ITO, JODHPUR V. M/s. Makers Mart, JODHPUR

ITA 333/JODH/2013

• Counselvise Citation: 33323314 RSA 2013
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: DINESH BOOB
• Keywords: Business income; Rule of consistency; Cost of acquisition
• Section: 143(3); 10AA; 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.333 /JODH/2013 (A.Y. 2009-10) ITO, VS. M/S. MAKERS MART, WARD-1 (3), PLOT NO. G-85 & 86. JODHPUR. SPECIAL ECONOMIC ZONE, BORANADA, JODHPUR. PAN NO. AAMFM0174B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DINESH BOOB DEPARTMENT BY : SHRI N.A. JOSHI- D.R. DATE OF HEARING : 04/09/2013. DATE OF PRONOUNCEMENT : 18/09/2013. O R D E R PER N.K.SAINI, A.M THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAIN ST THE ORDER DATED 11/03/2013 OF LD. CIT(A), JOHDPUR. THE FOLLO WING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THE CIT(A) HAS ERRED IN NOT APPRECIATED ALL THE FACTS OF THE CASE PROPERLY AND IN GIVING FINDING THAT A NEW MARKETABLE ITEM WI TH SUBSTANTIAL VALUE ADDITION CAME IN TO EXISTENCE AS A RESULT OF VARIOU S PROCESS OF 2 MANUFACTURE/PRODUCTION CARRIED OUT BY THE ASSESSEE ON THE ITEMS PURCHASED IN ITS RAW FORM AMOUNTING TO RS. 2,64,20, 904/ -. 2. THE CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF CLAIM MADE U/S 10AA TO THE EXTENT OF RS. 2,64,20,904/- FOR GOODS TRADED AN D NOT MANUFACTURED BY IT AS ELIGIBLE ARTICLES. 3. THE CIT(A) HAS ERRED IN RELYING UPON FACTS AND SCRUTINY ASSESSMENT ORDER FOR A.Y. 2007-08 AND 2008-09 IN ALLOWING EXEMPTION U/S 10AA IN THE ASSESSMENT YEAR 2009-10 AS THE AO HAD EXAMINED THE BOOKS OF ACCOUNTS IN THE YEAR UNDER CONSIDERATION AND THEREFORE, HAD GIV EN FINDING THAT THERE WAS NO MANUFACTURING ACTIVITY ON THE GOODS PURCHASE D AND DISCLOSED UNDER HEADING 'VAT FREE GOODS' AMOUNTING TO RS. 2,6 4,20,904/-. HENCE, THE ASSESSEE HAS NOT FULFILLED CONDITIONS GIVEN IN SECTION 10AA(1). 4. THE CIT(A) HAS ERRED AT PARA 6.9 ON PAGE 28 OF THE ORDER IN RELYING UPON VARIOUS CERTIFICATES AND REGISTRATIONS OBTAINED UND ER DIFFERENT STATUTE FOR DIFFERENT PURPOSE, WHEREAS THE PROVISIONS OF SECTIO N 10AA OF THE IT ACT SPECIALLY PROVIDES CONDITIONS WHICH ARE TO BE SATIS FIED TO BECOME ELIGIBLE FOR EXEMPTION. 5. THE CIT(A) HAS ERRED IN ALLOWING EXEMPTION U/S 10AA FOR TOTAL PROFIT OF THE UNIT ON THE BASIS OF LABOUR EXPENSES, CONSUMABLE IT EMS EXPENSES, PF, ESI ETC. AND PLANT AND MACHINERY BY IGNORING SPECIFIC F INDING OF THE AO THAT IN RESPECT OF GOODS PURCHASED UNDER HEAD ' VAT FREE GO ODS ', THERE WAS NO MANUFACTURING ACTIVITY AND IT HAD SIMPLY TRADED/ EX PORTED ONLY. THEREFORE, THE ASSESSEE HAS NOT FULFILLED CONDITION PROVIDED I N SECTION 10AA(1). 6. THE CIT(A) HAS ERRED IN NOT BRINGING ON RECORD ANY DOCUMENTARY EVIDENCES WHICH COULD PROVE THAT THE MANUFACTURING ACTIVITIES AS DEFINED IN CLAUSE (R) OF SECTION 2 OF SPECIAL ECONOMIC ZONE ACT, 2005 OR OTHER RELEVANT LAW WERE CARRIED OUT ON THE VAT FREE HANDICRAFTS GOODS PURCH ASED AND EXPORTED BY THE ASSESSEE. 7. THE CIT(A) HAS ERRED IN RELYING UPON SOME PHOTO GRAPHS FOR THE FINDING THAT ASSESSEE HAD PURCHASED UN-FINISHED HANDICRAFT ITEMS AS VAT FREE ITEMS/GOODS WITHOUT CORRELATING WITH NATURE OF SPEC IFIC PROCESS OF WORK AND CORRESPONDING PURCHASES AND SALE BILLS OF EXPOR T. 3 8. THE CIT(A) HAS ERRED IN RELYING UPON THE DECISIO N OF HON'BLE ITAT, JAIPUR BENCH AND JODHPUR BENCH AT PARA 6.5.2 AND 6.5.3 ON PAGE 25 OF THE CIT(A)'S ORDER WITHOUT APPRECIATING THAT THE FACTS OF CITED DECISIONS ARE DIFFERENT COMPARED TO ASSESSEE'S CASE. IN THIS CASE , THE AO HAD EXAMINED BOOKS OF ACCOUNTS AND PURCHASE BILLS OF VAT FREE IT EMS PURCHASED FROM HANDICRAFT DEALERS AND COME TO A CONCLUSION THAT TH E ASSESSEE HAD NOT MANUFACTURED/PRODUCED ELIGIBLE ARTICLES OR THINGS B UT IT SIMPLY TRADED WITH THE GOODS PURCHASED AND HAD NOT CARRIED OUT ANY ART ISTIC WORK THEREON. 9. THE CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S 10AA IN RESPECT OF INCOME RECEIVED/ACCRUED FROM DDB OF RS. 51,19 ,027 / - . 10. THE CIT(A) HAS ERRED IN NOT FOLLOWING DECISION OF HON'BLE SC IN CASE OF M/S LIBERTY INDIA, REPORTED IN 317 ITR 218 M/S STERLING FOODS,237LTR 579 (SC) AND M/S HINDUSTAN LEVER LTD. 239 ITR 297(SC). 11. THE CIT(A) HAS ERRED IN IGNORING THE SIMILAR E XPRESSION USED IN THE PROVISIONS OF SECTION 10AA AS USED IN SECTION 80LA OF THE LT ACT. IN THE SECTION 10AA(1), THE EXPRESSION IS AS ' HUNDRED PER CENT OF PROFIT OR GAINS DERIVED FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR FROM SERVICES ' AND IN SECTION 80LA(1), INCLUDES ANY PROFITS AND GAINS DER IVED BY AN UNDERTAKING '. HENCE, THE CIT (A) OUGHT TO HAVE FOLLOWED DECISION OF THE HON'BLE SC IN CASE OF M/S LIBERTY LNDIA. 12. THE CIT(A) HAS ERRED IN GIVING FINDING THAT TH E PROVISION OF SECTION L0BA ARE SIMILAR TO THE PROVISIONS OF SECTION 80HHC. THE CIT (A) HAS NOT NOTICED THAT IN CLAUSE 'BBA' OF EXPLANATION TO SECTION 8OHHC, TH E EXPRESSION 'PROFITS OF THE BUSINESS ' IS DEFINED AND IT INCLUDES INCOME AC CRUED/RECEIVED FROM DEPB/DDB, WHERE AS THERE IS NO SUCH DEFINITION IN S ECTION 10AA. THE SUB- SECTION 7 OF SECTION 10AA GIVES A FORMULA FOR DETER MINATION OF ELIGIBLE DEDUCTION ONLY. 2 VIDE GROUNDS NO. 1 TO 8, THE GRIEVANCE OF THE DEPA RTMENT RELATES TO THE DELETION OF DISALLOWANCE OF CLAIM MADE BY THE A SSESSING OFFICER UNDER 4 SECTION 10AA OF THE I.T. ACT, 1961 (HEREINAFTER REF ERRED TO AS ACT, FOR SHORT). 3. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE HAS FILED E-RETURN OF INCOME ON 29/09/2009, SHOWING TOT AL INCOME OF RS. 81,440/-. THE ASSESSEE REVISED THE RETURN ON 26/08 /2010 AND SHOWN SAME INCOME OF RS. 81,440/-. LATER ON, THE CASE WA S SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 3,18,08,031/- UNDER SECTION 10AA OF THE ACT. HE WAS OF THE VIEW THAT THE DEDUCTION UNDER SECTION 10AA OF THE ACT WAS ALLOWABLE TO THE UNIT SET UP IN SPECIAL ECONOMIC ZONE (SEZ) IN RESPECT OF PROFIT DERIVED FR OM EXPORT OF ARTICLES OR THINGS MANUFACTURED BY THE UNIT. THE ASSESSING OFFICER DISCUSSED THE PROVISIONS OF SECTION 10AA OF THE ACT AT PAGES 2 & 3 OF THE ASSESSMENT ORDER DATED 26/12/2012 AND POINTED OUT THAT THE ASS ESSEE PURCHASED RAW-MATERIAL AS PER THE FOLLOWING DETAILS:- AGAINST 1 FORM 63,22,987/ - AGAINST VAT INVOICE 16,107/ - VAT EX E MPTED 3,43,48,670/ - MANUFACTURING CONSUMABLES 17,53,047/ - CURRENCY RATE FLUCTUATION ON PURCHASE 6,51,330/ - TOTAL 4,30,92,141/ - LESS: SCRAPE SALE 20,057/ - LESS: DDB (REIMBURSEMENT OF DUTY ON IT PUTS USED IN EXPORTS) 51,19,027/ - TOTAL (LESS) 51,39,084/ - 5 NET PURCHASES DEBITED TO P & L ACCOUNT 3,79,53,057/ - FROM THE ABOVE FIGURES, THE ASSESSING OFFICER OBSE RVED THAT MAJOR AMOUNT OF RS. 3,43,48,670/- WAS OF THE VAT EXEMPTED GOODS AND THE ASSESSEE HAD GIVEN HEADING IN ANNEXURE-L AS PURCHAS ES OF RAW-MATERIAL, BUT IN FACT, THE ENTIRE PURCHASES WERE NOT RAW-MATE RIAL. HE FURTHER OBSERVED THAT VAT EXEMPTED PURCHASES OF THE ABOVE S AID AMOUNT WERE IN FACT OF FINISHED HANDICRAFTS ITEMS AND SINCE HANDIC RAFT ITEMS ARE VAT FREE UNDER SCHEDULE I OF RAJASTHAN VALUE ADDED TAX, 2003 . NO ITEM OF RAW MATERIAL IS EXEMPTED FROM VAT. ALL SUCH PURCHASES WERE FROM HANDICRAFT DEALERS, WHO THEMSELVES MANUFACTURED. THE DETAILS OF PURCHASES AS MENTIONED AT PAGE 4 OF THE ASSESSMENT ORDER WERE AS UNDER:- S.NO. NAME OF HANDICRAFT DEALER PURCHASES (IN RS.) 1 M/S. JODHPUR CRAFTS 60,28,888/ - 2. M /S. JARGAR HANDICRAFT 59,17,600/ - 3 M/S. TATIYA INDUSTR I ES 26,66,960/ - 4 M/S VIJAY U DYOG 19,11,223/ - 5 M/S. ASI A ART HANDICRAFT 18, 32,761/ - 6. MOHD. ASLAM 13,89,531/ - 7. M/S. J.J. HANDICRAFT 12,35,808/ - 8. M/S. JEEVAN RAM LOHAR 10,60,535/ - 9. M/S. BHIYA RAM 10,53,680/ - 10. M/S. R.K. HANDICRAFT 7,49,443/ - 11 M/S. GARIB NAWAJ IRON AND STEEL WORK 7,38,600/ - 12 M/S. KRISHNA HANDICRAFT 3,77,625/ - 13 M/S OM PRAKASH LOHAR 4,83,531/ - TOTAL 2,54,46,185/ - 6 4. THE ASSESSING OFFICER FURTHER OBSERVED THAT WHAT T HE ASSESSEE HAS PURCHASED WERE HANDICRAFT ITEMS AND WHAT THE ASSESS EE HAD EXPORTED WERE ALSO HANDICRAFT ITEMS, HENCE, THERE WAS NO CHA NGE IN THE NAME, CHARACTER OR USE. THEREFORE, IT WAS ESTABLISHED TH AT THE ASSESSEE HAS EXPORTED THE ARTICLES AND THINGS NOT MANUFACTURED B Y IT, BUT HAD EXPORTED TRADING ITEMS. THEREFORE, ASSESSEE WAS NO T ENTITLED FOR EXEMPTION UNDER SECTION 10AA OF THE ACT IN RESPECT OF GOODS NOT MANUFACTURED BY IT. ACCORDINGLY, EXEMPTION OF RS.3 ,18,08,031/- UNDER SECTION 10AA OF THE ACT CLAIMED BY THE ASSESSEE WAS DISALLOWED TO THE EXTENT OF PROFIT FROM EXPORT OF TRADING GOODS, WHIC H WAS WORKED OUT AS UNDER:- TOTAL PURCHASES 430 92141/ - PURCHASES OF VAT EXEMPTED HANDICRAFT ITEM 34348670 / - PERCENTAGE OF VAT EXEMPTED HANDICRAFT ITEMS OF TOTAL PURCHASES 79.80% TOTAL EXPORT TURNOVER OF THE UNDERTAKING 91664665 / - EXPORT TURNOVER OF THE UNDERTAKING IN RESPECT OF TRADING GOODS (NOT MANUFACTURED BY ASSESSEE) (79.80% OF TOTAL EXPORT TURNOVER OF THE UNDERTAKING) 73148403 / - PROFIT OF THE UNDERTAKING AS PER FORM 56F 31808031 / - LESS D.D.B. INCLUDED BY AUDITOR IN PROFIT (CANNOT BE CONSIDERED FOR EXEMPTION IN VIEW OF SUPREME COURT DECISION IN LIBERTY INDIA (317 ITR 218 SC) 51390 84 PROFIT OF THE UNDERTAKING AFTER EXCLUDING D.D.B. 26668947 / - PROFIT OF THE UNDERTAKING FROM EXPORT OF TRADING GOODS (NOT MANUFACTURED BY ASSESSEE) I.E. 79.80% OF TOTAL PROFIT OF THE UNDERTAKING) 21281820 / - 7 EXEMPTION U/S 10AA I.E. PROFIT OF THE UNDERTAKING FROM EXPORT OF GOODS MANUFACTURED BY ASSESSEE) I.E. 20.20% OF TOTAL PROFIT OF THE UNDERTAKING 5387127 / - THE ASSESSING OFFICER ALLOWED EXEMPTION UNDER SECT ION 10AA OF THE ACT TO THE EXTENT OF RS. 53,87,127/-. 5. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE ASSESSMENT FOR THE A.YS. 200 7-08 & 2008-09 HAD BEEN COMPLETED, AFTER SCRUTINY UNDER SECTION 143(3) OF THE ACT, ASSESSING OFFICER ELABORATELY CHECKED AND VERIFIED THE SEZ AC TIVITIES AND AFTER CAREFUL CONSIDERATION OF THE RELEVANT FACTS, EVIDEN CE AND REPORT OF THE INCOME-TAX INSPECTOR, HAD GRANTED THE EXEMPTION UND ER SECTION 10AA OF THE ACT IN THE PAST ASSESSMENTS. IT WAS EMPHASIZED THAT THERE WAS NO CHANGE IN THE BUSINESS ACTIVITIES OF THE ASSESSEE A S COMPARED TO THE EARLIER YEARS, WHERE SUCH CLAIM HAD BEEN ACCEPTED A FTER DEEP SCRUTINY. THE ASSESSEE EXPLAINED IN HIS LETTER DATED 16/11/20 11 THAT IT FULFILLS ALL THE CONDITIONS FOR GRANT OF EXEMPTION UNDER SECTION 10AA OF THE ACT AND THE SAME WAS CLAIMED ON THE BASIS OF AUDITORS REPO RT IN THE PRESCRIBED FORM NO. 56. IT WAS FURTHER STATED THAT ASSESSING OFFICER WRONGLY PRESUMED THAT VAT EXEMPTED HANDICRAFT ITEMS PURCHAS ED BY THE ASSESSEE AGGREGATING TO RS. 3,43,48,670/- WERE FINISHED HAND ICRAFT ITEMS AND THOSE 8 HAD BEEN EXPORTED BY THE ASSESSEE WITHOUT ANY CHANG E IN THE NAME, CHARACTER OR USE. IT WAS STATED THAT THE FINDING O F THE ASSESSING OFFICER WAS WRONG AND CONTRARY TO THE VOLUMINOUS RECORD REL ATING TO PURCHASE OF RAW MATERIAL, PROCESSING OF RAW MATERIAL, WAGE, EXP ORTS INVOICES AND VARIOUS OTHER RELEVANT DOCUMENTS REQUIRED TO BE MAI NTAINED UNDER THE LAW RELATING TO SEZ, PRODUCED BY THE ASSESSEE FROM TIME TO TIME BEFORE THE ASSESSING OFFICER. THEREFORE, THE FINDINGS OF THE ASSESSING OFFICER WERE CLEARLY CONTRARY TO CONTEMPORARY PHYSICAL VERI FICATION AND DEEP SCRUTINY OF ENTIRE INPUTS AND DISPATCHES REQUIRED T O BE MADE BY THE CUSTOMS AUTHORITIES IN MANUFACTURING UNITS IN SEZ A CCORDING TO THE PROVISIONS CONTAINED IN THE CUSTOMS AND EXERCISE RU LES AND REGULATION AND RULES RELATING TO THE SEZ. IT WAS EXPLAINED THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ARTISTIC WOODEN /IRON/MARBLE/GLASS HANDICRAFTS ITEMS AND THE UNIT IS SITUATED IN SPECI AL ECONOMIC ZONE AT RICCO BORANADA, JODHPUR. IT WAS STATED THAT EXEMPT ION UNDER SECTION 10AA OF THE ACT IS GIVEN TO SUCH UNITS ESTABLISHED UNDER SEZ ACT, 2005. IT WAS FURTHER STATED THAT FOR SETTING UP OF ANY UNIT IN ANY SEZ ZONE, FIRST PERMISSION FROM DEVELOPMENT COMMISSIONER OF THE SEZ IS REQUIRED. THE PROPOSAL IS SCRUTINIZED BY THE APPROVAL COMMITTEE, WHICH CONSISTS OF VARIOUS MEMBERS. THE SAID COMMITTEE INCLUDES OFFIC ER IN RANK OF 9 ADDITIONAL SECRETARY TO THE GOVERNMENT OF INDIA IN THE MINISTRY OF DEPARTMENT OF CENTRAL GOVERNMENT DEALING WITH COMME RCE, TWO OFFICERS FROM THE MINISTRY OF THE FINANCE DEALING WITH REVEN UE, ECONOMIC AFFAIRS, OFFICERS FROM MINISTRY OF COMMERCE, INDUSTRIAL POLI CY AND PROMOTION, SCIENCE AND TECHNOLOGY, REPRESENTATIVE OF STATE GOV ERNMENT AND EVEN REPRESENTATIVE FROM THE CENTRAL BOARD OF THE DIRECT TAX UNDER THE MINISTRY OF THE FINANCE REPRESENT THE BOARD GRANTIN G SUCH APPROVAL. IT WAS POINTED OUT THAT THE ASSESSEE HAD BEEN GRANTED LETTER OF APPROVAL BY THE OFFICE OF DEVELOPMENT COMMISSIONER, NOIDA SEZ, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF THE COMMERCE G OVERNMENT OF INDIA, IN ACCORDANCE WITH THE SCHEME OF GOVERNMENT AND BOND-CUM-LEGAL UNDERTAKING WAS EXECUTED ON 13/04/2006 IN ACCORDANC E WITH THE TERMS AND CONDITION OF LETTER OF PERMISSION, WHICH HAD BE EN DULY ACCEPTED BY THE DEVELOPMENT COMMISSIONER, NOIDA, SEZ IN ACCORDA NCE WITH THEIR LETTER DATED 27/04/2006. IT WAS FURTHER STATED THA T THE AGREEMENT EXECUTED ON 13/04/2006 WITH THE CONCERNING GOVERNME NT AUTHORITIES CLEARLY REVEALS THAT THE UNIT OF THE ASSESSEE ESTAB LISHED IN THE SEZ IS A MANUFACTURING UNIT. IT WAS FURTHER STATED THAT EVE RY PURCHASE OF SALE UNIT WAS DULY RECORDED BY THE CUSTOMS AUTHORITIES AND CE RTIFIED BY THE AUTHORITIES WHEN THE GOODS WERE TAKEN IN AND OUT FR OM SUCH ZONE. IT WAS 10 CONTENDED THAT EACH AND EVERY BILL OF THE ASSESSEE UNIT WAS BEING VERIFIED BY THE CUSTOM AUTHORITY BEFORE THE GOODS MOVED FROM THE UNIT OF THE ASSESSEE. IT WAS FURTHER CONTENDED THAT THE ENTIRE PURCHASE OF THE RAW MATERIAL PURCHASED BY THE ASSESSEE CAME WITHIN THE PERMISSIBLE AMBIT OF THE PROVISION OF SEZ ACT AND THE RULES MADE THERE U NDER AND THAT THE MANUFACTURING UNIT LOCATED IN NOTIFIED SPECIAL ZONE IS ELIGIBLE FOR ALL KINDS OF EXEMPTION UNDER THE PROVISIONS OF DIRECT TAX LAW AND INDIRECT TAX LAW. IT WAS STATED THAT THE ASSESSEE FURNISHED THE DETAI LS OF EXEMPTION GIVEN IN CHAPTER VI SECTIONS 26 TO 30 OF SEZ ACT, 2005 AND COPIES OF NOTIFICATION DATED 01/03/2003 IN RESPECT OF SALE TA X EXEMPTION TO THE UNIT ESTABLISHED IN SEZ AND NOTIFICATION ISSUED UND ER SECTION 8(4) OF THE RAJASTHAN VALUE ADDED TAX ACT, 2003 PROVIDING FOR E XEMPTION UNDER INDIRECT TAXES AND EXEMPTING FROM TAX, THE SALE OR PURCHASE BY REGISTERED DEALER TO INDUSTRIAL UNIT ESTABLISHED IN SEZ. IT W AS FURTHER STATED THAT THE ACTIVITIES CARRIED OUT BY THE ASSESSEE HAD BEEN ACC EPTED AS MANUFACTURING AND ACCORDINGLY, APPROVAL FOR SETTING UP OF MANUFACTURING UNIT WAS GRANTED IN ACCORDANCE WITH THE PROVISION O F THE SEZ ACT. ONCE THE SAME HAS BEEN ACCEPTED AS A MANUFACTURING UNIT BY THE SEZ IN ACCORDANCE WITH THE RULES AND REGULATIONS GOVERNING SEZ UNITS, IT SHOULD BE TREATED IMPLICIT AND IMPLIED THAT THE UNIT HAS B EEN APPROVED AS A 11 MANUFACTURING SEZ UNIT BY THE BOARD. IT WAS STATED THAT THE ASSESSING OFFICER EXAMINED THE ISSUE IN A.Y. 2007-08 & 2008-0 9 UNDER SECTION 143(3) OF THE ACT AND THE ENTIRE RELEVANT EVIDENCE I.E. PURCHASE VOUCHERS, EXPORT INVOICE, MANUFACTURING EXPENSE, LA BOUR RECORDS TO SHOW THE DETAILS ABOUT PROCESS OF MANUFACTURING/PRODUCTI ON CARRIED OUT BY THE ASSESSEE AND AFTER SUCH SCRUTINY AND INVESTIGATION, THE ASSESSING OFFICER HAD ACCEPTED THAT THE ENTIRE ACTIVITY CARRIED OUT B Y THE ASSESSEE AMOUNTED TO MANUFACTURE/PRODUCTION IN SEZ, WHICH WA S ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. IT WAS FU RTHER STATED THAT THE UNIT OF THE ASSESSEE WAS DULY REGISTERED AS A MANUF ACTURING UNIT WITH DISTRICT INDUSTRIAL CENTRE AS AN SSI UNIT AND REGIS TERED AS A MANUFACTURING UNIT WITH VARIOUS OTHER AUTHORITIES OF THE GOVERNME NT I.E. THE CHIEF INSPECTOR OF THE FACTORY, GOVERNMENT OF RAJASTHAN, EXPORT PROMOTION COUNCIL FOR HANDICRAFT, MINISTRY OF TEXTILE GOVERNM ENT OF INDIA, UNDER RAJASTHAN SALES TAX LAW. THEREFORE, ASSESSEE HAS BE EN ACCEPTED AS A MANUFACTURING UNIT BY ALL CONCERNING GOVERNMENT AUT HORITIES WHICH SUPPORT THE ASSESSEES CLAIM THAT ASSESSEE WAS WHOL LY ENGAGED IN THE BUSINESS OF MANUFACTURING/PRODUCTION OF HANDICRAFT ARTICLES EXPORTED BY IT. IT WAS EXPLAINED THAT THE ASSESSEE CARRIES OUT SERIES OF THE MANUFACTURING / PRODUCTION PROCESS ON THE RAW STRUC TURES TO TRANSFORM OR 12 TO CONVERT INTO FINISHED HANDICRAFT ITEMS, WHICH BE COMES TOTALLY DIFFERENT, DISTINCT AND NEW COMMERCIAL COMMODITY WH ICH IS EXPORTED BY THE ASSESSEE. ASSESSEE SUBMITTED TO THE LEARNED CI T(A) THAT AFTER PURCHASE OF HANDICRAFT ITEMS IN ITS RAW FORM OR SKE TCH FORM, THE ASSESSEE CARRIES OUT VARIOUS ACTIVITIES OF MANUFACTURE/PRODU CTION ON SUCH RAW ITEMS TO MAKE IT FIT FOR EXPORT. THE VARIOUS ACTIV ITIES CARRIED OUT BY THE ASSESSEE WERE AS FOLLOWS:- I. THOROUGH CHECKING OF UNFINISHED GOODS PROCURED (FILING/GRINDING/WELDING/SANDING/FILING ETC.) II. INITIAL POLISHING/SANDING/BUFFING/COATING. III. FINAL BUFFING/POLISHING/PRIME COATING. IV. PLATING/LACQUERING/COLOUR COATING. V. ENGRAVING VI. ANTIQUE POLISH VII. FITTING/ASSEMBLING VIII. BARCODING/PACKING/MARKING. THE ASSESSEE ALSO FURNISHED DETAILED FLOW CHART SHO WING PRODUCTION PROCESS, FLOW CHART FOR IRON/WOODEN/IRON WOODEN/COM BINATION ITEM AFTER PURCHASE OF UNFINISHED AND UNASSEMBLED ITEMS IN ITS RAW FORM. PHOTOCOPIES OF PURCHASE INVOICES RELATING TO PURCHA SE OF THE RAW MATERIAL SHOWN AS VAT EXEMPTED ITEMS HAD BEEN FURNISHED AND ALSO FURNISHED THE CHART OF ILLUSTRATIVE PURCHASE OF RAW MATERIAL AND CORRESPONDING EXPORTS MADE AFTER CARRIED OUT SEVERAL PROCESS OF MANUFACTU RE/PRODUCTION AS UNDER:- 13 NAME OF ITEM EXPORTED INPUT ITEMS PURCHASED VIDE SEPARATE INVOICES (INR) VALUE PER PIECE) THEREAFTER VARIOUS PROCESSES OF MFG./ PRODUCTION WERE CARRIED OUT BY ASSESSEE EXPORT INVOICE VALUE CHARGE IN RESPECT OF FINISHED ITEMS AFTER CARRYING OUT VARIOUS ACTIVITIES OF MANUFACTURE/ PRODUCTION ON (IN FC) CONVERSION RATE SALE VALUE PER PIECE (IN INR) V A LUE ADDITION PER PIECE ITEM 1 WOODEN PHOTO FRAME WITH WHILE METAL FITTING ANTIQUE FINISH 40 EURO 3.60 RS. 62.45 225.00 185.00 ITEM 2 IRON CLOCK 20CM DIA WITH PUNCHING MED N/A 110+55 = 165 USD 7.67 RS. 50.25 385.00 220.00 ITEM 3 IRON DECORATIVE ROUND TRY ON LEGS WITH PUNCHING NICLE ANTIQUE 400 +275 = 675 EURO 23.00 RS. 66.20 359.00 19 4.00 6. IT WAS STATED THAT THE ASSESSEE WAS FULLY ENGAGED IN BUSINESS OF MANUFACTURING/PRODUCTION OF HANDICRAFT ITEMS EXPORT ED BY IT, WHICH WAS FURTHER CORROBORATED BY THE FACT THAT ASSESSEE PURC HASED VARIOUS ITEMS, WHICH WERE USED IN CONVERTING THE RAW MATERIAL PURC HASED INTO FINISHED PRODUCTS. THE DETAILS OF SUCH ITEMS ARE AS UNDER:- POLISHING ITEM RS. 9,84,776/- NICLE PLATING & OTHER PLATING MATERIAL RS. 45,11,8 44/- COMPONENT (GLASS, CLOCKS ETC.) RS. 21,59,358/- RAW MATERIAL (WEIGHT MATTER ETC.) RS. 15,35,253/- HARDWARE RS. 1,30,344/- PACKING MATERIALS RS. 51,75,039/- MISC. EXPENSES RS. 1,82,756/- ----------------------- TOTAL RS.1,46,79,370/- ------------------------ 14 IT WAS ALSO STATED THAT THE ASSESSEE INCURRED EXPE NSES OF RS. 56,47,777/- ON ACCOUNT OF LABOUR CHARGE. THE AUTHO RITIES LIKE DY. CHIEF INSPECTOR, FACTORY AND BOILER DEPARTMENT HAD ALSO I NSPECTED AND FOUND THAT THE LARGE NUMBER OF LABOUR EMPLOYED AND ESI & PF HAD BEEN DEDUCTED. IT WAS ALSO CONTENDED THAT THE ASSESSEE S UNIT WAS ESTABLISHED IN SIZABLE INFRASTRUCTURE FACILITIES SPREADING OVER 4200 SQ.MT AND ALSO HAVING SUFFICIENT PLANT AND MACHINERY TO CARRYOUT M ANUFACTURING ACTIVITIES. THE ASSESSEE HAD POWER CONNECTION OF 5 0KWH IN THE YEAR UNDER CONSIDERATION AND INCURRED ELECTRIC EXPENSES OF RS. 6,56,987/-. THUS, THE ASSESSEE FULFILLS ALL THE REQUIREMENTS UN DER THE LAW IN RELATION TO CLAIM OF DEDUCTION MADE UNDER SECTION 10AA OF TH E ACT. THE ASSESSEE SUBMITTED COPIES OF THE FOLLOWING CERTIFICATES ISSU ED BY THE VARIOUS GOVERNMENT AUTHORITIES:- A. COPY OF REGISTRATION CERTIFICATE ISSUED BY DISTRICT INDUSTRIES CENTRE, JODHPUR REGISTERING NO. 080151100653. B. REGISTRATION CERTIFICATE GRANTED UNDER THE PROVISIO N OF FACTORIES ACT 1948 NO. 28531 DATED 22/11/2010. C. COPY OF THE REGISTRATION CERTIFICATE ISSUED BY EXPO RT PROMOTION COUNCIL FOR HANDICRAFT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: - 1. MADHU JAYANTI INTERNATIONAL LTD. IN ITA NO. 1463/KO L/2007 A.Y. 2004-06 ORDER DATED 20/07/2012. 2. CIT VS. EMPTEE POLY-YARN (P) LTD. REPORTED IN 320 I TR 665. 15 3. ITO VS. ARIHANT TILES & MARBLES P. LTD. REPORTED IN 320 ITR 79 (SC) 4. PONDICHARY STATE COOPERATIVE CONSUMER FEDERATION LT D. VS. UNION TERRITORY OF PONDICHARY REPORTED IN 20 TAX UP TO DATE (SC) 203. 5. VADILAL CHEMICALS LTD. VS. THE STATE OF ANDHRA PRAD ESH REPORTED IN 4 VAT REPORTER 123(SC) 6. ITO VS. EKTARA EXPORTS (P) LTD. REPORTED IN 152 TAX MAN 18 (KOL) 7. GOVERDHAN PRASAD SINGHAL VS. ITO REPORTED IN 27 DTR (JP) (TRIB.) 1 8. DCIT VS. MANGLAM ARTS REPORTED IN 17 DTR (JP) (TRIB .) 97 9. ARTS AND CRAFTS EXPORTS VS. ITO REPORTED IN 66 DTR (MUM) (TRIB.) 69 10. DCIT VS. M/S. BASANT, JODHPUR IN ITA NO. 614/JU/200 8 FOR A.Y. 2005-06. 11. KWAL PRO EXPORTS VS. ITO REPORTED IN 25 DTR (JD) 11 3. 12. DEVARSA GAS CHEM P. LTD. VS. RAJASTHAN TAXATION TRI BUNAL REPORTED IN 25 TAX WROLD 234 (RAJ) 13. GUJARAT NERMADA VALLEY FERT. CO. LTD. VS. COLLECTOR OF EX. AND CUS. 2005 (184) E.L.T. 128 (SC) 14. BHOR INDUSTRIES LTD. VS. COLLECTOR OF CENTRAL EXCIS E BOMBAY REPORTED IN (1989) 1 (SC) 602. 7. IT WAS STATED THAT A NEW DISTINCT AND DIFFERENT MA RKETABLE ITEM NAMELY FINISH ITEM OF HANDICRAFT WITH SUBSTANTIAL V ALUE OF THE ADDITION, CAME INTO EXISTENCE AS A RESULT OF VARIOUS PROCESS OF MANUFACTURE/ PRODUCTION CARRIED OUT BY THE ASSESSEE ON THE ITEM PURCHASED ON ITS RAW FORM/IN THE FORM OF SKELTON AND THE NAME, CHARACTER AND USER OF THE RAW MATERIAL/SEMI FINISHED/UNASSEMBLED ITEMS PURCHASED BY THE ASSESSEE BECOME TOTALLY DIFFERENT MARKETABLE AND EXPORTABLE PRODUCTS HAVING 16 DIFFERENT NAME, DESCRIPTION, CHARACTER AND USER AS IS EVIDENT FROM RESPECTIVE PURCHASE INVOICE DULY CERTIFIED BY THE C USTOM AUTHORITIES. IT WAS ALSO STATED THAT THE MEANING OF THE WORD PRODU CTION IS VERY WIDE. SECTION 10AA OF THE ACT USES THE EXPRESSION MANUFA CTURE OR PRODUCE AND THE EXPRESSION PRODUCE, PRODUCTION HAVE A MUC H WIDE MEANING AS COMPARED TO THE MEANING OF THE WORD MANUFACTURE. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SESA GOA LTD. REPORTED IN 271 ITR 331 (SC). 8. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION S OF ASSESSEE OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF HANDICRAFT ITEMS AND PURCHASED RAW MATERIAL OF RS. 3,79,53,527 /- WHICH INCLUDED VAT EXEMPTED PURCHASES OF RS. 3,43,48,670/-. HE FU RTHER OBSERVED THAT THE CONTENTION OF THE ASSESSING OFFICER THAT THE AS SESSEE HAD PURCHASED VAT FREE GOODS, WHICH WERE FINISHED GOODS FROM MANU FACTURER THEMSELVES AND SELLING OF THOSE AMOUNTED TO TRADING NOT MANUFA CTURING. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER HAD PRESUMED TH AT THE ASSESSEE HAD EXPORTED THE PURCHASE ITEMS IN THE SAME FORM. ON T HE CONTRARY, THE ASSESSEE HAD FURNISHED ILLUSTRATION WITH PHOTOGRAPH S WHICH SHOWED THAT ALL THE VAT EXEMPTED ITEMS PURCHASED BY THE ASSESSE E WERE PIECES OF 17 UNFINISHED HANDICRAFT ITEMS, SO THOSE PURCHASES OF VAT EXEMPTED ITEMS AND OTHER CONSUMABLE MATERIALS REQUIRED TO BE PHYSI CALLY CHECKED AND VERIFIED BY THE CUSTOMS AUTHORITIES. THE LEARNED CIT(A) POINTED OUT THAT PURCHASE INVOICES CERTIFIED BY THE CUSTOMS AUTHORIT IES HAD A REMARK AS UNFINISHED ITEMS AND THE ASSESSEE HAD SUBMITTED A CHART WITH PHOTOGRAPHS WHERE PURCHASE COST, PROCESS EXPENSES A ND SALE PRICE WERE GIVEN, WHICH CLEARLY ESTABLISHED THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE WAS A MANUFACTURING AS PROVIDED UNDER SECT ION 10AA OF THE ACT. HE FURTHER POINTED OUT THAT THE ASSESSEE FURNISHED THE COPIES OF VAT ASSESSMENT BEFORE THE ASSESSING OFFICER WHICH CLEAR LY REVEALED THAT SUPPLIER HAD SUPPLIED ONLY UNFINISHED AND SEMI-FINI SHED ITEMS ON WHICH FINISHING WORK AND ARTISTIC WORK WAS CARRIED OUT IN THE ASSESSEES OWN FACTORY AND EVEN OTHERWISE, THE PRODUCTS OF ONE IND USTRY CAN BE A RAW MATERIAL FOR OTHER INDUSTRIES. THE RELIANCE WAS PL ACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF UJAGAR PAINTS REPORTED IN 179 ITR 317 (SC) . LEARNED CIT(A) OBSERVED THAT THE ASSESSEES UNIT WAS SITUATED IN SEZ AREA, WHICH WAS 100% EOU AND ELIGIBLE TO PU RCHASE VAT EXEMPTED GOODS AND AFTER MANUFACTURING, THE GOODS WERE EXPOR TED OUT OF INDIA. LEARNED CIT(A) REFERRED TO NOTIFICATION NO. F12/63F D/TAX 2005-06 DATED 09/06/2006 OF THE STATE GOVERNMENT, IN ACCORDANCE W ITH THE SAID 18 NOTIFICATION, THE ASSESSEE REQUIRED TO FURNISH A DE CLARATION REGARDING PURCHASE OF GOODS WHICH ARE TO BE USED FOR EXPORT O UT OF INDIA. THE LEARNED CIT(A) OBSERVED THAT CONTENTION OF THE ASSE SSING OFFICER THAT THE ASSESSEE HAD PURCHASED VAT EXEMPTED GOODS, WHICH WE RE FINISHED GOODS AND THE SAME WERE EXPORTED AS TRADING WAS NOT BASED ON FACTS AND EVIDENCES. LEARNED CIT(A) HELD THAT THE OBSERVATIO N OF THE ASSESSING OFFICER THAT THE ASSESSEE PURCHASED HANDICRAFT ITEM S AND ALSO EXPORTED THEM, HENCE, THERE WAS NO CHANGE IN THE NAME, CHARA CTER AND USE WAS NOT CORRECT, SINCE, THE RAW MATERIALS PURCHASED WER E SKELTON, WHICH WERE UTILIZED IN MANUFACTURING, ACTIVITY TO PREPARE FINI SHED PRODUCTS WITH DISTINCT NAME, CHARACTER OR USE. LEARNED CIT(A) PO INTED OUT THAT THE ASSESSING OFFICER ALLOWED THE DEDUCTION OF RS. 53,8 7,127/- ONLY, WHICH BASICALLY INCLUDED CONSUMABLE ITEMS UTILIZED FOR MA NUFACTURING, ON THE CONTRARY AS PER THE ASSESSEE BY DOING A MANUFACTURI NG PROCESS WITH THE HELP OF CONSUMABLE ITEM THE VAT FREE RAW MATERIAL I .E. THE SKELTON WERE GIVEN A DISTINCT NAME, CHARACTER OR USE WHICH WAS Q UITE DIFFERENT FROM THE RAW MATERIAL. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED TO RESTRICT THE DISALLOWANCE TO THE TUNE OF RS. 53,87, 127/-. LEARNED CIT(A) ALSO REFERRED TO THE DEFINITION OF MANUFACTURING GIVEN IN EXPORT & IMPORT POLICY APPLICABLE FOR 100% EOU AND DISCUSSED THE SAME IN PARA 6.5 19 OF THE IMPUGNED ORDER, FOR THE COST OF REPETITION, THE SAME IS NOT REPRODUCED HEREIN. LEARNED CIT(A) WAS OF THE VIEW T HAT THE DEFINITIONS GIVEN IN DIFFERENT RELEVANT PROVISIONS RELATING TO FACTORIES AND EXPORTS, CLEARLY SHOWS THAT THE VARIOUS PROCESSES OF MANUFAC TURE/PRODUCTION WERE APPLIED ON THE ELIGIBLE ARTICLES OR THINGS NAMELY H ANDICRAFT ARTICLES OR THINGS HAVING ARTISTIC VALUE. RELIANCE WAS PLACED ON THE CASE OF GOVERDHAN PRASAD SINGHAL VS. ITO REPORTED IN (2009) 27 DTR (JP.) 1 AND THE DECISION IN THE CASE OF DCIT VS. MANGLAM ARTS R EPORTED IN 17 DTR (JP) (TRIB.) 97 AND ARTS & CRAFTS EXPORTS VS. ITO REPORT ED IN 66 DTR (MUM) (TRIB.) 69. LEARNED CIT(A) CATEGORICALLY STATED T HAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE/PRODUCTION A ND EXPORTS OF WOODEN HANDICRAFT ITEMS. IN ADDITION TO THE HANDIC RAFT ITEMS OF IRON, METAL, GLASS ETC. AND SUCH HANDICRAFT ITEMS MANUFAC TURED AND EXPORTED BY THE ASSESSEE CONTAINED ARTISTIC VALUE. HE FURTH ER STATED THAT THE ASSESSEE PURCHASED RAW MATERIAL IN THE FORM OF WORD , IRON AND SEMI- FINISHED SKELTON THEREAFTER CARRIES OUT THE FOLLOWI NG PROCESS:- I. THOROUGH CHECKING OF UNFINISHED GOODS PROCURED. (FILING/GRINDING/WELDING/SANDING/FILLING ETC.) II. INITIAL POLISHING/SANDING/BUFFING/COATING III. FINAL BUFFING/POLISHING/PRIME COATING IV PLATING/LACQUERING/COLOUR COATING V ENGRAVING VI ANTIQUE POLISH 20 VII FITTING/ASSEMBLING VIII BARCODING/PACKING/MARKING. 9. THE LEARNED CIT(A) FURTHER OBSERVED THAT IF THE AFORESAID ACTIVITIES CARRIED OUT BY THE ASSESSEE ARE EXAMINED IN THE LIG HT OF WIDER DEFINITION OF MANUFACTURE GIVEN IN EXPORT IMPORT POLICY, WHICH GOVERNS 100% EOU, IT WOULD BE CRYSTAL CLEAR THAT THE ACTIVITIES CARRIED OUT BY THE ASSESSEE AMOUNT TO MANUFACTURE FOR THE PURPOSE OF GRANT OF DEDUCTION U/S 10AA OF THE ACT AND THE DEFINITION OF MANUFACTURE GIVEN IN THE EXPORT IMPORT POLICY APPLICABLE FOR 100% EOU WILL BE APPLICABLE, WHICH INTER ALIA INCLUDES ANY PROCESS, ASSEMBLY, POLISHING, LABELLIN G AND PACKING ETC. AS PART OF MANUFACTURING ACTIVITIES AND THAT THE CIRCU LAR NO. 314 DATED 06/05/1997 ISSUED BY THE MINISTRY OF FINANCE INTER ALIA CLARIFIES THAT THE TERM MANUFACTURE FOR THE PURPOSES OF 100% EOU IS WIDER IN MEANING THEN THAT USED IN SECTION 2(F) OF CENTRAL EXCISE AC T AND THE SAID CLARIFICATION AMPLY CLARIFIES THE INTENTION OF THE GOVERNMENT THAT THE WIDER DEFINITION OF MANUFACTURE GIVEN IN THE EXPO RT IMPORT POLICY SHOULD BE APPLIED FOR GRANT OF ALL INCENTIVES, CONC ESSIONS AND EXEMPTIONS TO 100% EOU. ON THE BASIS OF THE ABOVE DISCUSSION AND THE DETAI LED FLOW CHART OF THE PROCESS, LEARNED CIT(A) WAS OF THE VIEW THAT A NEW MARKETABLE ITEM 21 WITH SUBSTANTIAL VALUE ADDITION CAME INTO EXISTENCE AS A RESULT OF VARIOUS PROCESSES OF MANUFACTURE/PRODUCTION CARRIED OUT BY THE ASSESSEE ON THE ITEMS PURCHASED IN ITS RAW FORM I.E. VAT FREE GOODS . LEARNED CIT(A) ALSO OBSERVED THAT THE DEDUCTION UNDER SECTION 10AA OF T HE ACT HAD BEEN ALLOWED AFTER DEEP EXAMINATION IN THE SCRUTINY ASSE SSMENT. HE REFERRED TO THE A.Y. 2007-08 & 2008-09, WHEREIN THE ASSESSIN G OFFICER ALLOWED THE CLAIM AND VERIFIED THE SEZ ACTIVITIES AND RELEVANT FACTS, EVIDENCE AND REPORT OF THE INCOME TAX INSPECTOR ABOUT PHYSICAL V ERIFICATION OF THE MANUFACTURING ACTIVITY AND HAD GRANTED THE EXEMPTIO N UNDER SECTION 10AA OF THE ACT. HE ALSO POINTED OUT THAT THE ASSE SSING OFFICER HAD HELD THAT W.E.F. 03/01/2007 I.E FIRST YEARS BUSINESS OF THE ASSESSEE, THE TAKING OF GOODS COMMENCED FORM SEZ, THE ASSESSEE WA S ELIGIBLE FOR 100% DEDUCTION UNDER SECTION 10AA OF THE ACT, WHICH WAS ALSO ALLOWED IN SUBSEQUENT ORDERS BY THE ASSESSING OFFICER AND THER E IS NO CHANGE IN THE BUSINESS ACTIVITIES OF THE ASSESSEE AS COMPARED TO THE EARLIER YEARS. LEARNED CIT(A) CATEGORICALLY STATED THAT THE ASSESS ING OFFICER DID NOT POINT OUT ANY INSTANCE OR FACTS WHICH SUGGESTED THA T THERE WAS ANY CHANGE IN ACTIVITY OF THE ASSESSEE, THEREFORE, THE DEDUCTION ALLOWED CANNOT BE WITHDRAWN UNLESS AND UNTIL THERE IS CONTR ARY DISTINGUISHABLE FACTS. RELIANCE WAS PLACED IN THE CASE OF GRACE EXPORTS VS. ITO REPORTED 22 IN 79 ITR 361 . LEARNED CIT(A) ALSO OBSERVED THAT THE ASSESSEE-F IRM WAS DULY REGISTERED AS MANUFACTURING CONCERN/100%-EOU W ITH VARIOUS GOVERNMENT AUTHORITIES, THE SAID REGISTRATION WAS G RANTED AFTER NECESSARY ENQUIRIES AND SATISFACTION ABOUT THE FULFILLMENT OF VARIOUS PRECONDITIONS. LEARNED CIT(A) POINTED OUT THAT THE VARIOUS GOVERNM ENT AND CONCERNED AUTHORITIES AFTER VERIFICATION AND SCRUTINIZING THE ACTIVITY OF THE ASSESSEE ISSUED THE FOLLOWING CERTIFICATES:- I. COPY OF REGISTRATION CERTIFICATE ISSUED BY DISTRICT INDUSTRIES CENTRE, JODHPUR REGISTERING NO. 080151100653. II. REGISTRATION CERTIFICATE GRANTED UNDER THE PROVISIO N OF FACTORIES ACT, 1948 NO. 28531 DATED 22/11/2010. III. COPY OF THE REGISTRATION CERTIFICATE ISSUED BY EXPO RT PROMOTION COUNCIL FOR HANDICRAFT. IV. COPY OF APPROVAL ISSUED AS PER SEZ ACT, 2005 BY OFF ICE OF THE DEVELOPMENT COMMISSIONER, NOIDA SPECIAL ECONOMIC ZO NE, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF CO MMERCE GOVERNMENT OF INDIA. V. COPY OF LETTER DATED 27/04/2006 OF DEVELOPMENT COMMISSIONER, NOIDA, SPECIAL ECONOMIC ZONE. 23 VI. COPY OF REGISTRATION GRANTED UNDER THE PROVISIONS O F RAJASTHAN SALES TAX ACT SHOWING THE APPELLANT AS MANUFACTURE R OF ALL TYPES OF HANDICRAFTS. VII. COPY OF REGISTRATION CERTIFICATE ISSUED UNDER THE P ROVISIONS OF CST ACT SHOWING THE ASSESSEE AS MANUFACTURE OF HAND ICRAFTS. ON THE BASIS OF ABOVE CERTIFICATES, LEARNED CIT(A) HELD THAT THE ASSESSEE CARRIED OUT MANUFACTURING PROCESS WITH THE NUMBER OF LABOURS AND MADE THE LABOUR PAYMENT OF RS. 56,47,777/-, THE DETAILS OF WHICH WAS FURNISHED AND THE AUTHORITIES LIKE DY. CHIEF IN SPECTOR, FACTORY AND BOILER DEPARTMENT HAD ALSO INSPECTED AND FOUND THAT THE LARGE NUMBER OF LABOUR EMPLOYED WERE COVERED UNDER THE ESI/PF. HE ALSO POINTED OUT THAT THE ASSESSEE HAD INCURRED RS. 6,56,987/- ON AC COUNT OF ELECTRIC EXPENSES AND THE UNIT WAS ESTABLISHED IN SIZABLE IN FRASTRUCTURE FACILITIES SPREADING OVER 4200 SQ.MT. HAVING SUFFICIENT PLANT AND MACHINERY TO CARRY OUT VARIOUS MANUFACTURING ACTIVITIES AND THE ASSESS ING OFFICER HAD NOT DOUBTED THE ABOVE SAID EXPENSES, WHICH PROVED THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING ACTIVITY AND EVEN THE ASSESSING OFFICER HAD NOT DOUBTED THE ELIGIBILITY UNDER SECTION 10AA OF T HE ACT BUT RESTRICTED THE CLAIM OF DEDUCTION. LEARNED CIT(A) HELD THAT T HE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE AC T AND THE ASSESSING 24 OFFICER WAS NOT JUSTIFIED IN RESTRICTING THE DEDUCT ION OF CLAIM UNDER SECTION 10AA OF THE ACT TO THE EXTENT OF RS. 53,87, 127/- ONLY. HE ACCORDINGLY, ALLOWED THE CLAIM OF THE ASSESSEE. NOW , THE DEPARTMENT IS IN APPEAL. 10. LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF T HE ASSESSING OFFICER AND SUBMITTED THAT THE HANDICRAFT GOODS WERE PURCHA SED BY THE ASSESSEE FOR EXPORT AS HANDICRAFT GOODS, SO IT WAS A TRADING ACTIVITY. THEREFORE, THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN DISALL OWING THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 10AA OF THE AC T AND THE LEARNED CIT(A) WRONGLY ALLOWED THE CLAIM IN RESPECT OF THOS E GOODS PURCHASED AND TRADED BY THE ASSESSEE. IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT IN THE PRECEDING A.Y.S 2007-08 & 2008-09, THE ASSESSING OFFICER AFTER MAKING THE DEEP SCRUTINY ALLOWED THE CLAIM UNDER SE CTION 10AA OF THE ACT WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 14 3(3) OF THE ACT AND THERE IS NO CHANGE IN THE NATURE OF BUSINESS AND MA NUFACTURING PROCESS OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION VIS-A-VIS EARLIER YEARS, THEREFORE, LEARNED CIT(A) WAS FULLY JUSTIFIED IN A LLOWING THE CLAIM OF THE 25 ASSESSEE. IT WAS FURTHER SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION DATED 31/01/2013 OF THIS BENCH OF THE TRIBUNAL IN ITA NO. 336/JODH/2011 AND OTHERS IN THE CASE OF M/S. SURAJ EXPORTS INDIA SARDAR SHAHAR, CHURU VS. ITO, CHURU, COPY OF THE SAID ORDE R WAS FURNISHED IS PLACED ON RECORD. THE RELEVANT PORTION IS REPRODUC ED AS UNDER:- WE HAVE COGITATED RIVAL ARGUMENTS VIS-A-VIS EVIDE NCE ON RECORD. WE HAVE EXAMINED THE DECISIONS ON WHICH PARTIES HAV E PLACED THEIR RESPECTIVE RELIANCE. WE HAVE FOUND THAT THE RATIO OF THE DECISION OF HON'BLE APEX COURT RENDERED IN THE CASE OF LIBER TY INDIA VS. CIT REPORTED 225 CTR 233 (HON'BLE SUPREME COURT) IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THE SECTION UNDER INTERPRE TATION BEFORE HON'BLE SUPREME COURT WAS 80IA. IN SEC. 80IA, NO F ORMULATE FOR COMPUTATION OF PROFIT DERIVED BY THE UNDERTAKING IS LAID DOWN, WHEREAS IN SECTION 10BA AND SECTION 80HHC FORMULA I S PRESCRIBED FOR THE PURPOSE. THEREFORE, IN OUR CONSIDERED OPIN ION, SEC. 10BA AND 80HHC ARE MORE NEARER TO EACH OTHER, AND WHATEV ER INTERPRETATION OF DERIVED FROM IS GIVEN IN ANY DE CISION IN WHICH SECTION 80HHC IS INVOLVED, WOULD ALSO MUTATIS-MUTAN DIS TO THE INTERPRETATION OF SEC. 10BA. THE HON'BLE APEX COUR T IN THE CASES OF TOPMAN EXPORTS VS. CIT REPORTED IN 67 DTR 185 (S.C. ) AND ACG ASSOCIATED CAPSULES PVT. LTD. VS. CIT REPORTED IN 6 7 DTR 205 HAS RECENTLY HELD THAT DEPB IS CHARGEABLE AS INCOME AND CL.(IIIB) OF SECTION 28 IN THE YEAR IN WHICH THE ASSESSEE APPLIE S FOR DEPB CREDIT AGAINST THE EXPORTS WHEREAS THE PROFIT ON TRANSFER OF DEPB BY THE ASSESSEE IS CHARGEABLE AS INCOME UNDER CL.(IIID) OF SECTION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. THE MUMBAI BENCH OF HON'BLE INCOME TAX APPELLATE TRIBUNAL IN T HE CASE ARTS AND CRAFTS EXPORTS VS. INCOME-TAX OFFICER REPORTED IN 6 6 DTR 69 (MUMBAI), AFTER CONSIDERING THE DECISION OF LIBERTY INDIA (SUPRA) HAS TAKEN A CLEAR CUT DECISION IN FAVOUR OF THE ASSESSE E. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT 26 CASE, IT APPEARS THAT ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE MAINLY ON THE GROUND THAT ASSESSEE PURCHAS ED VAT EXEMPTED GOODS AMOUNTING TO RS. 3,43,48,670/-, WHICH WERE IN FACT, FINISHED HANDICRAFT ITEMS, BECAUSE ONLY HANDICRAFT ITEMS ARE VAT FREE UNDER SCHEDULE I OF RAJASTHAN VALUE ADDED TAX, 2003. ON THE CONTRARY, THE CLAIM OF THE ASSESSEE IS THAT THE GOODS PURCHASED B Y IT WERE UNFINISHED HANDICRAFT ITEMS, WHICH WERE ALSO VERIFIED BY THE C USTOM AUTHORITIES, WHO CLEARLY REMARKED ON THE PURCHASE INVOICES AS UNFIN ISHED ITEMS. IN OUR OPINION, THE VIEW TAKEN BY THE ASSESSING OFFICER WA S NOT CORRECT BECAUSE THE ASSESSEE PURCHASED UNFINISHED HANDICRAFT GOODS AND APPLIED VARIOUS PROCESSES LIKE CUTTING, POLISHING, REPAIRING, REMAK ING ETC. AND FOR THAT PURPOSE, INCURRED EXPENSES AMOUNTING TO RS. 56,47,7 77/- FOR LABOUR, WHICH HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER . THE ASSESSEE ALSO INCURRED ELECTRIC EXPENSES OF RS. 6,56,987/- WHICH WAS ALSO ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSEE WAS ENGAGED IN MANUFACTURING ACTIVITIES, THIS FACT IS ESTABLISHED FROM VARIOUS C ERTIFICATES ISSUED BY THE GOVERNMENT AND CONCERNED AUTHORITIES, WHO AFTER VER IFICATION AND SCRUTINY, ISSUED THE CERTIFICATES WHICH ARE TO BE I SSUED ONLY TO THE CONCERNS ENGAGED IN MANUFACTURING ACTIVITIES. THOS E CERTIFICATES WERE AS UNDER:- 27 I. COPY OF REGISTRATION CERTIFICATE ISSUED BY DISTRICT INDUSTRIES CENTRE, JODHPUR REGISTERING NO. 080151100653. II. REGISTRATION CERTIFICATE GRANTED UNDER THE PROVISIO N OF FACTORIES ACT, 1948 NO. 28531 DATED 22/11/2010. III. COPY OF THE REGISTRATION CERTIFICATE ISSUED BY EXPO RT PROMOTION COUNCIL FOR HANDICRAFT. IV. COPY OF APPROVAL ISSUED AS PER SEZ ACT, 2005 BY OFF ICE OF THE DEVELOPMENT COMMISSIONER, NOIDA SPECIAL ECONOMIC ZO NE, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF CO MMERCE GOVERNMENT OF INDIA. V. COPY OF LETTER DATED 27/04/2006 OF DEVELOPMENT COMMISSIONER, NOIDA, SPECIAL ECONOMIC ZONE. VI. COPY OF REGISTRATION GRANTED UNDER THE PROVISIONS O F RAJASTHAN SALES TAX ACT SHOWING THE APPELLANT AS MANUFACTURE R OF ALL TYPES OF HANDICRAFTS. VII. COPY OF REGISTRATION CERTIFICATE ISSUED UNDER THE P ROVISIONS OF CST ACT SHOWING THE ASSESSEE AS MANUFACTURE OF HAND ICRAFTS. 12. IN THE PRESENT CASE, IT IS ALSO ADMITTED FACT T HAT IN THE PRECEDING ASSESSMENT YEARS 2007-08 AND 2008-09, THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 10AA OF THE ACT WAS ALLOWED WHILE PASSING THE 28 ASSESSMENT ORDERS UNDER SECTION 143(3) OF THE ACT. COPIES OF THE SAID ASSESSMENT ORDERS ARE PLACED AT PAGE NOS. 232 TO 24 9 OF THE ASSESSEES PAPER BOOK. IN THE INSTANT CASE, NOTHING IS BROUGH T ON RECORD TO SUBSTANTIATE THAT THERE IS ANY CHANGE IN THE FACTS OF THE PRESENT YEAR VIS- -VIS TO THE EARLIER YEARS. IT IS RELEVANT TO POINT OUT THAT IN THE ASSESSMENT ORDER DATED 20/04/2010 FOR THE A.Y. 2008 -09 PASSED UNDER SECTION 143(3) OF THE ACT, COPY OF WHICH IS PLACED AT PAGE NOS. 232 TO 236 OF THE ASSESSEES PAPER BOOK, THE ASSESSING OFFICER WHILE ALLOWING THE DEDUCTION UNDER SECTION 10AA OF THE ACT OBSERVED AS UNDER:- MEANWHILE, VIDE ORDER SHEET ENTRY DATED 19/03/201 0, INSPECTOR OF THIS WARD WAS DIRECTED TO VERIFY WHETH ER THE UNIT IS LOCATED IN SPECIAL ECONOMIC ZONE OR NOT AND WHET HER THE FIRM IS MANUFACTURING THE ARTICLES OF ITS OWN OR NO T. THE INSPECTOR OF THIS WARD, VIDE HIS REPORT DATED 29/03 /2010 HAS REPORTED THAT THE ASSESSEES FACTORY AND PRODUCTION HOUSE IS SITUATED AT G-185 & 186, F-204 & 205 WHICH IS IN SE Z, BORANDA. HE FURTHER REPORTED THAT THE ASSESSEE MANUFACTURES THE ARTICLES OF ITS OWN. THE SUBMISSION OF THE ASSESSE E WAS EXAMINED WITH REFERENCE TO BOOKS OF ACCOUNT, PURCHA SE BILLS/VOUCHERS ETC. PRODUCED/FILED. CONSIDERING AL L THE FACTS AND CIRCUMSTANCE OF THE CASE AND AFTER DISCUSSION W ITH THE LD. A/R OF THE ASSESSEE AND PARTNERS OF THE FIRM, IT IS FOUND THAT THE ASSESSEE IS ELIGIBLE FOR 100% EXEMPTION, BEING SECOND YEAR OF THE BUSINESS. 13. SIMILARLY, FOR THE A.Y. 2007-08 COPY OF WHICH I S PLACED AT PAGE NOS. 240 TO 246 OF THE ASSESSEES PAPER BOOK. THE ASSES SING OFFICER IN THE ORDER DATED 03/04/2009 IN PARA 4.1, 4.2 OBSERVED AS UNDER:- 29 4.1 THE ASSESSEE WAS ASKED VIDE ORDER SHEET NOTING DATED 12/03/2009 TO ESTABLISH ITS CASE TO COVER BY CLAUSE (III) OF EXPLANATION 1 TO SECTION 10AA (8) OF THE ACT I.E. MANUFACTURE SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAUSE (R) OF SECTION 2 OF THE SEZ ACT, 2005. THE ASSESSEE VIDE LETTER DATED 23/03/2009 HAS EXPLAINED AS UNDER:- THAT ASSESSEE IS MANUFACTURER OF ALL TYPES OF HAN DICRAFTS. IT IS LABOUR ORIENTED UNIT AND NO HEAVY MACHINERY IS USED FOR PRODUCTION. THERE IS NO FIXED SYSTEM OF MANUFACTURING; IT DEPENDS UPON THE ORDER OF EXPORT. AS AND WHEN ASSESSEE RECEIVED THE ORDER, HE DECIDED THE MANUFACTURING PR OCESS AND STYLE OF WORKING. ASSESSEE IS HAVING GOOD SETUP FOR MANUFACTURING DIF FERENT TYPES OF HANDICRAFTS ITEMS. ASSESSEE GENERALLY DEALS WITH IRON HANDICRA FTS. A DETAILED PROCESS CHART WITH PHOTOS OF ITEMS SHOWING THE STEPS INVOLVED IN MANUFACTURING ONE AFTER ANOTHER PROCESS IS ENCLOSED. THE STEPS INVOLVED IN PRODUCTION AND EXPORT IS AS UNDER:- 1) RECEIPT OF PURCHASE ORDER FROM THE FOREIGN BUYER . 2) PRODUCTION PLANNING FOR IN HOUSE AND AT OUTSIDES . 3) ISSUE OF POS AND JOS TO SUPPLIERS AND IN HOUSE I N CHARGES WITH THE SPECIFIED MODELS EACH FOR PRODUCTION OF SEMI-FIN ISHED GOODS, WHICH TOO IN DIFFERENT STEPS. IRON SHEETS OR ANGLES WERE CUT DO WN IN THE SHAPE OF ITEMS, WHICH IS DONE BY DIFFERENT PERSONS WHICH ARE SPECIALIZED IN DIFFERENT ITEMS AS PER SIZE AND FRAMA AND SOME TIME THESE SKELETONS WAS PURCHAS ED DIRECTLY FROM SUPPLIER TO SAVE TIME AND HEADACHE OF SCRAPE. 4) THESE CUT SIZE ITEMS ARE ASSEMBLED AND ENGRAVING AND SHAPING AS PER REQUIREMENT OF ITEMS UNDER SUPERVISION OF SUPERVISO RS. WELDING, MOUNDLING AND GIVING SHAPES AND ATTACHING SMALL ATTACHMENTS WHICH ARE NEEDED AS ACCESSORIES & REQUIREMENT OF ITEMS. 5) THESE ITEMS WERE NOW GIVEN FOR FINISHING FOR REM OVING THE WELDING SIGNS AND BALANCING THE SAME. 6) NOW THESE ITEMS ARE POLISHED AS PER REQUIREMENT OF BUYER I.E. NICKEL PLATTING POWDER COATING, STAND STONE BLASTING OR CO LOURING AS PER REQUIREMENT. 7) NOW FINAL POLISHING IS DONE AND BY CHECKING THE ACCURACY OF ITEM AS PER REQUIREMENT AND AS PER ORDER AND SPECIFICATION OF S IZE AND FINISHING AND GLASS ACCESSORIES WERE FITTED OR FINAL ACCESSORIES WERE F ITTED AS PER SPECIFICATIONS. 8) SPECIAL PACKAGING IS DONE AS PER ITEM AND INDIVI DUAL ITEM IS PACKED IN SEPARATE BOX AND THAN EACH IS PACKED IN BIG BOXES W ITH USE OF DIFFERENT KIND OF PACKING MATERIAL AFTER LABELLING AND TAGGING THE IT EMS. 9) LABELLING OF BOXES AND PUTTING IT IN CONTAINER F OR EXPORT OF THE SAME. 30 THAT MANUFACTURING OF ITEMS INVOLVED MANY STEPS AND DUE TO VARIETY OF ITEMS AND STYLE, EACH AND EVERY WORK OF THE ITEM CANNT B E DONE IN HOUSE, HENCE SOME PART OF THE WORK/JOB IS GIVEN OUTSIDE TO SPECIALIST FOR ADDING IN THE ITEMS AND WHICH RETURNS THE SAME AND NEXT PROCESS WERE DONE I N INHOUSE. AS IN EXPORT SECRECY OF THE MODEL OF ITEM IS MUST AND IF WE LOOS E THE SAME WE WILL LOSE THE ORDER OR WE WILL NOT RECEIVE THE ORDER SECOND TIME HENCE ASSESSEES TRY TO DO THE WORK IN PARTS AND FINAL FINISHING AND SHAPING OF TH E ITEM IS DONE IN INHOUSE. ASSESSEE IS HAVING GOOD AND EFFICIENT STAFF WHICH I S SUFFICIENT FOR IT WORKING AND ALL THE STAFF IS ON ROLL AND ALSO HAVING SOME CONTR ACTORS WHICH ARE ALSO REGISTERED UNDER ASSESSEE AND WORKING IN ASSESSEES PREMISES A ND P.F. AND E.S.I LIABILITY IS TAKEN BY THE ASSESSEE IF IT IS NOT PAID BY THE CONT RACTOR. HENCE, DIRECTLY AND INDIRECTLY ASSESSEE GIVES EMPLOYMENT FOR THE MANUFA CTURING OF ITS ITEM THROUGH CONTRACTOR ALSO. CONTRACTORSHIP IS MUST IN THIS TR ADE DUE TO LARGE VOLUME OF LABOUR TURNOVER. AS ASSESSEE IF KEEPS THE EMPLOYEE ON HIS ROLL AND AFTER TWO THREE MONTHS HE LEFT AND HE HAS TO GIVE EXPLANATION FOR THE SAME TO THE PF AND ESI DEPARTMENT, HENCE IT CREATE ONE MORE PROBLEM. SECOND IN CONTRACTOR SHIP ASSESSEE HAS TO PAY ONLY FOR THE WORK OR ITEMS WHIC H HE HAS COMPLETED AND NO PAYMENT WITHOUT WORK IF THERE IS NO WORK OF SAID TY PE WITH ASSESSEE. ASSESSEE IN HANDICRAFT INDUSTRY DUE TO VARIETY OF ITEMS EACH PE RSON OR TEAM OF PERSONS ARE SPECIALIZED IN THE SPECIAL WORK, WHICH IS ALSO AS N EEDED FROM ORDER TO ORDER. HENCE, ASSESSEE PREFERS CONTRACTOR OVER THE DIRECT EMPLOYEE, AS THERE IS NO DIFFERENCE IN WORKING BOTH ARE DOING WORK IN ASSESS EES PREMISES. 4.2 THE EXPLANATION OF THE ASSESSEE WAS EXAMINED WI TH THE BOOKS OF ACCOUNT, PURCHASE BILLS/VOUCHERS AND VOUCHERS RAISED BY THE CONTRACTOR. AS MUCH AS PROFIT & GAINS RAISED TO THE ASSESSEE ON EXPORT SALES, THE T AKING OF GOODS COMMENCED FROM SEZ I.E. W.E.F. 03/01/2007, IS ELIGIBLE FOR 100% DEDUC TION, BEING FIRST YEAR OF THE BUSINESS U/S 10AA OF THE I.T. ACT, 1961. 14 FROM THE ABOVE NARRATED FACTS, IT IS CLEAR THAT THE DEPARTMENT HAS ALLOWED CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S ECTION 10AA OF THE ACT IN THE PRECEDING YEARS. SINCE, THERE IS NO CHANGE IN THE FACTS OF THE YEAR UNDER CONSIDERATION THEREFORE, ON THE PRINCIPLE OF CONSISTENCY ALSO, THE CLAIM OF THE ASSESSEE WAS ALLOWABLE. FURTHERMORE, THIS ISSUE IS COVERED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN TH E CASE OF M/S. SURAJ 31 EXPORTS INDIA SARDAR SHAHAR, CHURU VS. ITO, CHURU ( SUPRA). WE, THEREFORE, CONSIDERING THE TOTALITY OF FACTS AS DIS CUSSED HEREINABOVE, ARE OF THE VIEW THAT LEARNED CIT(A) WAS FULLY JUSTIFIE D IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E UNDER SECTION 10AA ACT. ACCORDINGLY, WE DO NOT SEE ANY MERIT ON THIS ISSUE IN THE APPEAL OF DEPARTMENT. 15. THE NEXT ISSUE VIDE GROUNDS NO. 9 TO 12 RELATES TO DEDUCTION UNDER SECTION 10AA OF THE ACT IN RESPECT OF INCOME RECEIV ED/ACCRUED FROM DDB OF RS. 51,19,027/-. 16. BRIEF FACTS RELATED TO THIS ISSUE ARE THAT ASSE SSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 10AA OF THE ACT ON AMOUNT ACCRUED/RECEIVED FROM DDB OF RS. 51,19,027/-. RELI ANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF M/S LIBERTY INDIA. LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE BY FOLLOWING THE DECISION DATED 31/03/2013 OF THIS BENCH OF THE TRI BUNAL IN THE CASE OF M/S. SURAJ EXPORTS INDIA SARDAR SHAHAR, CHURU VS. I TO, CHURU IN ITA NO. 336/JODH/2011 AND OTHERS AND HE REPRODUCED THE RELE VANT PORTION GIVEN IN PARA 8 OF THE SAID DECISION WHICH READ AS UNDER: - 8. WE HAVE COGITATED RIVAL ARGUMENTS VIS--VIS EVI DENCE ON RECORD. WE HAVE EXAMINED THE DECISIONS ON WHICH PARTIES HAV E PLACED THEIR 32 RESPECTIVE RELIANCE. WE HAVE FOUND THAT THE RATIO O F THE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA VS . CIT REPORTED IN 225 CTR 233 (HONBLE SUPREME COURT) IS NOT APPLICABLE TO TH E FACTS OF THIS CASE. THE SECTION UNDER INTERPRETATION BEFORE HONBLE SUPREME COURT WAS 80IA. IN SECTION 80IA, NO FORMULA FOR COMPUTATION OF PROFITS DERIVED BY THE UNDERTAKING IS LAID DOWN, WHEREAS IN SECTION 10BA AND SECTION 8 0HHC FORMULA IS PRESCRIBED FOR THE PURPOSE. THEREFORE, IN OUR CONSI DERED OPINION, SECTION 10BA AND 80HHC ARE MORE NEARER TO EACH OTHER, AND W HATEVER INTERPRETATION OF DERIVED FROM IS GIVEN IN ANY DECISION IN WHICH SECTION 80HHC IS INVOLVED, WOULD ALSO MUTATIS MUTANDIS TO THE INTERPRETATION O F SECTION 10BA. THE HONBLE APEX COURT IN THE CASES OF TOPMAN EXPORTS V S. CIT REPORTED IN 67 DTR 185 (SC) AND ACG ASSOCIATED CAPSULES PVT. LTD. VS. CIT REPORTED IN 67 DTR 205 HAS RECENTLY HELD THAT DEPB IS CHARGEABLE A S INCOME AND CL. (IIIB) OF SECTION 28 IN THE YEAR IN WHICH THE ASSESSEE APP LIES FOR DEPB CREDIT AGAINST THE EXPORTS WHEREAS THE PROFIT ON TRANSFER OF DEPB BY THE ASSESSEE IS CHARGEABLE AS INCOME UNDER CL. (IIID) OF SECTION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. THE MUMBAI BENCH OF HO NBLE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF ARTS AND CRAFTS E XPORTS VS. INCOME-TAX OFFICER REPORTED IN 66 DTR 69 (MUMBAI), AFTER CONSI DERING THE DECISION OF LIBERTY INDIA (SUPRA) HAS TAKEN A CLEAR CUT DECISIO N IN FAVOUR OF THE ASSESSEE. THE HELD PORTION OF THE MUMBAI BENCH IS AS UNDER:- PARA 11.14-AS REGARDS DEDUCTION U/S 10 BA IN RESPE CT OF DEPB, WE FIND THAT SUB-SECTION (4) OF SECTION 10BA A DEFINES PROFITS DERIVED FROM ELIGIBLE ARTICLES. SECTION 28 (IIIC), (IIID) AND (IIIE) PROV IDES THAT THESE INCOME ARE PROFITS AND GAINS OF BUSINESS. THE SAID SUB-SECTION(4) OF S ECTION 10B A IS REPRODUCED BELOW:- FOR THE PURPOSES OF SUB-SECTION (1), THE PROFITS DE RIVED FROM EXPORT OUT OF INDIA OF THE ELIGIBLE ARTICLES OR THINGS SHALL B E THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAM E PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS BEAR S TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THE RELEVANT PART OF SECTION 28 READS AS UNDER: 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INC OME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. (IIIC) ANY DUTY OF CUSTOMS OR EXCISE RE-PAID OR RE- PAYABLE AS DRAWBACK TO ANY PERSON AGAINST EXPORTS UNDER THE CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1971; (IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTI TLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME UNDER THE E XPORT AND IMPORT 33 POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992) ; (IIIE) ANY PROFIT ON THE TRANSFER OF THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992) ; IN THE LIGHT OF THE ABOVE DISCUSSION, WE FIND THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10BA ON DEPB AS IN ACCORDANCE WITH SE CTION 28 OF THE ACT, THESE ARE BUSINESS INCOME. 17. DURING THE COURSE OF HEARING, LEARNED D.R. SUPP ORTED THE ORDER OF THE ASSESSING OFFICER WHILE LEARNED COUNSEL FOR THE ASSESSEE-FIRM SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY TH E DECISION OF THE JURISDICTIONAL BENCH OF THE ITAT, WHICH HAS BEEN FO LLOWED BY THE LD. CIT(A), THEREFORE, THE APPEAL OF THE DEPARTMENT ON THIS ISSUE DESERVES TO BE DISMISSED. 18. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IT IS AN ADMITTED FACT THAT SIMILAR ISSUE HAS ALREADY BEEN DECIDED BY THIS BENCH OF THE TRIBUNAL IN THE AFORESAID REFERRED TO ORDER DATED 3 1/03/2013 IN THE CASE OF M/S. SURAJ EXPORTS INDIA SARDAR SHAHAR, CHURU VS . ITO, CHURU (SUPRA), WHICH HAS BEEN FOLLOWED BY THE LD. CIT(A). WE THER EFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, 34 WE DO NOT SEE ANY MERIT ON THIS ISSUE ALSO IN THE A PPEAL OF THE DEPARTMENT. 19. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. (ORDER PRONOUNCED IN THE COURT ON 18 TH SEPTEMBER, 2013). (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18 TH SEPTEMBER, 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.