M/s. Sajni Jewels, Surat V. The Income tax Officer,Ward-2(4), Surat

ITA 3099/AHD/2011

• Counselvise Citation: 309920514 RSA 2011
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR
• Assessee Lawyers: SAPANESH SHETH
• Keywords: Unexplained cash credit; Depreciation
• Section: 143(3); 10AA

Judgement Text

, , , , A, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , , , , ! ' ! ' ! ' ! ' # # # # $ %& $ %& $ %& $ %&, ,, , ' ' ' ' ' ' ' ' BEFORE S/SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND KUL BHARAT JUDICIAL MEMBER) ITA NO.3099/AHD/2011 [ASSTT.YEAR : 2008-2009] M/S. SAJNI JEWELS PLOT NO.32/B, SACHIN SEZ, SURAT. PAN : AAMFM 8564 D ( /VS. ITO, WARD-15(3) (CASE TR. TO. ITO-2(4)) SURAT. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) ( .& / 0 / ASSESSEE BY : SHRI SAPANESH SHETH 2' / 0 / REVENUE BY : SHRI ANILKUMAR $(3 / &4!/ DATE OF HEARING : 19 TH JUNE, 2012 56 / &4!/ DATE OF PRONOUNCEMENT : 20-07-2012 7 / O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARN ED CIT(A)-26, MUMBAI DATED 14.9.2011 FOR THE ASSESSMENT YEAR 2008-2009. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1 ) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(A) HAS ERRED IN CON FIRMING THE ACTION OF THE AO IN DISALLOWING DEDUCTION OF RS.3,8 7,83,095/- CLAIMED U/S.10AA OF THE IT ACT. 2. IT IS THEREFORE PRAYED THAT THE DISALLOWANCE MAD E BY THE AO AND CONFIRMED BY CIT(A) MAY PLEASE BE DELETED. IN ADDITION TO THESE GROUNDS, AN ADDITIONAL GROUND IS ALSO RAISED BY THE ASSESSEE AS UNDER: ITA NO.3099/AHD/2011 -2- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT, THE LD. AO HAS ERRED IN MAKING ADDITIO N OF RS.2,90,000/- ON ACCOUNT OF CAPITAL INTRODUCTION BY THE PARTNERS AS UNEXPLAINED CASH CREDIT. 3. IT IS SUBMITTED THAT THIS GROUND INVOLVES LEGAL ISSUE WHICH SHOULD BE ADMITTED IN VIEW OF THE HONBLE SUPREME COURT DE CISIONS IN THE CASE OF NTPC V. CIT, 229 ITR 383 AND JUTE CORPORATION OF INDIA LTD. VS. CIT, 187 ITR 688. THE LEARNED DR DID NOT RAISE AN Y SERIOUS OBJECTION REGARDING THE ADMISSION OF ADDITIONAL GROUND. SINC E WE FIND THAT LEGAL ISSUE IS INVOLVED IN THE ADDITIONAL GROUND, AND NO FRESH EXAMINATION OF FACTS IS REQUIRED, THIS ADDITIONAL GROUND IS ADMITT ED. 4. REGARDING ADDITIONAL GROUND, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT R ENDERED IN THE CASE OF CIT VS PANKAJ DYESTUFF INDUSTRIES, INCOME TAX RE FERENCE NO.241 OF 1993 DATED 6-7-2005. HE SUBMITTED A COPY OF THIS U NREPORTED JUDGMENT OF THE HONBLE GUJARAT HIGH COURT. THE LEARNED DR HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE FIND THAT THIS IS NOT IN DISPUTE IN THE PRESE NT CASE THAT THIS AMOUNT OF RS.2.90 LAKHS WAS INTRODUCED BY THE PARTN ERS TOWARDS THEIR CAPITAL. THIS ISSUE IS NOW FULLY AND SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE GUJARAT HIG H COURT IN THE CASE OF CIT VS. PANKAJ DYESTUFF INDUSTRIES (SUPRA) WHERE IN IT WAS HELD BY THE HONBLE GUJARAT HIGH COURT THAT THE REVENUE IS AT L IBERTY TO EXAMINE THE ISSUE IN THE HANDS OF THE PARTNERS, AND IF SUCH PAR TNERS ARE NOT ABLE TO SATISFY REGARDING THE SOURCE OF INVESTMENT, THEN TH E ADDITION CAN BE MADE IN THE HANDS OF THE PARTNERS, BUT NO ADDITION CAN B E MADE IN THE HANDS OF THE FIRM IN RESPECT OF INTRODUCTION OF CAPITAL BY T HE PARTNERS. RESPECTFULLY ITA NO.3099/AHD/2011 -3- FOLLOWING THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THIS ADDITION IS DELETED. ACCORDINGLY, THE ADDITIONAL GROUND IS ALLOWED. 6. REGARDING THE MAIN GROUND AS PER THE MEMO OF APP EAL, THE FACT TILL ASSESSMENT STAGE ARE NOTED BY THE LEARNED CIT(A) IN PARA 3 OF HIS ORDER, WHICH IS REPRODUCED BELOW: 3. THE ONLY GROUND IN THIS APPEAL IS REGARDING REJ ECTION OF CLAIM OF DEDUCTION U/S.10AA OF THE APPELLANT AMOUNTING TO RS .3,87,83,095/-. BRIEF FACTS IN THIS REGARD ARE THAT THE APPELLANT F ILED ITS RETURN DECLARING NIL INCOME AND CLAIMED DEDUCTION U/S.10AA OF THE I. T.ACT OF RS.3,87,83,095/-. DURING THE ASSESSMENT PROCEEDING S, THE AO HAS SCRUTINIZED THE DOCUMENTS RELATED TO THE UNIT OF TH E APPELLANT, WHICH WAS ESTABLISHED AT SURAT SEZ IN GUJARAT, WHERE IT WAS C LAIMED BY THE APPELLANT THAT IT WAS ENGAGED IN THE BUSINESS OF MA NUFACTURING AND EXPORT OF JEWELLERY ON WHICH DEDUCTION A/S. IOAA WA S CLAIMED. THE AO HAS ALSO EXTENSIVELY EXAMINED THE PURCHASE BILLS AN D DETAILS OF INSTALLATION OF VARIOUS ITEMS OF PLANT AND MACHINER Y AND OTHER ITEMS OF CONSTRUCTION OF BUILDING AND FURNITURE ETC. PURCHAS ED FOR SETTING UP THE MANUFACTURING UNIT OF THE ASSESSEE. THE AO HAS MADE THE FOLLOWING IMPORTANT OBSERVATIONS INDICATING THAT THE APPELLAN T WAS NOT IN A POSITION TO MANUFACTURE THE JEWELLERY IN IT'S SEZ U NIT, WHICH IT HAS CLAIMED AS PRODUCED AT THE UNIT. I) ON PERUSAL OF THE FACTORY BUILDING DETAILS IT I S SEEN THAT ADDITION TO THE FACTORY BUILDING HAS BEEN MADE FOR WHICH VAR IOUS B ILLS HAS BEEN SUBMITTED FOR PURCHASE OF MATERIALS REQUIRED F OR SUCH ADDITION. THE LAST BILL DURING THE YEAR WAS ON 15.9 .2007 FROM M/S. MAMTA TRADERS FOR PURCHASE OF SAND AND FROM M/ S. RAMDEV CARTING AGENT FOR PURCHASE OF BRICKS AND SAND, AND ON 19.9.2007 FROM M/S.GIRJIT ENGINEERS FOR PURCHASE OF GATE AND FITTING CHARGES OF GATE (FROM THE SAID BILL IT IS SOON THAT THE NAME OF THE PURCHASER IS LEFT BLANK) WHICH SHOWS THAT THE ADDIT ION WORK WAS GOING ON TILL 15.9.2007. II) FROM THE PERUSAL OF THE DETAILS OF MACHINERY I T IS SEEN THAT THE ASSESSEE HAS PURCHASED MACHINERY OF RS.4,16,050/- O N 20.7.2007 (THE ONLY MACHINERY ON THE BASIS OF WHICH THE ASSES SEE HAS CLAIMED OF CLUING EXPORT BY DOING MANUFACTURING) WH ICH INCLUDES JEWELLERY CASTING UNIT COMPRISING OF VACUUM INVESTM ENT & CASTINQ MACHINE, VULCANIZER, WAR INJECTOR AND BURNO UT FURNACE, ONE POLISHING MACHINE SINGLE STATION SURROUNDED VAC UUM SYSTEM, ITA NO.3099/AHD/2011 -4- ONE PICKLING MACHINE, ONE ELECTROPLATING MACHINE-1 LITRE. BOTH CAP WITH PEN ATTACHMENT, ONE DEWAXER (FOR 6 FLASKS) , ONE MAGNETIC POLISHER-STANDARD AND ONE ULTRASONIC MACHI NER-1 LITRE CAPACITY. BOLT CUTTER ONE PIECE AND ALU. FRAN FOUR PIECE PURCHASED ON 22.8.2007. III) FROM THE PERUSAL OF THE DETAILS OF FURNITURE AND BI LLS FOR IT, IT IS SEEN THAT THE ASSESSEE HAS PURCHASED PLYWOOD FROM M /S. SATYANARAYAN TIMBERS FOR MAKING FURNITURE ON 15.8.2 007, HOWEVER NO LABOUR CHARGES FOR MAKING FURNITURE FROM SUCH PLYWOOD HAS BEEN DEBITED TO IT SHOWING THAT ANY FUR NITURE HAS BEEN MADE OUT OF IT. IV) FAN WAS PURCHASED ON 27.8.2007. V) ELECTRICAL INSTALLATION FOR SOCKET AND PVC CABLE WA S DOOR VIDE HILL DATED 20.3.2008 AND 27.3.2008. VI) COMPUTER SYSTEM PURCHASED ON 09.8.2007 AND PRINTER WAS PURCHASED ON 22.9.2007 I.E. AFTER THE FIRST EXPORT BILL DATED 10.9.2007. VII) ONIDA SPLIT AC DELIVERED ON 27.6.2007. VIII) WEIGHTING SCALE WAS DELIVERED ON 27.8.2007. IX) STEEL SAFE WAS PURCHASED ON 26.7.2007 WHICH WAS DEL IVERED VII 03.8.2007 I.E. AFTER THE PURCHASE OF DIAMONDS ON 25 .7.2007 TILL THAT DATE WHERE THE DIAMONDS WERE KEPT. X) NONE OF THE PARTNERS RESIDING AT MUMBAI VISITED THE UNIT AT SURAT FOR INSPECTION OR SUPERVISION OF THE MANUFACTURING OF JEWELLERY. XI) AS PER THE APPLICATION THE PLANT AND MACHINERY REQU IRED FOR THIS UNIT WAS SHOWN AT PS. 29 LAKHS, BUT THE ASSESSEE HA S INSTALLED MACHINERY OF ONLY RS.4,16,050/-. XII) THE FIRST ELECTRICITY BILL OF UNIT WAS RECEIVED IN THE MONTH OF NOVEMBER BUT THE ASSESSEE HAS CLAIMED EXPORT IN THE MONTH OF SEPTEMBER/OCTOBER. ON THE BASIS OF ABOVE OBSERVATION, IT WAS HELD THAT THOUGH THE APPELLANT HAS CLAIMED THAT IT HAS EXPORTED THE DIAMOND JEWELL ERY MANUFACTURED IN THE SEZ UNIT BUT, IT WAS ACTUALLY NOT IN A POSITION TO MANUFACTURE THE ITA NO.3099/AHD/2011 -5- JEWELLERY IN SEZ UNIT. IT WAS ALSO HELD BY THE AO T HAT THE APPELLANT HAS SHOWN 1ST EXPORT BILL DATED 10.9.2007 AND 1ST EXPOR T BILL DATED 10.10.2007 BUT FROM THE CONSUMPTION OF ELECTRICITY ETC. MANUFACTURING ACTIVITY IS NOT SUPPORTED. THE AO HAS ALSO DISBELIE VED THE COMMENCEMENT DECLARED IN FORM NO. 56F ON 16.8.2007 ON THE ROUND THAT IT IS SHOWN PRIOR TO THE PURCHASE BILL OF ALLO Y DATED 18.8.2007, WHICH WAS DELIVERED ON 27.8.2007. FURTHER, THE AO H AS ALSO EMPHASIZED THAT EVEN THE ELECTRICITY WAS NOT AVAILABLE FOR MAN UFACTURING OF THE JEWELLERY WHEN THE ASSESSEE HAS RAISED THE INITIAL EXPORT BILL. THEREFORE, THE AO ON THE BASIS OF ABOVE REFERRED OBSERVATION H AVE COME TO THE CONCLUSION THAT PARTNERS OF THIS GROUP ARE ALREADY INTO DIAMOND BUSINESS SINCE 1994 IN THE GROUP CONCERN M/S. PRANA RNI GEMS AND M/S. SUNLIGHT DIAMOND AT MUMBAI AND THEY HAVE ACTUALLY N OT CARRIED OUT ANY MANUFACTURING IN SEZ UNIT BUT JUST TO CLAIM SPECIAL DEDUCTION U/S. 1UAA, THEY HAVE RE-CONSTRUCTED THE EARLIER BUSINESS IN THE FORM OF NEW CONCERN I.E. THE ASSESSEE FIRM M/S SAJNI JEWELS, JU ST TO CLAIM DEDUCTION U/S. 10AA ONLY. THE AO HAS FINALLY HELD THAT THE TR ANSACTIONS SHOWN BY THE ASSESSEE AS IT'S OWN MANUFACTURING UNIT ARE NOT ACTUALLY MANUFACTURED IN THE SEZ UNIT AND THEY HAVE ONLY CAR RIED OUT TRADING ACTIVITY ON WHICH THEY HAVE WRONGLY CLAIMED DEDUCTI ON U/S. 10AA. ACCORDINGLY, THE AO HAS REJECTED THE CLAIM OF DEDUC TION U/S.10AA. 7. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT(A), BUT WITHOUT SUCCESS AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSE E THAT THE DISALLOWANCE MADE BY THE AO IS WITHOUT ANY BASIS. HE DREW OUR ATTENTION TO THE STATEMENT OF FACTS FILED BEFORE TH E LEARNED CIT(A) WHEREIN ALL THE FACTS WERE NARRATED INCLUDING THIS THAT THE FACTORY BUILDING WAS ALREADY COMPLETED BEFORE THE START OF COMMERCIAL PR ODUCTION AND FITTING OF THE OUTSIDE THE GATE ONLY WAS DONE IN SEPTEMBER, 2009. IT IS ALSO SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE MACHIN ERY WAS PURCHASED ON 20.7.2007 AND IT WAS A COMPLETE JEWELLERY CASTIN G UNIT AND ALSO INCLUDED OTHER REQUIRED MACHINES FOR THE MANUFACTUR E OF THE JEWELLERY AND THE SAME IS ENOUGH AND ADEQUATE TO MANUFACTURE THE PRODUCTION SHOWN BY THE ASSESSEE. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LEARNED ITA NO.3099/AHD/2011 -6- CIT(A) IN THE STATEMENT OF THE FACTS THAT THE COMPU TER SYSTEM WAS PURCHASED ON 9.8.2007 AND THE AIR-CONDITIONER WAS P URCHASED ON 27.8.2007 ALONG WITH WEIGHING SCALE AND THE PURCHAS ES ARE BEFORE THE EXPORT AS PER THE FIRST BILL ON 10.9.2007. REGARDI NG STEEL SAFE AND STORAGE OF DIAMOND BEFORE ITS PURCHASE, IT WAS SUBMITTED TH AT THE STEEL SAFE WAS PURCHASED ON 26.7.2007 AND BEFORE THIS DATE, THE DI AMONDS WERE KEPT IN LOCKED TABLE. REGARDING THE ABSENCE OF CCD CAMERA, IT IS STATED IN THE STATEMENT OF FACTS THAT THERE IS STRICT SECURITY OF SEZ MANAGEMENT AND NO LOCAL VISITORS ARE ALLOWED TO ENTER THE SEZ AREA IT SELF, AND THEREFORE, THERE IS NO COMPULSION AND REQUIREMENT OF CCD CAMERA AS S UCH. IT IS ALSO BROUGHT ON RECORD IN THE STATEMENT OF FACTS THAT TH ERE WAS A REGULAR COMMUNICATION BY THE PARTNERS FROM MUMBAI AND ONE R ELATIVE WAS HANDLING THE FACTORY AT SURAT. REGARDING THE ELEC TRIC METER READING, IT IS BROUGHT ON RECORD THAT THE OFFICE OF DEVELOPMENT CO MMISSIONER, SURAT SEZ ITSELF CONFIRMED THAT COMMERCIAL PRODUCTION HAS STARTED FROM 16 TH AUGUST, 2007 AND IT WAS ONLY THE METER READING THAT WAS DONE IN NOVEMBER, 2007 BY THE ELECTRICITY DEPARTMENT. IT W AS ALSO BROUGHT ON RECORD THAT THE ASSESSEE FIRM HAS PURCHASED ALLOY O N 18.8.2007, DIAMONDS ON 25.7.2007 AND GOLD ON 13.8.2007. IN ADDITION TO THIS, IT WAS ALSO SUBMITTED BEFORE US THAT IN THE LIGHT OF THESE FACT S, IT CANNOT BE SAID THAT THE JEWELLERY EXPORTED BY THE ASSESSEE IS NOT OUT O F MANUFACTURE OF JEWELLERY IN SEZ UNIT. REGARDING WORKERS, IT WAS S UBMITTED THAT THE WORKERS WERE ON JOB WORK BASIS AND ON PAPER BOOK PA GE NO.54 IS THE PROFIT & LOSS ACCOUNT, WHERE THE ASSESSEE HAS DEBIT ED DEPRECIATION OF RS.1,28,124/- AND THE SAME WAS NOT DISALLOWED, WHIC H GOES TO SHOW THAT THE AO HAS ALSO ACCEPTED THAT THESE MACHINERIES WER E USED. IT IS FURTHER SUBMITTED THAT THE ASSESSMENT ORDER FOR NEXT YEAR I .E. A.Y.2009-2010 IS AVAILABLE ON PAGE NO.72 AND 74 OF THE PAPER BOOK, W HICH IS ALSO PASSED UNDER SECTION 143(3) AND IN THE SAME, NO DISALLOWAN CE HAS BEEN MADE ITA NO.3099/AHD/2011 -7- REGARDING EXEMPTION CLAIMED BY THE ASSESSEE UNDER S ECTION 10AA IN THAT YEAR OF RS.1160.61 LAKHS . HE ALSO SUBMITTED THAT IN THE PRESENT CASE, THERE IS NO RECONSTRUCTION. RELIANCE WAS PLACED ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF JAYANTILAL EXPORTS. VS. JCI T IN ITA NO.1647/AHD/2008 DATED 19.12.2008. IT WAS ALSO SUB MITTED THAT UNDER SIMILAR FACTS, EXEMPTION WAS ALLOWED BY THE TRIBUNA L IN THAT CASE. 9. AS AGAINST THIS, THE LEARNED DR OF THE REVENUE S UPPORTED THE ORDER OF THE AUTHORITIES BELOW. HE ALSO SUBMITTED THAT P OWER CONSUMPTION SHOWN BY THE ASSESSEE IS NOT SUFFICIENT TO RUN MACH INERIES. HE ALSO SUBMITTED THAT NO EVIDENCE IS BROUGHT ON RECORD TO SHOW THAT THE ASSETS WERE ACTUALLY PUT TO USE. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS, PERUSED T HE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW AND THE JUDGMENT CITED BY THE LEARNED AR. WE FIND THAT THE OBJECTION OF THE AO ARE NOTED BY THE LEARNED CIT(A) IN PARA-3 OF HIS OR DER, WHICH IS REPRODUCED ABOVE. THE LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE ON THIS BASIS THAT THE OBJECTIONS OF THE AO WAS VAL ID. NOW, WE EXAMINE THE OBJECTIONS OF THE AO TO SEE AS TO WHETHER THESE ARE SUFFICIENT TO DISALLOW THE CLAIM OF THE ASSESSEE. 11. THE FIRST OBJECTION IS THAT THERE IS SOME CIVIL WORKS DONE ON 19.9.2007. REGARDING THIS, IT IS EXPLAINED BY THE ASSESSEE THAT THE SAME WAS IN RESPECT OF OUTSIDE GATE AND OTHERWISE, THE B UILDING WAS READY. AS PER THE OBJECTION OF THE AO ALSO, THE EXPENSES INCU RRED INCLUDES EXPENDITURE FOR PURCHASE OF GATE AND FITTING CHARGE OF THE GATE. MERELY BECAUSE SOME GATE FITTING WAS NOT DONE, IT CANNOT B E SAID THAT THE BUILDING WAS NOT READY FOR COMMENCEMENT OF THE PRODUCTION. HENCE, THIS OBJECTION IS NOT VALID AND SUFFICIENT FOR REJECTING THE CLAIM OF THE ASSESSEE. ITA NO.3099/AHD/2011 -8- THE SECOND OBJECTION OF THE AO IS THAT THE MACHINE PURCHASED BY THE ASSESSEE OF RS.4,16,050/- ON 20.7.2007 IS NOT A DEQUATE FOR MANUFACTURE OF THE JEWELLERY. BUT NO BASIS IS INDI CATED BY THE AO FOR HOLDING SO. IN THE NEXT YEAR, THE CLAIM OF THE ASS ESSEE WAS ALLOWED BY THE AO BY PASSING THE ASSESSMENT ORDER UNDER SECTION 14 3(3) OF THE ACT. AS PER THE BALANCE SHEET OF THE ASSESSEE AS ON 31-3-20 09 APPEARING AT PAGE NO.58 TO 68 OF THE PB, THERE IS NO ADDITION IN FIXE D ASSETS DURING THAT YEAR. HENCE, IF THE SAME MACHINERIES WERE SUFFICIENT FOR EFFECTING THE EXPORT SALE OF RS.2892.35 LAKHS IN A.Y.2009-2010, THE CLAI M OF THE ASSESSEE FOR EXPORT OF RS.1190.42 LAKHS IN THE PRESENT YEAR WORK ING OF ABOUT SIX MONTHS CANNOT BE DOUBTED. HENCE, THIS OBJECTION OF THE AO IS ALSO NOT VALID FOR DISALLOWING THE CLAIM OF THE ASSESSEE REG ARDING EXEMPTION UNDER SECTION 10AA OF THE ACT. THIRD AND FOURTH OBJECTION OF THE AO ARE REGARDING PURCHASE OF FURNITURE AND FAN IN AUGUST, 2007. THE FURNITURE A ND FAN ARE NOT CRUCIAL FOR MANUFACTURE OF JEWELLERY AND HENCE, FOR THESE O BJECTIONS ALSO, THE DISALLOWING THE CLAIM OF THE ASSESSEE IS NOT VALID. THE NEXT OBJECTION IS REGARDING ELECTRIC INSTALLAT ION FOR SOCKET AND PVC CABLES IN THE MONTH OF MARCH, 2008. REGARDING THESE OBJECTIONS, IT WAS EXPLAINED BY THE ASSESSEE IN THE STATEMENT OF F ACTS FILED BEFORE THE LEARNED CIT(A) THAT IT IS AN EXTRA ELECTRIC INSTALL ATION FOR SOCKET AND PVC CABLE FOR SAFETY AND NOT FOR STARTING OF MANUFACTUR ING PROCESS. IN VIEW OF THE CERTIFICATE OF DEVELOPMENT COMMISSIONER OF SEZ, SURAT DATED 29.10.2010 FILED AT PAGE NO.41 OF THE PAPER BOOK TH AT THE DATE OF COMMERCIAL PRODUCTION I.E. 16.8.2007 HAD BEEN VERIF IED BY THAT OFFICE AND FOUND TO BE IN ORDER, IT CAN NOT BE SAID THAT MEREL Y BECAUSE SOME ELECTRIC ITA NO.3099/AHD/2011 -9- INSTALLATION FOR SOCKET AND PVC CABLE WAS DONE IN M ARCH, 2008, COMMERCIAL PRODUCTION HAD NOT STARTED IN AUGUST, 20 07. THE NEXT OBJECTION OF THE AO IS REGARDING PURCHASE OF COMPUTER SYSTEM ON 9.8.2007 AND PURCHASE OF PRINTER ON 22.9. 2007 I.E. AFTER THE FIRST EXPORT BILL DATED 10.9.2007. REGARDING THIS OBJECT ION ALSO, WE FIND THAT THE COMPUTER SYSTEM WAS ALREADY PURCHASED ON 9.8.20 07 I.E. BEFORE THE FIRST EXPORT BILL DATED 10.9.2007. EVEN IF THE PRI NTER WAS PURCHASED AFTER WARDS, THE PRINTING OF THE EXPORT BILLS CAN BE TAKE N FROM SOME OTHER PRINTER FROM OUTSIDE AND THEREFORE, THIS OBJECTION IS ALSO NOT VALID REASON FOR REJECTING THE CLAIM OF THE ASSESSEE FOR EXEMPTI ON UNDER SECTION 10AA OF THE ACT. NEXT OBJECTION OF THE AO IS REGARDING PURCHASE OF AC AND WEIGHING SCALE ON 27.8.2007 WHEREAS IT IS THE CLAIM OF THE ASSESSEE THAT COMMERCIAL PRODUCTION HAS COMMENCED ON 16.8.2007. IN OUR CONSIDERED OPINION, THIS IS ALSO NOT A VALID BASIS FOR REJECTI NG THE CLAIM OF THE ASSESSEE, BECAUSE FOR A FEW DAYS, ONE CAN WORK WITH OUT AC ALSO AND WEIGHING SCALE WAS VERY MUCH OBTAINED BEFORE THE EX PORT ON 10.9.2007. NEXT OBJECTION IS REGARDING THE PURCHASE OF STEEL SAFE ON 26.7.2007 DELIVERED ON 3.8.2007 WHEREAS THE DIAMONDS WERE SAI D TO BE PURCHASED ON 25.7.2007. WE FAIL TO UNDERSTAND THE LOGIC OF T HIS OBJECTION OF THE AO, BECAUSE IT IS NOT THE CASE OF THE AO THAT NO EXPORT HAD TAKEN PLACE AND NO INCOME HAS ARISEN. MOREOVER, IT IS EXPLAINED BY TH E ASSESSEE THAT TILL THE PURCHASE OF STEEL SAFE, DIAMONDS WERE KEPT IN LOCKE D TABLE. IN THE BEGINNING OF A BUSINESS, MANY A TIME, BUSINESS HAS TO BE RUN WITH THE AVAILABLE FACILITY AND MERELY BECAUSE SOME FACILITI ES WERE OBTAINED LATER ON, IT CANNOT BE SAID THAT THE BUSINESS HAS NOT COM MENCED, PARTICULARLY WHEN A GOVERNMENT DEPARTMENT I.E. DEVELOPMENT COMMI SSIONER, SURAT ITA NO.3099/AHD/2011 -10- SEZ HAS GIVEN A CERTIFICATE THAT COMMERCIAL PRODUCT ION HAS COMMENCED ON 16.8.2007. THE NEXT OBJECTION IS REGARDING ABSENCE OF VISIT B Y THE PARTNERS TO THE MANUFACTURING SITE. REGARDING THIS ASPECT, IT WAS EXPLAINED BY THE ASSESSEE IN THE STATEMENT OF FACTS FILED BEFORE THE CIT(A) THAT PARTNERS HAVE NOT VISITED, BUT WERE ON REGULAR AND CONTINUOU S TOUCH AND AFFAIRS WERE LOOKED AFTER AT SURAT BY A RELATIVE OF THE PAR TNERS. NOTHING ADVERSE HAS BEEN BROUGHT ON RECORD BY THE REVENUE REGARDING THIS EXPLANATION OF THE ASSESSEE, AND HENCE, IT IS ALSO NOT A VALID BAS IS FOR REJECTING THE CLAIM OF THE ASSESSEE. NEXT OBJECTION IS THAT AS PER THE APPLICATION, IT WAS EXPLAINED BY THE ASSESSEE THAT THE PLANT AND MACHINERY REQUIRED FOR THIS UNIT ARE OF RS.29 LAKHS, BUT THE ASSESSEE HAS INSTALLED MACHINERY OF ONLY RS.4,16,050/-. THIS AGAIN NOT A VALID BASIS, PARTICULARLY WHEN WIT H THE SAME AMOUNT OF MACHINERY, THE REVENUE HAS ALLOWED CLAIM OF THE ASS ESSEE IN THE NEXT YEAR AND THAT TOO WHEN THE ASSESSMENT ORDER IS PASS ED UNDER SECTION 143(3) OF THE ACT AND EXPORT SALES IN THAT YEAR IS MORE THAN DOUBLE OF THE EXPORT SALES OF THE PRESENT YEAR (SIX MONTHS). HEN CE, THIS OBJECTION IS ALSO NOT VALID. LAST OBJECTION OF THE AO IS THIS THAT FIRST ELECTR ICITY BILL OF THE UNIT WAS RECEIVED IN THE MONTH OF NOVEMBER, WHEREAS THE ASSESSEE HAS CLAIMED EXPORT IN THE MONTHS OF SEPTEMBER AND OCTOB ER ALSO. REGARDING THIS OBJECTION, IT WAS EXPLAINED BY THE ASSESSEE TH AT THE ASSESSEE WAS USING THE ELECTRICITY, BUT READING WAS DONE BY THE ELECTRICITY DEPARTMENT IN NOVEMBER AND THEREFORE, A COMBINED BILL UPTO NOV EMBER WAS RAISED IN NOVEMBER. THIS IS NOT THE FACT OF THE PRESENT CASE THAT THERE WAS A BILL IN ITA NO.3099/AHD/2011 -11- AUGUST AND OCTOBER, 2007 ALSO IN WHICH THERE WAS NO POWER CONSUMPTION AND POWER CONSUMPTION HAS STARTED FROM NOVEMBER, 20 07 ONLY. WHEN THERE IS NO BILL FOR THE MONTHS OF AUGUST, SEPTEMBE R AND OCTOBER, 2007, IT CANNOT BE SAID THAT THERE WAS NO POWER CONSUMPTION DURING THAT PERIOD. MOREOVER, AS PER THE PROFIT & LOSS ACCOUNT OF THE P RESENT YEAR AND NEXT YEAR AVAILABLE IN THE PAPER BOOK, WE FIND THAT POWE R CONSUMPTION SHOWN IN THE PRESENT YEAR IS RS.20,791/- WHEREAS THE SAME IN THE NEXT YEAR WAS 41,264/- AND SINCE THE PRODUCTION IN THAT YEAR IS M ORE THAN DOUBLE, AS COMPARED TO THE PRESENT YEAR, THE POWER CONSUMPTION IN THE PRESENT YEAR IS COMMENSURATE WITH THE PRODUCTION OF THE PRESENT YEAR AND SINCE THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE AO IN THE NEXT YEAR, THAT TOO IN 143(3) ASSESSMENT, THE CLAIM OF THE ASSESSEE CANNOT BE REJECTED IN THE PRESENT YEAR ON THE BASIS OF LOWER POWER CONSUM PTION IN THE PRESENT YEAR. 12. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF THE OBJECTIONS RAISED BY THE AO IS VALID FOR REJECTING THE CLAIM O F THE ASSESSEE FOR EXEMPTION UNDER SECTION 10AA, PARTICULARLY, WHEN TH E SAME CLAIM WAS ALLOWED BY THE AO HIMSELF IN THE NEXT YEAR, AND THE REFORE, WE HOLD THAT THE CLAIM OF THE ASSESSEE UNDER SECTION 10AA SHOULD BE ALLOWED IN THE PRESENT YEAR. THE AO IS DIRECTED ACCORDINGLY. 13. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( $ %& $ %& $ %& $ %& /KUL BHARAT) ' ' ' ' /JUDICIAL MEMBER ( . .. . . .. . /A.K. GARODIA) ! ' ! ' ! ' ! ' /ACCOUNTANT MEMBER VK*