The ITO, Ward-9(2), Surat V. M/s. Leora Jewellery, Surat

ITA 1449/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6906 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 20-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2011
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: J P SHAH
• Keywords: Rejection of books of accounts; Revised return; Capital expenditure
• Section: 10AA; 133(6)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , !'# !'# !'# !'# !$ !$!$ !$0 00 0! !! !0 00 0 %$ %$ %$ %$, , , , &' ( &' ( &' ( &' ( & & & & BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT # # # #./ ././ ./ ITA NO. 1449/AHD/2011 $ + ',+ $ + ',+ $ + ',+ $ + ',+/ // / ASSESSMENT YEAR: 2007-08 THE INCOME TAX OFFICER, WARD-9(2), SURAT. VS M/S. LEORA JEWELLERY, 55/A, SPECIAL ECONOMIC ZONE, SACHIN G.I.D.C., SURAT-394230. PAN: AACFL7071Q -./ (APPELLANT) /0 -./ (RESPONDENT) REVENUE BY : SHRI M.K. SINGH, SR. D.R. ASSESSEE(S) BY : SHRI J.P. SHAH, AR $'1 2 3'/ // / DATE OF HEARING : 20/08/2014 45, 2 3' / DATE OF PRONOUNCEMENT: 01/09/2014 &6 &6 &6 &6/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (A)-I, DATED 20.01.20 11. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING TH E EXEMPTION OF RS 10,00,653/- CLAIMED BY THE ASSESSEE U/S. 10AA DESPITE THE FACT THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 2 - ESTABLISH THE MANUFACTURING OF EXPORTED GOODS IN ITS SEZ, SACHIN, SURAT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN ALLOWING T HE EXEMPTION OF RS 10,00,653/- CLAIMED BY THE ASSESSEE U/S. 10AA DESPITE THE FACT THAT THE A.O. HAD REJECTED THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE U/S. 145(3) OF THE ACT AFTER FOUNDING MANY SPECIFIC DEFECTS REGARDING MANUFACTURING ACTIVITIES BEING CARRIED OUT IN ITS SEZ SACHIN UNIT . 3. SINCE THE ISSUE INVOLVED IN BOTH THE GROUNDS OF APPEAL IS INTER-CONNECTED AND THE FACTS ARE COMMON, HENCE BOT H THE GROUNDS OF APPEAL ARE BEING DISPOSED OFF TOGETHER. 4. THE FACTS AS WELL AS GRIEVANCE OF THE REVENUE A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) A S FILED BY THE DEPARTMENT ALONGWITH APPEAL MEMO IN FORM NO. 36 REA DS AS UNDER: 3.1 THE ASSESSEE WAS ENGAGED IN MANUFACTURING AND EXPORT OF DIAMOND STUDDED GOLD & SILVER JEWELLERY D URING THE YEAR UNDER CONSIDERATION. 3.2 DURING THE COURSE OF ASSESSMENT PROCEEDING ON PERUSAL OF THE SUBMISSION MADE BY THE ASSESSEE, IT WAS FOUND THAT THE ASSESSEE FIRM HAD GIVEN INTIMATION REGARDING THE COMMENCEMENT OF PRODUCTION WORK ON 22.02.2007. THIS LEGAL INFORMATION WAS REQUIRED TO BE PASSED ON TO THE SPECIAL ECONOMIC ZONE AUTHORITIES AS AND WHEN THE PRODUCTION WORK GETS STARTED. THE ASSE SSEE FURNISHED THE COPY OF INTIMATION LETTER ADDRESSED T O THE ASSTT. DEVELOPMENT COMMISSIONER, SEZ, SACHIN, SURAT , BUT NO ACKNOWLEDGEMENT THEREOF/ANY SEAL & SIGNATURE FROM AUTHORITIES ARE FOUND. THEREFORE, THE ASSESSEE HAS NOT FULLY COMPLIED WITH THE CONDITIONS AS LAID DOWN IN THE LEAVE & LICENSE; HOWEVER, THE DATE OF STARTING/ COMMENCEMENT OF PRODUCTION AS INTIMATED BY THE ASSESSEE WAS ACCEPTED. 3.3 DURING THE COURSE OF ASSESSMENT PRECEDING THE A.O. OBSERVED THAT ASSESSEE COMMENCED THE COMMERCIA L ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 3 - PRODUCTION FROM 22-02-2007 & DISPATCHED THE GOODS F OR EXPORT ON 05-03-2009. IT WAS SURPRISING TO NOTE THA T ON 05.03.2007, [WITHIN 12 DAYS (INCLUSIVE OF BOTH THE DATES) ONLY FROM THE DAY OF COMMENCEMENT] THE ASSESSEE FIR M EXPORTED FINISHED GOODS AMOUNTING TO RS. 32, 93,111 /- (INVOICE VALUE). AS AGAINST, THE ASSESSEE DEBITED ELECTRICITY CONSUMPTION (45 +125 UNITS) OF RS._ 1400/- ONLY, TOTALLING WITH TWO SEPARATE CONNECTIONS OF ELECTRICITY. NO ELECTRICITY CONNECTIONS CHARGES FOU ND TO BE DEBITED IN BOOKS OF ACCOUNTS. THIS TOO LESS ELECTRI CITY CONSUMPTION/EXPENSE DOES NOT JUSTIFY TO HAVE MANUFACTURED THE GOODS IN ITS UNITS AS ON LEAVE & L ICENSE AGREEMENT. 3.4 DURING THE COURSE OF ASSESSMENT PROCEEDING, THE A.O. OBSERVED THAT THE ASSESSEE WAS NOT MAINTAINED DETAILS OF DAY TO DAY PURCHASE OR CONSUMPTIONS OF MATERIALS. THE A.O. FURTHER OBSERVED THAT THE NO SU CH INSTALLATION CHARGES SHOWN BY THE ASSESSEE. 3.5 DURING THE COURSE OF ASSESSMENT PROCEEDING, THE A.O. OBSERVED THAT THE ASSESSEE SUBMITTED THE DETAI LS OF THE CREDITORS AMOUNTING RS. 55,61,890/-. THE A.O. H AD ISSUED LETTER U/S. 133(6) TO THE VARIOUS CREDITORS FOR VERIFICATION OF GENUINENESS AND CONFIRMATION OF THE TRANSACTION MADE BY THE ASSESSEE. HOWEVER DURING TH E PROCEEDING NO CONFORMATIONS EXCEPT TANVI GEMS PVT. LTD. & RONAK GEMS PVT. LTD. MUMBAI HAVE BEEN RECEIVED. 3.6 ON PERUSAL OF THE LEDGER ACCOUNT OF 'FACTORY BUILDING- IT WAS SEEN THAT TMT BARS, CEMENT AND BRI CKS ETC ARE PURCHASED IN ORDER TO CONSTRUCT THE BUILDIN G BUT NO LABOUR CHARGES WERE RECORDED ON THE LEDGER. 3.7 THE A.O. OBSERVED THAT THE ASSESSEE HAD REVISED RETURN ITS CLAIM OF DEDUCTION U/S. 10AA FROM RS. 5,42,778/- TO RS. 10,06,653/- CLAIMING THAT THE PUR CHASE OF MACHINERY WAS INCLUDED IN THE PURCHASE A/C, BUT THE COST OF FIXED ASSETS WAS NOT RAISED IN EXTENT OF TH IS PURCHASE OF MACHINERY. 3.8 IN ORDER TO HAVE THE CLARIFICATIONS OVER THE IS SUES, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE FIRM O N 29.12.2009 WHICH WAS DULY SERVED UPON THE ASSESSEE AND HIS AUTHORIZED REPRESENTATIVE. THROUGH THE SAID SHOW CAUSE NOTICE THE ASSESSEE FIRM WAS REQUESTED TO SHO W ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 4 - CAUSE AS TO WHY ITS CLAIM U/S. 10AA OF THE INCOME T AX ACT SHOULD NOT BE DISALLOWED BECAUSE OF THE LAPSES FOUND MANUFACTURING CONSIDERING PERIOD & CONSUMPTION OF CONSUMABLE ITEM NOR MANY OF THE PURCHASES CONFIRMED BY THE THIRD EVIDENCES. 3.9 THE AO FURTHER OBSERVED THAT THE ASSESSEE FURNISHED LIST OF DETAILS OF EMPLOYEES TO WHOM THE SALARY PAID WHEREIN THREE EMPLOYEES AS JEWELLERY MANUFACTURING WORKERS. THE ASSESSEE HAD DEBITED SU CH EXPENSES AS MANUFACTURING EXPENSES AND LATER ON IT WAS STATED THE JEWELLERY WORKERS EXPENSES. IN VIEW OF THE ABOVE, THE AO REJECTED BOOKS RESULT OF THE ASSESSEE U/S. 145(3) OF THE INCOME TAX ACT. SINCE, SALES OF THE ASSESSEE WAS ESTABLISHED & PROFIT OF RS. 10,00,653/-, SHOWING BY THE ASSESSEE & OFFERED FOR TAXATION, SAME WAS ACCEPTED AS INCOME OF THE ASSESS EE. IN VIEW OF THE AO HAD DISALLOWANCE OF EXEMPTION CLA IMED US 10AA OF RS. 10,00,653/-. 4. DECISION OF THE LD.CIT (A) THE LD. CIT(A)-V SURAT HAS ALLOWED CLAIMED OF EXEMP TION U/S 10A OF RS. 10,00,653/-RELIEF TO THE ASSESSEE WH ILE DOING SO THE LD.CIT OBSERVED THAT :- A) THE AO IN THE PARA 13 HAS OBSERVED THAT 'CONSIDERING THE ABOVE AND DEFECT AS POINTED OUT IN ABOVE PARAS, THE BOOK RESULTS OF THE ASSESSEE IS REJECTED U/S 145(3) OF THE I.T. ACT. SINCE, SALES O F THE ASSESSEE IS ESTABLISHED AND PROFIT OF RS. 10,00,653/-SHOWN BY THE ASSESSEE AND OFFERED FOR TAXATION, SAME IS ACCEPTED AS INCOME OF THE ASSESSEE'. THE ABOVE REMARK IS VERY GENERAL IN NATURE AS THE AO HAS FAILED TO POINT OUT THE SPECIFIC DEFECTS WHI CH HE FOUND OUT IN THE BOOKS OF ACCOUNTS DUE TO WHICH HE WAS UNABLE TO DETERMINE THE CORRECT INCOME OF THE ASSESSEE. B) ON THE OTHER HAND THE AO HAS REJECTED THE BOOKS OF ACCOUNTS BUT ON THE OTHER HAS ACCEPTED THE BOOK RESULT I.E. THE INCOME SHOWN BY THE ASSESSEE AND ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 5 - OFFERED FOR TAXATION. THIS SHOWS THAT THE AO WAS CLEARED WHAT HE WANTED TO DO. C) THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10AA. THE A.O, HAS REJECTED BOOKS OF ACCOUNTS U/S 145(3). I DO NOT UNDERSTAND HOW THE REJECTION OF BOOKS OF ACCOUNTS IS LINKED WITH DISALLOWANCE OF CLAIM OF EXEMPTION IN THIS CASE. EITHER THE BOOKS OF ACCOUNTS CAN BE REJECTED OR THE EXEMPTION CANNOT BE ALLOWED. BOTH CANNOT BE DONE AT THE SAME TIME. D) ON THE ONE HAND THE AO OBSERVED THAT THE ELECTRICITY CONSUMPTION HAS BEEN SHOWN LESS BY THE ASSESSEE, THE QUANTUM OF ARTICLES CANNOT BE PRODUCED WITHIN SUCH A SHORT PERIOD OF TIME AS CLAIMED BY THE ASSESSEE ETC. WHILE ON OTHER HAND, HE DID NOT HESITATE IN ACCEPTING THE SALES AS GENUINE AND THE PROFIT SHOWN BY THE ASSESSEE AS CORRECT. E) ALL THE OBSERVATION MADE BY THE AO IN THE ASSESSMENT ORDER ARE NOT IN CONGRUENCE WITH HIS CONCLUSION MENTIONED IN PARA 13 OF HE ORDER. IN VIEW OF THE ABOVE FACT, I AM OF THE OPINION THAT THE ASSESSEE'S CLAIM OF EXEMPTION APPEARS TO BE GENUINE AND SHOULD BE ALLOWED. ACCORDINGLY THE AO IS DIRECTED T O ALLOW THE EXEMPTION AS CLAIMED BY THE APPELLANT IN ITS RE TURN OF INCOME. HENCE THE GROUND OF APPEAL IS ALLOWED. AO'S REMARK THE LD. CIT(A) HAS DELETED OF DISALLOWANCE OF EXEMP TION U/S. 10AA OF RS. 10, 00,653/- MADE BY THE ASSESSING OFFICER. THE DECISION OF THE LD. CIT(A) IS NOT ACCE PTED FOR THE FOLLOWING REASONS:-1) THE LD. CIT(A) HAS NOT APPRECIATED THAT THE AO HAS REJECTED THE BOOKS RESU LTS OF ASSESSEE U/S. 145(3) OF THE IT ACT AFTER POINT OUT THE FOLLOWING DEFECTS. A) DURING THE COURSE OF ASSESSMENT PROCEEDING ON PERUSAL OF THE SUBMISSION MADE BY THE ASSESSEE, IT IS FOUND THAT THE ASSESSEE FIRM HAD GIVEN INTIMATIO N REGARDING THE COMMENCEMENT OF PRODUCTION WORK ON 22.02.2007. THIS LEGAL INFORMATION WAS REQUIRED TO BE PASSED ON TO THE SPECIAL ECONOMIC ZONE ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 6 - AUTHORITIES AS AND WHEN THE PRODUCTION WORK GETS STARTED. THE ASSESSEE FURNISHED THE COPY OF INTIMATION LETTER ADDRESSED TO THE ASSTT. DEVELOPMENT COMMISSIONER, SEZ, SACHIN, SURAT, BUT NO ACKNOWLEDGEMENT THEREOF/ANY SEAL &. SIGNATURE FROM AUTHORITIES WERE FOUND. THEREFORE THE ASSESSEE FAILED TO, FULFILL ANY ONE OF THE CONDITIONS OF LEAVE AND LICENSE ISSUED BY THE SEZ INTIMATION IN ORDER WAS NOT FOUND. B) DURING THE COURSE OF ASSESSMENT PROCEEDI NG THE AO THAT THE CLOSING STOCK OF CONSUMABLE OF RS . 34,052/-. HOWEVER, AS ITS SUBMISSION DATED 16.12.2009, THE ASSESSEE GIVEN A SHOWING THE CLOSING STOCK ONLY WHICH IS UNDER THE HEAD 'OTHERS' . THERE IS NO BIFURCATION OF REVENUE AND CAPITAL EXPENDITURE MANY OF THE ITEMS ARE HAVING LONG LIFE AND USABLE AGAIN AND AGAIN. THERE IS NO DETAIL OF DAY TO DAY PURCHASE OR CONSUMPTIONS OF MATERIALS. C) DURING THE COURSE OF ASSESSMENT PROCEEDING THE A O OBSERVED THAT ASSESSEE STATED TO HAVE PRODUCE THE COPY OF BILLS FOR THE ROSHAN INTERNATIONAL , BOMBAY AND STATED TO HAVE NO AGREEMENT FOR PURCHASE OF MACHINERY SPECIFIC WRITTEN IN THE BILL AND ORDER IS VERBAL THE AGREEMENT IS NOT EXECUTED STATED THAT THE MACHINERIES ARE MERELY SMALL IN SIZE. HOWEVER NO SUCH INSTALLATIONS CHARGES FOUND TO DEBIT IN THE BOOKS OF ACCOUNTS. FURTHER MACHINERIES THAT REQUIRED FOR MANUFACTURING WERE NOT AVAILABLE WITH THE ASSESSEE. E) DURING THE COURSE OF ASSESSMENT PROCEEDING THE A.O. OBSERVE THAT THE ASSESSEE HAS SUBMITTED THE DETAILS OF THE CREDITORS AN AMOUNTING RS. 55,61,890/- THE A.O. HAS ISSUED LETTER U/S. 133(6) TO THE VARIOUS CREDITORS FOR VERIFICATION OF GENUINENESS AND CONFIRMATION OF THE TRANSACTION MADE BY THE ASSESSEE. HOWEVER DURING THE PROCEEDING NO CONFORMATIONS EXCEPT TANVI GEMS PVT. LTD. & RONAK GEMS PVT. LTD. MUMBAI HAVE BEEN RECEIVED. THEREFORE ASSESSEE FAILED TO PROVE THE GENUINENESS OF CREDITORS. F) THE ASSESSEE HAD SHOWN MANUFACTURING OF HUGE QUANTITY OF 317 SILVER RINGS, WTS.413.707 GMS. ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 7 - PASSING THROUGH ALL THE PROCESS OF MANUFACTURING IN SO MANY PROCESS WITHIN VERY SHORT TIME PERIOD. ALL THE PROCESS COMPLETED WITHIN A SHORT PERIOD OF 12 DAYS ONLY. THE ASSESSEE WAS ALSO NOT DEPLOYED SKILL LABOUR AS THE REQUIRED FOR THE MANUFACTURING PROCESS. CONSIDERING THE ABOVE PROCESS AS FURNISHED BY THE ASSESSEE & PERIOD DOSE NOT ESTABLISHED MANUFACTURING OF GOODS SOLD. G) THE ASSESSEE DEBITED ELECTRICITY CONSUMPTION (45 + 125 UNITS) OF RS. 1400/- ONLY, TOTALING WITH TWO SEPARATE CONNECTIONS OF ELECTRICITY. NO ELECTRICITY CONNECTIONS CHARGES FOUND TO BE DEBITED IN BOOKS OF ACCOUNTS. THESE TWO LESS ELECTRICITY CONSUMPTION/EXPENSE DO NOT JUSTIFY TO HAVE MANUFACTURED THE GOODS IN ITS UNITS AS ON LEASE & LICENSE AGREEMENT. H) THE AO OBSERVED THAT JEWELLERY MANUFACTURING WORKERS WITH A MEAGRE SALARY OF RS. 4,000/- TO 3,750/- PER MONTH. THE ASSESSEE HAD SHOWN SUCH EXPENSE AS MANUFACTURING EXPENSES. I) DURING THE COURSE OF ASSESSMENT PROCEEDING THE A.O. OBSERVED THAT THE ASSESSEE HAD FILED ITS REVISED RETURN OF INCOME. IT IS FURTHER OBSERVED BY THE AO THAT MERELY FORM NO. 56F HAVE BEEN REVISED, REVISING THE PROFIT AT RS. 10,06,653/-, WITHOUT REVISING THE ANNEXURE ATTACHED THERETO. PROFIT HAD BEEN SHOWN ONLY AT RS. 5,42,778/- & NOT AS REVISED. THE ASSESSEE HAD NOT REVISED OF FIXED ASSETS. NO PURCHASE HAD BEEN FOUND REVISED UP TO THE CAPITAL EXPENDITURE HEREWITH. CONSIDERING THE ABOVE DISCREPANCIES DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO HAS RIGHTLY REJECTED THE BOOKS RESULT OF THE ASSESSEE U/S 145(3) OF THE I.T. ACT. 2. THE LD. CIT (A) HAS NOT APPRECIATED THAT THE ASSESSEE COMMENCED THE COMMERCIAL PRODUCTION FROM 22.07.2007 & DISPATCHED THE GOODS FOR EXPORTS ON 05.03.2009. IT WAS SURPRISING TO NOTE THAT ASSESSEE FIRM EXPORTED FINISHED GOODS AMOUNTING TO RS. 32,93,111/- WITH IN A SHORT PERIOD OF 12 DAYS ONLY. ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 8 - 3. THE LD. CIT (A) HAS NOT APPRECIATED THAT THE ASSESSEE MANUFACTURED 317 SILVER RINGS WTG. 413.707 GRAMS PASSING THROUGH THE ALL THE PROCESS OF MANUFACTURING, WHICH REQUIRED SO MANY PROCESSING STEP AS FURNISHED BY THE ASSESSEE AND PERIOD DOES NOT ESTABLISH MANUFACTURING OF GOODS SOLD. 4. THE LD. CIT(A) HAS NOT APPRECIATED THAT AO HAS DISALLOWANCE THE EXEMPTION U/S 10AA OF THE I.T. ACT AFTER FOUND OF THE LAPSES IN MANUFACTURING PERIOD & CONSUMPTION ITEMS NOR THE MANY OF THE PURCHASE CONFIRMED BY THE THIRD EVIDENCES. 5. THE LD.CIT (A) HAS NOT APPRECIATED THAT THE A.O. HAS MADE DETAILED DISCUSSION IN PARA 1 TO 13 AND REBUTTAL THEREON IN THE ASSESSMENT ORDER. 6. IN VIEW OF ABOVE DISCUSSION, THE HONBLE ITAT IS PRAYED TO SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ORDER OF THE A.O. 6. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE A BOVE STATEMENT OF FACTS FILED BEFORE US. 7. ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIV E OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECO RD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED EXEMPTION U/S. 10AA OF R S 10,00,653/- ON THE GROUND OF INCOME DERIVED FROM MANUFACTURING AND EXPORT OF DIAMOND STUDDED GOLD AND SILVER JEWELLERY FROM ITS SEZ UNIT. THE ASSESSING OFFICER OBSERVED THAT THE DATE OF COMMENC EMENT OF BUSINESS IN SEZ UNIT WAS 22.02.2007 AND THE ASSESSE E CLAIMED TO HAVE MADE EXPORT OF RS 32,93,111/- BEING 317 ITEMS ON 05.03.2007. ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 9 - THERE WERE ONLY 12 DAYS BETWEEN THE DATE OF COMMENC EMENT OF PRODUCTION AND THE DATE OF EXPORT. ACCORDING TO TH E ASSESSING OFFICER, MELTING SILVER AND MAKING ARTICLES OUT OF IT TAKES MORE THAN 8 DAYS. FURTHER, THE ASSESSING OFFICER OBSERVED THAT THE ELECTRICITY BILL OF THE ASSESSEE FOR THE PERIOD 7 TH FEBRUARY TO 7 TH MARCH 2007 SHOWS CONSUMPTION OF 170 UNITS ONLY FOR WHICH THE ASSESSE E PAID RS 1400/-. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER REJECTE D THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S. 10AA OF THE ACT. 9. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) DELETED THE DISALLOWANCE OF EXEMPTION U/S. 10AA BY OBSERVING AS UNDER: 6. I HAVE GONE THROUGH THE ASSESSMENT ORDER A ND THE SUBMISSIONS OF THE APPELLANT. THE ACTION OF THE A. O. IN TAXING THE INCOME EXEMPTED U/S. 10AA AS CLAIMED BY THE APP ELLANT CANNOT BE APPROVED DUE TO FOLLOWING REASONS: I. THE A.O. IN THE PARA 13 HAS OBSERVED THAT 'CONSIDERING THE ABOVE AND DEFECT AS POINTED OUT IN ABOVE PARAS, THE BOOK RESULTS OF THE ASSESSEE IS REJECTED U/S. 145(3) OF THE I.T. ACT. SINCE, SALES OF THE ASSESSEE IS ES TABLISHED AND PROFIT OF RS.10,00,653/- SHOWN BY THE ASSESSEE AND OFFERED FOR TAXATION, SAME IS ACCEPTED AS INCOME OF THE ASSESSE E'. THE ABOVE REMARK IS VERY GENERAL IN NATURE AS THE A .O. HAS FAILED TO POINT OUT THE SPECIFIC DEFECTS WHICH HE FOUND OUT IN THE BOOKS OF ACCOUNTS DUE TO WHICH HE WAS UNABLE TO DETERMINE THE CORRECT INCOME OF THE ASSESSEE. II. ON THE ONE HAND THE A.O. HAS REJECTED THE BOOKS OF ACCOUNT BUT ON THE OTHER HAND HAS ACCEPTED THE BOOK S RESULT I.E. THE INCOME SHOWN BY THE ASSESSEE AND OFFERED F OR TAXATION. THIS SHOWS THAT THE A.O. WAS NOT CLEAR WH AT HE WANTED TO DO. III. THE ASSESSEE HAS CLAIMED EXEMPTION U/S. 10AA. THE A.O. HAS REJECTED BOOKS OF ACCOUNT U/S. 145(3). I D O NOT UNDERSTAND HOW THE REJECTION OF BOOKS OF ACCOUNT IS LINKED WITH DISALLOWANCE OF CLAIM OF EXEMPTION IN THIS CAS E. EITHER THE BOOKS OF ACCOUNT CAN BE REJECTED OR THE EXEMPTI ON CANNOT BE ALLOWED. BOTH CANNOT BE DONE AT THE SAME TIME. ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 10 - IV. ON THE ONE HAND THE A.O. OBSERVED THAT THE ELEC TRICITY CONSUMPTION HAS BEEN SHOWN LESS BY THE ASSESSEE, TH E QUANTUM OF ARTICLE CANNOT BE PRODUCED WITHIN SUCH A SHORT PERIOD OF TIME AS CLAIMED BY THE ASSESSEE ETC. WHIL E ON OTHER HAND, HE DID NOT HESITATE IN ACCEPTING THE SALES AS GENUINE AND THE PROFIT SHOWN BY THE ASSESSEE AS CORRECT. V. ALL THE OBSERVATIONS MADE BY A.O. IN THE ASSESSM ENT ORDER ARE NOT IN CONGRUENCE WITH HIS CONCLUSIONS ME NTIONED IN PARA 13 OF THE ORDER. IN VIEW OF THE ABOVE FACTS, I AM OF THE OPINION THA T THE ASSESSEE'S CLAIM OF EXEMPTION APPEARS TO BE GENUINE AND SHOULD BE ALLOWED. ACCORDINGLY, THE A.O. IS DIRECTE D TO ALLOW THE EXEMPTION AS CLAIMED BY THE APPELLANT IN ITS RE TURN OF INCOME. HENCE, THE GROUND OF APPEAL IS ALLOWED. 10. THE DEPARTMENTAL REPRESENTATIVE POINTED OUT BE FORE US THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS N OT BEEN ABLE TO REBUT THE FINDING OF HE ASSESSING OFFICER AND THERE FORE WAS NOT JUSTIFIED IN ALLOWING DEDUCTION U/S. 10AA TO THE AS SESSEE. THE DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT NOWHER E IN THE OPERATIVE PORTIONS OF THE ORDER, THE COMMISSIONER O F INCOME TAX (APPEALS) HAS GIVEN A FINDING ABOUT THE ADVERSE OBS ERVATION OF THE ASSESSING OFFICER IN RESPECT OF AVAILING OF TIME FO R MANUFACTURING OF SILVER ARTICLES OF 317 PIECES AND THE ABNORMALLY LO W CONSUMPTION OF ELECTRICITY DURING THE RELEVANT PERIOD. THUS, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS A CRYPTIC A ND NON-SPEAKING ORDER. 11. ON THE OTHER HAND, THE AUTHORIZED REPRESENTATI VE OF THE ASSESSEE RELIED UPON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 12. WE FIND THAT THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COULD NOT CONTROVERT THE SUBMISSION OF THE DEPARTMENTAL REPRESENTATIVE TO THE EFFECT THAT THE ORDER OF THE COMMISSIONER OF ITA NO. 1449/AHD/2011 M/S. LEORA JEWELLERY, SURAT. FOR A.Y. 2007-08 - 11 - INCOME TAX (APPEALS) IS A NON-SPEAKING ORDER AND WA S PASSED WITHOUT DEALING WITH THE FINDINGS OF THE ASSESSING OFFICER. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS) COULD NOT BE S USTAINED AS NOTHING HAS BEEN STATED IN THE OPERATIVE PARA OF TH E ORDER IN RESPECT OF THE MERIT OF THE ISSUE INVOLVED. IN OUR CONSIDE RED VIEW, SIMPLY BECAUSE AFTER REJECTING THE BOOKS OF ACCOUNT, IF TU RNOVER AND PROFIT AS CLAIMED IN THE RETURN IS NOT VARIED BY THE ASSESSIN G OFFICER, IT CANNOT BE HELD THAT THE CLAIM FOR DEDUCTION U/S. 10AA HAS ALSO TO BE ACCEPTED. FURTHER, AS THE COMMISSIONER OF INCOME T AX (APPEALS) HAS NOT DEALT WITH THE RELEVANT OBSERVATIONS MADE B Y THE ASSESSING OFFICER FOR DERIVING AN ADVERSE INFERENCE AGAINST A LLOWABILITY OF EXEMPTION U/S. 10AA, IN OUR CONSIDERED VIEW IT SHAL L BE JUST AND FAIR TO RESTORE THE ISSUE BACK TO THE FILE OF THE COMMIS SIONER OF INCOME TAX (APPEALS) FOR ADJUDICATION AFRESH AFTER PASSING SPEAKING ORDER ON THE ISSUE. WE ORDER ACCORDINGLY. NEEDLESS TO MENT ION THAT THE COMMISSIONER OF INCOME TAX (APPEALS) SHALL ALLOW RE ASONABLE AND PROPER OPPORTUNITY OF HEARING TO BOTH THE PARTIES B EFORE ADJUDICATING THE ISSUE AFRESH. THUS, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON MONDAY, THE 1 ST OF SEPTEMBER, 2014 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 01/09/2014 GHANSHYAM MAURYA, SR. P.S.