The ITO, Ward-8(4), Surat V. Shri Vallabhbhai D. Gadiya, Surat

ITA 3367/AHD/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5913 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 21-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R B SHAH
• Keywords: Question of law
• Section: 143(3); 10AA; 80IB; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO.3367/AHD/2010 ( / ASSESSMENT YEAR :2007-08) INCOME TAX OFFICER, WARD 8(4), SURAT. # VS. SHRI VALLABHBHAI D. GADIYA, 55, GAURAV PARK SOCIETY, KATARGAM ROAD, SURAT $ # % & # PAN/GIR NO. : ABZPG 2255 M ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI JAMES KURIAN, SR. D.R. ($'*) / RESPONDENT BY : SHRI R. B. SHAH, A.R. + ,*-. / DATE OF HEARING 23/02/2017 /012*-. / DATE OF PRONOUNCEMENT 12/05/2017 3# O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-V, SURAT, DATED 12/10/2010 FOR THE ASSESSMENT YEAR (AY) 2007-08. 2. REVENUE HAS BEEN TAKEN FOLLOWING GROUNDS OF APPE ALS: I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF R S.2,24,21,460/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF DEDU CTION U/S. ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 2 - 10AA OF THE ACT DESPITE THE FACT THAT THE MAJOR PAR T OF THE MANUFACTURING ACTIVITY WAS CARRIED OUT THROUGH ITS SISTER CONCERNS SITUATED OUTSIDE THE SEZ AREA IN CONTRAVEN TION OF SECTION 10AA. THE DEDUCTION CANNOT BE GRANTED TO 'O UTSOURCED MANUFACTURING' OUTSIDE THE SEZ PREMISES. THAT WOULD BE IN CLEAR CONTRAVENTION OF INCENTIVE SCHEME FOR SEZ. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS . 2,24,21,460/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF DEDU CTION U/S. 10AA DESPITE THE FACT THE ASSESSEE HAD RETURNED ABN ORMALLY HIGHER PROFITS IN COMPARISON TO OTHER CONCERNS ENGA GED IN THE SIMILAR LINE OF BUSINESS IN ORDER TO CLAIM HIGHER D EDUCTION U/S. 10AA OF THE I.T. ACT. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF CUT AND POLISHED DIAMOND AND THE UNIT FOR MANUFACTURING AND POLISHING OF DIAMONDS IS LOCATED IN THE SPECIAL ECONOMIC ZONE, S ACHIN, SURAT. THE APPELLANT HAS CLAIMED DEDUCTION U/S.10AA OF THE ACT ON THE INCOME EARNED OF SPECIAL ECONOMIC ZONE UNIT. 4. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS THE IMPORTER OF ROUGH DIAMONDS AND MANUFACTURES THE ROUGH DIAMON DS INTO CUT & POLISHED DIAMOND AND OFFERED A GROSS PROFIT OF 18.4 7% AND NET PROFIT OF 17.77%, WHERE AS IN THIS LINE OF BUSINESS AN AVERAG E GROSS PROFIT OF 5% TO 6% AND NET PROFIT OF 2% TO 8% IS OFFERED BY THE ASSESSEE. 5. HE HAS FURTHER OBSERVED THAT OUT OF THE ENTIRE S TOCK OF POLISHED DIAMONDS, ONLY A SMALL PART OF THE ROUGH DIAMONDS W ERE MANUFACTURED ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 3 - BY IT, WHEREAS THE REST WERE POLISHED BY ITS SISTER CONCERNS THROUGH JOB WORK. THEREAFTER, ISSUED SHOW CAUSE NOTICE TO THE A SSESSEE, IN THE SHOW CAUSE NOTICE, THEY ENGAGED IN SIMILAR BUSINESS LINE SHOWING THEIR GROSS PROFIT AND TURNOVER DETAILS. HE FURTHER GAVE COMPAR ATIVE TABLE OF ASSESSEE AND M/S. PRAMUKH GEMS. ON THE BASIS OF SAID FIGURE ASSESSING OFFICER ASKED AS TO WHY BOOKS OF ASSESSEE SHOULD NOT BE REJ ECTED AS BASIC EXPENDITURE. IN BOOKS OF ACCOUNTS HE FURTHER RENDER ED TO THE PROVISION OF SECTION 10AA OF THE IT ACT AND OBSERVED THAT SINCE ASSESSEE HAS SHOWN A NET PROFIT RATIO 17.77%, WHEREAS THE OTHER ENTERPRI SE HAS CLAIMED AVERAGE NET PROFIT RATIO OF 2% ONLY, HE ASKED ASSESSEE TO S HOW-CAUSE DEDUCTION U/S.10AA SHOULD NOT BE REJECTED IS AGAINST 17.77%. 6. ALTERNATIVELY, ASSESSING OFFICER HAS RAISED ONE MORE CONTENTION ON THE PERUSAL OF THE STOCK REGISTER AND LABOUR BILLS, THAT SUBSTANTIAL PART OF EXPORT RECEIPTS ARE NOT DERIVED FROM MANUFACTURING ACTIVITY. THE DETAILS OF DIAMONDS WHICH ARE MANUFACTURED IN-HOUSE AND THR OUGH OUTSIDE LABOUR ARE GIVEN AT PARA NO. 5 OF THE ORDER. ASSESS ING OFFICER VIDE SHOW CAUSE NOTICE DATED 22.12.09 ASKED ASSESSEE AS TO WH Y EXCESS DEDUCTION OF RS.2,13,24,566/-CLAIMED U/S. 10AA OF THE ACT SHOULD NOT BE DISALLOWED AS EXPORT TURNOVER FROM OWN MANUFACTURING IS RS.221.47 LACS AS AGAINST TOTAL TURNOVER OF RS. 1420 LACS. 7. IT WAS EXPLAINED BY THE ASSESSEE THAT ASSESSEE B EING NEWLY ESTABLISHED IN SEZ WAS FACING THE PROBLEM OF GETTIN G SUFFICIENT LABOUR SUPPLY AS SEZ UNIT IS ABOUT 25-30 KMS AWAY FROM SUR AT CITY AND DUE TO ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 4 - THIS PROBLEM, THE DEVELOPMENT COMMISSIONER OF SEZ H AS GRANTED PERMISSION TO THE UNIT TO ISSUE THE RAW MATERIAL TO OUTSIDE LABOUR PARTIES ON JOB WORK BASIS IN DOMESTIC TARIFF AREA. AFTER RE CEIVING THE GOODS BACK FROM JOB WORKERS, THE REST OF THE PROCESS WAS COMPLETED IN SEZ UNIT AND FROM SEZ UNIT, THE CUT AND POLISHED DIAMONDS WE RE EXPORTED OUT OF INDIA. IT WAS FURTHER CONTENDED BY ASSESSEE THAT TH ERE IS NO PROVISION UNDER THE ACT WHICH PROVIDES FOR DISALLOWANCE OF DE DUCTION U/S. 10AA IF ASSESSEE, WHO IS HAVING IN UNIT IN SEZ GETS CERTAIN QUANTITIES MANUFACTURED THROUGH OUTSIDE LABOUR PARTIES ON JOB WORK BASIS. 8. ASSESSING OFFICER NOT AGREE WITH THE CONTENTION OF THE APPELLANT AND HE MADE ADDITION OF RS.2,24,21,460/- 9. AGAINST THE SAID ORDER, APPELLANT PREFERRED FIRS T STATUTORY APPEAL BEFORE THE LEARNED CIT(A), LEARNED CIT ALLOWED THE APPEAL OF THE ASSESSEE. 10. NOW ISSUE IS BEFORE US. 11. ASSESSEE HAS FILED AN ORDER OF OUR OWN BENCH, I N ITA NO.68/AHD/2011 FOR A.Y. 2007-08: (I) WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. SOLITARY GRIEVANCE OF THE REVENUE IN THIS A PPEAL IS AGAINST THE ACTION OF LD. CIT(A) DELETING THE DISALLOWANCE U/S 10AA OF THE ACT AT RS. 1,42,85,423/- ON PROFITS EARNED FROM RUN NING THE UNIT UNDER SEZ. WE FIND THAT REVENUE HAS RAISED TWO GROU NDS WHICH ARE ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 5 - INTER CONNECTED AGAINST THE ORDER OF LD. CIT(A) WHE REIN IT HAS BEEN HELD THAT BOTH THE ALTERNATIVES NAMELY INVOKING OF PROVISIONS OF SECTION 10AA(9) R.W.S. 80IA(10) OF THE ACT WAS NOT JUSTIFIED ON THE PART OF ASSESSING OFFICER AND SECONDLY GOODS MANUFA CTURED FROM OUTSIDE LABOURERS ON JOB WORK BASIS ARE ALSO TO BE DEEMED AS MANUFACTURED GOODS BY UNITS RUNNING IN SEZ. WHILE E XAMINING THE FIRST ISSUE WE OBSERVE THAT LD. ASSESSING OFFICER H AS NOT OBJECTED TO THE ELIGIBILITY OF ASSESSEE TOWARDS DEDUCTION U/S.1 0AA OF THE ACT WHICH UNDOUBTEDLY PROVES THAT ASSESSEE HAS COMPLIED WITH ALL THE BASIC CONDITIONS REQUIRED FOR CLAIMING DEDUCTION U/ S.10AA OF THE ACT. THE ISSUE RAISED IS ONLY TOWARDS THE QUANTUM O F DEDUCTION U/S 10AA OF THE ACT. WE FIND THAT LD. ASSESSING OFFICER GATHERED INFORMATION RELATING TO GROSS PROFIT RATES AND NET PROFIT RATES OF OTHER ASSESSEES ENGAGED IN SIMILAR KIND OF BUSINESS ACTIV ITIES RELATING TO MANUFACTURING AND EXPORT OF CUTTING AND POLISHED DI AMONDS AND OBSERVED GREAT VARIATION IN RELATION TO GP AND NP R ATES AS WELL AS OPERATING EXPENDITURE. ON THE BASIS OF THESE STATIS TICS OF LD. ASSESSING OFFICER WAS OF THE BELIEF THAT ASSESSEE I NTENTIONALLY TRIED TO SHOW HUGE PROFITS IN ORDER TO FORM CAPITAL AS TH E PROFITS ARE DEDUCT @100% FROM THE UNDERTAKING WORKING UNDER SEZ. IT WA S FOR THIS REASON THAT HE INVOKED THE PROVISIONS OF SECTION 10 AA(9) R.W.S. 80IA(10) OF THE ACT AND ACCORDINGLY ESTIMATED THE N P @ 2% OF THE TOTAL TURNOVER AS AGAINST 18.94% DECLARED BY THE AS SESSEE AND CALCULATED THE DEDUCTION U/S.10AA AT RS.16,86,590/- . (II) WE FURTHER OBSERVE THAT THERE IS NO IOTA OF EVIDENC E PUT FORTH BY THE REVENUE WHICH INDICATES THAT BOOK RESULTS ARE DEFEC TIVE OR CERTAIN EXPENSES HAVE BEEN INCURRED OUTSIDE THE BOOKS OR EX CESS REVENUE HAS BEEN ACHIEVED FROM THE FOREIGN BUYERS. IT SEEMS THAT LD. ASSESSING OFFICER HAS MADE PRESUMPTION BY APPLYING RESULTS OF OTHER INDUSTRIES/SISTER CONCERN ON AN ESTIMATE BASIS WITH OUT POINTING OUT ANY DEFECT IN THE BUSINESS TRANSACTION ENTERED BY T HE ASSESSEE. (III) WE FURTHER FIND THAT IN THE CASE OF CIT VS. SCHMETZ INDIA (P) LTD. (2012) 26 TAXMANN.COM 336 (BOM) HAS HELD AS UNDER:- WITH REGARD TO THE FIRST ISSUE IT IS FOUND THAT TH E TRIBUNAL HAS CONSIDERED THE ENTIRE EVIDENCE AND ON FACTS COME TO THE CONCLUSION THAT THE PROFITS EARNED BY KANDLA DIVISI ON OF THE ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 6 - ASSESSEE IS NOT ABNORMALLY HIGH DUE TO ANY ARRANGEM ENT BETWEEN THE ASSESSEE AND ITS GERMAN PRINCIPAL. THE TRIBUNAL CORRECTLY HELD THAT EXTRAORDINARY PROFITS CANNOT LEAD TO THE CONCLUSION THAT THIS IS AN ARRANGEMENT BETWEEN THE PARTIES. THIS WO ULD PENALIZE EFFICIENT FUNCTIONING. FURTHER, THE AUTHORITIES HAV E ALSO RECORDED A FINDING THAT THE INDUSTRIAL SEWING MACHINE NEEDLE S IMPORTED AND TRADED BY THE MUMBAI DIVISION ARE DIFFERENT FRO M THOSE MANUFACTURED AND EXPORTED BY (HE KANDLA DIVISION. CONSEQUENTLY, THIS ALSO NEGATIVES ANY ARRANGEMENT B ETWEEN THE PARTIES TO SHOW EXTRAORDINARY PROFITS IN RESPECT OF ITS KANDLA DIVISION SO AS TO CLAIM DEDUCTION UNDER SECTION 10A . THESE ARE FINDINGS ONE OF FACT. THE REVENUE HAVE NOT BEEN ABL E TO SHOW THAT THE FINDINGS ARE PERVERSE OR ARBITRARY. IN THE CIRC UMSTANCES, ISSUES RAISED BY THE REVENUE DO NOT RAISE SUBSTANTI AL QUESTIONS OF LAW IN THE INSTANT FACTS AND ARE, THEREFORE, DISMIS SED. (IV) WE OBSERVE THAT THE CO-ORDINATE BENCH, DELHI IN THE CASE OF A.T. KEARNEY INDIA (P) LTD. VS. ADDL. CIT, RANGE-1, NEW DELHI IN IT APPEAL NO. 348(DELHI) OF 2013 FOR ASST. YEAR 2009-1 0 (2014) 50 TAXMANN.COM 26 (DELHI-TRIB) DEALT WITH SIMILAR ISSUE AND WHILE DECIDING THE SAME HAS HELD AS UNDER :- ADVERTING TO THE FACTS OF THE EXTANT CASE, WE FIND THAT THE AO SIMPLY RELIED ON THE TP STUDY REPORT SUBMITTED BY T HE ASSESSEE TO FORM A BEDROCK FOR THE DISALLOWANCE OF THE PART OF THE AMOUNT OF DEDUCTION U/S IOA, WITHOUT FIRSTLY SHOWING THAT THE RE EXISTED ANY ARRANGEMENT BETWEEN THE ASSESSEE AND ITS OVERSEAS R ELATED PARTY, BY WHICH THE TRANSACTIONS WERE SO ARRANGED AS TO PR ODUCE MORE THAN THE ORDINARY PROFITS IN THE HANDS OF THE ASSES SEE. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2009-10. NEI THER THE PROVISO TO SUB-SECTION (10) EXISTED AT THAT TIME, N OR SUCH A PROVISO CAN BE APPLIED AS WE ARE DEALING WITH AN IN TERNATIONAL TRANSACTION AND NOT SPECIFIED DOMESTIC TRANSACTION. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE IMPUGNED ORDER UPHOLDING THE INVOCATION OF SUB-SEC. (10) OF SEC. 80-1A CANNOT BE COUNTENANCED TO THIS EXTENT. ERGO, IT IS HELD THAT THE ID. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY RESTRICTING THE AMOUNT OF DEDU CTION U/S 10A OF THE ACT TO RS. 2.63 CRORE AS AGAINST RS. 8.22 CR ORE CLAIMED BY ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 7 - THE ASSESSEE. THE IMPUGNED ORDER ON THIS ISSUE IS O VERTURNED AND IT IS DIRECTED TO ALLOW DEDUCTION AS CLAIMED . (V) NOW GOING INTO THE ASPECTS RAISED IN SECOND GROUND AS TO WHETHER ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.10AA FOR GOO DS MANUFACTURED FROM OUTSIDE SOURCE ON JOB WORK BASIS BY WAY OF SEN DING RAW MATERIAL FOR CUTTING AND POLISHING AND IN THE CASE OF SEZ, WE FIND THAT THERE ARE SOME PRACTICAL ASPECTS ATTACHED WITH THE SEZ. UNITS OF SPECIAL ECONOMIC ZONE ARE NORMALLY LOCATED LITTLE F AR FROM THE MAIN CITY WHICH HAPPENS TO BE SO IN THE CASE OF ASSESSEE WHERE THE SEZ WAS LOCATED AT 20-22 KMS. AWAY FROM SURAT CITY. IT IS WELL EVIDENT THAT BUSINESS IS GENERALLY CENTERED IN THE MAIN TOW N WITH SKILLED LABOURERS HAVING THEIR SMALL PLACE OF BUSINESS. IN THE CASE OF SEZ UNITS WHEN THE ENTREPRENEURS COME ACROSS SUCH A SIT UATION WHERE THE EXPORT ORDERS HAVE TO BE MET BEFORE A PARTICULAR DE AD LINE AND THE STAFF AVAILABLE IN THE UNIT MAY NOT BE SUFFICIENT T O COPE UP WITH SUCH A SITUATION, THEN THE ONLY OPTION AVAILABLE WITH TH E ASSESSEE IS TO SEND THE RAW MATERIAL TO OUTSIDE LABOUR PARTIES FOR GETT ING THEM MANUFACTURED IN A FINISHED FORM. IT IS ALSO KNOWN T HAT THE SEZ IS A CUSTOM BOUND AREA AND EVERY MOVEMENT OF GOODS/ MATE RIAL/ASSET HAS TO PASS THROUGH THE CHECK OF OFFICER OF THE CENTRAL EXCISE AND CUSTOMS DEPARTMENT DEPUTED AT THE GATES AND THE DET AILS OF SUCH GOODS/RAW MATERIAL/ASSET ARE ENTERED THEREIN. THERE FORE, HAD THERE BEEN ANY VIOLATION OF SEZ RULES THEN SUCH MOVEMENT WOULD HAVE BEEN RESTRICTED. FURTHER IN ORDER TO EXAMINE THIS A SPECT THAT WHETHER THE GOODS WHICH ARE MANUFACTURED ON JOB WORK BASIS ARE COVERED UNDER THE MANUFACTURING ACTIVITIES. LEARNED AR HAS RELIED ON THE DECISION OF THE TRIBUNAL (DELHI) IN THE CASE OF RAJIV BHATNAGAR VS. DCIT ITA NO.1026/DEL/2011 WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH AND WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE THE CO- ORDINATE BENCH VIDE ITS ORDER DATED 17.12.2012 HAS OBSERVED AS UNDER: (A) AFTER HAVING CONSIDERED THE FACTS, MATERIAL ON REC ORD AND OTHER RELEVANT DETAILS, WE FIND THAT ALL THE CONDIT IONS TO QUALIFY FOR DEDUCTION U/S 80IB OF THE ACT IS FOUND TO HAVE BEEN FULFILLED BY THE ASSESSES, INASMUCH AS, FIRST CONDITIONS OF EMPLOYING 10 OR MORE LABOUR WHEN USE OF POWER IS NO T DISPUTED HAS BEEN FULFILLED BECAUSE COURTS HAVE HEL D THAT ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 8 - CONTRACT LABOUR ALSO QUALIFIES FOR DEDUCTION AS ENV ISAGED UNDER RELEVANT PROVISIONS AND USEFUL REFERENCE CAN BE MADE BY THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRITHVIRAJ BHOORCHAND, 280 ITR 94 , HEAD NOTES OF WHICH ARE AS UNDER: INDUSTRIAL UNDERTAKING- SPECIAL DEDUCTION UNDER SEC TION 801- CONDITION PRECEDENT -EMPLOYMENT OF SPECIFIED NUMBER OF EMPLOYEES-WORKERS ENGAGED ON CONTRACT LABOUR BASIS - FINDING THAT ASSESSEE CONTROLLED THE WORK AND THE M ANNER OF DOING IT-WORKERS WERE EMPLOYEES FOR PURPOSES OF SEC TION 80- 1-LT. ACT, 1961, S.80-1'. SIMILARLY, IT IS ALSO SETTLED POSITION OF LAW THAT OUTSOURCING OF SOME OF THE PROCESSES WILL NOT DISQUALIFY THE ASSES SEE FROM CLAIMING OR ALLOWING DEDUCTION IF END PRODUCT IS OT HERWISE ELIGIBLE FOR DEDUCTION. SO FAR AS DEDUCTION U/S 80/8 OF MANUFACTURING OF CARD BOARD BOXES FROM KRAFT PAPER IS CONCERNED, IT IS SETTLED LAW THAT TRANSFORMING IN T HE CORRUGATED SHEETS AFTER HAVING TRANSFORMED IN THE S HAPE OF A BOX AND THE BOX IS AGAIN IN A FLAT POSITION FOR EAS Y TRANSPORTATION WHEN FLAT POSITION PAPER CORRUGATED BOXES ARE THE FINAL PRODUCTS WHICH IS ELIGIBLE FOR DEDUCTION AND OUR THIS VIEW CAN BE FORTIFIED BY HON'BLE MADRAS HIGH COURT DECISION IN THE CASE OF CIT VS. M/S ZAINAB TRADING PVT. LTD. IN TAX CASE APPEAL NOS.1204, 1205 & 1206 AND AMP 1207 OF 2 010 DATED 7 TH FEBRUARY, 2011 IN WHICH IT HAS BEEN HELD AS UNDER: 'THE REVENUE HAS COME FORWARD WITH THESE APPEALS AN D SEEKS TO RAISE THE FOLLOWING QUESTION OF LAW AS SUB STANTIAL QUESTION OF LAW: & QUOTE: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT TH E ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB OF THE A CT, TREATING THE PRODUCTION OF CORRUGATED BOXES FROM KR AFT SHEETS AS MANUFACTURE FOR THE PURPOSE OF SECTION 80 IB OF THE ACT, IS VALID? ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 9 - (B) TO APPRECIATE THE STAND OF THE APPELLANT, IT IS NEC ESSARY TO REFER TO THE BRIEF FACTS OF THE CASE. THE RESPONDEN T/ASSESSEE COMPANY CLAIMS THAT IT IS ENGAGED IN THE ACTIVITY O F MANUFACTURING OF PAPER CORRUGATED BOXES AND ON THAT BASIS CLAIMED DEDUCTION UNDER SECTION 80IB OF THE INCOME- TAX ACT, ON THE PROFITS DERIVED IN ITS BUSINESS. ACCORDING T O THE RESPONDENT/ASSESSES, IT PROCURES PAPER CORRUGATED S HEETS OF DIFFERENT SIZES, WHICH IS ITS- RAW MATERIAL, PUT TH EM INTO THE DESIGNED MACHINES FOR CHISELING THEM AT THE REQUIRE D PLACES IN ORDER TO FOLD THOSE SHEETS AND PIN THEM AT THE F OLDED POINTS AND AFTER PINNING AT THE FOLDED POINTS AND AFTER TH E SHEET GOT TRANSFORMED IN THE SHAPE OF A BOX, THE BOX IS AGAIN KEPT IN A FLAT POSITION FOR EASY TRANSPORTATION. THAT FLAT PO SITIONED PAPER CORRUGATED BOXES ARE THE FINAL PRODUCTS OF TH E RESPONDENT ASSESSEE. (C) ACCORDING TO THE APPELLANT, SINCE THE CORRUGATED SH EET IN THE PROCESS OF BEING FOLDED INTO A BOX, IT HAS NOT LOST ITS ORIGINAL CHARACTERISTICS OF CORRUGATED SHEET, NO MANUFACTURI NG ACTIVITY HAD TAKEN PLACE AND THEREFORE, THE INGREDIENTS OF S ECTION 80IB OF THE ACT, ARE NOT ATTRACTED. (D) THE COMMISSIONER OF INCOME-TAX (APPEALS) HOWEVER DI FFERED FROM THE ASSESSING AUTHORITY AND TOOK THE VIEW THAT THE CORRUGATED SHEETS ONCE ARE SHAPED INTO CORRUGATED B OXES, THAT WOULD AMOUNT TO A 'MANUFACTURING ACTIVITY AND THEREFORE, THE RESPONDENT/ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 801B OF THE ACT. THE COMMISSIONER OF INCOME -TAX (APPEALS) THEREFORE DIRECTED THE ASSESSING OFFICER TO ASCERTAIN THE EXACT QUANTUM OF DEDUCTION AFTER MAKI NG PROPER VERIFICATION TO GRANT THE RELIEF. (E) THE TRIBUNAL ALSO TOOK THE SAME VIEW AND HELD THAT THE CONVERSION OF CORRUGATED SHEETS INTO BOXES WOULD AM OUNT TO 'MANUFACTURE' HAVING NOTED THE NATURE OF ACTIVITY O F THE RESPONDENT/ASSESSEE, WHICH DISCLOSE THAT THE PLAIN CORRUGATED SHEETS ARE PUT INTO THE DESIGNING MACHINE IN ORDER TO CHISEL THEM INTO DIFFERENT SHAPES AND PIN THEM AT THE FOLD ED POINTS TO CONVERT THE PLAIN SHEETS INTO CORRUGATED BOXES. ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 10 - (F) WE ARE ALSO CONVINCED THAT SUCH AN ACTIVITY OF TRAN SFORMING THE PLAIN CORRUGATED SHEETS INTO A DIFFERENT PRODUC T OF BOXES, THOUGH TO GAIN SPACE FOR TRANSPORTATION, SUCH BOXES ARE KEPT IN A FOLDED POSITION, ONE CANNOT SAY THAT THE BOXES CONTINUE TO RETAIN ITS ORIGINAL CHARACTERISTICS OF CORRUGATED S HEETS. THEREFORE, THERE IS NO SCOPE TO TAKE A DIFFERENT VI EW THAN WHAT HAS BEEN STATED BY THE COMMISSIONER OF INCOME-TAX (APPEALS), AS CONFIRMED BY THE TRIBUNAL. SUCH DETER MINATION CAME TO BE MADE BY BOTH THE AUTHORITIES BASED ON TH E FACTS PLACED BEFORE THEM AND WITH REFERENCE TO WHICH, WE DO NOT FIND ANY SERIOUS LEGAL LACUNA, THERE IS NO SCOPE TO INTERFERE WITH THE SAME, INASMUCH AS THERE IS NO QUESTION OF LAW, MUCH LESS SUBSTANTIAL QUESTION OF LAW INVOLVED. ' (G) SINCE ALL THE CONDITIONS LAID DOWN UNDER THE RELEVA NT PROVISIONS HAVE BEEN COMPLIED WITH, THEREFORE, WE A RE OF THE VIEW THAT THE ACTION OF THE AUTHORITIES BELOW IN NO T ALLOWING THE CLAIM OF THE ASSESSES U/S 801B IS UNWARRANTED AND UNCALLED FOR. AS SUCH, WHILE ACCEPTING THE APPEAL O F THE ASSESSEE, WE DIRECT TO GRANT DEDUCTION U/S 801B OF THE ACT AS CLAIMED BY THE ASSESSEE.' (VI) WE FURTHER OBSERVE THAT ID. AR HAS RELIED ON THE DE CISION OF HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS. ANGLO FRENCH DRUG CO.(EASTERN) LTD.191 ITR 0092 (BOM), WHEREIN IT HAS BEEN HELD AS UNDER :- IT IS NOT NECESSARY THAT THE MANUFACTURING COMPANY MUST MANUFACTURE THE GOODS BY ITS OWN PLANT AND MACHINER Y AT ITS OWN FACTORY. IF, IN SUBSTANCE, THE MANUFACTURING COMPAN Y HAS EMPLOYED ANOTHER COMPANY FOR GETTING THE GOODS MANU FACTURED BY IT UNDER ITS OWN SUPERVISION OR CONTROL, THE ASSESSEE CAN BE CONSIDERED AS A COMPANY ENGAGED IN MANUFACTURING OF GOODS AND, THUS, AN INDUSTRIAL COMPANY. IT IS NOT ABSOLUT ELY NECESSARY THAT THE ASSESSEE MUST DEPUTE THE SUPERVISORY STAFF OR EXERCISE DIRECT SUPERVISION OVER THE MANUFACTURING PROCESS. IT IS SUFFICIENT IF, ON AN OVERALL VIEW OF THE MATTER, IT IS FOUND T HAT IT WAS THE ASSESSEE-COMPANY WHICH WAS THE REAL MANUFACTURER AN D THE ASSESSEE HAD MERELY EMPLOYED THE AGENCY OF SOMEONE ELSE THROUGH WHOM THE GOODS WERE CAUSED TO BE MANUFACTUR ED. IT IS ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 11 - ALSO NOT NECESSARY THAT THE ASSESSEE MUST PAY THE W AGES OF THE WORKERS EMPLOYED IN THE MANUFACTURING PROCESS. - CIT VS. NEO PHARMA PVT. LTD. (1982) 28 CTR (BOM) 223 : (1982) 1 37 ITR S79 (BOM) : TC24R.210 FOLLOWED.' (VII) WE ALSO OBSERVE THAT HON. CALCUTTA HIGH COURT IN TH E CASE OF ADDL. CIT VS. A. MUKHERJEE & CO. (P) LTD. 113 ITR 0718 (C AT) HAS HELD AS UNDER :- THE ARGUMENT IS THAT UNLESS AN ASSESSEE OWNS A MANU FACTURING PLANT, HE CANNOT BE A MANUFACTURER AND SIMILARLY UN LESS HE HIMSELF DOES THE BINDING OR PACKING HE CANNOT BE A MANUFACTURER. IN ORDER THAT A PUBLISHER OF BOOKS SH OULD BE A MANUFACTURER OF BOOKS IT IS WHOLLY UNNECESSARY FOR HIM EITHER TO BE AN OWNER OF A PRINTING PRESS OR TO BE A BOOK-BIN DER HIMSELF. A PAPER IS NOT A BOOK, THOUGH IT IS PRINTED ON PAPERS . A PUBLISHER MAY GET THE BOOKS PRINTED FROM ANY PRINTER BUT THE PRINTER IS NOT THE MANUFACTURER BUT A MERE CONTRACTOR. THE FINDING S OF THE TRIBUNAL CONCLUSIVELY SHOW THAT THE ASSESSEE WAS CA RRYING ON THE ACTIVITY OF MANUFACTURING AND ALSO OF PROCESSING OF BOOKS WHICH ARE ALSO GOODS.CIT VS. CASINO (P) LTD. (1973) 91 I TR 289 (KER) : TC24R.272#1 CONCURRED WITH; CIT VS. COMMERC IAL LAWS OF INDIA PVT LTD. (1977) 107 ITR 822 (MAD) : TC24R. 246 DISSENTED FROM. (VIII) RESPECTFULLY FOLLOWING THE JUDGMENT OF HON. BOMBAY HIGH COURT AND THAT OF CALCUTTA HIGH COURT AND ALSO THE DECISI ON OF THE CO- ORDINATE BENCH AND IN VIEW OF OUR ABOVE DISCUSSION WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE IN THE COURSE OF RUNN ING ITS UNDERTAKING IN SEZ IS ALLOWED TO SEND RAW MATERIAL OUTSIDE THE SEZ AREA FOR GETTING IT IN A FINISHED FORM ON JOB WORK BASIS THROUGH OUTSIDE LABOURERS AND FURTHER THIS ACTIVITY OF GETT ING GOODS MANUFACTURED THROUGH OUTSIDE SOURCES IS DULY COVERE D UNDER THE MANUFACTURING ACTIVITIES. (IX) WE HAVE ALSO COME ACROSS THE ASSESSMENT ORDERS U/S 143(3) OF THE ACT IN THE CASE OF ASSESSEE FOR ASST. YEARS 2008-09 , 2009-10 & 2010-11 AND OBSERVE THAT NO DISALLOWANCE HAS BEEN M ADE IN THE DEDUCTION CLAIMED U/S 10AA OF THE ACT AND GP RATES OF 19.92%, 17.84% AND 16.46% AND NP RATES OF 14.47%, 13.64% AN D 13.73% ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 12 - RESPECTIVELY HAVE BEEN ACCEPTED BY THE ASSESSING OF FICER AND NO PROPORTIONATE DISALLOWANCE HAS BEEN MADE FOR PROFIT S EARNED FROM GOODS MANUFACTURED FROM OUTSIDE SOURCE ON JOB WORK BASIS (X) SUMMARIZING BOTH THE ISSUES WE ARE OF THE VIEW THAT LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 10AA(9) OF THE ACT AS THERE WAS NO MATERIAL EVIDENCE PUT ON RECORD AND A SPECIFIC FINDING TO WORK OUT THE BASIS TO ESTIMATE REASONABLE PROFITS BY VEHEMENTLY APPLYING NET PROFI T RATE AT 2% AS AGAINST 18.94% DECLARED BY THE ASSESSEE WITHOUT APP RECIATING THE FACTS THAT BUSINESS HOUSE HAVING A SIMILAR TYPE OF ACTIVITY CANNOT END UP AT A SIMILAR LEVEL OF GP/NP AS MUCH DEPENDS ON T HE BUSINESS STRATEGY, QUALITY OF GOODS SOLD, RATES NEGOTIATED W ITH THE BUYERS AND OPTIMUM UTILIZATION OF THE RESOURCES INCLUDING THE EMPLOYEES AND MACHINES. WE DO NOT FIND ANY REASON TO INTERFERE WI TH THE FINDING OF LD. CIT(A). WE UPHOLD THE SAME. ACCORDINGLY, GROUND NO.1 IS DISMISSED. (XI) SECONDLY, THE ALTERNATE VIEW TAKEN BY LD. ASSESSING OFFICER FOR PROPORTIONATELY DENYING DEDUCTION U/S 10AA OF THE A CT FOR GOODS MANUFACTURED FROM OUTSIDE PARTIES CANNOT STAND FOR IN VIEW OF OUR ABOVE DISCUSSION AND THE JUDGMENTS OF HON. BOMBAY & CALCUTTA HIGH COURTS AND DECISION OF THE CO-ORDINATE BENCH D ELHI IN THE CASE OF RAJIV BHATNAGAR VS. DCIT (SUPRA) AND IT IS WELL DECIDED THAT SUCH ACTIVITIES OF GETTING MANUFACTURED GOODS FROM OUTSI DE SOURCES ON JOB WORK BASIS ARE ALSO COVERED UNDER MANUFACTURING ACT IVITIES. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF ID. CIT(A) ON THIS ISSUE ALSO. GROUND NO.2 IS DISMISSED. 12. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF T HE TRIBUNAL AND SEVERAL JUDGMENT, WE ARE NOT INCLINE TO INTERFERE T O THE ORDER OF THE CIT(A). IN THE LIGHT OF THE ABOVE SUBMISSIONS WE DI SMISSED THE APPEAL OF THE REVENUE. ITA NO.3367/AHD /2010 ITO VS. SHRI VALLABHBHAI D. GADIYA ASST.YEAR 2007-08 - 13 - 13. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 12/05/2017 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 12/05/2017 PRITI YADAV, SR. PS !'# $#! # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)-V, SURAT. 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. % & / BY ORDER, (9-- //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION ..24/04/2017 (DICTATION-PAD 4 PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 05/05/2017 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER