DCIT, Sikar V. MANOJ KUMAR JOHARI, Sikar

ITA 315/JPR/2011

• Counselvise Citation: 31523114 RSA 2011
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Assessee Lawyers: G G MUNDRA
• Keywords: Business income; Assessment record
• Section: 40A(3); 143(3); 142(1); 133A; 80IB; 145; 263; 12

Judgement Text

1 ITA 315(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 315 & 316/JP/2011 ASSTT. YEAR : 2006-07 & 07-08. THE DCIT, CIRCLE SIKAR, VS. SHRI MANOJ KUMAR JOHA RI, SIKAR. PROP. M/S. THE ART PALACE, RAMGARH SHEKHAWATI, SIKAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI G.G. MUNDRA DATE OF HEARING : 21.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 ORDER DATE OF ORDER : 31/10/2011. PER R.K. GUPTA, J.M. THESE ARE TWO APPEALS BY THE DEPARTMENT AGAINST TH E ORDERS OF LD. CIT (A) RELATING TO ASSESSMENT YEARS 2006-07 AND 2007-08. 2. THE FIRST ISSUE IS AGAINST ALLOWING DEDUCTION UN DER SECTION 10BA OF RS. 62,72,439/- WHICH IS RAISED THROUGH GROUND NOS. (I) TO (IV). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF WOODEN HANDICRAFT ARTIC LES IN THE NAME OF HIS PROPRIETARY CONCERN, M/S THE ART PALACE. THE RETURN OF INCOME W AS FILED ON 31.10.2006 DECLARING A TOTAL INCOME OF RS.8,10,500/-. THE CASE WAS SELECTE D FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, THE AD OBSERVED THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF 2 RS.62,72,4391- U/S 10BA OF THE I.T. ACT. HOWEVER, CONSIDERING THE PAST HISTORY OF THE ASSESSEE, AS DISCUSSED IN PARA 2 OF THE ASSESSMENT ORDER, THE AO WAS OF THE VIEW THAT THE PROVISIONS OF S.10BA OF THE I.T. ACT WERE NOT APPL ICABLE IN THE ASSESSEES CASE. THEREFORE, THE AO REQUIRED THE ASSESSEE, VIDE NOTIC E U/S 142(1) DATED 22.10.2008, TO EXPLAIN AS O HOW THE CONDITIONS MENTIONED IN CLAUSE S (A), (B), (C), (D) AND (E) OF SUB SECTION 2 OF S.10BA AND THOSE MENTIONED IN SUB SEC TION 3 OF S.10BA AND EXPLANATION (B) TO S.10BA WERE FULFILLED IN HIS CASE. IN RESPO NSE, THE ASSESSEE FILED REPLY I EXPLANATION, VIDE LETTER DATED 3.11.2008, THE RELEV ANT PART OF WHICH HAS BEEN REPRODUCED BY THE AO ON PAGES 4 TO 9 OF THE ASSESSMENT ORDER W HEREIN THE ASSESSEE CLAIMED THAT HE WAS FULFILLING ALL THE AFORESAID CONDITIONS OF S.10 BA OF THE I.T. ACT. HOWEVER, AFTER CONSIDERING THE ASSESSEES REPLIES / EXPLANATIONS, THE A O (AS PER HIS DETAILED DISCUSSION, CONTAINED IN PARAS 5 TO 5.6, ON PAGES 10 TO 29 OF T HE ASSESSMENT ORDER), HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE CLAIMED DEDUCTION OF RS.62,72,439/- U/S 10BA OF THE I.T. ACT. IN THIS REGARD, IT IS OBSERVED THAT THE AO MA DE THE SAID IMPUGNED DISALLOWANCE OF RS.62,72,439/-, BECAUSE OF THE FOLLOWING REASONS (S UMMARIZED IN BRIEF): I) AS PER CLAUSE (A) IN S.10BA (2) OF THE I.T. ACT, IT IS REQUIRED THAT THE CONCERN UNDERTAKING SHOULD MANUFACTURE OR PRODUCE THE ELIGI BLE ARTICLES OR THINGS WITHOUT THE USE OF IMPORTED RAW MATERIALS. HOWEVER, THE FACTS GATHE RED FROM THE ASSESSMENT RECORDS OF THE ASSESSEE, ENQUIRED AT THE TIME OF SURVEY ON 23. 9.2008 AND FOUND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SHOWED THAT; A) THE ASSESSEE PURCHASED FINISHED GOODS AND SOLD T HEM. THIS FACT WAS ALSO MENTIONED IN THE AUDIT REPORT FILED WITH THE RETURN OF INCOME. 3 B) THE ARTICLES OR THINGS EXPORTED BY THE ASSESSEE WERE NOT COVERED BY THE DEFINITION OF ELIGIBLE ARTICLES OR THINGS. IN NUTSH ELL, THE ARTICLES OR THINGS WERE NOT HAND MADE, WERE NOT OF ARTISTIC VALUE AND SOME ARTICLES WERE OF IRON AS RAW MATERIAL. C) THE ARTICLES OR THINGS EXPORTED BY THE ASSESSEES WERE NOT HAND MADE, AS THERE WAS EXTENSIVE USE OF POWER RUN MACHINERY AT E ACH STAGE OF THE MANUFACTURING PROCESS. THE QUANTUM OF EXPENDITURE O N POWER, THE LARGE INVENTORY OF MACHINERY (BOTH HIRED AND OWNED), WHIC H WERE ALL RUN BY POWER, PROVED BEYOND ANY DOUBT THAT THE ENTIRE MANU FACTURING PROCESS WAS BY POWER RUN MACHINES. D) THE GOODS EXPORTED BY THE ASSESSEE WERE NOT OF A RTISTIC VALUE. ALMOST THE ENTIRE RANGE OF GOODS EXPORTED BY THE ASSESSEE WAS THAT OF ORDINARY FURNITURE ITEMS, SUCH AS, COFFEE TABLE, CABINET, DI NING TABLE, BOOK SHELF, ETC., WHICH WERE COMMONLY USED AS FURNITURE ITEMS I N HOMES OR IN HOTELS FOR DAILY USE. E) AS PER THE DEFINITION OF ELIGIBLE GOODS, THE GOO DS MUST BE MADE OF WOOD AS RAW MATERIAL BUT IN THE CASE OF THE ASSESSEE, TH E GOODS EXPORTED WERE NOT ALL OF WOOD AS RAW MATERIAL. MANY OF THE EXPORT ED ITEMS WERE EXCLUSIVELY MADE OF IRON. II) AS PER CLAUSE (B) OF S.10BA (2) OF THE I.T. ACT , THE CONCERNED UNDERTAKING SHOULD NOT HAVE BEEN FORMED BY THE SPLITTING UP OR THE REC ONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE. HOWEVER, THIS CONDITION IS NOT FULFILLED IN THE CASE OF THE ASSESSEE BECAUSE THE BUSINESS OF THE ASSESSEE WAS ONLY AN EXTENSION OF A VERY OLD EXISTING BUSINESS IN THE NAME OF M/S INDIAN ART PALACE. M/S INDIAN ART PALACE WAS AN OLD PARTNERSHIP FIRM, IN WHICH FAMILY MEMBERS OF THE ASSESSEE WERE PARTNERS. IN NU TSHELL, THE SAME BUSINESS CONTINUED IN THE NAME OF M/S THE ART PALACE, AS A PROPRIETARY CO NCERN OF THE ASSESSEE. THE CHARACTERISTIC FEATURES OF THE CONTINUANCE OF THE O LD BUSINESS WERE; 4 A) THE BUSINESS WAS STARTED IN THE SAME BUSINESS PR EMISES AND WAS STILL CONTINUING, PRIMARILY IN THE SAME PREMISES. B) THE BUSINESS WAS STARTED WITH THE SAME MACHINERY AND WAS STILL USING THE OLD MACHINERY OF THE OLD CONCERN, M/S INDIAN ART PA LACE, WITH ROUTINE ADDITION TO THE OLD MACHINERY EVERY YEAR. C) MANY OF THE WORKERS AND EMPLOYEES, WHO WORKED WI TH M/S INDIAN ART PALACE, CONTINUED AND WERE STILL WORKING WITH THE A SSESSEE CONCERN, M/S THE ART PALACE. D) THERE WAS NO CHANGE IN THE NATURE OF BUSINESS AN D ITS MODUS OPERANDI, EXCEPT SLIGHT CHANGE IN BRAND NAME FROM M/S INDIAN ART PALACE TO M/S THE ART PALACE. III) AS PER CLAUSE (C) OF S.10BA (2) OF THE I.T. AC T, IT WAS REQUIRED THAT THE UNDERTAKING SHOULD NOT HAVE BEEN FORMED BY THE TRAN SFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. HOWEVER, THIS CONDITION WAS NOT FULFILLED IN THIS CASE BECAUSE RIGHT FROM THE BEGINNING, THE ASSESSEE HAD BEEN USING THE MACHINERY, WHICH WAS PREVIOUSLY USED BY M/S INDIAN ART PALACE. IN TH IS REGARD, THE RELEVANT DETAILS PROVED THE FACT THAT USE OF OLD HIRED MACHINERY WAS MUCH M ORE THAN THE NEW MACHINERY PURCHASED BY THE ASSESSEE. IV) CLAUSE (D) OF S.10BA (2) OF THE I.T. ACT REQUIR ED THAT 90% OR MORE OF ASSESSEES SALES, DURING THE PREVIOUS YEAR RELEVANT TO THE ASS ESSMENT YEAR, WERE BY WAY OF EXPORTS OF THE ELIGIBLE ARTICLES OR THINGS. FURTHER, AS PER TH E DEFINITION OF ELIGIBLE GOODS, THE GOODS MUST BE MADE OF WOOD, AS RAW MATERIAL, BUT IN THE, CASE OF THE ASSESSEE, GOODS EXPORTED WERE NOT ALL OF WOOD, AS AW MATERIAL. MANY OF THE E XPORTED ITEMS WERE EXCLUSIVELY MADE OF IRON. SUCH EXPORT SALES, APPROXIMATELY, AMOUNTED TO RS.76,51,285/-. THEREFORE, IF 5 THOSE SALES ARE EXCLUDED FROM THE CLAIMED EXPORT SA LES, THEN THE EXPORT SALES WOULD CONSTITUTE 84.26% OF THE TOTAL SALES, WHICH WAS LES S THAN THE REQUIRED 90% OF THE TOTAL SALES. FURTHER, IF C&F EXPENSES OF RS.7243,198/- WE RE DEDUCTED FROM THE EXPORT SALES, AS PROVIDED IN EXPLANATION (C) TO S. 1OBA, THE PROPORT ION OF THE EXPORT SALES TO THE TOTAL SALES WOULD FURTHER GO DOWN. THEREFORE, THE CONDITI ON MENTIONED IN S.10BA (2)(D) OF THE ACT WAS NOT FULFILLED IN THE ASSESSEES CASE. 4. FINALLY, IN VIEW OF THE ABOVE MENTIONED REASONS, THE AO HELD THAT THE ASSESSEE DID NOT FULFILL ANY OF THE CONDITIONS MENTIONED IN CLAU SES (A), (B), (C) & (D) OF SUB-SECTION 2 OF S.10BA OF THE I.T. ACT. ACCORDINGLY, THE AO MAD E THE IMPUGNED DISALLOWANCE OF RS.62,72,439/-, BY DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION U/S 10BA OF THE I.T. ACT. 5. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT ( A) ALONG WITH PAPER BOOK CONTAINING RELEVANT DETAILS/DOCUMENTS IN SUPPORT OF THE GROUND OF THE ASSESSEE. DETAILED SUBMISSIONS WHICH ARE REPRODUCED IN THE ORDER OF LD . CIT (A) AT PAGES 6 TO 15 ARE REPRODUCED HERE AS UNDER :- THE ASSESSEE IS PROPRIETOR OF M/S ART PALACE AN INDUSTRIAL UNDERTAKING ENGAGED IN MANUFACTURING & EXPORTING OF HANDMADE AR TICLES OR THINGS OF ARTISTIC VALUE WHICH REQUIRED THE USE OF WOOD AS MA IN RAW MATERIAL AND STARTED PRODUCTION W. E. F. 28-8-02. THE SALES OF A SSESSEE ARE MAINLY EXPORT OUT OF INDIA .BUT THERE ARE SALES IN INDIA ALSO. TH E ASSESSEE IN A. Y. 2003- 04, 2004-05 & 2005- 06 CLAIMED 100% OF ITS PRO FITS AND GAINS DERIVED FROM SAID INDUSTRIAL UNDERTAKING AS ALLOWABLE DEDUC TION U/S 8018(5) AND FOR THIS A. Y. 2006-07 AND IN SUBSEQUENT YEARS CLAI MED 100% OF ITS PROFITS 6 AND GAINS DERIVED FROM SAID INDUSTRIAL UNDERTAKING AS ALLOWABLE DEDUCTION U/ 10BA OF !. T. ACT, 1961. A SURVEY U/S 133A WAS CONDUCTED BY A.O. AT THE PREM ISES OF SAID INDUSTRIAL UNDERTAKING ON 22-9-0 8 AND THEREAFTER T HE IMPUGNED ASSESSMENT ORDER U/S 143(3) FOR A. Y. 2006-07 WAS PASSED BY LD . A.O. ON 12-12-08 DISALLOWING THE DEDUCTION CLAIMED BY ASSESSEE U/S 1 0BA OF!. T. ACT, 61 AND MAKING TRADING ADDITION AND SOME DISALLOWANCES FROM EXPENSES. THE LD. CIT III, JAIPUR THEREAFTER ON THE PROPOSAL MA DE BY A. 0. ON 07-01- 09 INITIATED PROCEEDINGS U/S 263 FOR A. Y. 2005-06 FOR CANCELLATION OF ASSESSMENT ORDER PASSED BY A. 0. ON 29-11-06 U/S 14 3(3) AND AFTER PROVIDING HEARING TO ASSESSEE CANCELLED THE SAID AS SESSMENT ORDER VIDE HIS ORDER DATED 16-2-09 HOLDING IT AS ERRONEOUS & PREJU DICIAL TO THE INTEREST OF REVENUE GIVING REASON THAT THE A.0. ALLOWED EXEMPTI ON U/S 80/B OF THE I. T. ACT, 61 TO THE ASSESSEE INSPITE OF THE FACT THAT THE ASSESSEE DID NOT SATISFY THE CONDITIONS LAID DOWN IN CLAUSE (I) AND (II) OF SUBSECTION (2) OF SECTION 80/B OF THE I. T. ACT. THE LD. A. 0. ALSO I NITIATED PROCEEDINGS U/S 14 7/148 OF!. T. ACT, 61 FOR A. Y. 2003-04 & 2004-0 5 FOR THE SAME REASON THAT EXEMPTION U/S 8018 WAS WRONGLY ALLOWED TO ASSE SSEE AND COMPLETED REASSESSMENT U/S 14 7/148 VIDE ASSESSMENT ORDER(S) DATED 27-08-09 AND ALSO COMPLETED DENOVO ASSESSMENT FOR A. Y. 2005-06 PURSUANT TO ORDER OF CIT ILL, JAIPUR U/S 263 VIDE ASSESSMENT ORDER DAT ED 2 7-07-09 AND DISALLOWED CLAIMED DEDUCTION U/S 801B IN ALL THE TH REE ASSESSMENT YEARS. THE ASSESSEE APPEALED TO HONBLE ITAT, JAIPUR BENCH , JAIPUR AGAINST THE ORDER U/S 263 PASSED BY CIT ILL, JAIP UR AND HONBLE ITAT VIDE ITS ORDER DATED 26-2-10 (IN ITA NO. 589/JP/200 9) HELD THAT ASSESSEE FULFILLS ALL THE CONDITIONS LAID DOWN IN SECTION 80 1B (I) AND (II) AND SO THE A. 0. RIGHTLY ALLOWED DEDUCTION U/S 80/B AND ASSESS MENT ORDER NOT BEING ERRONEOUS OR PREJUDICIAL TO REVENUE THE ORDER PASSE D BY CIT ILL, JAIPUR U/S 263 IS SET ASIDE. 7 THEREAFTER THE LD. CIT (A) ILL, JAIPUR DECIDING A PPEAL FILED BY ASSESSEE AGAINST DENOVO ASSESSMENT ORDER PASSED BY A.0. U/S 143 (3) / 263 DATED 27-7- 09 SET ASIDE THE DENOVO ASSESSMENT ORDE R AND RESTORED THE ORIGINAL ASSESSMENT ORDER AGAINST WHICH DEPARTMENT FILED APPEAL BEFORE ITA T, JAIPUR BENCH, JAIPUR AND HONBLE ITAT VIDE I TS ORDER DATED 11-11- 2010 (ITA NO. 713/JP/2010) UPHELD THE ORDER OF CIT (A). THE LD. CIT (A) ILL, JAIPUR ALSO DECIDED APPEAL(S) FOR A.Y. 2 003-04 & 2004-05 FILED AGAINST ASSESSMENT ORDER(S) PASSED BY LD. A. 0. U/S 148/143 (3) DATED 27- 8-09 AND BY FOLLOWING APPEAL ORDER PASSED BY HONBL E ITAT IN A. Y. 2005-06 AGAINST ORDER OF CIT ILL, JAIPUR U/S 263 ALLOWED THE CLAIMED DEDUCTION U/S 8OLB(5) OF I. T. ACT, 1961. ACTION OF A.0. THE LD. A. 0. IN THIS ASSESSMENT YEAR (A. Y. 2006-0 7 DISALLOWED THE DEDUCTION U/S 10BA ON THE SAME LINES 01) WHICH HE DISAILOWED DEDUCTION U/S 8OLB IN EARLIER YEARS HOLDING THAT AS SESSEE IS NOT A MANUFACTURER OR PRODUCER OF THE ELIGIBLE ARTICLES O R THINGS U/S 10BA AND IT ALSO DO NOT COMPLY THE CONDITIONS LAID DOWN IN SECT ION I0BA (2)(D). THE ISSUES RAISED BY LD. A.O. FOR DISALLOWING THE DEDUC TION U/S IOBA TO THE ASSESSEE ARE THAT ASSESSEE DO NOT FULFILL THE CONDI TIONS LAID DOWN IN CLAUSES (A), (B), (C), (D) AND (E) OF SECTION I0BA (2) AND THOSE MENTIONED IN SUB- SECTION (3) OF SECTION 10BA AND EXPLANATION (B) TO SUB SECTION I0BA. SUBMISSION OF ASSESSEE GROUND NO. 1: THE GROUND NO. I OF APP EL RELATES TO OBJECTING THE ACTION OF LD. A.O. IN DISALLOWING DEDUCTION OF RS. 62,72,439/- CLAIMED BY ASSESSEE U/S IOBA OF I. T. ACT, 1961. THE ASSESSEE SUBMITS THAT IT FULFILLS ALL THE CONDI TIONS LAID DOWN IN CLAUSES (A), (B), (C), (D) AND (E) OF SECTION 10BA (2) AND THOSE MENTIONED IN SUB-SECTION (3) OF SECTION IOBA AND EXPLANATION (B) TO SUB-SECTION IOBA AS HE SUBMITS AND EXPLAINS HEREIN UNDER: 8 (A) IT MANUFACTURES OR PRODUCES THE ELIGIBLE ARTICL ES OR THINGS WITHOUT THE USE OF IMPORTED RAW MATERIALS. AS PER EXPL- (B) TO SECTION 10BA ELIGIBLE ARTICLES OR THINGS MEANS ALL HAND MADE ARTICLES OR THINGS WHICH ARE OF ARTIS TIC VALUE AND WHICH REQUIRES THE USE OF WOOD AS THE MAIN RAW MATERIAL. IN PARA NO. 5. 1 (A) (I) OF ASSESSMENT ORDER, LD. A . 0. HAS MENTIONED THAT UNIT PURCHASES MOSTLY FINISHED GOODS AND EXPORTED THEM. A FEW PURCHASES ARE MADE BY THE ASSESSEE OF SEMI FINI SHED & RAW GOODS. ON THESE GOODS THE ASSESSEE CARRIED OUT SOME ARTISTIC POLISHING, SANDING, PAINTING & OTHER WORK OF ART & MADE THEM WOODEN HAN DICRAFT OF ARTISTIC VALUE AS PER THE SPECIFICATIONS OF FOREIGN BUYERS. ASSESSEE IS SIMPLY CARRYING OUT TRADING ACTIVITY AND THAT CANNOT BE CO NSIDERED AS MANUFACTURING ACTIVITY. IT IS SUBMITTED THAT ANY PROCESS IS A MANUFACTURING PROCESS WHEN IT BRINGS OUT A COMPLETE TRANSFORMATION FOR THE WHOLE COMPONENT SO AS TO PRODUCE A COMMERCIALLY DIFFERENT ARTICLE OR COMMODI TY. BUT THAT PROCESS ITSELF MAY CONSIST OF SEVERAL PROCESSES WHICH MAY O R MAY NOT BRING ABOUT ANY CHANGE AT EVERY INTERMEDIATE STAGE. BUT THE ACT IVITIES OR THE OPERATIONS MAY BE SO INTEGRALLY CONNECTED THAT THE FINAL RESUL T IS THE PRODUCTION OF A DIFFERENT COMMERCIALLY ARTICLE. THEREFORE, THE SUPR EME COURT HELD THAT ANY ACTIVITY OR OPERATION WHICH IS THE ESSENTIAL REQUIR EMENT AND IS SO RELATED TO THE FURTHER OPERATIONS FOR THE END RESULT WOULD ALS O BE A PROCESS IN OR IN RELATION TO THE MANUFACTURE. IN THE NUTSHELL IT CAN BE CONCLUDED THAT ANY ACTIVI TY INCIDENTAL OR ANCILLARY TO THE COMPLETION OF THE MAIN PRODUCT OR ALL THE TREATMENTS ADOPTED TO RENDER THE PRODUCT MARKETABLE TO THE CON SUMER IS A MANUFACTURING ACTIVITY. MANUFACTURING THEREFORE DOE S NOT MEAN THAT THERE SHOULD BE A CHANGE AT EACH AND EVERY STAGE OF THE P ROCESS. THE ULTIMATE 9 OUTCOME WHICH IS RENDERED AFTER THE COMPLETION OF E NTIRE PROCESS SHOULD BE DIFFERENT FROM THE ONE AT THE FIRST STAGE. THE W ORD MANUFACTURING BEING A WIDE TERM HAS NO SPECIFIC MEANING AND IT VARIES F ROM CONCERN TO CONCERN SEEKING TO THE NATURE OF BUSINESS. THE ASSESSEE PURCHASED RAW ,MATERIAL & FEW SEMI FIN ISHED ITEMS ON WHICH THE MANUFACTURING PROCESSES WERE CARRIED O N BY THE ASSESSEE THROUGH WHICH FINAL PRODUCT CAME INTO EXISTENCE. TH IS FACT IS EVIDENT FROM THE DETAILS OF PURCHASES GIVEN BELOW: PARTICULARS AMOUNT (IN RS.) SEMI FINISHED GOODS 17B 11070580.00 PURCHASE OF WOOD ST. PAID & ST. FREE 11001230.00 WOOD AGAINST FROM C FORM 4461329.00 WOOD AGAINST C FORM 31511461.00 WOOD AGAINST WOOD C FORM 12276250.00 PACKING MATERIALS ST. PAID 4579204.00 POLISH MATERIALS ST. PAID 3855295.00 AGAINST D FORM 7424778.00 TOTAL 86180127.00 THE ABOVE IN FORMATION IS AN EXTRACT FROM THE AUDIT ED BALANCE SHEET FROM WHICH IT IS CLEAR THAT THE TOTAL AMOUNT OF SEM I FINISHED GOODS PURCHASED DURING THE YEAR IS RS. 11070580/- AS AGAI NST THE OTHER RAW MATERIAL OF RS. 75109547/-. THE TOTAL PURCHASES DUR ING THE YEAR IS RS. 86180127/-. SO, SEMI FINISHED GOODS IS ONLY 12.84% OF TOTAL PURCHASES AS AGAINST OTHER RAW MATERIAL PURCHASES WHICH IS 87.16 % OF TOTAL PURCHASES. ON GOING THROUGH THE MFG. & TRADING A/C IT IS APPAR ENT THAT THE MANUFACTURING EXPENSES OF RS. 23181532/- HAVE BEEN INCURRED DURING THE YEAR WHICH IS 83.60% OF TOTAL DIRECT EXPENSES. THE ALLEGATION OF LD. A.O. IS THEREFORE WRONG THAT THE ASSESSEE IS SIMPLY CARR YING OUT TRADING ACTIVITY SINCE THE MAJOR PORTION OF THE DIRECT EXPENSES IS C OVERED BY MANUFACTURING EXPENSES WHICH INCLUDES EXPENSES LIKE ELECTRICITY, GAS & FUEL, WAGES, FACTORY EXPENSES ETC. 10 THE SEMI FINISHED WOODEN ARTICLES PURCHASED BY ASSE SSEE (WHICH LD. A.O. IS TAKING AS FINISHED GOODS) WERE GOT FINI SHED THROUGH CONTRACTORS ON JOB-WORK BASIS WHICH IS TO BE CONSIDERED AS MANU FACTURING DONE BY ASSESSEE. IN THIS CONNECTION IT IS SUBMITTED THAT T HESE SEMI FINISHED WOODEN ARTICLES WERE ALSO GOT MANUFACTURED BY ASSESSEE FRO M CONTRACTORS ACCORDING TO SPECIFICATIONS GIVEN BY HIM AS PER EXP ORT ORDERS RECEIVED AND THUS THOSE CONTRACTORS WERE MANUFACTURING THESE ART ICLES ON BEHALF OF ASSESSEE AS REGARDS THE ARTISTIC VALUE OF PRODUCTS MANUFACTURED BY THE ASSESSEE, IT WAS FOUND THAT THE CARPENTER, WORKMEN AND CRAFTSMEN, ETC., EMPLOYED BY THE ASSESSEE THROUGH CONTRACTORS WERE V ERY CREATIVE, SKILFUL AND TALENTED AND THEY USED TO CARVE OUT NEW MODELS ON WOODEN BOXES AND WOODEN CONTAINERS, ETC. TO BE EXPORTED BY THE ASSES SEE AND, THUS, THE AID OF MACHINES IN SAID ACTIVITY WAS SECONDARY AND REAL RO LE WAS THAT OF EXPERT CREATIVE WORKMEN WITH THEIR DEXTERITY, IN VIEW OF A BOVE FACTS AND CIRCUMSTANCES, IT WAS TO BE HELD THAT THE ASSESSEE WAS MANUFACTURING ITEMS OF ARTISTIC VALUE EVEN AFTER GETTING SOME PROCESS D ONE ON PIECE OR JOB BASIS FROM OUTSIDE BUT UNDER HIS CONTROL AND ITEMS SO PRO DUCED OR MANUFACTURED WOULD BE TREATED AS MANUFACTURE OR PRODUCTION BY TH E ASSESSEE. THE RELIANCE IS PLACED ON THE DECISION OF ITA T, JAIPUR BENCH, JAIPUR IN CASE OF DCIT VS. MAN GLAM ARTS (2009) 120 TTJ 198. IT IS SU BMITTED THAT THE PURCHASES OF RS. 11070580/- SHOWN BY ASSESSEE UNDER THE HEAD SEMI FINISHED GOODS WERE NOT SEMI FINISHED GOODS ACTUALL Y. THOSE WERE A PART OF RAW MATERIAL PURCHASED ON WHICH POLISHING, PAINTING , CARVING AND OTHER ARTISTIC WORKS WERE REQUIRED TO BE CARRIED OUT DIRE CTLY BUT THE STAFF WRONGLY CLASSIFIED IT TINDER THE NAME OF SEMI FINISHED GOOD S IN ORDER TO SEGREGATE THE GOODS. THE WORKERS WHO TOLD THAT THE ASSESSEE C ARRIED OUT POLISHING AND PACKAGING WORK ONLY WERE ACTUALLY ON CONTRACTUA L BASIS WHO WERE MEANT FOR PACKAGING AND POLISHING WORK AND THEREFOR E THEY TOLD THAT ONLY PACKAGING AND POLISHING WORK IS CARRIED OUT. HENCE, THE LD. A. 0.S CONTENTION THAT UNIT PURCHASES MOSTLY FINISHED GOO DS AND ONLY POLISHING AND PACKAGING WORK IS CARRIED OUT AND THE SAME, WAS EXPORTED AS IT IS, IS 11 TOTALLY WRONG. SUCH OBSERVATION HAVE BEEN IN DELIBE RATE DISREGARD OF THE FACT THAT ASSESSEE HAD PURCHASED MOSTLY WOOD AND OT HER RAW MATERIAL LIKE BRASS ITEMS, GLASS, HARDWARE ITEMS, POLISH MATERIAL AND VARIOUS OTHER ITEMS SHOWN IN THE MANUFACTURING & TRADING ACCOUNT. IN THIS REGARD THE LD. ASSESSING OFFICER IN PARA 5. 1 OF HIS ASSESSMENT ORDER HAS ALSO TAKEN NOTE OF AUDITORS RE MARK IN THE REPORT U/S 10BA (5) FILED AND IN THE DETAILS ANNEXED FOR COLUM N NO. 16 OF FORM 5 IN PARA 5 IT STATED THAT UNIT PURCHASE MOSTLY FINIS HED GOODS ARID EXPORTED THEM WHILE IN PARA -- 1 OF THE SAME IT WAS STATED THAT THE UNDERTAKING IS A MANUFACTURING UNIT. IN THIS RESPECT WE ARE TO SUBM IT THAT AS IS EVIDENT FROM THE TRADING AND MANUFACTURING ACCOUNT THAT THE ENTIRE PURCHASES OF UNIT ARE OF RAW MATERIAL ONLY AND AS EXPLAINED HERE IN THE PURCHASES ACCOUNTED FOR IN THE GROUPING SEMI FINISHED GOODS A RE THOSE SKELETONS OF WOODEN ARTICLES OR THINGS WHICH WERE GOT MANUFACTUR ED BY UNIT ON JOB WORK BASIS WITH MATERIAL AS PER SPECIFICATIONS IN E XPORT ORDERS RECEIVED BY UNIT AND THUS IT WAS ALSO MANUFACTURING OF THE UNIT AND ON THOSE SKELETONS ALSO THE ARTISTIC WORK FINISHING, POLISHING AND OTH ER VALUE ADDITION WORK WAS DONE IN THE MANUFACTURING UNIT OF ASSESSEE. THE RE IS NOT A SINGLE ITEM WHICH WAS PURCHASED IN FINISHED FORM AND EXPORTED A S IT IS. THE FACT IS FULLY VERIFIABLE FROM FACTS ON RECORD AND, THEREFOR E, AN INADVERTENT NOTE IN THE REPORT WHICH MAY BE DUE TO DRAFTING OR TYPING M ISTAKE CANNOT BE RELIED. THE FIRST SENTENCE OF AUDIT NOTE READ WITH OTHER SE NTENCES OF THE NOTE AND WITH PARA I OF AUDIT NOTE SUGGESTS THAT IT SHOULD BE READ AS UNIT MOSTLY EXPORTS FINISHED GOODS. IN ANY CASE THE FACTS ON R ECORD SUPPORTED WITH DOCUMENTS CANNOT BE BRUSHED ASIDE SIMPLY DUE TO AN INADVERTENT AUDIT NOTE IN REPORT U/S 10BA (5). IN SUPPORT OF OUR CONT ENTION WE HAVE ALSO OBTAINED A CLARIFICATION FROM ACCOUNTANT WHO PREPAR ED THE SAID REPORT U/S 10BA (5) AND THE SAME IS SUBMITTED HEREWITH. 12 THE SECOND PART OF THE CONDITION MENTIONED IN CLAUS E (A) OF THE SUBSECTION (2) IS THAT THE MANUFACTURE OR PRODUCTIO N MUST BE OF ELIGIBLE ARTICLES OR THINGS. IN PARA NO. 5. 1 (I), (II), (III), (IV) AND (V) OF ASSESSMENT ORDER, THE LD. A. 0. ALLEGED THAT THE ARTICLES OR THINGS EXPOR TED BY THE ASSESSEE ARE NOT COVERED BY THE DEFINITION OF ELIGIBLE ARTICLES OR T HINGS AS THEY ARE NOT HANDMADE, ARE NOT OF ARTISTIC VALUE, THEY ARE SIMPL E FURNITURE ITEMS AVAILABLE IN ANY OTHER REPUTED SHOWROOM & SOME ARTI CLES ARE MADE OF IRON. LD. AO ALSO ALLEGED THAT ALMOST ENTIRE RANGES OF GO ODS EXPORTED BY ASSESSEE ARE ORDINARILY FURNITURE ITEMS WHICH ARE C OMMONLY USED IN HOTELS OR IN DAILY USE I.E. OF UTILITY PURPOSE. THE LD. AOS CONTENTION THAT THE ASSESSEE HAS USED LARGE NO. OF MACHINES AND MORE THAN 90% OF THE MANUFACTURING PRO CESS IS DONE WITH THE HELP OF MACHINES IS ERRONEOUS. THE MACHINES FOU ND AT THE PREMISES OF THE ASSESSEE WERE ARA MACHINES, GAGE MACHINES, PLAI NER MACHINES, REJMAI MACHINE, BOILER MACHINE, SEASONING PLANT, ET C. WHICH ARE NOT ACTUALLY MACHINES BUT ARE SMALL HAND TOOLS USED ONL Y TO BRING THE RAW MATERIAL TO THE STAGE FROM WHERE HAND WOK CAN BE CA RRIED OUT. MANUFACTURING IS NOT DONE WITH THE HELP OF THESE HA ND TOOLS; THESE ARE ONLY MEANT FOR CUTTING, DRYING, SMOOTHENING AND OTHER DI MINUTIVE WORKS WHICH ARE PREREQUISITE BEFORE COMMENCING ANY WOODEN WORK. AS LD. AO MENTIONED THAT THE ASSESSEE USED MACHINER IES DURING THE MANUFACTURING PROCESS THEREFORE, GOODS PRODUCED ARE NOT ELIGIBLE GOODS, BUT THE CONTENTIONS OF THE LD. AO IS NOT COR RECT AS IT IS EXPLICITLY MENTIONED IN THE SUB CLAUSE (C) OF SUB-SECTION (2) OF SECTION 10BA OF THE I. T. ACT, 1961 THAT UNDERTAKING IS NOT FORMED BY T HE TRANSFER TO NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. IT MEANS ONLY NEW PLANT & MACHINERY SHOULD BE USED AND OLD P & M PREVIOUSLY SHOULD NOT BE USED. HENCE THERE IS NO BAR IN USING NEW PLANT & MACHINERY 13 AS ITSELF PROVIDED IN THE SECTION 10BA OF THE ACT. THEREFORE THE RESTRICTION IS NOT ON USE OF PLANT & MACHINERIES BUT ON THE USE OF OLD PLANT & MACHINERIES. IF THIS JUDGMENT REFERRED ABOVE FULLY SUPPORTS THE CONTENTION THAT THE MACHINERIES USED BY THE ASSESSEE IN THE MA NUFACTURING PROCESS, CAN NOT DISQUALIFY FOR DEDUCTION US 10BA AND 80/8 & GOODS PRODUCED WILL BE CONSIDERED AS ELIGIBLE GOODS. COLLECTOR OF CENTRAL EXCISE , NEW DELHI V/S LOUIS S HOPPE AND ANOTHER (1996) 102 STC 129 (SC) IN WHICH IT WAS INT ER ALIA HELD AS UNDER: WOODEN HANDICRAFTS FURNITURE, MAY BE CHARACTERIZED AS HANDICRAFTS IF THE FOLLOWING TESTS ARE SATISFIED: - (I) IT MUST BE PREDOMINANTLY MADE BY HAND. IT DOES NOT MATTER IF SOME MACHINERY IS A/SO USED IN THE PROCESS. (II) IT MUST BE GRACED WITH VISUAL APPEAL IN THE N ATURE OF ORNAMENTATION OR INLAY WORK OR SOME SIMILAR WORK LENDING IT AN EL EMENT OF ARTISTIC IMPROVEMENT. SUCH ORNAMENTATION MUST BE OF A SUBSTA NTIAL NATURE AND NOT A MERE PRETENCE. FROM THE ABOVE, IT CAN BE CONCLUDE THAT IT IS NOT E SSENTIAL THAT IN ORDER TO CLAIM DEDUCTION UNDER THE FORESAID SECTION ASSESSEE CAN NOT WORK WITH THE HELP OF MACHINERY. THERE ARE HOWEVER SOME WORK WHICH IS NOT POSSIBLE TO ACCOMPLISH WITH HAND, FOR THAT SPECIFIC PURPOSE MANUFACTURING IS DONE WITH MACHINERIES. IT IS A WELL KNOWN FACT T HAT NO MACHINE CAN GIVE AN ANTIQUE LOOK OR CREATE AN ARTISTIC VALUE OF A PR ODUCT, ULTIMATELY WHAT IS REQUIRED IS THAT SKILLS ARE NEED TO BE APPLIED BY T HE LABOUR WHO ARE EFFICIENT ENOUGH TO DO SO AND IF ANY WORK IS DONE BY QUALIFIE D LABOUR IT CANNOT BE SAID THAT IT IS MACHINE MADE. OUT THE ENTIRE PRODUC TION EXPENSES INCURRED DURING THE YEAR MAJOR PORTION IS OF WAGES WHICH CLE ARLY INDICATES THAT THE MANUFACTURING PROCESS HAS BEEN CARRIED OUT BY THE A SSESSEE. THE LD. A.O. S CONTENDED THAT RS. 892476/- ARE DEBITED ON ACCOU NT OF ELECTRICITY AND RS. 1471 161/- ARE DEBITED ON ACCOUNT OF GAS AND FU EL. HOWEVER. RS. 892476/- DOES NOT INCLUDES ELECTRICITY USED BY THE MACHINES. IT ALSO INCLUDES ELECTRICITY CONSUMED BY OTHER EQUIPMENTS I N THE FACTORY. FURTHER 14 RS. 147116/- ARE DEBITED ON ACCOUNT OF GAS AND FUEL . AS THE PRODUCTION IS CARRIED OUT ON LARGE SCALE. IT IS NOT POSSIBLE TO C ARRY OUT DIMINUTIVE WORKS LIKE CUTTING, DRYING, SMOOTHENING, ETC. BY LABOUR A S IT WOULD BE VERY TIME CONSUMING AND ORDERS NEED TO BE COMPLETED WITHIN TI ME 7RAME GIVEN BY THE IMPORTERS OUTSIDE INDIA. THEREFORE, THESE MACHI NES ARE USED TO CARRY OUT SMALL WORKS SO THAT THE LABOUR CAN DEVOTE THEIR TIME IN REAL MANUFACTURING WORK WHICH CANNOT BE DONE WITH THE HE LP OF ANY MACHINE. THEREFORE, THE CONTENTIONS OF THE LD. A.0. IS WRONG THAT ASSESSEE CARRIED OUT THE ENTIRE PRODUCTION WITH HELP OF MACHINERIES. THE LD. A.OS CONTENTION THAT MANY OF THE EXPORTED GOODS ARE MADE OF IRON THAT ASSESSEE SOLD GOODS OF RS. 755128 5/- WHICH WERE MADE OF IRON IS WRONG. THE GOODS ARE NOT MADE OF IRON. T ILE IRON USED BY THE ASSESSEE IN THE ARTICLES MAN MANUFACTURED WAS ONLY TO BRING BEAUTY TO THE ARTICLES SO AS TO MAKE THEM ANTIQUE ONES FIT FOR EX PORT AND THERE FORK THE ULTIMATE PRODUCT IS ALTOGETHER DIFFERENT AS RECOGNI ZED BY THE COMMERCIAL WORLD THAT IS IMPORTERS OUT SIDE INDIA. IN ORDER TO GIVE A DIFFERENT LOOK TO THESE GOODS DIFFERENT WORKS ARE REQUIRED TO BE CARR IED OUT ON THE GOODS LIKE BRASS WORK, METAL WORK, IRON WORK. THESE GOODS HAVE HIGH DEMAND BECAUSE OF THERE LOOK , USE, VALUE AND WORK CARRIED OUT ON THEM AND THIS IS THE REASON WHICH CREATES A DEMAND FOR THESE GOODS OUTSIDE INDIA AND WHICH MAKE S THEM POLES APART FROM OTHERS. THE IRON HAS BEEN USED BY TLE ASSESSEE ONLY TO CARRY OUT SOME WORK ON THE GOODS WHICH IS NECESSARY TO MAKE IT DIS TINCTIVE AND ARTISTIC AND TO MAKE IT EXPORTABLE. HOWEVER THE PROVISIONS O F THE SECTION ITSELF DOES NOT DEBARRED ASSESSEE FROM USING IRON IN THE G OODS PRODUCED, BUT THE MAIN CONCERN OF THE PROVISIONS IS THAT THE GOODS SO MANUFACTURED MUST USE WOOD AS MAIN RAW MATERIAL. THE GOODS SO MANUFACTURE D BY OUR CONCERN CONTAINS WOOD AS MAIN RAW MATERIAL AND THE PROPORTI ON OF THE IRON IN THE GOODS IS VERY SMALL. 15 ON GOING THROUGH THE PURCHASES MADE BY THE ASSESSEE IT IS CRYSTAL CLEAR THAT ASSESSEE HAS PURCHASED WOOD FOR RS: 4378 7711/- DURING THE YEAR WHERE NO IRON HAS BEEN PURCHASED AS RAW MATERIAL. I T THEREFORE ESTABLISHES THE FACT THAT THE ASSESSEE HAS USED WOOD AS THE MAI N RAW MATERIAL IN PRODUCTION OF HIS ARTICLES. FURTHER THE LD. A.O. CONTENDED THAT THE GOODS EXPOR TED BY THE ASSESSEE ARE ORDINARY FURNITURE ITEMS WHICH ARE USE D AS FURNITURE ITEMS IN HOMES OR IN HOTELS FOR DAILY USE AND ARE NOT OF ART ISTIC VALUE WHICH IS NOT CORRECT. DICTIONARY MEANING OF ARTISTIC WORK IS AN Y WORK OF ART, SKILL PERFORMED BY PERSON ON ANY ARTICLE OR COMMODITY AN D THAT CAN BE OF UTILITY NATURE EVEN AND IT IS NOT NECESSARY THAT IT SHOULD BE A DECORATIVE PIECE WHICH IS KEPT IN MUSEUMS OR ART GALLERIES. THE OXFORD ADVANCED LEARNERS DICTIONARY DEFINES THE WORD ARTISTIC AS CONNECTED WITH ART OF ARTISTIC. SHOWING A NATURAL SKILL IN OR ENJOYMENT OF ART, ESPECIALLY BEING ABLE TO PAINT OR DRAW WELL. DONE WITH SKILL AND IMAGINATION, ATTRACTIVE OR BEAUTIFUL THE LD. A. 0. IS NOT A TECHNICAL EXPERT HENCE COULD NOT DEFINE ART IN ANY PARTICULAR SENSE. THE WORD ARTISTIC GIVES EMPHASIS ON ART, CREATIVITY , AND INNOVATIVE WORK NOT ON THE PURPOSE FOR WHICH IT IS USE. THE GO ODS SO EXPORTED BY THE ASSESSEE HAVE ARTISTIC VALUE AND A LOT OF PRECIOUS AND ANTIQUE WORK HAS BEEN CARRIED OUT ON THEM AS IT/S APPARENT FROM THE PHOTOGRAPHS OF THE PRODUCTS. AS PER SECTION I0BA THERE IS NO RESTRICTI ON ON THE USE OF GOODS. THOUGH THE GOODS MAY BE COFFEE TABLE WITH SHELF DIN ING TABLE, ETC. BUT SECTION DOES NOT PROVIDE THAT SUCH GOODS CANNOT BE EXPORTED. ONLY THINGS THAT IS TO BE TAKEN CARE ACCORDING TO SECTION 10BA IS THAT THE GOODS SHOULD BE OF ARTISTIC VALUE. HOWEVER, THE UTILITY ELEMENT WAS INCLUDED IN THE GOODS SO PRODUCED BECAUSE THE GOODS WILL BE DEMANDED IN T HE INTERNATIONAL MARKET ONLY IF IT CONTAINS SOME UTILITY. THEREFORE IN ORDER TO MAINTAIN THE 16 TURNOVER OF THE CONCERN THE GOODS WERE MADE USEFUL. BUT IT DOES NOT MEAN THAT IF ANY THINGS WHICH CONTAINS UTILITY CAN NOT H AVE ARTISTIC WORK. IT IS PERTINENT TO NOTE THAT A NUMBER OF PROCESSES ARID ACTIVITIES ARE REQUIRED TO BE CARRIED BEFORE THE PRODUCT IS SOLD/E XPORTED. THE VARIOUS ACTIVITIES CARRIED OUT BY THE APPELLANT, ARE AS UND ER: (I) FIRSTLY, THE APPELLANT PURCHASES WOOD & FEW SEMI FI NISHED MATERIAL WHICH REQUIRES FURTHER WOOD AND OTHER WORK BEAUTIFI CATION AND OF ARTISTIC VALUE. THERE APART THE OTHER RAW MATERIAL, THE WOOD OUT OF WHICH IS THE MAIN, THE OTHERS I.E. BRASS, NAILS ETC . ARE PURCHASED. (II) THEREAFTER VARIOUS OTHER ITEMS ARE ADDED DEPENDING UPON THE DESIGNS, SIZE, QUALITY OF THE SUBJECTED ITEM TO BE EXPORTED, (III) AFTER PURCHASING THE SEMI FINISHED GOODS AND RAW MA TERIAL, AS STATED ABOVE, THE VERY FIRST STEP IS TO GIVE THE SE MI FINISHED FURNITURE FURTHER SHAPE AS PER THE DESIRED EXPORTAB LE DESIGNS & RAW MATERIAL IS COMPLETELY UNDER GONE WHOLE PROCESSING OF MANUFACTURING. (IV) THEREAFTER, PUNCHING IS DONE BY HAMMERING NAILS BY HAND. IT IS PURE LABOUR WORK WHICH CAN BE DONE BY EXPERTS ONLY. IT MAY BE NOTED THAT THE NAILS ARE OF SPECIAL TYPE HAVING A RTISTIC AND ANTIQUE LOOK, (V) FITTING OF BRASS AND IRON ITEMS AGAIN WITH A VIEW T O GIVE ARTISTIC AND ANTIQUE LOOK. (VI) FILLING AND FILING WITH A VIEW TO SMOOTHEN THE SURF ACE. (VII) SANDING (VIII) CARVING WITH A VIEW TO BRING THE ARTISTIC VALUE AND TO SHOW THAT THESE ARE ANTIQUE ITEMS, (IX) AND LASTLY POLISHING (X) THEREAFTER, VARIOUS WOODEN ITEMS ARE FITTED ACCORDI NG TO THE NEED AND DESIGN OF THE EXPORTABLE WOODEN ARTICLE, I.E. W OODEN MOULDING IS FITTED INLAY IS DONE. 17 IN EARLIER YEARS THE ASSESSEES CONTENTION THAT HE IS MANUFACTURING ARTICLES OR THINGS WAS UPHELD IN APPEAL AND ITAT AS STATED ABOVE WHILE DECIDING THE ALLOWABILITY OF CLAIM U/S 8018. THE AS SESSEE IS HAVING EXACTLY SIMILAR NATURE OF BUSINESS IN THIS YEAR ALSO AND SO THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE. IN THIS CONNECTION RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF ITAT IN CASE OF GOVERDHAN PRASAD SINGH AL VS. I. T. 0. (2009) 27 DTR 1(JP). THUS THE LD. A. 0. IS WRONG IN HOLDING THAT ASSESSEE PURCHASES MOSTLY FINISHED GOODS AND EXPORTED THEM A ND NOT ENGAGED IN MANUFACTURING PRODUCING ELIGIBLE ARTICLES OR THINGS . THE CONDITION IN CLAUSE (B) OF SULI-SECTION (2) OF SECT ION 1OBA IS AS UNDER: - (B) IT IS NOT FORMED BY SPLITTING UP OR THE RECONST RUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE A.O. STATED THAT THIS CONDITION IS NOT FULFILL ED BECAUSE THE BUSINESS OF ASSESSEE IS ONLY AN EXTENSION OF A VERY OLD EXISTING BUSINESS IN THE NAME OF M/S INDIAN ART PALACE, M/S INDIAN ACT P ALACE WAS AN OLD PARTNERSHIP FIRM IN WHICH FAMILY MEMBERS OF ASSESSE E WERE PARTNERS. IN NUTSHELL, THE SAME BUSINESS CONTINUED IN THE NAME O F M/S THE ART PALACE, AS PROPRIETARY CONCERN OF THE ASSESSEE. THE FEATURE CHARACTERISTIC OF THE CONTINUANCE OF THE OLD BUSINESS IS THAT: (I) THE BUSINESS WAS STARTED IN THE SAME BUSINESS PREMI SES AND IS STILL CONTINUING, PRIMARILY IN THE SAME PREMISES. (II) THE BUSINESS WAS STARTED WITH THE SAME MACHINERY AN D IS STILL USING THE OLD MACHINERY OF THE OLD CONCERN M/S INDIAN ART PALACE, WITH ROUTINE ADDITION TO THE OLD MACHINERY EVERY YEAR. (III) MANY OF THE WORKERS AND EMPLOYEES WHO WORKED WITH M /S INDIAN ART PALACE CONTINUED AND ARE STILL WORKING WITH THE ASSESSEE CONCERN, M/S THE ART PALACE. 18 (IV) THERE WAS NO CHANGE IN THE NAME OF BUSINESS AND ITS MODUS OPERANDI EXCEPT SLIGHT CHANGE IN BRAND NAME FROM M/ S INDIAN ART PALACE TO M/S ART PALACE. THE CONTENTION OF A. 0. IS WHOLLY WRONG ON FACTS. T HE FIRM M/S INDIAN ART PALACE IS A PARTNERSHIP FIRM CONSISTING FIVE PARTNERS WHICH IS AN ADMITTED FACT IN THE ORDER. THE ASSESSEE WAS NEVER A PARTNER OR EMPLOYEE IN THE FIRM AND HAD NO CONNECTION WITH THE SAID FIR M. IT IS IMMATERIAL THAT PARTNERS OF INDIAN ART PALACE ARE BROTHERS (REAL & COUSINS) OF ASSESSEE. THE CONCERN ART PALACE IS SOLE PROPRIETORY CONCERN OF A SSESSEE. THUS THERE IS NO CONNECTION WITH EACH OTHER AND BOTH CONCERNS ARE DISTINCTLY SEPARATE. THE STARTING OF SAME BUSINESS BY THE CONCERN OF ASS ESSEE IS NOT AT ALL RELEVANT AS A NEW INDUSTRIAL UNDERTAKING MAY BE SET UP FOR STARTING SAME BUSINESS WHICH OTHER CONCERNS MAY HAVE BEEN CARRYIN G. THE CONCERN OF ASSESSEE M/S ART PALACE WAS NOT SET UP IN SAME BUSINESS PREMISES AS THAT OF M/S INDIAN ART PALACE AS HELD BY A.0. THE ASSESSEE IN F.Y. 200 1-02 PURCHASED NEW FACTORY PRE MISES AS PER ADMITTED FACTS IN THE ORDER. THE LOCATION OF PREMISES WAS QU ITE DISTINCT AS IS CLEAR FROM THE MAP OF PREMISES. THE ASSESSEE ON THIS NEW PREMISES SET UP HIS UNIT W.E.F 28-8-02 WHICH PLACE IS HAVING SEPARATE A PPROACH. THE UNIT OF INDIAN ART PALACE WAS WORKING AT DIFFERENT LOCATION SINCE 1984 AND THE SAID UNIT CARRIED ON BUSINESS OF MANUFACTURING AND SALE TILL F.Y. 2002-03 I.E. EVEN AFTER ASSESSEE SET UP ITS UNIT AND COMMEN CED BUSINESS. THE PURCHASE OF SAID PREMISES BY ASSESSEE FOR SETTING U P HIS UNIT BY TAKING LOAN FROM M/S INDIAN ART PALACE AS NARRATED IN THE ORDER IS IMMATERIAL AS IN LAW IT DO NOT MEAN THAT THE CONCERN IS FORMED BY SPLITT ING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE DETAILS OF SALES AND CLOSING STOCK OF M/S INDIA N ART PALACE VIS A VIS THAT OF THE CONCERN OF ASSESSEE M/S ART P ALACE IS ALSO NOT RELEVANT ON THE ISSUE. THE TURNOVER OF INDIAN ART P ALACE DECREASED BECAUSE 19 OF DISPUTES AND QUARRELS AMONGST PARTNERS LEADING ULTIMATELY TO ITS CLOSURE. THE ASSESSEE IS STILL PROPRIETOR OF BUSINE SS OF M/S ART PALACE AND PARTNERS OF INDIAN ART PALACE HAS NO CONNECTION WHA TSOEVER WITH THE SAID CONCERN. THE BUSINESS OF ASSESSEE WAS GROWN BECAUSE OF EFFORTS OF ASSESSEE. THE FINDINGS OF THE A. 0. ARE HIS OWN PER CEPTIONS WITHOUT ANY DOCUMENTARY EVIDENCE AND BASED ONLY ON CONJECTURES AND SURMISES. THUS THE FINDING OF LD. A. 0. THAT CONCERN OF ASSESSEE M/S ART PALACE WAS THE SUCCESSOR OF FAMILY CONCERN M/S INDIAN ART PALACE IS WITHOUT ANY SUBSTANCE ANDS BASED ON NO MATERIAL OR EVIDENCE ON RECORD. THE FINDING OF LD. A. 0. THAT MANY WORKERS AND EMPL OYEES WHO WORKED WITH M/S INDIAN ART PALACE CONTINUED AND ARE STILL WORKING WITH THE CONCERN IS ALSO NOT SUPPORTED WITH ANY EVIDENCE ON RECORD AND BASED ON SURMISES AND CONJECTURES. THE ASSESSEE SUBMITS D ETAIL OF ITS EMPLOYEES & LABOURERS AND ALSO SUBMITS THAT MOST OF MANUFACTU RING WORK OF THE UNIT OF ASSESSEE WAS GOT DONE ON /OB BASIS. THE STATEMEN TS RECORDED IN COURSE OF SURVEY IN F. Y. 2008-09 FROM EMPLOYEES OF FACTOR Y CANNOT BE RELIED UPON AS THEY HAVE NO EVIDENTIARY VALUE AND WERE REC ORDED UNDER COERCION BEHIND THE BACK OF ASSESSEE. THE ALLEGED STATEMENTS RECORDED IN F. Y. 08- 09 IN COURSE OF SURVEY AFTER ELAPSE OF ABOUT 6 YEAR S AFTER SETTING UP OF INDUSTRIAL UNDERTAKING OF ASSESSEE CANNOT BE RELIED WITHOUT ANY EVIDENCE THERE FOR 017 RECORD. THE ASSESSEE PLACES RELIANCE ON JUDGMENT IN CASE OF CIT VS. S KHADER KHAN & SONS (2008,) 300 ITR 157 (M AD.) AND PAUL MATHEWS AND SONS VS. CIT (2003) 263 ITR 101 WHERE I T WAS HELD THAT STATEMENT RECORDED IN SURVEY U/S I 33A IS NOT CONCL USIVE PIECE OF EVIDENCE. THE ASSESSEE SUBMITS THAT ASSESSEE GENUINELY ESTABL ISHED, NEW INDUSTRIAL UNDERTAKING W.E.T 28-8-02 AND IT WAS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF ANY BUSINESS ALREADY IN EXISTE NCE. THE ABOVE CONTENTIONS OF ASSESSEE HAS BEEN UPHELD B Y ITAT, JAIPUR BENCH, JAIPUR IN CASE OF ASSESSEE IN A. Y. 2 005-06 WHILE DEALING 20 WITH THE DEDUCTION ALLOWABLE U/S 80IB WHEREIN SECTI ON 80IB (2) (1) HAS EXACTLY SIMILAR CONDITION. THUS THE ISSUE IS COVERE D IN FAVOUR OF ASSESSEE FROM SAID ORDER OF ITA T FOLLOWED IN APPEAL BY YOUR HONOURS IN APPEAL ORDER FOR A. Y. 2003-04 & 2004-05. THE CONDITION IN CLAUSE (C) OF SUB-SECTION (2) SECT ION 1OBA IS AS UNDER: - (C) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. THE FINDING OF A.O. RELIED UPON BY CIT THAT FROM B EGINNING TILL NOW THE ASSESSEE HAS BEEN USING THE MACHINERY WHICH WAS PREVIOUSLY USED BY M/S INDIAN ART PALACE IS FACTUALLY INCORRECT. A S ALREADY STATED THAT MOST OF MANUFACTURING BY THE CONCERN OF ASSESSEE WA S GOT DONE ON JOB WORK BASIS AND ASSESSEE ALSO PURCHASED MACHINERY IN F.Y.2002-03 (RS.1,48,931/-), F.Y. 2003-04 (RS.1,16,578/-) AND I N F.Y. 2004-05 (RS. 70,509/-) AND IN A.Y. 2005-06 (RS. 65,145/-). THE M ANUFACTURING OF WOODEN HANDICRAFTS ETC. IN WHICH ASSESSEE DEALS REQ UIRED MOSTLY MANUAL HANDWORK AND NO HEAVY MACHINERY OR PLANT IS REQUIRE D. THIS IS EVIDENT FROM THE PHOTO COPY OF PHOTOGRAPHS OF MANUFACTURING PROCESS OF THE INDUSTRIAL UNDERTAKING AND THAT OF FINISHED GOODS ( P.8. PAGE 110 121). THE ASSESSEE HIRED SOME HAND FOOLS AND SMALL MACHIN ERY FROM INDIAN ART PALACE BUT THE SAME CANNOT BE TERMED AS TRANSFER T O A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USE FOR ANY PURPOSE. THESE HAND TOOLS AND SMALL MACHINERY WERE NOT PREVIOUSLY USED BY M/S IND IAN ART PALACE BUT WERE LYING UNUSED WITH IT. THE ALLEGATION OF LD. A . 0. THAT HIRED TOOLS & MACHINERY WERE PREVIOUSLY USED BY M/S INDIAN ART PA LACE IS NOT BASED ON ANY MATERIAL ON RECORD AND THE SAME, IS SURMISES AN D CONJECTURES. THE ABOVE CONTENTION OF ASSESSEE HAS ALSO BEEN UPHE LD BY ITAT, JAIPUR BENCH, JAIPUR IN CASE OF ASSESSEE IN A. Y. 2 005-06 WHILE DEALING WITH DEDUCTION ALLOWABLE U/S 8018 WHEREIN SECTION 8 018 (2) (II) HAS EXACTLY SIMILAR CONDITION THUS THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE 21 FROM SAID ORDER OF ITAT FOLLOWED IN APPEAL BY YOUR HONOURS IN APPEAL ORDER FOR A. Y. 2003-04 & 2004-05. THE CONDITION IN CLAUSE (D) OF SUBSECTION (2) OF SE CTION IOBA IS AS UNDER: (D) NINETY PERCENT OR MORE OF ITS SALES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ARE BY WAY OF EXPOR TS OF THE ELIGIBLE ARTICLES OR THINGS. THE ALLEGATION MADE BY LD. A. 0. ARE WRONG AS ALREA DY SAID ABOVE THAT ASSESSEE ISSUING ONLY THE SMALL QUANTITY OF IR ON IN THEM & THE BASIC MATERIAL WAS WOOD ONLY. THE IRON IS NOT USED AS MAI N RAW MATERIAL IN THE PRODUCTION BY THE 6 FIRM. THE ARTISTIC WORK NEEDS T O BE DONE ON THE PRODUCT IN ORDER TO. MAKE THE PRODUCT EXPORTABLE W HICH HAS GOT VALUE IN THE COMMERCIAL MARKET AND IS RECOGNIZED BY THE IMPO RTERS OUTSIDE INDIA, THE ARTICLES OR THE THINGS WHICH WERE EXCLUDED BY T HE LD. A. 0. ARE ALMOST THOSE ARTICLES WHICH THOUGH INCLUDES IRON ELEMENT, BUT THE BASIC ELEMENT WAS WOOD ONLY. THE EXPORT TURNOVER OF ASSESSEE IS 9 0.3% OF TOTAL SALES AS GIVEN IN ASSESSMENT ORDER (PAGE 25 OF ASSESSMENT ORDER). THE LD. A. 0. EXCLUDED ITEMS PICKING FROM EXPORT INVOICE WHERE IR ON WAS USED WITH WOOD BUT FOR BETTER IDENTIFICATION IRON WAS MENTION ED IN EXPORT INVOICES AND ALSO ITEMS OF WOOD WHERE IRON JALI ETC. WERE US ED FOR LOOKING THE ARTICLE AS ARTISTIC. WE SUBMIT HEREWITH PHOTO GRAPH S OF SOME OF THESE ITEMS WHICH WILL SHOW THAT IRON WAS NOT MAIN RAW MATERIAL BUT MAIN RAW MATERIAL WAS WOOD. WE ALSO ENCLOSE CERTIFICATE FROM CUSTOMS AUTHORITIES CERTIFYING THAT MAJOR PORTION OF ITEMS EXPORTED BY ASSESSEE WERE MAINLY OF WOOD. THUS THESE GOODS SHOULD FORM THE PART OF THE ENTIRE TURNOVER AS WELL AS OF EXPORT TURNOVER AND THE AMOUNT OF SALES OF RS . 76,51,285/- SHOULD BE INCLUDED IN THE TOTAL TURNOVER FROM EXPORT SALES. T HESE FACTS WILL SHOW THAT THE NINETY PERCENT OF ITS SALES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ARE BY WAY OF EXPORTS OF ELIGIBLE A RTICLES OR THINGS. 22 THE LD. A. 0. HAS ALSO HELD THAT SALE PROCEEDS OF E XPORTS NOT RECEIVED IS CONVERTIBLE FOREIGN EXCHANGE IN ACCORDA NCE WITH SECTION 10BA (3) ARE NOT EXPORTS AND THEREBY WORKED EXPORT TURNO VER AT RS. 11,16,69,989/- I.E. 88.5% OF TOTAL SALES. IN THIS R ESPECT IF IS SUBMITTED THAT IF SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE IS NOT RECEIVED IN ACCORDANCE WITH SECTION 10BA (3) THAN IN RESPECT TO THAT PART OF EXPORT SALES DEDUCTION IS NOT ADMISSIBLE U/S I0BA OF I. T. ACT, 1961 BUT IT IS NOT THAT THE SAME WILL NOT BE TREATED AS SALE BY WAY OF EXPORTS. THIS IS VERY CLEAR FROM PERUSAL OF SECTION 10BA (3). THE LD. A. 0. HAS ALSO HELD THAT C & F EXPENSES OF RS. 72,43,198/- ARE TO BE DEDUCTED FROM EXPORT SALES AS PER DEFINIT ION OF EXPORT TURNOVER IN EXPL. 2 (III) OF SECTION IOBA. IN THIS CONNECTION I T IS SUBMITTED THAT THE C & F EXPENSES OF RS. 72,43,198/- INCURRED BY THE ASS ESSEE ARE ONLY IN RESPECT TO FORWARDING GOODS IN INDIA UPTO SEA PORT ONLY WHILE WHAT IS TO BE EXCLUDED IN ACCORDANCE WITH PROVISIONS ARE SUCH CHA RGES ATTRIBUTABLE TO THE DELIVERY OF GOODS OUTSIDE INDIA. THUS IT IS CLEAR T HAT C & F CHARGES OF RS. 72,43,198/- ARE NOT LIABLE TO BE EXCLUDED FROM EXPO RT TURNOVER. IN VIEW OF ABOVE FACTS AND SUBMISSIONS IT IS EVIDEN T THAT 90% OR MORE OF ITS SALES ARE BY WAY OF EXPORTS OF THE ELIG IBLE ARTICLES OR THINGS AND ASSESSEE COMPLIED CONDITIONS OF SUB-CLAUSE (D) OF S UB SECTION (2) OF SECTION 1OBA. IT IS THEREFORE, PRAYED THAT ASSESSEE IS ENTITLED T O CLAIMED DEDUCTION OF RS. 62,72,439/- U/S10BA OF I. T. ACT, 961 WHICH MAY KINDLY BE ALLOWED. 6. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) WAS SATISFIED WITH THE CONTENTION OF THE ASSESS EE. ACCORDINGLY HE ALLOWED DEDUCTION CLAIMED UNDER SECTION 10BA AT RS. 62,72,439/-. 23 7. NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 8. THE LD. D/R HAS PLACED RELIANCE ON THE ORDER OF AO. 9. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE HAS PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 10. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) AS HE HAS C ONSIDERED ALL THE ASPECTS AND FOUND THAT ALL THE CONDITIONS ARE SATISFIED. THE LD. CIT (A) FURTHER NOTED THAT SIMILAR CLAIM WAS DISALLOWED FOR ASSESSMENT YEAR 2005-06 AND TRIBUNAL HAS ALLOWED THE APPEAL OF THE ASSESSEE. THIS FINDING HAS BEEN NOTED BY LD. CIT ( A) IN HIS ORDER. FINDING OF LD. CIT (A) HAVE BEEN RECORDED IN PARA 2.3 TO 2.3.6 AT PAGES 15 TO 23 OF HIS ORDER ARE AS UNDER :- 2.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR. ON PERUSAL OF THE RELEVANT R ECORD, I FIND THAT THE MAIN ISSUE INVOLVED IN THIS GROUND OF APPE AL IS AS TO WHETHER THE APPELLANT IS ENTITLED TO THE CLAIMED DE DUCTION OF RS.62,72,439/- U/S10BA OF THE I.T ACT. IN THIS REGA RD, LD. AO HAS I2ELD THAT THE APPELLANT DOES NOT FULFILL THE CONDI TIONS, AS MENTIONED IN CLAUSES (A), (B), (C) & (D) OF SUB SEC TION (2) OF S.1OBA OF THE L.T.ACT, WHEREAS, ON THE OTHER HAND, LD. AR HAS CLAIMED THAT THE APPELLANT FULFILLS ALL THE CONDITI ONS OF THE AFORESAID CLAUSES OF S.10BA(2) OF THE I.T ACT. IN THIS BACKG ROUND, AFTER GOING THROUGH THE RELEVANT DETAILS / DOCUMENTS PLAC ED ON RECORD, MY FINDINGS / OBSERVATIONS ARE AS UNDER : 2.3.1. AS FAR AS THE CONDITION MENTIONED IN CLAUSE (A) OF S.10BA(2) OF THE L. T. ACT IS CONCERNED, THIS CLAUSE REQUIRES THAT THE CONCERNED UNDERTAKING MANUFACTURES OR PRODUCES THE ELIGIBLE ARTICLES OR 24 THINGS WITHOUT THE USE OF IMPORTED RAW MATERIALS. IN THIS REGARD, I FIND THAT: I) THERE IS NO DISPUTE ON THE FACT THAT THE APPELLANT IS NOT USING ANY IMPORTED RAW MATERIALS IN THE GOODS MANUFACTURED / PRODUCED BY HIM. II) AS FAR AS THE ISSUE AS TO WHETHER THE APPELLANT MAN UFACTURES OR PRODUCES AN ELIGIBLE ARTICLE OR THING IS CONCERN ED, ON GOING THROUGH THE RELEVANT DETAILS I DOCUMENTS, I F IND THAT THERE IS MERIT IN THE CONTENTION OF THE LD. AR THAT THE APPELLANT IS MANUFACTURING / PRODUCING ELIGIBLE ART ICLES / THINGS. IN THIS RESPECT, IT IS OBSERVED THAT: A) DURING THE YEAR UNDER CONSIDERATION, THE APPELLA NT HAS DECLARED TOTAL TURNOVER/SALES OF RS.12,61,80,15 5/-, WHICH INCLUDE THE EXPORT SALES OF RS.11,39,78,399/- . FURTHER, IT IS SEEN FROM THE MANUFACTURING AND TRAD ING ACCOUNT (ANNEXURE A TO THE AUDITED B/S AND P&L ACCO UNT) THAT AGAINST THE AFORESAID TURNOVER, THE APPELLANT MADE TOTAL PURCHASES OF RS.86,180,127/-, WHICH INCLUDED PURCHA SES OF WOOD AND OTHER RAW MATERIALS, SUCH AS PACKING MATER IAL, POLISH MATERIAL, ETC., TOTALING TO RS.7,91,09,547/- , WHICH CONSTITUTED 87.16% OF THE TOTAL PURCHASES. THEREFOR E, THIS FACT SHOWS THAT THE APPELLANT IS MAINLY USING WOOD AS A RAW MATERIAL FOR PRODUCING THE WOODEN ARTICLES AND THINGS IN HIS UNDERTAKING. B) THE CONVERSION OF THE MAIN RAW MATERIAL I.E. THE WOOD, INTO FINISHED WOODEN ARTICLES AND THINGS, INV OLVED SEVERAL PROCESSES, SUCH AS, CUTTING, MOULDING, CARV ING, SANDING, DECORATION AND ORNAMENTATION, POLISHING ET C. AND THAT THE FINISHED PRODUCT, SO PRODUCED, IS COMMERCI ALLY A 25 DIFFERENT THING, AS COMPARED TO THE MAIN RAW MATERI AL (WOOD) USED FOR PRODUCING THE SAME. THEREFORE, THER E IS MERIT IN THE CONTENTION OF LD. AR THAT WHEN THE APP ELLANT WAS PRODUCING A COMMERCIALLY DIFFERENT ARTICLE OR T HING, AS COMPARED TO THE RAW MATERIAL .USED FOR MAKING THAT ARTICLE OR THING, THEN. THE SAID ACTIVITY OF THE APPELLANT HAS TO BE TREATED AS MANUFACTURING ACTIVITY, WHICH IS SUPPORT ED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ITO V/S ARIHANT TILES & MARBLES PVT, LTD. (2010), 320 I TR 79 (SC). III) DURING THE YEAR, THE APPELLANT HAS MADE PURCHASES O F SEMI FINISHED GOODS, AMOUNTING TO RS.1,10,70,580/-. HOWE VER, ON PERUSAL OF THE RELEVANT DETAILS I DOCUMENTS ON R ECORD, IT IS SEEN THAT THE APPELLANT HAD PLACED THE ORDER TO VARIOUS PERSONS, ENGAGED IN THE WORK OF PRODUCING HANDICRAF T ITEMS, FOR THE SUPPLY OF RAW WOODEN MOULDS / SKELET ONS OF VARIOUS ARTICLES I THINGS, AS PER THE GIVEN REQUIRE MENTS AND SPECIFICATIONS, WHICH WERE IN ACCORDANCE WITH THE REQUIREMENTS AND SPECIFICATIONS OF THE EXPORT ORDER S RECEIVED FROM THE FOREIGN BUYERS. FURTHER, IT IS SE EN THAT, THEREAFTER, THE REMAINING WORK ON THOSE RAW WOODEN MOULDS I SKELETONS, SUCH AS, CARVING, GROOVING WORK , NAIL WORK, BRASS WORK, STONE WORK, METAL WORK, POLISH WO RK ETC. WAS DONE BY THE APPELLANT HIMSELF. HENCE, I FIND ME RIT IN THE CONTENTION OF LD. AR THAT, ON THOSE FACTS, IT W AS TO BE HELD THAT THE ASSESSEE WAS MANUFACTURING THOSE ARTI CLES / THINGS, EVEN THOUGH THE PROCESS OF MAKING THE RAW W OODEN MOULDS / SKELETONS WAS DONE BY OTHER CONTRACTORS, ON JOB WORK BASIS, BUT UNDER THE SUPERVISION / CONTROL AND AS PER THE REQUIREMENTS AND SPECIFICATIONS OF THE APPELLAN T, IN 26 VIEW OF THE DECISION OF HONBLE ITAT, JAIPUR BENCH IN THE CASE OF DCIT V/S MANGLAM ARTS (SUPRA). THUS, IN THE AFOREMENTIONED FACTS AND CIRCUMSTANCES, AND RESPECT FULLY FOLLOWING TH AFORESAID DECISION OF HONBLE ITAT JAI PUR BENCH, IT IS TO BE HELD THAT THE APPEHANT WAS ENGAG ED IN THE MANUFACTURING / PRODUCING OF ARTICLES / THINGS, IN RESPECT OF THE AFOREMENTIONED PURCHASES OF SEMI FINISHED GOODS AMOUNTING TO RS.1,10,70,580/- ALSO. IV) AS FAR AS THE ISSUE OF USE OF MACHINERY IN THE MANUFACTURING / PRODUCTION PROCESS IS CONCERNED, IT IS SEEN THAT AS PER THE PROVISIONS OF CLAUSE (A) OF S. 1 OB A(2) OF THE I.T. ACT, SOME USE OF MACHINERY IS ANTICIPATED AND ALLOWED IN THE MANUFACTURING / PRODUCTION PROCESS. FURTHER, FROM THE DETAILS OF THE MANUFACTURING EXPENSES (ANN EXURE C TO THE AUDITED B/S AND P&L ACCOUNT), IT IS OBSERV ED THAT THE APPELLANT HAS INCURRED EXPENSES OF RS.2,07,92,5 78/- ON LABOUR, OUT OF THE TOTAL MANUFACTURING EXPENSES OF RS.231 ,81 ,5321-, WHICH CONSTITUTED ABOUT 90%. OF THE TOT AL MANUFACTURING EXPENSES. IN THIS REGARD, IT IS ALSO NOTED THAT THE EXPENSES RELATING TO THE USE OF MACHINERY / ELE CTRICITY / GAS & FUEL AMOUNTED TO RS.23,63,637/- , WHICH CONST ITUTED ONLY ABOUT 10% OF THE TOTAL MANUFACTURING EXPENSES. THEREFORE, ON THE ABOVE FACTS, I FIND THAT THE APPE LLANT IS MAINLY USING LABOUR IN THE MANUFACTURING / PRODUCTI ON PROCESS OF THE UNDERTAKING. V) AS FAR AS THE ISSUE AS TO WHETHER THE ARTICLES / GO ODS MANUFACTURED BY THE. APPELLANT ARE ARTISTIC AND HAV ING ARTISTIC VALUE, IS CONCERNED, LD. AR HAS CLAIMED TH AT THE ARTICLES I GOODS MANUFACTURED BY THE APPELLANT INVO LVED VARIOUS PROCESSES, SUCH AS, CARVING, ENGRAVING, GRO OVING, 27 POLISHING, PAINTING, ORNAMENTATION BY ADDING METAL / BRASS / STONE, ETC., GIVING ANTIQUE LOOK, ETC. BY THE CREAT IVE AND SKILLED CARPENTERS, WORKMEN AND CRAFTSMEN, AND THER EFORE, THOSE ARTICLES / GOODS HAD ARTISTIC LOOK AND ARTIST IC VALUE. IT WAS ALSO CLAIMED THAT BECAUSE OF THE DIFFERENT DESI GN, ARTISTIC / ANTIQUE LOOK OF THE SAID WOODEN ARTICLES / GOODS WERE DISTINGUISHABLE FROM THE NORMAL WOODEN FURNITU RE AND THAT IS WHY. THE FOREIGN BUYERS WERE INTERESTED IN BUYING THOSE ARTICLES / GOODS. IN SUPPORT, LD. AR PLACED PHOTOGRAPHS OF SEVERAL SUCH ARTICLES / GOODS PRODUC ED BY THE APPELLANT, ON RECORD. ON PERUSAL OF THE SAID PHOTOGRAPHS, I FIND THAT THERE IS SUBSTANCE IN THE AFORESAID CONTENTION OF LD. AR BECAUSE THE ARTICLES I GOODS P RODUCED BY THE APPELLANT APPEAR TO BE QUITE ARTISTIC, INVOL VING SEVERAL DIFFERENT DESIGNS AND HENCE, THERE ARE ELEM ENTS OF INNOVATION, IMAGINATION AND CREATIVITY THEREIN. THE REFORE, I FIND THAT THOSE ARTICLES I GOODS WERE HAVING ARTIST IC VALUE. IN VIEW OF THE ABOVE OBSERVATIONS / FINDINGS, I FIN D THAT THE APPELLANT HAS FULFILLED THE CONDITIONS / REQUIREMEN TS OF CLAUSE (A) OF S. 10BA(2) OF THE I.T. ACT. 2.3.2 AS FAR AS THE REQUIREMENTS OF THE CLAUSE (B) OF S.10BA(2) OF THE L.T.ACT THAT THE UNDERTAKING SHOULD NOT BE FORM ED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTE NCE, IS CONCERNED, THE LD. AO HAS HELD THAT THE APPELLANT DID NOT MEET THE REQ UIREMENTS OF THAT CLAUSE ON THE BASIS OF THE REASONING, AS NOTED IN PARA 2.1 (U) ABOVE. ON THE OTHER HAND, LD. AR HAS CONTESTED HE SAME, AS PER THE CONT ENTIONS / ARGUMENTS NOTED IN PARA 2.2 ABOVE. IN THIS REGARD, LD. AR HAS ALSO POINTED OUT THAT THE REQUIREMENTS I CONDITIONS OF CLAUSE (B) OF S.1O BA(2) OF THE L.T.ACT WERE IDENTICAL TO CLAUSE (I) OF S.80-IB(2) OF THE I .T. ACT AND THAT ON SIMILAR FACTS AND CIRCUMSTANCES IN THE APPELLANTS OWN CASE IN A.Y. 2005-06, THE 28 HON'BLE ITAT JAIPUR BENCH HAD HELD THAT THE APPELLA NT WAS MEETING THE REQUIREMENTS OF CLAUSE (I) OF S.80-IB(2) OF THE I.T . ACT. LD. AR PLACED A COPY OF THE SAID ORDER OF HONBLE ITAT, IN ITA NO,5 89/JP/2009, DATED 25.3.2010, ON RECORD AND PLEADED THAT, IN VIEW OF T HE SAID ORDER OF THE HONBLE ITAT, THIS ISSUE WAS COVERED IN FAVOUR OF T HE APPELLANT. ON PERUSAL OF RELEVANT DETAILS / DOCUMENTS AND THE DIS CUSSION OF THE LD. A.O ON THIS ISSUE IN THE ASSESSMENT ORDER, AS WELL AS, THE SUBMISSIONS I CONTENTIONS OF THE LD. AR, I FIND THAT THE ISSUE IN HAND, AS TO WHETHER THE APPELLANT FULFILS THE REQUIREMENTS OF CLAUSE (B) OF S. 10BA(2) OF THE L.T.ACT, WHICH ARE IDENTICAL TO THE REQUIREMENTS OF CLAUSE (I) OF S.80-IB(2) OF THE L.T.ACT, IS DIRECTLY COVERED IN FAVOUR OF TH E APPELLANT BY THE1 AFOREMENTIONED DECISION OF THE HONBLE ITAT, JAIPUR BENCH, IN THE APPELLANTS OWN CASE FOR A.Y. 2005-06. THEREFORE, R ESPECTFULLY FOLLOWING THE SAID DECISION OF HONBLE JURISDICTIONAL BENCH O F THE ITAT, IT IS HELD THAT THE APPELLANT IS FULFILLING THE CONDITIONS OF CLAUSE (B) OF S. 10BA(2) OF THE L.T.ACT. 2.3.3. AS FAR AS THE REQUIREMENTS OF THE CLAUSE (C) OF S.1OBA(2) OF THE L.T.ACT THAT THE UNDERTAKING SHOULD NOT BE F ORMED BY TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, IS CONCERNED, THE LD. AO HAS HELD THAT THE APPELLANT D ID NOT MEET THE REQUIREMENTS OF THAT CLAUSE, ON THE BASIS OF THE RE ASONING AS NOTED IN PARA 2.1.(III) ABOVE. ON THE OTHER HAND, LD. AR HAS CONT ESTED THE SAME, AS PER THE CONTENTIONS / ARGUMENTS NOTED IN PARA 2.2 ABOVE . IN THIS REGARD, LD.AR HAS ALSO POINTED OUT THAT THE REQUIREMENTS / CONDIT IONS OF CLAUSE (C) OF S.1OBA(2) OF THE L.T.ACT WERE IDENTICAL TO CLAUSE ( II) OF S.80-IB(2) OF THE L.T, ACT AND THAT ON SIMILAR FACTS AND CIRCUMSTANCE S IN THE APPELLANTS OWN CASE IN AX. 2005-06, THE HONBLE ITAT JAIPUR BENCH HAD HELD THAT THE APPELLANT WAS MEETING THE REQUIREMENTS OF CLAUSE (I I) OF S.80- LB(2) OF THE L.T.ACT. LD. AR PLACED A COPY OF THE SAID ORDER OF HONBLE ITAT, IN ITA NO.589/JP12009, DATED 25.3.2010, ON RECORD AND PLEA DED THAT, IN VIEW OF 29 THE SAID ORDER OF HONBLE ITAT, THIS ISSUE WAS COVE RED IN FAVOUR OF THE APPELLANT. ON PERUSAL OF RELEVANT DETAILS / DOCUMEN TS AND THE DISCUSSION OF THE LD. AO ON THIS ISSUE IN THE ASSESSMENT ORDER, A S WELL AS, THE SUBMISSIONS / CONTENTION OF THE LD. AR, I FIND THAT THE ISSUE IN HAND, AS TO WHETHER THE APPELLANT FULFILS THE REQUIREMENTS OF C LAUSE (C) OF S.10BA(2) OF THE I.T. ACT, WHICH ARE IDENTICAL TO THE REQUIRE MENTS OF CLAUSE (II) OF S.80-IB(2) OF THE I.T. ACT, IS DIRECTLY COVERED IN FAVOUR OF THE APPELLANT BY THE AFOREMENTIONED DECISION OF THE HONBLE ITAT, JA IPUR BENCH, IN THE APPELLANTS OWN CASE FOR A.Y. 2005-06. THEREFORE, R ESPECTFULLY FOLLOWING THE SAID DECISION OF HON'BLE JURISDICTIONAL BENCH O F THE ITAT, IT IS HELD THAT THE APPELLANT IS FULFILLING THE CONDITIONS OF CLAUSE (C) OF S.1OBA(2) OF THE I.T. ACT. 2.3.4. AS FAR AS THE ISSUE AS TO WHETHER THE APPELL ANT IS MEETING THE REQUIREMENTS OF CLAUSE (D) OF S.1OBA(2) OF THE L.T.ACT IS CONCERNED, ON PERUSAL OF THE RELEVANT DETAILS/ DOCUMENTS, I FI ND SUBSTANCE IN THE CONTENTIONS I ARGUMENTS OF LD.AR. IN THIS REGARD, I T IS OBSERVED THAT: A) THE LD. A.O. HAS NOTED THAT THE APPELLANT HAD US ED EXCLUSIVELY METAL, AS RAW MATERIAL, IN THE GOODS EXPORTED, WORT H RS.76,51,285/-. ON THE OTHER HAND, LD. AR HAS POINTED OUT THAT THE APP ELLANT HAS NOT PRODUCED ANY ARTICLE OR GOOD MADE EXCLUSIVELY OF METAL AND H AS CLARIFIED THAT THE ARTICLES / GOODS PRODUCED WERE MAINLY MADE UP OF WO OD, AS BASE, ON WHICH METAL HAD ALSO BEEN USED. IN SUPPORT, LD. AR PRODUCED PHOTOGRAPHS OF SEVERAL SUCH ITEMS. ON PERUSAL OF THE SAME, I FI ND THAT IN MOST OF THOSE ARTICLES THERE WAS USE OF BOTH THE MATERIALS, I.E., THE WOOD (AS THE BASE) AND THE METAL. HOWEVER, LOOKING AT THE CONCERNED ARTICL ES / GOODS, IT IS OBSERVED THAT NONE OF THOSE ARTICLES / GOODS WAS FO UND TO BE MADE UP OF METAL ALONE. THEREFORE, I FIND SUBSTANCE IN THE CON TENTION OF LD. AR THAT THE APPELLANT WAS PRODUCING ARTICLES I GOODS, WHICH WERE MAINLY MADE UP OF THE WOOD, AS THE BASIC RAW MATERIAL, ALTHOUGH TH ERE WAS USE OF SOME METAL I METAL ARTICLES ALSO IN THE MANUFACTURING I PRODUCTION OF THOSE 30 ARTICLES / GOODS. THIS CONTENTION OF THE LD. AR IS ALSO SUPPORTED BY THE FACT THAT THE PURCHASES OF THE WOOD ALONE CONSTITUT ED A SUBSTANTIAL PART OF THE TOTAL PURCHASES MADE BY THE APPELLANT DURING TH E YEAR. IN THIS CONNECTION, IT IS ALSO NOTED THAT THE EXPLANATION ( B) TO S.1OBA OF THE L.T.ACT REQUIRES THE USE OF WOOD AS THE MAIN RAW M ATERIAL, WHICH MEANS THAT THERE IS NO PROHIBITION FOR SOME USE OF THE O THER MATERIALS (OTHER THAN THE WOOD) IN THE MANUFACTURING / PRODUCTION OF THE ELIGIBLE ARTICLES OR THINGS. B) AS FAR AS THE REASONING OF THE LD. AO THAT THE APPELLANT WAS ALSO NOT FULFILLING THE CONDITION OF HAVING EXPORT SALES TO THE EXTENT OF 90% OF THE TOTAL SALES BECAUSE THE SALE PROCEEDS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AMOUNTED TO RS.11,16,69,989/- (88.5% OF TO TAL SALES) AND FURTHER BECAUSE IF THE C&F EXPENSES OF RS.72,43,198/- WERE DEDUCTED FROM THE EXPORT SALES (REFERRING TO THE EXPLANATION (C) TO S . 10BA), THE PROPORTION OF THE EXPORT SALES TO TOTAL SALES WOULD FURTHER GO DO WN, IS CONCERNED, 1 FIND MERIT IN THE CONTENTIONS OF LD. AR (NOTED IN PARA 2 .2 ABOVE) RAISED AGAINST THE AFORESAID REASONING OF THE LD. AO. IN THIS REGA RD, I FIND THAT AS PER CLAUSE (D) OF S.1OBA(2) OF THE I.T. ACT, THE REQUIR EMENT IS THAT 90% OR MORE OF THE ASSESSEES SALES DURING THE RELEVANT PREVIOUS YEAR SHOULD BE BY WAY OF EXPORTS OF THE ELIGIBLE ARTICLES OR THING S AND NOT THE SALE PROCEEDS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE DURING THAT YEAR. FURTHER, IT IS SEEN THAT THE C&F EXPENSES OF RS.72, 43,198/-, IN QUESTION, WERE RELATING TO THE FORWARDING OF GOODS IN INDIA U PTO THE SEA PORT AND THEREFORE, THE SAME WERE TO BE INCLUDED IN THE EXPO RT TURNOVER, BECAUSE THE SAME WEE NOT RELATED TO THE DELIVERY OF GOODS OUTSI DE INDIA. HENCE, IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE APPELLANT FULFILLED. THE CONDITIONS OF CLAUSE (D) OF S.1OBA(2 ) OF THE L.T. ACT. 2.3.5. AS FAR AS THE REMARK OF THE AUDITORS, AS NOT ED BY THE LD. AO, WHICH IS REFERRED TO IN PARA 2.1 ABOVE, IS CONC ERNED, I FIND MERIT IN THE 31 CLARIFICATION / EXPLANATION GIVEN BY THE LD. AR THA T THE SAID REMARK WAS AN INADVERTENT REMARK AND THAT THE SAME WAS CONTRARY T O THE FACTS ON RECORD, WHICH IS NOTICED IN DETAIL IN PARE 2.2 ABOVE AND WH ICH IS ALSO SUPPORTED BY THE DETAILS / DOCUMENTS PLACED ON RECORD. IN THI S REGARD, IT IS OBSERVED THAT IN THE SAME AUDIT REPORT, THE SAME AUDITOR I.E . SHRI PRAHLAD JHURIA, CA HAS MENTIONED THAT THE APPELLANT WAS ENTITLED TO DE DUCTION OF RS.62,72,439/- U/S 10BA OF THE L.T.ACT AND FURTHER THAT THE SAME SHRI PRAHLAD JHURIA, CA, ARGUED, IN HIS CAPACITY AS THE AR OF THE APPELLANT, DURING THE ASSESSMENT PROCEEDINGS ALSO THAT THE APP ELLANT WAS, ENTITLED TO THE AFORESAID DEDUCTION U/S 10BA OF THE L,T.ACT AND , THUS, IT IS EVIDENT THAT THERE IS CONTRADICTION IN THE ABOVE REFERRED REMARK OF THE AUDITOR. FURTHER, IT IS ALSO TO BE MENTIONED THAT, IN ANY CASE, THE I SSUE AS TO WHETHER THE APPELLANT FULFILLED THE CONDITIONS / REQUIREMENTS O F CLAUSES (A) TO (D) OF S.10BA(2) OF THE L.T.ACT, HAS TO BE DECIDED ON THE BASIS OF THE FACTS / DETAILS / DOCUMENTS PLACED ON RECORD. IN THIS RESPE CT, AS DISCUSSED IN PARAS 23.1 .TO 2.3.4 ABOVE, I HAVE FOUND AND HELD THAT TH E APPELLANT MEETS THE REQUIREMENTS OF CLAUSES (A) TO (B) OF S. 10BA(2) OF THE I.T. ACT. 2.3.6. IN ACCORDANCE WITH THE DISCUSSION CONTAINED IN THE FORGOING PARAS, IT IS HELD THAT THE APPELLANT FULFILLED THE CONDITIONS / REQUIREMENTS OF CLAUSES (A), (B), (C) & (D) OF SUB SECTION 2 OF S.1 OBA OF THE I.T. ACT AND HENCE, THE APPELLANT WAS ENTITLED TO THE CLAIMED DE DUCTION OF RS.62,72,439/- U/S 1OBA OF THE I.T. ACT. THEREFORE, THE AC IS DIRECTED TO GRANT THAT DEDUCTION TO THE APPELLANT. CONSEQUENTLY , THIS GROUND OF APPEAL IS TREATED AS ALLOWED. 11. FINDINGS OF THE TRIBUNAL ARE IN CONSONANCE WITH THE FINDING OF TRIBUNAL FOR ASSESSMENT YEAR 2005-06 AS THEY HAVE BEEN GIVEN AFT ER CONSIDERING THE ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2005-06. THERE IS NO CHANGE IN MATERIAL FACTS, THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A) . ACCORDINGLY FINDINGS OF LD. CIT (A) 32 ARE CONFIRMED. ON SIMILAR FACTS, THE DEDUCTION UND ER SECTION 10BA WAS DISALLOWED FOR ASSESSMENT YEAR 2007-08 ALSO AND ON SIMILAR REASONI NG, THE LD. CIT (A) HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. SINCE FACTS AND C IRCUMSTANCES ARE SIMILAR AND WE HAVE ALREADY CONFIRMED THE ORDER OF LD. CIT (A) FOR THE ASSESSMENT YEAR 2006-07, THEREFORE, FOR THE SAME REASONING THE ORDER OF LD. CIT (A) FOR THE ASSESSMENT YEAR 2007-08 ALSO IS CONFIRMED. 12. NEXT ISSUE IN APPEAL OF THE DEPARTMENT IS AGAIN ST SUSTAINING THE TRADING ADDITION OF RS. 24,11,395/- AGAINST TRADING ADDITION OF RS. 28, 24,170/- AND FURTHER DIRECTING TO ALLOW DEDUCTION UNDER SECTION 10BA OF THE ACT. 13. THE FACTS IN THIS CASE HAVE BEEN DISCUSSED BY L D. CIT (A) IN PARA 5.1 AT PAGE 25 OF HIS ORDER ARE AS UNDER :- 5.1. THE FACTS ARE THAT AS PER DISCUSSION CONTAI NED IN PARAS 8 & 9 OF THE ASSESSMENT ORDER, THE AC FOUND VARIOUS DEFECTS IN T HE BOOKS OF ACCOUNT OF THE APPELLANT AND HENCE, INVOKED THE PROVISIONS OF S.145(3) OF THE I.T ACT. IN THIS REGARD, THE AC NOTED THAT THE GP AND NP RAT ES IN THIS YEAR HAD FALLEN AS COMPARED TO THE IMMEDIATELY PRECEDING YEA R AND ALSO THAT I) THE APPELLANT WAS NOT MAINTAINING ANY STOCK REGISTER; I I) NOT MAINTAINING DAY TO DAY MANUFACTURING ACCOUNT I.E. PHYSICAL RECORD O F RAW MATERIAL AT DIFFERENT STAGES OF PRODUCTION WAS NOT MAINTAINED ; III) NO INVENTORY OF OPENING STOCK OR CLOSING STOCK WAS MAINTAINED AND N OT FURNISHED DURING THE ASSESSMENT PROCEEDINGS AND IV) PAYMENTS WERE MA DE IN CONTRAVENTION OF PROVISIONS OF S.40A(3) OF THE I.T. ACT. THEREAFT ER, THE AO APPLIED THE GP RATE OF 17.20% (EQUAL TO THE GP RATE DECLARED FO R A.Y.2005-06) ON THE ESTIMATED SALES OF RS.12,85,80,000/- (AGAINST THE D ECLARED SALES OF RS.12,61,80,155/- AND MADE THE IMPUGNED TRADING ADD ITION OF RS.28,24,170/-. 33 14. SUBMISSIONS FILED BY THE ASSESSEE HAVE BEEN REP RODUCED BY LD. CIT (A) IN PARA 5.2 OF HIS ORDER ARE AS UNDER :- THE LD. A. 0. INVOKED PROVISIONS OF SECTION 145 (3) AND REJECTED BOOKS OF ACCOUNTS OF ASSESSE ON THE GROUNDS I,) T HAT NO STOCK REGISTER IS MAINTAINED, (II) NO DAY TO DAY MANUFACTURING ACC OUNT I.E. PHYSICAL RECORD OF RAW MATERIAL AT DIFFERENT STAGE OF PRODUC TION NOT MAINTAINED, (III) NO O. STOCK INVENTOR, OR CLOSING STOCK INVENTORY M AINTAINED AND FURNISHED IN ASSESSMENT PROCEEDINGS, AND (IV) PAYMENTS WERE M ADE IN CONTRAVENTION OF SECTION 40A (3). THE LD. A. 0. NOT SATISFIED WIT H EXPLANATION OF ASSESSEE HELD THAT PROVISIONS OF SECTION 145 (3) ARE APPLICA BLE AND REJECTED BOOKS OF ACCOUNTS. IN THIS CONNECTION IT IS SUBMITTED THAT IN THE TRAD E OF ASSESSEE WHERE MANUAL WORK IS DONE BY VARIOUS KARIGARS AT DIFFEREN T STAGES OF PRODUCTION AND PROCESSES IT IS IMPOSSIBLE AND IMPRACTICABLE TO MAINTAIN RECORD AS ENVISAGED BY LD. A.O. THE LD. AO HAS NOT POINTED OUT ANY DEFECT OR DEFICI ENCY IN BOOKS OF ACCOUNTS MAINTAINED BY ASSESSEE. THE FINDING OF PAYMENTS MADE IN VIOLATION OF SECTION 40A (3) IS WRONG. THE ABSENCE OF STOCK REGISTER OR FAILURE TO MAINTAIN ITEMWISE STOCK REGISTER, BOOKS OF ACCOUNTS COULD NOT BE REJECTED UNLESS THERE IS A FINDING OR OPINION EITHE R THAT RECORD WERE INCOMPLETE OR THAT METHOD OF ACCOUNTING EMPLOYED WA S SUCH THAT INCOME COULD NOT BE DEDUCED FROM ACCOUNTS MAINTAINED BY AS SESSEE. THE ABOVE LEGAL VIEW IS UPHELD IN A RECENT JUDGEMENT IN CASE OF ASHOKA REFRACT ONES P. LTD. VS. CIT (2005) 279 ITR 457. IN THE CASE OF VINOD KUMAR PRAMOD KUMAR VS. ITO (20 00) 66 TTJ 722 THE JODHPUR BENCH OF ITA T HAS HELD AS UNDER: - 34 A PERUSAL OF THE ASSESSMENT ORDER, INTER ALIA, REVE ALS THAT THE ASSESSEE PRODUCED BOOKS OF ACCOUNTS CONSISTED OF CA SH BOOK, LEDGER, PURCHASE AND SALE VOUCHERS WHICH WERE EXAMINED BY T HE ITO BY APPLYING TEST CHECK THEREOF. THE ITO HAS ALSO GIVEN A DEFINI TE FINDING IN THE ASSESSMENT ORDER THAT PURCHASES AND SALES ARE VOUCH ED THE AC HAS NOT POINTED OUT ANY SPECIFIC MISTAKE OR DEFICIENCY IN T HE BOOKS OF ACCOUNTS MAINTAINED AND PRODUCED BY THE ASSESSEE. IN OUR VIE W THE CORRECTNESS OF THE BOOK RESULTS CANNOT BE CHALLENGED WITHOUT POINT ING OUT ANY SPECIFIC MISTAKE OR DEFICIENCY IN THE BOOKS OF ACCOUNTS OR W ITHOUT GIVING A FIRM HOLDING THAT THE METHOD OF ACCOUNTING FOLLOWED BY T HE ASSESSEE WAS SUCH THAT PROFIT AND GAINS CANNOT PROPERLY BE DEDUCED FR OM SUCH BOOKS OF ACCOUNTS. THE AC IS ALSO REQUIRED TO GIVE A FINDING THAT THE BOOKS ARE INCOMPLETE OR INCORRECT IN ANY MANNER. UNLESS SUCH A SPECIFIC FINDING IS GIVEN, NO ADDITION IN THE DECLARED TRADING RESULTS CAN BE VALIDLY MADE. IN VIEW OF THE ABOVE FACTS & SUBMISSIONS THE LD. A. 0. IS WRONG AND HAS ERRED IN LAW IN INVOKING PROVISIONS OF SECT ION 145(3) 15. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) GAVE FOLLOWING FINDING RECORDED IN PARA 5.3 AT PAGE 27 OF HIS ORDER ARE AS UNDER :- 5.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR. HOWEVER, ON PERUSAL OF RELEVANT RECORDS, I FIND THAT THE LD. AO WAS FULLY JUSTIFIED IN REJECTING THE APPELLANTS BO OKS OF ACCOUNT U/S 145(3) OF THE I.T. ACT, IN VIEW OF THE SPECIFIC DEFECTS FO UND IN THE APPELLANTS BOOKS OF ACCOUNT, AS NOTED BY THE LD. AO IN PARA 8, 8.1. & 8.2 OF THE ASSESSMENT ORDER, PARTICULARLY IN THE ABSENCE OF TH E QUANTITATIVE DETAILS OF THE RAW MATERIAL CONSUMED, SEMI FINISHED GOODS AND FINISHED GOODS AND IN THE ABSENCE OF ANY STOCK REGISTER I THE INVENTORY O F CLOSING STOCK. THEREFORE, THE SAID ACTION OF THE LD. AO IS CONFIRM ED. FURTHER, I FIND THAT THE LD. AO WAS ALSO JUSTIFIED IN APPLYING THE GP RA TE OF 17.20% IN THE 35 APPELLANTS CASE IN THIS YEAR, ON THE BASIS OF APPE LLANTS OWN PAST HISTORY, WHEREBY THE APPELLANT HAD HIMSELF DECLARED THE GP R ATE OF 17.20% IN THE IMMEDIATELY PRECEDING A.Y. 2005-06. THEREFORE, THE SAID ACTION OF THE LD. AO IN ESTIMATION OF THE .GP RATE OF 17.20% IN THE A PPELLANTS CASE IN THIS YEAR IS ALSO CONFIRMED. HOWEVER, I FIND THAT THE LD . AO WAS NOT JUSTIFIED IN ESTIMATING THE SALES OF THE APPELLANT AT RS.12,8 5,80,000)-, AGAINST THE DECLARED SALES OF RS.12,61,80,155/-, WITHOUT BRINGI NG ANY ADVERSE MATERIAL / EVIDENCE ON RECORD, INDICATING ANY OUT OF BOOKS S ALE BY THE APPELLANT. THEREFORE, IN ACCORDANCE WITH THE ABOVE DISCUSSION, THE TRADING ADDITION IS CONFIRMED TO THE EXTENT OF RS. 24,11,395/-, AGAINST THE TRADING ADDITION OF RS.28,24,170/- MADE BY THE LD. AO. HOWEVER, IT IS T O BE MENTIONED HERE THAT THE APPELLANT WOULD BE ENTITLED TO THE CONSEQU ENTIAL CHANGE IN THE CLAIMED AMOUNT OF DEDUCTION U/S 1OBA OF THE I. T. A CT, AS A RESULT OF THIS DECISION. CONSEQUENTLY, THIS GROUND OF APPEAL IS TR EATED AS PARTLY ALLOWED. 16. THESE FINDINGS OF LD. CIT (A) REMAINED UNCONTRO VERTED AND DO NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY WE CONFIRM THE FINDINGS OF LD. CIT (A). 17. SIMILAR GROUND AS TAKEN IN ASSESSMENT YEAR 2006 -07, HAS BEEN TAKEN FOR ASSESSMENT YEAR 2007-08 THOUGH THE FIGURE OF ADDITI ON IS DIFFERENT BUT THE ISSUE IS SAME. FOR THE SAME REASONING AS DISCUSSED IN ASSESSMENT Y EAR 2006-07, WE CONFIRM THE ORDER OF LD. CIT (A) FOR ASSESSMENT YEAR 2007-08 ALSO. 18. REMAINING ISSUE IS AGAINST DELETING THE DISALLO WANCE OF RS. 5,54,324/- AND RS. 3,77,066/- UNDER SECTION 43A(3) FOR BOTH THE YEARS RESPECTIVELY. 19. THE AO MADE DISALLOWANCE BY OBSERVING THAT EXPE NDITURE HAS BEEN INCURRED IN VIOLATION OF PROVISIONS OF SECTION 43A, THEREFORE, HE DISALLOWED 20% OF THE CASH PAYMENT MADE BY ASSESSEE. THE LD. CIT (A) DELETED THE ADDI TION BY RECORDING HIS FINDING AT PARA 6.3 FOR ASSESSMENT YEAR 2006-07 AT PAGES 28 & 29 AR E AS UNDER :- 36 6.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF T HE CASE AND SUBMISSIONS OF LD. AR. ON PERUSAL OF THE RELEVANT D ETAILS I FIND THAT THERE IS NO DISPUTE ON THE FACT THAT NO PAYMENT RELATING TO THE CARRIAGE EXPENSES, MADE AT ONE TIME-, EXCEEDED RS.20,000/-. THEREFORE, I FIND MERIT IN THE CONTENTION OF THE LD. AR, NOTED IN DETAIL IN PARA . 2 ABOVE, WHEREBY IT IS POINTED OUT THAT THE AMENDED PROVISIONS OF S40A(3) OF THE I.T, ACT WERE NOT APPLICABLE IN THE APPELLANTS CASE IN THE A.Y. 2006-07, UNDER CONSIDERATION OF THIS APPEAL. THEREFORE, ON THESE F ACTS AND POSITION OF LAW, IT IS HELD THAT THE IMPUGNED DISALLOWANCE IS NOT SU STAINABLE IN THE APPELLANTS CASE IN THIS YEAR. EVEN OTHERWISE, WHEN THE GP RATE HAS BEEN ESTIMATED IN THIS CASE (WHICH HAS BEEN UPHELD BY ME ), NO SEPARATE ADDITION IS. CALLED FOR U/S 40A(3) OF THE I.T. ACT IN RESPEC T OF ANY MANUFACTURING / TRADING EXPENSES. ACCORDINGLY, THE AO IS DIRECTED T O DELETE THE IMPUGNED DISALLOWANCE OF RS.5,54,324/-. CONSEQUENTLY, THIS G ROUND OF APPEAL IS ALLOWED. 20. SIMILAR FINDING HAS BEEN GIVEN BY LD. CIT (A) F OR ASSESSMENT YEAR 2007-08. FINDINGS OF LD. CIT (A) WERE FINDINGS OF FACT, WHIC H REMAINED UNCONTROVERTED. THEREFORE, THE FINDINGS OF LD. CIT (A) FOR BOTH THE YEARS ARE CONFIRMED. 21. IN THE RESULT, APPEALS OF THE DEPARTMENT ARE DI SMISSED. 22. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 .10.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- 37 COPY FORWARDED TO :- THE DCIT, CIRCLE SIKAR, SIKAR. SHRIMANOJ KUMAR JOHARI, SIKAR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 315(2)/JP/2011) BY ORDER, AR ITAT JAIPUR.