ITO, Moradabad V. M/s Jainsons International, Moradabad

ITA 2185/DEL/2013

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8389 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KAPIL
• Assessee Lawyers: S KRISHNA ADV SH V RAJKUMAR
• Keywords: Rejection of books of accounts; Transfer pricing; Income from undisclosed sources
• Section: 143(3); 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBE R AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 2185/DEL/2013 ASSESSMENT YEAR: 2009-10 ITO WARD 2(1) MORADABAD. VS JAINSONS INTERNATIONAL A-3&4, POCKET SEZ, MORADABAD. AAFFJ8380B APPELLANT RESPONDENT REVENUE BY SMT. NAINA SOIN KAPIL, SR. DR ASSESSEE BY SH. S. KRISHNA, ADV. SH. V. RAJKUMAR, ADV. ORDER PER SHRI BHAVNESH SAINI, J.M. THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(A)-BAREILLY DATED 14.01.2013 FOR AY 2009 -10 ON THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN ALLOWING RELIEF ON THE POINT OF EXTRA PROFIT WORKED BY THE AO ON ACCOUNT OF DIVERSI ON OF INCOME OF NON SEZ UNIT INTO SEZ UNIT TO AVAIL TAX B ENEFIT. DATE OF HEARING 22.11.2018 DATE OF PRONOUNCEMENT 01.01.2019 2 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL 2. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT 9 9% PURCHASE OF APPELLATE FIRM (SEZ UNIT) ARE FROM ITS OWN PARTNER (RUNNING A NON SEZ UNIT) HAVING 90% SHARE I N APPELLATE FIRM, AND MAJOR MANUFACTURING EXPENSES HA VE BEEN CLAIMED IN NON SEZ UNIT; SEZ UNIT SHOWING MAIN LY PACKING AND OTHER MISCELLANEOUS EXPENSES, RESULTING INTO ABNORMALLY HIGH PROFIT [GP (38.46%) AND NP (48.32%) ]. IN SEZ UNIT, WHEREAS THE NON SEZ UNIT HAS SHOWN GP AT 18.86% AND NP AT 12.81%. 3. THE LD. CIT(A) HAS ERRED IN HOLDING THAT PROVISION OF SECTION 80IA(10) WERE NOT APPLICABLE WHEREAS THE FA CTS OF THE CASE CLEARLY INDICATE THAT AO HAS RIGHTLY INVOK ED THE PROVISION OF SECTION 80IA(10) OF THE I.T. ACT, 1961 . 4. THE ORDER OF THE AO DESERVES TO BE SUSTAINED ON THE BASIS OF FACTS OF THE CASE AND ORDER OF THE LD. CIT(A) IS ERRONEOUS AND CANNOT BE ACCEPTED. 5. ANY OTHER GROUND OF APPEAL WHICH MAY BE TAKEN UP AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM FILED RETURN OF INCOME ON 30.09.2009 DECLARING ITS TOTAL INCOME NIL AFTER CLAIMING DEDUCTION OF NET PROFIT OF RS. 5.92 CRORES U/S 10AA OF THE INCOME TAX ACT, 1961. THE ASSESSEE AT THE ASSESSME NT STAGE FILED THE WRITTEN SUBMISSIONS ALONG WITH AUDIT REPORT AND AUDITED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET WHICH HAVE BEEN EXAMINED BY THE AO. THE TOTAL TURNOVER HAS BEEN SHOWN AT RS. 1 2.26 CRORES FROM WHICH NET PROFIT HAVE BEEN SHOWN AT RS. 5.92 C RORES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIRM HAS MADE TRADING IN MANUFACTURING AND SALE OF BRASS ITEMS, ETC. THE RE ARE TWO PARTNERS IN ASSESSEES FIRM NAMELY SH. ASHOK JAIN H AVING 90% SHARES AND SMT. TEENA JAIN HAVE 10% SHARES. SHRI A SHOK KUMAR JAIN PARTNER IS ALSO ENGAGED IN THE BUSINESS OF MAN UFACTURING AND 3 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL EXPORT OF BRASS ITEMS UNDER THE NAME AND STYLE OF H IS PROPRIETARY CONCERN M/S JAINSONS INTERNATIONAL EXPORTS, MORADAB AD. IN HIS PROPRIETARY CONCERN SHRI ASHOK JAIN HAS SHOWN TURNO VER OF RS. 10.62 CRORES UPON WHICH GP AND NP HAVE BEEN SHOWN @ 18.86% AND 12.81% RESPECTIVELY. WHILE IN THE ASSESSEE FIR M WHICH IS LOCATED IN SPECIAL ECONOMIC ZONE MORADABAD, THE GRO SS PROFIT AND NET PROFIT ON THE TURNOVER HAVE BEEN SHOWN @38.46% AND 48.32% RESPECTIVELY. THE AO ON PERUSAL OF THE BOOKS OF AC COUNTS, BILLS AND VOUCHERS FOUND THAT ASSESSEE FIRM HAD MADE 99% PURC HASES FROM THE PROPRIETARY CONCERN OF SH. ASHOK KUMAR JAIN WHI CH SHOWS BOTH HAVING CLOSE CONNECTION BUT THERE IS AN ABNORM AL DIFFERENCE IN THE GROSS PROFIT AND NET PROFIT. THE AO ASKED F OR THE EXPLANATION OF THE ASSESSEE AS TO WHY THE PROFIT OF THE ASSESSEE FIRM SHOULD NOT BE COMPUTED BY APPLYING GROSS PROFI T @18.86% OF THE TURNOVER AS HAS BEEN SHOWN BY THE PROPRIETARY C ONCERN OF THE PARTNER. IT WAS ALSO DIRECTED THAT THE DIFFERENCE OF ESTIMATED AND SHOWN NET PROFIT WORKED OUT SHOULD NOT BE TREATED A S INCOME FROM UNDISCLOSED SOURCES. THE ASSESSEE SUBMITTED BEFORE AO THAT GP RATE IS GOOD COMPARATIVE TO OTHER CONCERNS, HENCE, THERE SHOULD NOT BE ANY OBJECTION. ASSESSEE MAINTAINED PROPER B OOKS OF ACCOUNTS, WHICH ARE AUDITED AND VERIFIABLE. THE SA ME ACCOUNTING SYSTEM HAS BEEN RECOGNIZED UNDER THE INCOME TAX ACT . FROM THE GP AND NP RATE CHART, IT IS ALSO EVIDENT THAT THIS YEAR 10% NP RATE IS HIGH ON ACCOUNT OF MORE EXCHANGE RATE DIFFERENCE RECEIVED, HENCE, AFTER CONSIDERING THIS FACTOR REST DIFFERENC ES REMAINS NEGLIGIBLE AND HENCE, TO BE ACCEPTED. 4 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL 2.1 THE AO CONSIDERING EXPLANATION OF THE ASSESSEE NOTED THAT ASSESSEE FIRM HAS SHOWN ABNORMAL GROSS PROFIT AND N ET PROFIT FROM ITS BUSINESS LOCATED AT SEZ MORADABAD ONLY TO AVOID PAYMENTS OF TAX ON ITS NET PROFIT BEING EXEMPT U/S 10AA OF THE ACT. THERE IS A DIFFERENCE IN THE GP RATE OF ASSESSEE FIRM AND THE PROPRIETORSHIP CONCERN OF THE PARTNER. SUBSTANTIAL PURCHASES HAVE BEEN MADE BY ASSESSEE FIRM FROM THE PROPRIETARY CONCERN, WHICH I S NOT ACCEPTABLE FOR DEDUCTION U/S 10AA OF THE ACT. THER E IS A CLOSE CONNECTION BETWEEN ASSESSEE FIRM AND THE PROPRIETOR SHIP CONCERN OF THE PARTNER, THEREFORE, SECTION 80-IA(8) & (10) ARE APPLICABLE IN THE CASE OF THE ASSESSEE. THE AO, ACCORDINGLY, REJ ECTED THE BOOK RESULTS DECLARED BY ASSESSEE. THE AO FOR THE PURPO SE OF DEDUCTION CLAIMED U/S 10AA OF THE ACT DIRECTED TO APPLY GP RA TE OF 18.86% SHOWN BY THE PROPRIETORSHIP CONCERN OF THE PARTNER AND COMPUTED THE PROFIT AT RS. 2.31 CRORES AND NET PROFIT WAS CO MPUTED AT RS. 3.54 CRORES. THE ASSESSEE FIRM HAS SHOWN NET PROFI T OF 5.92 CRORES, THEREFORE, DIFFERENCE OF RS. 2,38,40,277/- WAS TREA TED AS INCOME FROM NON SPECIAL ECONOMIC ZONE BUSINESS (RS. 5.92 C RORES 3.54 CRORES). 3. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(A). THE WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT ASSESSEE FIRM IS 100% EXPORT ORIENTED UNIT (EOU), WHICH WAS ESTABLIS HED AFRESH PURSUANT TO COMING INTO VOGUE OF SPECIAL ECONOMIC Z ONE ACT, 2005 W.E.F. 10/02/2006. IT IS LOCATED IN SEZ AND IS, TH EREFORE, COVERED 5 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL IN TERMS OF SECTION 10AA OF THE ACT AND, THEREFORE, ELIGIBLE FOR 100% EXEMPTION ON PROFIT AND GAINS DERIVED FROM EXPORTS OF ARTICLES MANUFACTURED AND EXPORTED. THE PURCHASE OF RAW MAT ERIAL/GOODS I.E. IMPORT OR PROCUREMENT OF GOODS FROM DOMESTIC T ARIFF AREA ETC. AS AND WHEN THE GOODS ARE BROUGHT INTO SEZ AREA, IT S BILLS/INVOICES ARE CHECKED AND STAMPED BY THE CONCE RNED AUTHORITY AT THE TIME OF ENTRY. AS AND WHEN EXPORT SALES GOODS LEAVE THE SEZ AREA, THE INVOICES ARE DULY CHECKED A ND STAMPED. ALL INCOMING SEMI GOODS/UNFINISHED GOODS, AS WELL A S OUTGOING FINISHED GOODS/CONSIGNMENTS ARE CHECKED AND STAMPED BY SEZ AUTHORITIES. BENEFIT OF SECTION 10AA IS ALLOWED ON LY TO UNITS LOCATED IN SEZ AREA AND SOLELY ON THE EXPORT TURNOV ER. IT WAS SUBMITTED THAT SEZ UNIT CAN ONLY IMPORT ITS RAW MAT ERIAL OR PROCURE THROUGH ITS SUPPLIERS/SMALL TIME MANUFACTUR ERS AND ARTISANS WHO ARE REGISTERED WITH THE DGFT AND FURTH ER LICENSED BY EXPORT PROMOTION COUNCIL FOR HANDICRAFTS. THIS LIC ENSED LOCAL MARKET IS CALLED DOMESTIC TARIFF AREA. OTHER THAN FROM THE AFORESAID CATEGORIES, NO PURCHASES COULD BE MADE BY THE ASSESSEE FROM THE OPEN MARKET. THUS, IT MAY BE APPRECIATED THAT THE ENTIRE ACTIVITIES OF UNIT OF ASSESSEE LOCATED IN SEZ ARE U NDER SUPERVISION AND CONTROL OF THE APPROVAL COMMITTEE CONSTITUTED B Y THE UNION GOVERNMENT TO MONITOR SUCH UNITS. THERE IS NO MISU SE OF THE EXEMPTION. THE ASSESSEE COMPLIED ALL THE CONDITION IN THIS CASE. THE CASE OF THE AO HAD BEEN THAT THERE WAS A DIVERS ION OF PROFIT FROM NON SEZ BUSINESS TO SEZ BUSINESS IN ORDER TO C LAIM 100% DEDUCTION OF PROFITS U/S 10AA OF THE ACT, HOWEVER, THE AO HAS 6 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL FAILED TO APPRECIATE THE FACTS OF THE CASE IN THE P ROPER PERSPECTIVE. THE ASSESSEE IS LOCATED IN SEZ AREA AND ENJOYED MUL TIPLE BENEFITS AND PRIVILEGES. ONE OF THESE PRIVILEGES IS THAT IT IS ENTITLED TO PURCHASE ITEMS FREE OF CUSTOM AND EXCISE DUTY AND C OMMERCIAL TAXES FOR THE PURPOSE OF ITS MANUFACTURING AND OTHE R RELATED ACTIVITIES. SUCH BENEFIT CAN BE PROVIDED ONLY BY A NOTHER ENTITY, WHICH IS REGISTERED AND RECOGNIZED UNDER THE RELEVA NT LAW. THE PROPRIETARY CONCERN OF THE PARTNER IS DULY REGISTER ED FOR CUSTOM AND EXCISE DUTY AND ALSO TRADE TAX AND, AS SUCH, AN ELIGIBLE VENDOR FOR THE PURCHASE OF GOODS BY THE ASSESSEE. THE PRO PRIETARY CONCERN WAS, THEREFORE, IN A POSITION TO SALE MATER IAL TO THE ASSESSEE FIRM FREE OF CUSTOM DUTY, EXCISE DUTY AND TRADE TAXES. PURCHASES MADE FROM SUCH A FIRM ENTITLED THE ASSESS EE TO THE DUTY DRAWBACK OF DEPB BENEFITS. IT IS ONLY FOR THIS REA SON THAT THE PURCHASES HAVE BEEN MADE BY THE ASSESSEE FIRM FROM THE PROPRIETORSHIP CONCERN OF THE PARTNER SH. ASHOK KUM AR JAIN. THE ASSESSEE PRODUCED COMPLETE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS TO SHOW GENUINE PURCHASES HAVE BEEN MADE. THE AO M ADE THE ADDITION MERELY ON SURMISES AND GUESS WORK WITHOUT DOUBTING THE PURCHASES. DURING THE ASSESSMENT PROCEEDINGS ALSO, IT WAS EXPLAINED TO THE AO THAT PROPRIETORSHIP FIRM OF THE PARTNER HAS PURCHASED THE SEMI FINISHED MATERIAL KNOWN IN TECHN ICAL PARLANCE AS KORA AT 6.26 CRORES FROM THE OPEN MARKET. THE SE ITEMS HAVE BEEN SOLD TO THE ASSESSEE FIRM AT 6.68 CRORES WITH ALL THE ATTENDING TAX BENEFITS. ALL THE SALES ARE H FORM SALES WHICH ARE TAX FREE SALES. ON SUCH SALES, PROPRIETORSHIP CONCERN HAS E ARNED NET PROFIT 7 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL RATE OF 6.56% FROM THE ASSESSEE. THESE TRADING RES ULTS HAVE BEEN ACCEPTED BY THE AO OF THE PROPRIETORSHIP CONCERN VI DE ORDER DATED 27.12.2011 U/S 143(3) OF THE ACT. THE PROPRIETORSH IP CONCERN SOLD KORA (SEMI FINISHED) ITEM WHICH IT HAD PURCHASED FROM THE OPEN MARKET TO THE ASSESSEE FIRM AND ALL OTHER IMPROVEME NTS TO THE KORA HAVE BEEN DONE BY THE ASSESSEE FIRM. THE AS SESSEE FIRM COULD NOT HAVE PURCHASED THESE ITEMS DIRECTLY FROM THE MARKET OTHERWISE IT WOULD LOSE ALL THE EXPORT INCENTIVE AN D TAX CONCESSIONS. THE ASSESSEE HAS DECLARED PROPER GP A ND NP. IN THE CASE OF PROPRIETORSHIP CONCERN THERE WERE SALES ON ACCOUNT OF LOCAL SALES, EXPORT SALES UPON WHICH DIFFERENT GP HAVE BE EN DECLARED. SECTION 80-IA(8) IS NOT APPLICABLE TO THE FACTS OF THE CASE. THE ASSESSEE ALSO EXPLAINED THE DIFFERENCE IN THE WORKI NG OF THE PROPRIETORSHIP CONCERN AND THE ASSESSEE FIRM BECAUS E PROPRIETORSHIP UNIT IS DOING MANUFACTURING AS WELL AS TRADING ACTIVITY, HOWEVER, ASSESSEES UNIT IS ONLY MANUFACT URING GOODS. THE PROPRIETORSHIP UNIT SELLS, ITS GOODS IN INDIA A ND ABROAD BUT ASSESSEE MADE EXPORTS OF ITS GOODS. THE PROPRIETOR SHIP UNITS ECONOMY IS FULLY GOVERNED BY LOCAL CONDITIONS, WHER EAS THE UNIT OF ASSESSEE IS DEPENDENT UPON LOCAL CONDITION PARTIALL Y FOR PURCHASE AND MANUFACTURING BUT ITS SALES ARE EXCLUSIVELY IN THE DOMAIN OF INTERNATIONAL FACTORS AND THE FOREX VARIATION. TRA NSACTIONS HAVE BEEN CARRIED OUT BETWEEN THE ASSESSEE FIRM AND PROP RIETORSHIP CONCERN AT ARMS LENGTH PRICE. THE AO DID NOT BRIN G ANY MATERIAL ON RECORD TO INDICATE ANY DISCREPANCY WITH REGARD T O THE MARKET PRICE OF KORA SOLD BY PROPRIETORSHIP CONCERN OF T HE PARTNER TO THE 8 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL ASSESSEE. THE AO IN SUBSEQUENT AY 2010-11 HAS ACCE PTED THE TRADING RESULTS ON THE SAME FACTS IN THE ORDER U/S 143(3) OF THE ACT DATED 27.12.2012. 4. THE LD. CIT(A) CONSIDERING THE EXPLANATION OF AS SESSEE AND MATERIAL ON RECORD DELETED THE ENTIRE ADDITION HIS FINDINGS IN PARA 5.3 OF THE ORDER ARE REPRODUCED AS UNDER: 5.3 DECISION AND REASONS THEREFOR: I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS MADE. I HAVE ALSO CONSIDERED THE EVIDE NCES AVAILABLE ON RECORD. I FIND THAT THE ASSESSEE IS A 100% EOU AND IS A UNIT LOCATED IN THE SEZ AREA OF MORADABAD AND WAS ESTABLISHED UNDER THE SPECIAL ECONOMIC ZONE ACT , 2005. THE UNIT IS IN THE BUSINESS OF EXPORTING HAN DICRAFTS AND OTHER ARTEFACTS MANUFACTURED OUT OF VARIOUS MET ALS AND OTHER ALLIED MATERIAL. FROM A READING OF A SPECIAL ECONOMIC ZONE ACT, 2005 , I FIND THAT A SEZ UNIT HAS TO ESSENTIALLY FOLLOW THE NORMS SPECIFIED UNDER THE ACT AND ALSO HAS TO HAVE ITS ACTIVITIES O F PURCHASE AND SALE REGULARLY MONITORED BY THE CONCERNED AUTHO RITIES AND IT IS ONLY THEN THAT IT CAN THINK OF CLAIMING E XEMPTIONS U/S 10AA. ALTHOUGH THE PROPRIETARY CONCERN (FOR SHORT THE NO N SEZ UNIT) HAS NOT BEEN DESCRIBED MUCH BY THE AO, BUT I CAN FIND FORM HIS ORDER THAT IT CAN OPERATE IN THE LOCAL MAR KET FOR PURCHASE AND SALE AS IT MAY WISH AND THIS LEVERAGE DISTINGUISHES THE TWO UNITS NOT ONLY BY THEIR LOCAT ION BUT ALSO FOR THE REASONS FOR THEIR WORKING AND BUSINESS . THE SEZ UNIT CAN PURCHASE ITS RAW MATERIAL/UNFINISH ED GOODS ONLY FROM UNITS LICENSED BY THE DGFT AND LOCA TED IN THE DOMESTIC TARIFF AREA. SUCH A UNIT HAS NO OPTIO N BUT TO 9 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL ONLY EXPORT ITS GOODS. A SINGLE VIOLATION CAN STRI P IT OFF THE PRIVILEGED CATEGORY LIST. THE NON SEZ UNIT ON THE OTHER HAND CAN COMFORTABLY FORAY INTO THE DOMESTIC MARKET BOTH FOR PURCHASING ITS RA W MATERIAL AS WELL AS SELLING ITS GOODS. I MAY, AT I TS DISCRETION, ALSO GO IN FOR EXPORT SALES AND THIS IS WHY THE GP ON EXPORT TURNOVER AND LOCAL TURNOVER OF THE NON SE Z UNIT HAS VARIED BETWEEN 38.66% TO 7.16% RESPECTIVELY. THIS BEING THE DETERMINING FACTOR, I HOLD THAT ALTH OUGH THE TWO UNITS MIGHT BE IN THE SAME KIND OF BUSINESS, BU T THEIR COMMERCIAL OPERATIONS AND ACTIVITIES ARE MATERIALLY DIFFERENT AND HENCE THE TWO UNITS ARE INCOMPARABLE. IT IS ALSO SEEN THAT THE ASSESSING OFFICER HAS TEST CHECKED THE ACCOUNTS AND FAILED TO FIND ANY ERROR/DISCREPAN CY IN THE TRADING RESULTS OF THE ASSESSEE, YET HE HAS GONE ON TO DEVISE A NEW METHOD OF PRESCRIBING GP OF ANOTHER UNIT OF A N UNCOMPARABLE CASE. IT IS ANOTHER MATTER THOUGH THA T THE ANOTHER UNIT IS A SISTER CONCERN OF THE ASSESSEE, B UT SINCE THE AO CANNOT LEGALLY TAKE THE PATH THAT HE DID IN COMPUTING THE INCOME, THE ENTIRE ADDITION IS RENDERED BOGUS B EING BASED ON NON APPRECIATION OF PROPER FACTS AND THE A DDITION BEING WITHOUT ANY COGENT BASIS. THE SAME DESERVES TO BE DELETED ESPECIALLY IN VIEW OF THE FACT THAT THE AO HAS FAILED TO FIND ANY FACTS AND FIGURES FROM THE BOOKS OF ACC OUNTS LEADING TO THE CONCLUSION THAT THE SEZ UNIT DID SOM E OTHER BUSINESS AS WELL CALLING FOR FRESH DETERMINATION OF ITS PROFITS AND RESTRICTING THE EXEMPTIONS U/S 10AA. MERE RECO RDING OF A FINDING THAT THE ASSESSEE EARNS INCOME FROM NON S EZ BUSINESS IN THE COMPUTATION PART OF THE ORDER WITHO UT ANY OTHER RELEVANT FACTS, DOES NOT ALLOW THE AO, THE CO NCLUSION THAT HE MAD, WHILE MAKING THE ADDITION. THE WHOLE EXERCISE OF THE AO IS BASED ON SUSPICION AND THE FINDINGS RECORDED ARE LAME. I ALSO DRAW SUPPORT FROM THE VARIOUS RULINGS CITED BY THE ASSESSEE FOR THE PROPOSITION THAT ADDITION MADE ON 10 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL SUSPICION CANNOT TAKE THE PLACE OF PROOF AND HENCE THE ADDITION, AS MADE, BEING BALD, DOES NOT STAND THE T EST OF LAW. I ALSO FIND THAT THE AO HAS NOT FOUND FAULT WITH TH E PURCHASE RATE OF THE NON SEZ UNIT AND THE DEPARTMEN T HAS ALSO ACCEPTED ITS TRADING RESULTS. THE ASSESSEE HA S PLACED BEFORE ME ORDER U/S 143(3) OF THE NON SEZ UNIT DATE D 16.12.2011 WHEREIN TRADING RESULTS HAVE BEEN ACCEPT ED BY THE JCIT RANGE-2, MORADABAD. THERE IS NO OCCASION TO SUGGEST THAT THE BUSINESS ARRANGEMENT DONE BY THE ASSESSEE HAS ANY SINISTER OVERTONES WHICH COULD LEA D TO AN INFERENCE OF A COLORABLE DEVICE TO EVADE TAX. I ALSO AGREE WITH THE CONTENTION PUT FORWARD THAT S ECTION 80- IA(8) AND 80-IA(10) HAVE BEEN INCORRECTLY INVOKED A ND COULD NOT HAVE BEEN IMPORTED TO THE FACTS OF THE CURRENT CASE. I FIND THAT THE AO HAS GROSSLY MISUNDERSTOOD EVEN THE INTENDMENT OF SECTION 80IA(8) FAILING TO REALIZE TH AT THE ELIGIBLE BUSINESS HAS TO BE THAT OF THE ASSESSEE AND SOMETHING NEEDS TO BE TRANSFERRED THERE FROM FOR IN VOCATION OF SECTION 80IA(8). I ALSO NOTICE THAT IN ASSESSEES OWN CASE FOR AY 20 10-11, WHERE FACTS WERE THE SAME AS IN THE IMPUGNED YEAR, THE AO HAS HIMSELF ACCEPTED THE TRADING RESULTS RETURNED B Y THE ASSESSEE VIDE ORDER DATED 27.12.2012 U/S 143(3). THUS IN TOTALITY OF THE FACTS AND FINDINGS RECORDED ABOVE, I FIND THAT THE ADDITION AS PREFERRED HAS NO LEGS TO STAND ON AND IS, THEREFORE, DELETED. GROUNDS NO. 1 TO 3 ARE ALLOWED. 5. LD. DR RELIED UPON ORDER OF THE AO AND SUBMITTED THAT THERE IS A DIFFERENCE IN GP AND NP OF BOTH THE CONCERNS. LD. CIT(A) DID NOT EXAMINE THE BOOKS OF ACCOUNTS. THE AO HAS CORR ECTLY REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE, WHICH WERE S HOWING ABNORMAL PROFIT IN SEZ UNIT. THE LD. CIT(A) HAS NO T EXAMINED THE 11 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL ISSUE IN DETAIL, THEREFORE, SAME MAY BE RESTORED TO THE FILE OF AO FOR FRESH ASSESSMENT. THE WRITTEN SUBMISSION OF THE LD . DR IS ALSO TAKEN ON RECORD. 5.1 ON THE OTHER HAND, LD. COUNSEL FOR ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED THAT AO SHOULD NOT HAVE BY PASSED THE AUDITED ACCOU NTS OF BOTH THE CONCERNS. THE ASSESSMENTS OF PROPRIETORSHIP CO NCERN HAVE BEEN COMPLETED BY AO AFTER SATISFYING HIMSELF ABOUT THE FACTS OF THE CASE. THE RATES AT WHICH MATERIAL WAS SUPPLIED BY THE PROPRIETORSHIP CONCERN TO THE ASSESSEE WAS ENTIRELY AND WHOLLY AT MARKET RATES. THE FACTS HAVE BEEN VERIFIED BY THE LD. CIT(A). THE PURCHASES HAVE BEEN MADE FROM THE PROPRIETORSHIP CO NCERN BECAUSE OF THE CONCESSION AND PRIVILEGES ENJOYED BY THE PROPRIETORSHIP CONCERN BY VIRTUE OF ITS REGISTRATIO N WITH THE EXPORT PROMOTION COUNCIL OF HANDICRAFTS AND DIRECTOR GENER AL OF FOREIGN TRADE. THE PROVISIONS OF SECTION 80-IA(8) ARE NOT APPLICABLE TO THE FACTS OF THE CASE BECAUSE NO MATERIAL HAS BEEN BROU GHT ON RECORD BY THE AO TO SHOW THAT IN RESPECT OF PURCHASES MADE BY THE ASSESSEE FROM THE PROPRIETORSHIP CONCERN, THE RATES AT WHICH THEY WERE PURCHASED WERE NOT COMPARABLE WITH THE MARKET VALUE. SECTION 80-IA(10) WOULD NOT APPLY BECAUSE NO MATERI AL HAS BEEN BROUGHT ON RECORD BY THE AO TO DEMONSTRATE ANY ARRA NGEMENT. THE AO HAS ACCEPTED THE TRADING RESULTS OF PROPRIET ARY CONCERN IN THE ORDER U/S 143(3) OF THE ACT DATED 27.12.2011 CO PY OF WHICH IS FILED AT PAGE 33 OF THE PAPER BOOK FOR AY 2009-10 U NDER APPEAL. 12 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL THE AO OF THE ASSESSEE FIRM ALSO ACCEPTED THE TRADI NG RESULTS ON THE SAME FACTS IN SUBSEQUENT AY 2010-11, U/S 143(3) OF THE ACT VIDE ORDER DATED 27.12.2012 COPY OF WHICH IS FILED AT PAGE 28 OF THE PAPER BOOK. LD. COUNSEL FOR THE ASSESSEE, THEREFOR E, SUBMITTED THAT LD. CIT(A) CORRECTLY DELETED THE ADDITION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SED THE MATERIAL ON RECORD. 7. IT IS NOT IN DISPUTE THAT ASSESSEE IS 100% EOU A ND LOCATED IN SEZ AREA OF MORADABAD. IT IS ALSO NOT IN DISPUTE T HAT ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10AA OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE FOLLOWED NORMS OF SPECIAL ECO NOMIC ZONE ACT FOR PURCHASING AND EXPORTING THE GOODS. THE AS SESSEE EXPLAINED THAT IT CAN ONLY IMPORT ITS RAW MATERIAL THROUGH SUPPLIERS/SMALL TIME MANUFACTURE/ARTISAN WHO ARE RE GISTERED WITH DGFT, EPCH. THE PROPRIETORSHIP CONCERN OF THE PART NER HAS FULFILLED SUCH CONDITIONS, THEREFORE, THERE WAS NOT HING WRONG, IF ASSESSEE MADE PURCHASES FROM THE PROPRIETORSHIP CON CERN. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO SH OW THAT IN RESPECT OF PURCHASES MADE BY THE ASSESSEE FIRM FROM THE PROPRIETORSHIP CONCERN THE RATES AT WHICH THEY WERE PURCHASED WERE NOT COMPARABLE WITH THE MARKET VALUE. NO MATE RIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO PROVE, IF THERE WAS ANY ARRANGEMENT TO EVADE TAXES. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE DETAILED CHART OF GP AND NP WOULD ESTABLIS H THAT THIS YEAR 10% NP RATE IS HIGHER ON ACCOUNT OF MORE EXCHANGE R ATE DIFFERENCE 13 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL RECEIVED HENCE AFTER CONSIDERING THIS FACTOR THE RE ST OF THE DIFFERENCE WOULD REMAIN NEGLIGIBLE. THE SUBMISSION OF THE ASSESSEE HAS NOT BEEN REBUTTED THROUGH ANY EVIDENCE OR MATERIAL ON RECORD. THE AO IN THE CASE OF THE PROPRIETORSHI P CONCERN IN THE ASSESSMENT ORDER U/S 143(3) FOR ASSESSMENT YEAR UND ER APPEAL I.E. 2009-10 ACCEPTED THE TRADING RESULTS AND DID NOT DO UBT THE TRANSACTIONS BETWEEN THE PROPRIETORSHIP CONCERN AND THE ASSESSEE FIRM. THE ASSESSEE FIRM EXPLAINED THE REASONS WHY PURCHASES HAVE BEEN MADE FROM THE PROPRIETORSHIP CONCERN. NO SPEC IFIC DEFECTS HAVE BEEN POINTED OUT IN MAINTENANCE OF THE BOOKS O F ACCOUNTS BY THE ASSESSEE. THE ASSESSEE ALSO EXPLAINED THAT IT HAS PURCHASED SEMI FINISHED MATERIAL FROM THE PROPRIETORSHIP CONC ERN UPON WHICH IMPROVEMENTS HAVE BEEN DONE BY THE ASSESSEE FIRM AN D RATES ARE VERIFIABLE, WHICH WERE ACCORDING TO THE MARKET RATE . THE ASSESSEE ALSO EXPLAINED THAT THERE IS A DIFFERENCE IN THE AC TIVITIES OF THE PROPRIETORSHIP CONCERN AND THE ASSESSEE FIRM. THER EFORE, THEIR OPERATION AND ACTIVITIES ARE MATERIALLY DIFFERENT A ND HENCE, TWO UNITS ARE INCOMPARABLE. THE AO OF THE ASSESSEE FIR M IN SUBSEQUENT AY 2010-11 EXAMINING THE SAME ISSUE IN T HE ORDER U/S 143(3) OF THE ACT ACCEPTED THE TRADING RESULTS OF THE ASSESSEE, COPY OF THE ORDER IS ALSO PLACED ON RECORD. THEREF ORE, REVENUE- DEPARTMENT SHALL HAVE TO MAINTAIN RULE OF CONSISTEN CY IN THEIR APPROACH WHILE ACCEPTING THE BOOK RESULT OF THE ASS ESSEE. IT, THEREFORE, APPEARS THAT THE AO WITHOUT BRINGING ANY MATERIAL ON RECORD MADE THE ADDITION MERELY ON SURMISES AND GUE SS WORK. THEREFORE, THERE WAS NO JUSTIFICATION TO REJECT THE BOOK RESULTS OF 14 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL THE ASSESSEE. THE LD. CIT(A) RIGHTLY CONSIDERED AN D APPRECIATED THE FACTS AND MATERIAL ON RECORD FOR THE PURPOSE OF DELETING THE ADDITION. SINCE, ASSESSEE IS ADMITTEDLY ENTITLED F OR DEDUCTION U/S 10AA OF THE ACT, THE AO WITHOUT ANY JUSTIFICATION T RIED TO MAKE THE ADDITION CONSIDERING THE ADDITION AS INCOME FROM NO N SPECIAL ECONOMIC ZONE BUSINESS WITHOUT BRINGING ANY EVIDENC E AGAINST THE ASSESSEE AS TO HOW THE ASSESSEE WAS DOING BUSINESS ACTIVITIES OUTSIDE THE SEZ AREA. THE FINDINGS OF THE AO ARE W ITHOUT ANY BASIS AND WITHOUT BRINGING ANY EVIDENCE ON RECORD. SINCE, NO DISCREPANCY HAS BEEN POINTED OUT IN MAINTENANCE OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE DOCUMENTS PRODUCED ON RECORD, THEREFORE, THERE WAS NO JUSTIFICATION TO MAKE THE A FORESAID ADDITION AGAINST THE ASSESSEE. CONSIDERING THE EVIDENCES AN D MATERIAL ON RECORD IN THE LIGHT OF FINDINGS OR FACTS RECORDED B Y THE LD. CIT(A), WE ARE OF THE VIEW SECTION 80IA(8)&(10) ARE NOT APP LICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE IS NO I NFIRMITY POINTED OUT IN THE ORDER OF LD. CIT(A). LD. DR MERELY CONT ENDED THAT MATTER MAY BE RESTORED TO THE FILE OF AO FOR FRESH ASSESSMENT. HOWEVER, NO MATERIAL HAS BEEN BROUGHT ON RECORD OR TO MAKE ANY SPECIFIC ALLEGATION AGAINST THE FINDINGS OF THE LD. CIT(A), THEREFORE, THERE IS NO NEED TO RESTORE THE MATTER BACK TO THE FILE OF AO FOR FRESH ASSESSMENT. IN THIS VIEW OF THE MATTER, WE D O NOT FIND ANY JUSTIFICATION TO RESTORE THE MATTER TO THE FILE OF AO FOR FRESH ASSESSMENT. THERE IS NO MERIT IN DEPARTMENTAL APPE AL. THE SAME IS, ACCORDINGLY, DISMISSED. 15 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL 8. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01.01.2019 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI 16 ITA NO. 2185/DEL /2013 AY 2009-10 JAINSONS INTERNATIONAL