, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH ( JM ) , AND B.R.BASKARAN (AM) , . . , ./ I.T.A. NO. 1825 /MUM/ 20 1 4 ( / ASSESSMENT YEAR : 20 10 - 11 ) UNIQUE GEM AND JEWELLERY 271, BUSINESS PARK, VISHVESHWAR NAGAR, NEAR VIRVANI INDUSTRIAL ESTATE, MODEL INDUSTRIAL COLONY, GOREGAON EAST, MUMBAI - 400063 / VS. ASST T. COMMISSIONER OF INCOME TAX, RANGE - 2 4 (3), BANDRA KURLA COMPLEX, MUMBAI - 4000 51 . ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AACFU3067H / ASSESSEE BY SHRI K GOPAL AND MS.NEH A PARANJAPE / REVENUE BY SHRI L K S DEHIA / DATE OF HEARING : 20.8 . 201 5 / DATE OF PRONOUNCEMENT : 14. 10. 201 5 / O R D E R PER B.R. BASKARAN (AM) THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20.2.2014 PASSED BY LD CIT(A) - 3 4 , MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 20 10 - 11 . THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE REJECTION OF THE CLAIM FOR DE DUCTION U/S 10B OF THE ACT. 2. THE FACTS RELATING TO THE ISSUE CITED ABOVE ARE DISCUSSED IN BRIEF. THE ASSESSEE IS A PARTNERSHIP FIRM FORMED WITH THE OBJECTIVE OF I.T.A. NO . 1825 /MUM/20 1 4 2 MANUFACTURE OF DIAMOND STUDDED GOLD JEWELLERY. THE ASSESSEE IS APPROVED AS 100% EOU BY T HE DEVELOPMENT COMMISSIONER, SEEPZ, SEZ, GOVERNMENT OF INDIA, VIDE LETTER OF PERMISSION NO. PER:16(2008)/ SEEPZ/EOU/IA - II/34/08 - 09/10046 DATED 15.12.2008 FOR MANUFACTURE AND EXPORT OF PLAIN/OR STUDDED HANDMADE JEWELLERY STUDDED WITH DIAMONDS, PRECIOUS, SEM I PRECIOU S AND NON - PRECIOUS STONES MANUFACTURED OUT OF GOLD, SILVER, PLATINUM METAL. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED DEDUCTION U/S 10B OF THE ACT TO THE TUNE OF RS.14.31 CRORES. THE ASSESSING OFFICER EXAMINED THE SAID CLAIM OF T HE ASSESSEE AND TOOK THE VIEW THAT THE ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY AND ACCORDINGLY HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. THE GROUNDS ON WHICH SUCH A VIEW WAS ENTERTAINED BY THE ASSESSING OFFIC ER HAVE BEEN SUMMARIZED AS UNDER IN THE ASSESSMENT ORDER: - 4.8 IF WE LOOK THE FACTS OF THE CASE OF THE ASSESSEE, THE FOLLOWING EVIDENCES PROVE THAT NO MANUFACTURING ACTIVITY WAS CARRIED OUT BY THE ASSESSEE I . NO PLANTS & MACHINERY WERE FOUND DURING SUR VEY. II. N O DESIGNS OF JEWELLERY WERE FOUND DURING SURVEY ALTHOUGH IT IS MENTIONED IN THE ORDERS OF THE PURCHASER THAT JEWELLERY IS TO BE SUPPLIED AS PER DESIGNS . NO SATISFACTORY REPLY COULD BE GIVEN BY THE ASSESSEE, W HEN CONFRONTED WITH THIS DURING TH E SURVEY. III. INSPECTORS WERE DEPUTED TO EXAMINE SOME OF THE ALLE GED WORKERS OF THE ASSESSEE DURING SURVEY ON THE ADDRESS GIVEN BY THE ASSESSEE. THEY COULD NOT BE FOUND A ND AT THE GIVEN ADDRESS AND THE PERSONS STAYING THERE ALSO DID NOT K NOW ABOUT TH EM. WHEN CONFRONTED, THE ASSESSEE FAILED TO PROVIDE THEIR A DD RESS AND DETAILS. IT IS SURPRISING THAT IN SUCH A SENSITIVE BUSINESS OF DIAMOND JEWELLERY, THE ASSESSEE DID NOT H A VE VERIFICATION OF WORKERS. IV) THE ASSESSEE HAS CLAIMED VERY MEAGRE AMOUNT TOW ARDS PAYMENT TO WORKERS, THAT TOO BY CASH, FOR BOTH, CASTING OF GOLD AND STUDDING OF DIAMOND. THE ASSESSEE HAS SHOWN PAYMENT OF RS I.T.A. NO . 1825 /MUM/20 1 4 3 1.19 LAKHS FOR LABOUR CHARQES AND RS. 2.75 LAKHS FOR SALARY AND WAGES ON HUGE TUR NOVER OF R S. 79.81 CRORES. THE PAYMENT INCLU DES PAYMENTS TO ADMINISTRATIVE, ACCOUNTING AND OTHER STAFF ALSO. IT IS NO T POSSIBLE TO CARRY OUT SO MUCH OF WORK WITH SUCH MEAGR E PAYMENT, PARTIC ULARLY IN A BUSINESS LIKE DIAMOND JEWELLERY. THIS PROVES THAT NO MANUFACTURING WAS CARRIED OUT. V) THE ASSESS EE FAILED TO PROVIDE MOBILE NOS . AND E XACT ADDRESS OF LABOURERS, WHEN INQUIRED DURING SURVEY. IT IS NOT POSSIBLE THAT SUCH BASIC DETAILS A R E NOT MAINTAINED IN THIS LINE OF BUSINESS. NO SATISFACTORY REPLY COULD BE GIVEN BY THE ASSESSEE. VI ) . THE HON'BLE S UPREME COURT IN THE CASE OF DURGA PRASAD MORE 82 ITR 540 AND IN THE CASE OF SUMATI DAYAL 214 ITR 801 HA S HELD THAT TEST OF HUMAN PROBABIL ITIES SHOULD BE APPLIED TO VERIFY WHETHER ANY TRANSACTION IS REAL OR AN ATTEMPT HAS BEEN MADE TO GIVE IT A COLOUR OF R EALITY. IN THE CASE OF THE ASSESSEE, AN ATTEMPT HAS BEEN MADE TO CLAIM THAT IT WAS ENGAGED INE LI GIBLE MANUFACTURING ACTIVITY ALTHOUQ H THE EVIDENCES GATHERED PROVE THAT NO MANUFACTURING WAS DONE BY THE ASSESSEE. AS HELD BY THE HONBLE ITAT IN PARA 20 OF TH E ORDER, INCOME TAX PROCEEDINGS ARE CIVIL PROCEEDINGS AND GOVERNED BY PREPONDERANCE OF PROBABILITIES. IN THE CASE OF THE ASSESSEE, NO DESIGNS OR JEWELLERY WERE FOUND DURING SURVEY, NOR COULD BE PRODUCED BY THE ASSESSEE. THE ASSESSEE FAILED TO GIVE ADDRE SS OF PARTIES, WHICH ARE CLAIMED TO HAVE BEEN DOING LABOUR WORK FOR PRECIOUS DIAMOND JEWELLERY, WHEN THEY COULD NOT BE TRACED BY THE INSPECTORS. THE EXPENSES FOR JOB WORK ARE THAT MEAGRE AS COMPARED TO TURNOVER AND SHOWN AS PAID BY CASH. HENCE, IF WE A PPLY ALL THESE EVIDENCES TO TEST OF HUMAN PROBA BI LITY, IT EMERGES THAT NO MANUFA CTURING ACTIVITY WAS CARRIED OUT BY THE A SSESSEE. HENCE, APPLYING THE PREPONDERANCE OF PROBABILITIES AND ENTIRE CIRCUMSTANCES AS DISCUSSED AB OVE, IT IS PROVED BEYOND DOUBT TH AT THE ASSESSEE DID NOT CARRY OUT ANY MANU FACTURING ACTIVITY AND HENCE NOT ELIGI BLE FOR DEDUCTION U/S 10B OF THE ACT . 3. THE ASSESSING OFFICER, IN THE ALTERNATIVE, HAS TAKEN THE VIEW THAT THE ACTIVITIES CLAIMED TO HAVE BEEN CARRIED ON BY THE ASSESSEE C ANNOT ALSO BE CONSIDERED AS ELIGIBLE MANUFACTURING ACTIVITY AS PER THE DEFINITION OF THE TERM MANUFACTURE GIVEN UNDER SEZ ACT AND HIS DISCUSSIONS IN THIS REGARD ARE EXTRACTED BELOW: - I.T.A. NO . 1825 /MUM/20 1 4 4 5. WITHOUT PREJUDICE TO THE ABOVE AS FAR AS THE MEANING OF THE WOR D MANUFACTURING WITHIN THE PURVIEW OF SECTION 10B IS CONCERN THE INCOME TAX ACT IS SILENT ON THIS ISSUE HENCE THE SEZ ACT 2005 HAS TO BE REFERRED. IN THE SEZ ACT 2005 WORD MANUFACTURING HAS BEEN DEFINED AS UNDER: 'MANUFACTURE' MEANS TO MAKE, PRODUCE, FAB RICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY H AND OR BY MACHINE, A NEW PRODUCT H AVING A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESSES SUC H AS REFRIGERATION, CUTTING, POLISHING, BLENDINQ, R EPAIR, REMAKING, RE - ENGINEERING AND INCL UDES AGRICULTURE, AQUACU L TURE, ANIMAL HUSBANDRY, FLORICULT URE , HORTICULTURE, PISCICULTU RE, POULTRY, S E RICULTURE, VITICULTURE AND MINING; AS FAR AS THE ALLEGE D MANUFACTURING ACTIVITY CLAIMED TO BE CARRIED OUT BY THE ASSESSEE IS CONCERN, IS NOTHING BUT TH E RESULT OF TWO DIFFERENT MANUFACTURING PROCESSES/ ACTIVITIES C ARRIED OUT AT TWO DIFFERENT PLACES IN OUT S IDE MARKET AND NOT BY THE ASSESSEE . IN THE ALLEGED GOLD CASTED AND DIAMOND STUDDED JEWELLERY MANUFACTURI NG ACTIVITY BOTH THE WORKS I.E GOLD CAS T ING AN D DIAMOND CUTTING & POLISHING, WHICH CAN BE CLAIMED AS MANUFACTURING, ARE DONE IN OUTSIDE MARKET. CASTED GOLD AND CUT & POLISHED DIAMOND ARE THE PRODUCTS WHICH HAVE A DISTINCTIVE NAME, CHARACTER OR USE BUT STUDDING T HE READILY CUT & PO LI SHED DIAMOND IN TO THE OUT SOURCED CASTED GOLD DOES NOT SATISFY THE CONDITION OF BEING A ELIGIBLE MANUFACTURING ACTIVITY . MERE STUDD ING OF DIAMOND CANNOT BE CALLED A MANUFACTURING ACTIVITY ELIGIBLE FOR DE DUCTION U/S 10B . HENCE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/ S 10B ON THIS ACCOUNT ALSO . THE ASSESSEE HAS CLAIMED TO HAVE MERELY FIT T ED READILY CUT AND POLISHED DIAMONDS INTO THE OUT SOURCES CASTED GOLD. DURING THE COURSE OF SURVEY AND IN POST SURVEY PROCEEDINGS IT HAS BEEN FOUND THAT THE ASSESSEE IS NOT HAVING ANY PLAN T AND MACHINERY TO CARRY OUT THE ELIGIBLE ACTIVITY AND I S GETTING ITS WORK DONE FROM OUTSIDE MARKET. 6. THERE IS NO DOUBT THAT THE ASSESSEE HAS NOT SATISFIED THAT THE VERY ESSENTIAL CONDITIONS, LAID DOWN IN THE SECTION 10B OF THE ACT, OF CARRYING OU T ELIGIBLE MANUFACTURING ACTIVITY, HENCE THE DEDUCTION UNDER SECTION 10B OF THE ACT CLAIMED BY THE ASSESSEE IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. THE LD CIT(A) ALSO CONFIRMED THE VIEW TAKEN BY THE AO. THE LD CIT(A) ALSO REFERR ED TO THE STATEMENTS RECORDED FROM EMPLOYEES OF THE I.T.A. NO . 1825 /MUM/20 1 4 5 ASSESSEE AND OBSERVED THAT ALL THE WORKERS OF THE ASSESSEE ARE ACTUALLY EMPLOYED IN ANOTHER CONCERN NAMED M/S BLACKSTONE GEM & JEWELLERY, SURAT. ACCORDINGLY THE LD CIT(A) DISMISSED THE APPEAL OF THE ASSE SSEE. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE LD A.R SUBMITTED THAT THE ASSESSEE IS MANUFACTURING ONLY HANDMADE DIAMOND JEWELLERY OF STANDARD DESIGNS AND HENCE IT DOES NOT REQUIRE HUGE MACHINERIES. HE SUBMITTED THAT THE ASSESSEE HAS BEE N GRANTED PERMISSION BY SEEPZ, SEZ ONLY TO MANUFACTURE AND EXPORT PLAIN OR STUDDED HANDMADE JEWELLERY ONLY. HE FURTHER SUBMITTED THAT THE ASSESSEE IS IMPORTING DIAMONDS AND THE GOLD BARS ARE PURCHASED LOCALLY. HE SUBMITTED THAT THE IMPORT OF DIAM ONDS IS CARRIED OUT AT THE CONTROL AND SUPERVISION OF CUSTOMS AND EXCISE AUTHORITIES AND THEY AFFIX THEIR SIGNATURES IN THE PURCHASE REGISTER MAINTAINED BY THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE IMPORT OF DIAMONDS STAND PROVED BY THE ASSESEE. THE LD A.R INVITED OUR ATTENTION TO THE COPIES OF PURCHASE REGISTER TO PROVE THE ABOVE SAID SUBMISSIONS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED FINISHED STOCK REGISTER, WHEREIN THE DETAILS OF ALL FINISHED GOODS ARE ENTERED INTO. HE FURTHER S UBMITTED THAT THE FINISHED JEWELLERY HAS BEEN EXPORTED AND THE SAME IS EVIDENCED BY THE SALES INVOICES. HE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT DOUBTED ABOUT THE IMPORT OF DIAMONDS, PURCHASE OF GOLD BARS AND EXPORT OF MANUFACTURED JEWELLERY. IN F ACT THE ABOVE SAID ACTIVITIES ARE DULY SUPPORTED BY THE BOND REGISTER AND DPCC REGISTER MAINTAINED BY THE ASSESSEE UNDER THE PROVISIONS OF CENTRAL EXCISE AND CUSTOMS ACT AND THE SAID REGISTERS HAVE ALSO BEEN INSPECTED BY THE EXCISE AND C USTOMS AUTHORITIES . 6. THE LD A.R SUBMITTED THAT THE ASSESSEE GETS THE GOLD MELT ING WORK AND CONVERSION OF 24K GOLD INTO 14K/18K GOLD ARE DONE THROUGH THIRD PARTIES ON JOB WORK BASIS. THE N THE REQUIRED DIES ARE PREPARED IN WAX AND I.T.A. NO . 1825 /MUM/20 1 4 6 REQUIRED MOUNTING IS PRODUCED THERE FRO M. THE MOUNTINGS SO PRODUCED ARE CUT INTO PIECES THEN SCRUBBED TO BRING THEM INTO PROPER SHAPES. WHEREVER NECESSARY , REQUIRED WELDING IS ALSO DONE . THEREAFTER DIAMOND IS FITTED THEREIN AT ITS PLACE . HE SUBMITTED THAT THE ASSESSEE HAS MAINTAINED PROPER REGISTERS TO RECORD THE RECEIPT OF MATERIALS AND MANUFACTURE OF JEWELLERIES. ACCORDINGLY HE SUBMITTED THAT THE EVIDENCES FURNISHED BY THE ASSESSEE CLEARLY PROVE THAT THE ASSESSEE HAS MANUFACTURED HANDMADE JEWELLERY AND EXPORTED THE SAME. HE SUBMITTED THAT THE ASSESSING OFFICER HAS REJECTED THE CLAIM OF MANUFACTURE ONLY ON THE REASONING THAT CORRECT DETAILS OF WORKERS WERE NOT GIVEN TO HIM AND THE CHARGES FOR GOLD CASTING AND WAGES ARE LOW. FURTHER THE AO NOTICED THAT THE ADDRESSES GIVEN BY THE WORKERS WE R E WRONG. HE SUBMITTED THAT THE ASSESSEE HAS FURNISH ED ONLY THE DETAILS AVAILABLE WITH IT, WHICH WAS FURNISHED BY THE CONCERNED LABOURERS. HENCE THE ASSESSEE SHOULD NOT BE FOUND FAULT WITH, IF THE WORKER WA S NOT AVAILABLE AT THE GIVEN ADDRESS. HE SUBMITT ED THAT THE JEWELLERY IS MANUFACTURED UNDER HAND PROCESS AND THE SAME IS SUPERVISED BY ITS STAFF. HE SUBMITTED THAT THE ASSESSING OFFICER DID NOT COMMENT UPON ANYTHING ON THE IMPORT OF DIAMONDS, PURCHASE OF GOLD AND EXPORT OF JEWELLERY. HE SUBMITTED THAT THE ASSESSEE COULD NOT EXPORT THE JEWELLERY WITHOUT MANUFACTURING THE SAME. THE LD A.R ALSO BROUGHT A WORKER BEFORE THE BENCH AND HE EXPLAINED AS TO HOW HE MANUFACTURES THE GOLD JEWELLERY. THE LD A.R FURTHER SUBMITTED THAT THE DIAMOND IS STUDDED IN TO TH E GOLD JEWELLERY SO MANUFACTURED . HE FURTHER SUBMITTED THAT THE SUPERINTENDENT OF CENTRAL EXCISE HAS CONDUCTED AUDIT WITH REGARD TO MOT CHARGES, WHICH IS PAID TO THE CENTRAL EXCISE DEPARTMENT FOR DEPUTING AN OFFICER TO ACCOMPANY THE GOODS AT THE TIME OF ITS MOVEMENT OUTSIDE THE OFFICIAL HOURS . THE RELEVANT AUDIT REPORT IS ATTACHED AT PAGE 380 OF THE PAPER BOOK. HE SUBMITTED THAT THE MOT CHARGES SO PAID FURTHER VINDICATE THE POINT THAT THE ASSESSEE HAS ACTUALLY MANUFACTURED JEWELLERY. HE FURTHER SUBMITTED THAT THE CENTRAL EXCISE DEPARTMENT HAS ACCEPTED TH AT I.T.A. NO . 1825 /MUM/20 1 4 7 THE ASSESSEE IS MANUFACTURER OF JEWELLERY. ACCORDINGLY HE SUBMITTED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE EXPLANATIONS GIVEN AND EVIDENCES FURNISHED BY THE ASSESSEE. THE LD A.R FU RTHER PLACED HIS RELIANCE ON THE FOLLOWING CASE LAW: - I) IT O V/S AAR ESS EXIM (P) LTD (2013) 157 TTJ 98 (DELHI_TRIBUNAL); II) GIRNAR INDUSTRIES V/S CIT (2011) 338 ITR 227 (KERALA HIGH COURT); III) ITO V/S EKTARA EXPORTS (P) LTD (2006) 152 TAXMAN 18 (KOLKATA TRIBUNAL); IV) CIT V/S M/S EKTARA EXPORTS (P) LTD ITA NO.657 OF 2008 (CALCUTTA HIGH COURT): AND V) T . TWO INTERNATIONAL (P) LTD. V/S ITO (2010) 122 ITR 255 (MUMBAI) 7. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE SURVEY OPERATI ONS CONDUCTED BY THE REVENUE AT THE BOMBAY PREMISES AND SURAT PREMISES CLEARLY PROVED THAT THE ASSESSEE DOES NOT POSSESS ANY MACHINERY AT BOTH THE PLACES. FURTHER, THE ASSESSEE HAS CLAIMED TO HAVE ENGAGED ONLY FOUR WORKERS. HOWEVER, THE SAID WORKERS WERE NOT AVAILABLE AT THE GIVEN ADDRESSES. FURTHER THE ASSESSEE HAS ACCOUNTED FOR LABOUR CHARGES OF RS.1,18,918/ - AND SALARY AND WAGES OF RS.2.75 LAKHS ONLY AND THE SAME IS VERY MEAGRE WHEN COMPARED TO THE SALE FIGURE OF RS.79.81 CRORES. FURTHER THE ASSESSEE HAS NOT BOOKED ANY EXPENDITURE ON CONSUMABLES LIKE LACQUER, PLASTER OF PARIS, HEATING OIL/COAL, POLISH, SOLDERING MATERIAL OR PACKING MATERIAL. HE SUBMITTED THAT THE ASSESSEE HAS PURCHASED 24K GOLD, BUT THE JEWELLERY WAS CLAIMED TO HAVE BEEN MANUFACTURED IN 18K/14K GOLD. FOR CONVERTING THE GOLD INTO 18K/14K, THE ASSESSEE IS REQUIRED TO ADD SILVER/COPPER. HOWEVER, THE ASSESSEE HAS NOT ACCOUNTED FOR EXPENDITURE TOWARDS SILVER/COPPER. ACCORDINGLY HE SUBMITTED THAT THE ABOVE SAID DEFICIENCIES CLEARLY PROVE THE ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY. 8. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD PREPARED A PROJECT REPORT FOR OBTAINING APPROVAL FROM SEZ, WHEREIN THE ESTIMATED COST OF I.T.A. NO . 1825 /MUM/20 1 4 8 IMPORTED CAPITAL GOODS WAS SHOWN AT RS.60.00 LAKHS. H OWEVER, THE ASSESSEE HAS SHOWN A SUM OF RS.1.35 LAKHS ONLY AS ITS FIXED ASSETS AND THE SAID ASSETS MAINLY CONSISTED OF OFFICE EQUIPMENTS, WEIGHING SCALE AND AIR CONDITIONER. THE ASSESSEE DOES NOT POSSESS ANY TOOLS OR MACHINES OR MELTING/CASTING OVENS, PUR ITY CHECKING MACHINES ETC. THE ASSESSEE HAS NOT CLAIMED HALLMARK EXPENSES, CHARGES FOR CERTIFICATION ETC. HE SUBMITTED THAT THE ASSESSEE SHOULD HAVE INCURRED ALL THE ABOVE SAID EXPENSES, IF IT HAD REALLY CARRIED ON MANUFACTURING ACTIVITIES. HE FURTHER S UBMITTED THAT THE TAX AUDITOR HAS STATED THE NATURE OF BUSINESS OF THE ASSESSEE AS TRADING - OTHERS, WHICH FURTHER STRENGTHENS THE CLAIM OF THE REVENUE. HE FURTHER SUBMITTED THAT THOUGH THE PARTNER OF THE ASSESSEE FIRM EXPLAINED THE PROCESS OF MANUFACTURI NG AT THE TIME OF SURVEY, YET THERE ARE NO EVIDENCES TO BACK THE SAID CLAIM OF THE PARTNER. 9. THE LD D.R SUBMITTED THAT THE PARTNER OF THE ASSESSEE FIRM SUBMITTED DURING THE COURSE OF SURVEY THAT THE LABOURERS MANUFACTURING GOLD PORTION OF THE JEWELLER Y ARE GIVEN THE DETAILS OF HEIGHT AND WIDTH OF THE DIAMOND SO THAT THEY CAN MANUFACTURE THE GOLD PORTION ACCORDINGLY. HOWEVER, THE LABOURER WHO WAS PRODUCED BEFORE THE BENCH ADMITTED THAT NO SUCH DETAILS ARE GIVEN TO HIM. HE FURTHER SUBMITTED THAT THE FO UR WORKERS WHO WERE CLAIMED TO BE FITTING THE DIAMONDS WERE FOUND TO BE THE EMPLOYEES OF ANOTHER FIRM NAMED M/S BLACKSTONE GEM & JEWELLERY LOCATED AT SURAT. HE FURTHER SUBMITTED THAT THE SURVEY OPERATIONS CONDUCTED BY THE REVENUE PROVED THAT THE ASSESSEE DID NOT CARRY ON ANY MANUFACTURING ACTIVITY. THE MANAGER OF THE ASSESSEE FIRM, SHRI M.H. GANDHI, ADMITTED THAT HE WAS NOT AWARE OF MANUFACTURING ACTIVITY AND HE COULD NOT FURNISH THE LABOURER DETAILS. HE FURTHER SUBMITTED THAT THE PAPER DOCUMENTS MAINTAI NED BY THE ASSESSEE ONLY SHOW THE RECEIPT AND OUTGO OF THE MATERIALS/GOODS AND THEY ARE NOT SUFFICIENT TO PROVE THE MANUFACTURING ACTIVITY IN TERMS OF SEC. 10B OF THE ACT. I.T.A. NO . 1825 /MUM/20 1 4 9 10. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN ALTERNATIVE VIEW THAT THE MANUFACTURING WORK DONE THROUGH JOB WORK GIVEN TO OUTSIDERS WHO CARRY OUT THE WORK AT OUTSIDE THE PREMISES OF THE ASSESSEE WOULD NOT FALL UNDER THE CATEGORY OF MANUFACTURING UNDER SEZ ACT. 11. IN THE REJOINDER, THE LD.AR SUBMITTED THAT THE FIRM BLACKSTONE GEM WAS STARTED IN THE YEAR 2012 ONLY AND HENCE FINDING THAT THE WORKERS ARE EMPLOYED THEREIN HAS EMPLOYED IN THAT FIRM DOES NOT HAVE BEARING FOR THE YEAR UNDER CONSIDERATION. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. WE NOTICE THAT THE TAX AUTHORIT IES HAVE DOUBTED THE CLAIM OF MANUFACTURE OF JEWELLERY FOR THE REASONS THAT THE EXPENDITURE BOOKED BY THE ASSESSEE ON LABOUR AND WAGES ARE NOT PROPORTIONATE TO THE VOLUME OF SALES DECLARED BY THE ASSESSEE. DURING THE COURSE OF HEARING, THE LD. DR ALSO POINTED OUT THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TOWARDS THE CONSUMABLES. FURTHER, THE SURVEY CARRIED OUT BY THE REVENUE AUTHORITIES REVEAL ED THAT THE ASSESSEE DID NOT POSSESS ANY MACHINERY. ON THE B ASIS OF THE ABOVE STATED FACTS, THE TAX AUTHORITIES HAVE COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT CARRIED ON ANY MANUFACTURING ACTIVITY. ACCORDINGLY, THEY HAVE REJECTED THE CLAIM FOR DEDUCTION U/S 10B OF THE ACT. 13. IT IS PERTINENT TO NOTE TH AT THE DEDUCTION U/S 10B OF THE ACT IS ALLOWED TO A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING DERIVING PROFIT FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR R ELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE. HENCE THE ONE OF THE CONDITIONS TO BE SATISFIED IN ORDER TO AVAIL DEDUCTION U/S 10B I.T.A. NO . 1825 /MUM/20 1 4 10 OF THE ACT IS THAT THE UNDERTAKING SHOULD MANUFACTURE OR PRODUCE ARTICLES OR THINGS. IN THE INSTANT CASE, THE TAX AUTHORITIES HAVE TAKEN THE VIEW THAT THE ASSESSEE HAS NOT MANUFACTURED THE JEWELLERY FOR THE REASONS STATED IN THE PRECEDING PARAGRAPH. 14. WITH REGARD TO THE CONTENTIONS OF THE R EVENUE, THE LD. AR HAS SUBMITTED THAT THE JEWELLERY MANUFACTURED BY THE ASSESSEE CONSISTED OF SIMPLE DESIGN JEWELLERY . THE LD A.R ALSO EXPLAINED THE MANUFACTURING PROCESS INVOLVED IN THE MANUFACTURE OF GOLD JEWELLERY. IT IS FURTHER SUBMITTED THAT THE PER MISSION WAS GRANTED TO THE ASSESSEE BY THE GOVERNMENT OF INDIA ONLY TO MANUFACTURE HANDMADE JEWELLERIES. ACCORDINGLY HE SUBMITTED THAT THE NATURE OF MANUFACTURING ACTIVIT Y CARRIED ON BY THE ASSESSEE DO ES NOT REQUIRE HUGE PLANT AND MACHINERIES AND HENCE TH E ABSENCE OF PLANT AND MACHINERY CANNOT BE LEAD TO THE PRESUMPTION THAT THERE WAS NO MANUFACTURING ACTIVITY. THE LD A.R FURTHER SUBMITTED THAT T HE JEWELLERY SO MANUFACTURED HAS BEEN DULY EXPORTED UNDER THE SUPERVISION OF CUSTOMS AUTHORITIES. ACCORDINGLY HE SUBMITTED THAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE WOULD FALL IN THE CATEGORY OF MANUFACTURING. 15. WE NOTICE THAT THE TAX AUTHORITIES HAVE NOT EXPRESSED ANY ADVERSE VIEW ON THE IMPORT OF DIAMONDS, PURCHASE OF GOLD AND EXPORT OF JEWELLERY. THE LD. AR HAS FURTHER SUBMITTED THAT THE IMPORT OF DIAMONDS AND EXPORT OF JEWELLERY ARE MONITORED BY CENTRAL EXCISE AND CUSTOMS AUTHORITIES. HE HAS ALSO SUBMITTED THAT THE IMPORT OF DIAMONDS, PURCHASE OF JEWELLERY HAVE DULY BEEN ESTABLISHED BY THE ASSES SEE WITH THE HELP OF BOND REGISTER AND DPCC REGISTER MAINTAINED AS PER THE PROVISIONS OF THE CENTRAL EXCISE AND CUSTOMS ACT. BEFORE US, THE ASSESSEE ALSO FURNISHED COPIES OF BOND REGISTER, DPCC REGISTER; FINISHED GOODS REGISTER TO SUBSTANTIATE THE CLAIM OF PURCHASE OF DIAMONDS AND GOLD AND MANUFACTURE I.T.A. NO . 1825 /MUM/20 1 4 11 OF JEWELLERY. A PERUSAL OF THE SAID DOCUMENTS WOULD SHOW THAT THE ASSESSEE HAS DULY RECORDED THE DETAILS RELATING TO THE SAME AND THEY HAVE ALSO BEEN INSPECTED BY THE CENTRAL EXCISE AND CUSTOMS AUTHORITIES . FURTHER, IT IS NOTICED THAT THE SUPERINTENDENT OF CENTRAL EXCISE HAVE CONDUCTED AUDIT RELATING TO COLLECTION OF MOT CHARGES AND THE COPY OF AUDIT REPORT HAS ALSO BEEN FURNISHED IN THE PAPER BOOK. WE UNDERSTAND THAT THE MERCHANT OVERTIME FEE (MOT CHARGE S) ARE THE CHARGES WHICH ARE REQUIRED TO BE PAID BY AN EXPORTER FOR AVAILING THE SERVICES OF CENTRAL EXCISE OFFICERS BEYOND OFFICER HOURS OR ON SUNDAY, SATURDAY OR PUBLIC HOLIDAYS, I.E., AFTER THE OFFICIAL HOURS. THE LD A.R, DURING THE COURSE OF ARGUMENTS, SUBMITTED THAT THE ASSESSEE HAS AVAIL ED THE SERVICES OF CENTRAL EXCISE OFFICERS IN CONNECTION WITH THE MOVEMENT OF GOODS AT THE TIME OF IMPORT, ISSUE AND EXPORT OF JEWELLERY. THE INVOLVEMENT OF CENTRAL EXCISE DEPARTMENT IN THE ACTIVITIES CARRIED ON BY TH E ASSESSEE, IN OUR VIEW, SUPPORTS THE CASE OF THE ASSESSEE. IN FACT, T HE RECORDS MAINTAI NED BY THE ASSESSEE WITH REGARD TO IMPORT OF DIAMONDS, PURCHASE OF GOLD AND EXPORT OF JEWELLERY ARE NOT DISPUTED BY THE TAX AUTHORITIES AND THEY ALSO SUPPORT THE CASE OF THE ASSESSEE THAT IT IS MANUFACTURING JEWELLERY. 16. IN OUR VIEW, THE ABSENCE OF HUGE PLANT AND MACHINERY IN THE PREMISES OF THE ASSESSEE CANNOT BE A GROUND TO SUSPECT THE CLAIM OF MANUFACTURING, SINCE THE ASSESSEE HAS EXPLAINED THAT THE GOLD MEL T ING AND MOUNTING WORK HAVE BEEN OUTSOURCED. ONLY THE SHAPING WORK AND FITTING OF DIAMONDS IS CARRIED OUT AT ITS PLACE. AT THE TIME OF HEARING BEFORE US, ONE OF THE WORKERS WAS PRODUCED AND HE SHOWED US THE GOLD PORTION PRODUCED OUT OF DIE PROCESS. THE L D D.R ALSO CROSS EXAMINED HIM AND ASKED A SPECIFIC QUESTION AS TO WHETHER THE ASSESSEE GIVES THE DETAILS RELATING TO THE SIZE OF THE DIAMONDS, HE GAVE NEGATIVE REPLY. HOWEVER, THE CONTENTIONS OF T HE ASSESSEE THAT IT HAS PURCHASED GOLD BARS LOCALLY AND CON VERTED THE SAME INTO GOLD MOUNTINGS THROUGH OUTSOURCING ACTIVITIES I.T.A. NO . 1825 /MUM/20 1 4 12 HAVE NOT BE EN DISPROVED BY THE TAX AUTHORITIES. 17. SINCE THE LABOUR CHARGES AND WAGES WERE FOUND TO BE LOWER VIS - A - VIS THE EXPORT VALUE OF JEWELLERIES, THE TAX AUTHORITIES HAVE DOUBT ED ABOUT THE CLAIM OF MANUFACTURE. HOWEVER, WE NOTICE THAT THE TAX AUTHORITIES HAVE NOT BROUGHT ANY MATERIAL ON RECORD TO DISPROVE THE RECORDS MAINTAINED BY THE ASSESSEE. THEY HAVE ALSO NOT TAKEN ANY STEPS TO ASCERTAIN THE FAIR MARKET VALUE OF LABOUR CHA RGES AND WAGES. IN OUR VIEW, IF THE LABOUR CHARGES AND WAGES BOOKED BY THE ASSESSEE ARE CONSIDERED TO BE LOW, THEN AN ADDITION TOWARDS SUPPRESSION OF EXPENDITURE, HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH SERVICES, MAY BE CALLED FOR AND THE SAME WOUL D NOT GIVE RISE TO THE PRESUMPTION THAT THE ASSESSEE DID NOT CARRY ON ANY MANUFACTURING ACTIVITY. SIMILARLY THE NON - ACCOUNTING OF CONSUMABLES IN THE BOOKS OF ACCOUNT MAY ALSO WARRANT AN ADDITION. HOWEVER, I T IS PERTINENT TO NOTE THAT THE ASSESSING OFFICE R HAS NOT REJECTED THE BOOKS OF ACCOUNTS NOR DID HE POINT OUT ANY DEFECTS IN THE B OOKS OF ACCOUNT, MEANING THEREBY, EVEN THOUGH THE ASSESSING OFFICER HAD COMMENTED UPON THE EXPENDITURE INCURRED BY THE ASSESSEE, HE DID THINK IT NECESSARY TO EXAMINE ABOUT TH E ADEQUACY OF EXPENDITURE BOOKED BY THE ASSESSEE. 18. THE TAX AUTHORITIES HAVE ALSO POINTED OUT THAT THE ASSESSEE COULD NOT FURNISH COPIES OF STANDARD DESIGNS OF JEWELLERY AND HENCE THEY HAVE TAKEN ADVERSE VIEW. HOWEVER, THE FACT THAT THE ASSESSEE HAS EXPORTED JEWELLERY HAS NOT BEEN DISPUTED AND HENCE THE NON - FURNISHING OF DESIGNS MAY NOT, IN OUR VIEW, MILITATE AGAINST THE ASSESSEE. THE LD D.R ALSO REFERRED TO THE REPORT GIVEN BY THE TAX AUDITOR, WHEREIN THE ACTIVITIES OF THE ASSESSEE WAS STATED TO HAVE BEEN STATED AS TRADING. HOWEVER, THE ACTIVITIES CARRIED ON BY THE ASSESSEE, I.E., PURCHASE OF GOLD/DIAMONDS AND EXPORT OF JEWELLERY CONTRADICTS THE SAID OBSERVATION OF THE TAX AUDITOR. THE I.T.A. NO . 1825 /MUM/20 1 4 13 ASSESSEE HAS ALSO FURNISHED COPY OF AUDIT REPORT GIVEN BY T HE TAX AUDITOR FOR AY 2011 - 12, WHEREIN THE TAX AUDITOR HAS STATED THE NATURE OF BUSINESS AS MANUFACTURING INDUSTRY OTHERS. 19. WE MAY NOW REFER TO SOME OF THE DECISION RELIED UPON BY THE ASSESSEE. IN THE CASE OF EKTA EXPORTS PVT LTD (SUPRA), THE HO NBLE CALCUTTA HIGH COURT HAS TAKEN THE VIEW THAT THE ACTIVITIES RELATING OF FIXATION OF LEVEL, BURRON, IRONING, PACKING GARMENTS INVOLVED IN CONVERSION OF CLOTH INTO SHIRTS WOULD AMOUNT TO MANUFACTURING, SINCE CLOTH AND SHIRT ARE TWO DIFFERENT ARTICLES. IN THE CASE OF CIT VS. LOVLESH JAIN (2011)(16 TAXMANN.COM 366), THE HONBLE DELHI HIGH COURT HAS HELD THAT THE CONVERSION OF PURE GOLD INTO JEWELLERY AMOUNTS TO MANUFACTURE. IN THE CASE BEFORE HONBLE DELHI HIGH COURT , THE ASSESSEE GOT THE GOLD FROM NON - R ESIDENT, BUT THE OWNERSHIP OF THE GOLD REMAINED WITH THE NON - RESIDENT. THE ASSESSEE THEREIN CONVERTED THE GOLD INTO JEWELLERY AND EXPORTED THE SAME TO NON - RESIDENT UPON RECEIPT OF CONVERSION CHARGES. IT WAS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10A OF THE ACT. IN THE CASE OF ITO VS. AAR ESS EXIM (P) LTD (SUPRA), THE VARIOUS COMPONENTS AND ASSEMBLIES WERE MANUFACTURED OUTSIDE THE PREMISES OF THE ASSESSEE AND THEY WERE ASSEMBLED AT THE PREMISES OF THE ASSESSEE. THEREAFTER THE SAME WAS EXPORT ED. IT WAS HELD THAT THE ASSESSEE IS A MANUFACTURER AND IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. 20. IN THE INSTANT CASE ALSO, THE ASSESSEE HAS IMPORTED DIAMONDS, PURCHASED GOLD LOCALLY AND EXPORTED THE JEWELLERY. THUS, THE ARTICLES PURCHASED AND THE ARTICLES EXPORTED ARE TWO DIFFERENT ARTICLES. THE EXPORT OF JEWELLERY CANNOT BE CARRIED OUT WITHOUT MANUFACTURING THE SAME. THE ASSESSEE HAS ALSO EXPLAINED ABOUT ITS MANUFACTURING PROCESS. EVEN THOUGH THE CONVERSION OF GOLD INTO MOUNTINGS IS CAR RIED OUT THROUGH OUTSOURCING, FINAL SHAPING OF JEWELLERY AND FITTING OF DIAMONDS WERE CARRIED I.T.A. NO . 1825 /MUM/20 1 4 14 OUT AT THE PLACE OF THE ASSESSEE. HENCE, IN OUR VIEW, THE ACTIVITIES CARRIED ON BY THE ASSESSEE SHOULD BE CONSIDERED AS MANUFACTURING ACTIVITY ONLY AND HENCE IT IS ELIGIBLE TO CLAIM DEDUCTION U/S 10B OF THE ACT. 21. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 10B OF THE ACT. 22 . IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 14TH OCT , 2015. 14TH OCT , 2015 SD SD ( / JOGINDER SINGH ) ( . . , / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 14TH OCT, 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI