2025 Date of Pronouncement : 30.04.2025 O R D E R Per Padmavathy S, AM: This appeal by the revenue is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi (in short \"CIT(A)) dated 25.06.2024 for Assessment Year (AY) 2022-23. The revenue raised the following grounds of appeal – “(a) On the facts and circumstances of the case and in law, Ld.. CIT(A) has erred in hold.ing that the assessee has allocated export freight charges and foreign travelling charges between taxable unit-1 and exemption unit-2 (10AA deduction) when there is 2 ITA No. 4308/Mum/2024 Bombay Jewellery Manufactures nominal claim of said expenses in unit-2 as compared with taxable unit-1 in a case where both the units are engaged in similar business of export of diamond studded jewellery and the turnover in unit-2 is higher than unit-1. (b) On the facts and circumstances of the case and in law, Ld.. CIT(A) has erred in deleting disallowance of 10AA deduction of Rs. 4,02,78,019/- hold.ing that the AO is not justified in treating export freight charges & foreign travelling expenses of unit-1 as those of unit-2 without appreciating that the assessee has during the course of assessment proceedings as well as appeal proceedings failed to correlate sales of taxable unit-1 and exempt unit-2 with freight charges debited in P&L account. (c) On the facts and circumstances of the case and in law, Ld.. CIT(A) has erred in hold.ing that there are no irregularities in deducting the TDS on contract charges paid to Hari Om Enterprises, after considering TDS defaulted on advance payment and TDS deducted on bills without appreciating that the assessee has failed to furnish bank statement during assessment as well as appeal proceedings in support of claim of advance payment to Hariom Enterprises, rendering claim unverified.\" 2. The assessee is a partnership firm having two units both situated in SEEPZ, carrying on the business of manufacturer of studded jewellery Unit II has started its production during FY 201516 and this is the seventh year of claiming exemption u/s 10AA of the Income Tax Act 1961 (the Act). The Assessee filed the return of income for AY 2022-23 on 29-11-2022 declaring an income of Rs. 12,10,73,940/- in normal provision of the Act The case was selected for faceless scrutiny through CASS and the statutory notices were duly served on the assessee. The AO while completing the assessment under section 143(3) disallowed the claim of deduction under section 10AA of the Act, to the tune of Rs.4,02,78,019 and also a disallowance of Rs.1,06,36,0303 under section 40(a)(ia) for non deduction of TDS on the contract charges paid to M/s.Hariom Enterprises. On further appeal the CIT(A) deleted the disallowance made by the AO and allowed the appeal in favour of the assessee. The revenue is appeal before the Tribunal against the order of the CIT(A). 3 ITA No. 4308/Mum/2024 Bombay Jewellery Manufactures Disallowance of deduction under section 10AA of the Act 3. During the course of assessment proceedings the Assessing Officer (AO) noticed that assessee has debited of Rs.7,95,57,469/- on account of Export Freight Charges and foreign travelling charges of Rs.9,98,568/- on its Unit-I. The AO further noticed that assessee also claimed deduction u/s 10AA of Rs.7,99,21,235/- for AY 2022-23 for its Unit-II. The AO was of the view that the assessee has transferred its that expenditure i.e. Export Freight Charges of Rs.7,95,57,469/- foreign travelling charges of Rs.9,98,568/- to its Unit-I in order to claim higher deduction under section 10AA. The assessee in response submitted that separate set of books are maintained for Unit I & II and that the expenses pertaining to the Units are directly booked in the respective Unit's books. The assessee further explained to the AO that the Export Freight charges incurred by Unit II are grouped under the schedule of Selling & Distribution Expenses. The AO did not accept the submissions of the assessee and held. that the expenses of Unit II have been booked in Unit I to claim higher deduction under section 10AA in Unit II. According the AO proceeded to disallow the deduction under section 10AA to the extent of the said expenses. On further appeal, the CIT(A) deleted the disallowance after perusing the details submitted by the assessee. 4. The ld.. DR argued that the only basis for the assessee to claim that the expenses have been correctly booked is the maintenance of separate set of books for Unit I & II and that it cannot be the only reason for concluding that the assessee the assessee has not over booked the expenses in Unit I. The ld. DR further argued that the CIT(A) has not given any proper finding for deleting the addition made by the AO. Accordingly the ld.. DR supported the order of the AO. 4 ITA No. 4308/Mum/2024 Bombay Jewellery Manufactures 5. The ld.. AR on the other hand submitted that Unit I & II were started at different times and that the Units cater to different set of customers abroad i.e. Unit I to USA and Unit II to Europe. The ld.. AR further submitted that the AO has quoted Unit I making lesser profit as a reason for alleging that the expenses are over booked without appreciating the reason submitted by the assessee in this regard. The ld. AR also submitted that the AO did not properly examine the fact that in Unit II the Freight charges and Foreign Travel expenses have been booked under the head Selling & Distribution Expenses and assumed that no cost is incurred towards these expenses. During the course of hearing, the ld.. AR took the bench through one sample invoice raised by Unit II, freight bills etc., to substantiate how expenses are incurred and tracked separately unit wise. Accordingly the ld. AR argued that there is no overlapping or excess booking of expenses in Unit I and that the CIT(A) has factually examined the details submitted before giving relief to the assessee. 6. We heard the parties and perused the material on record. The assessee is having two Units in SEEPZ-Andheri East. The assessee during the year under consideration has claimed deduction under section 10AA towards the profits of Unit II. The AO after perusing the financials of the assessee alleged that though export profits of Unit II was higher, no freight expenses and foreign travel expenses have been booked in the said Unit. The AO further alleged that the impugned expenses of Unit II have been booked in Unit I in order get excess deduction under section 10AA. The AO did not accept the submissions of the assessee that separate set of books are maintained unit wise and that only expenses directly related to respective units are booked. The AO also did not consider the submission that expenses towards freight and foreign travel in Unit II are grouped under Selling & Marketing expenses. The CIT(A) after considering the details submitted by the assessee deleted the disallowance made by the AO towards deduction under section 10AA. From the 5 ITA No. 4308/Mum/2024 Bombay Jewellery Manufactures perusal of paper book submitted by the assessee we notice that the assessee has submitted the details of the export done by each Unit linking the Export Freight Charges (Page 66-68 for Unit I & Page 53-65 of Unit II). We further notice that Unit I & Unit II are catering to customers in different countries i.e. US and Europe and by maintaining separate set of books these expenses are directly booked in the respective Units. Though the AO has alleged that expenses are diverted to Unit I, the AO did not consider the submissions of the assessee with regard to why the profits of Unit I is less. We also notice that the AO did not examine the breakup of Unit wise expenses towards Freight and Foreign Travel submitted by the assessee. During the course of hearing written submissions were made from the perusal of which it is noticed that for sample invoices from both Unit I & II the expenses are clearly identified separately and tracked separately (page 33 to 52 of PB). It is also noticed from the perusal of the submissions that the assessee has provided all the relevant details before the lower authorities to substantiate the claim that the expenses are booked on actual basis and that there is a direct nexus of the expenses to the Unit. In view of these discussions, we see no infirmity in the decision of CIT(A) in deleting the disallowance made by the AO towards deduction under section 10AA. The grounds raised by the revenue in this regard are dismissed. Disallowance under section 40(a)(ia) towards short deduction of TDS 7. The AO during the course of noticed that the assessee has made payments towards contract charged to M/s. Hariom Enterprises to the tune of Rs.5,60,12,684. The AO was of the view that the assessee has deducted tax of Rs.4,11,185 only which is not in accordance with section 194C of the Act. Accordingly the AO made a disallowance of Rs.1,06,36,030/ under section 40(a)(ia) of the Act. Before the CIT(A), the assessee submitted that the AO failed to consider the TDS made at the 6 ITA No. 4308/Mum/2024 Bombay Jewellery Manufactures time of making advance payments to M/s. Hariom Enterprises and that there is no short deduction of TDS. The CIT(A) after perusing the details submitted by the assessee held.. that there is no short deduction of TDS and accordingly deleted the disallowance. 8. We heard the parties and perused the material on record. During the course of hearing the ld. AR took the bench through the details of payments made to M/s. Hariom Enterprises and the tax deducted against each of the payments (page 69-70 of paper book). The ld. AR also took us through the Form 16A issued by the assessee to M/s. Hariom Enterprises to submit that the AO failed to consider the documentary evidences submitted during the assessment proceedings. From the perusal of the evidences submitted by the assessee we notice that the AO failed to consider the fact that the assessee has made advance payments to M/s. Hariom Enterprises on which tax has been deducted at source. When the tax deducted on total payments including the advance is considered, we are convinced that there is no short deduction of tax at source by the assessee. For ease of reference the submissions of the assessee with regard to the payment and TDS details pertaining to M/s. Hariom Enterprises is summarised below Nature payment Amount paid – Rs TDS @ 2% – Rs. Advance payment 3,56,50,000 7,13,000 Final payment 2,07,73,867 4,15,477 Total 5,64,23,867 11,28,477 9. We notice that the CIT(A) has considered the above fact as substantiated by the assessee with documentary evidences such as Form 16A & Form 26AS and has 7 ITA No. 4308/Mum/2024 Bombay Jewellery Manufactures deleted the disallowance. Therefore we see no reason to interfere with the decision of the CIT(A) in this regard. The grounds of the revenue are dismissed accordingly. 10. In result the appeal of the revenue is dismissed. Order pronounced in the open court on 30-04-2025. Sd/- Sd/- (SAKTIJIT DEY) (PADMAVATHY S) Vice President Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "