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

ITA 377/AHD/2013

• Counselvise Citation: [2013] 115 COUNSELVISE.COM (IT) 4329 (ITAT-SURAT)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 23-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Keywords: Rejection of books of accounts; Principle of natural justice
• Section: 10AA; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE SHRI A. K. GARODIA, AM AND SHRI KUL BHARAT, JM) ITA NO.377/AHD/2013 (AY: 2006-07) THE INCOME TAX OFFICER, WARD 8(4), SURAT VS SHRI VALLABHHBAI D. GADHIYA, 55, GAURAV PARK SOCIETY, KATARGAM ROAD, SURAT 395 004 P. A. NO. ABZPG 2255 M (APPELLANT) (RESPONDENT) APPELLANT BY SHRI Y. P. VERMA, SR. DR RESPONDENT BY NONE DATE OF HEARING: 08-04-2013 DATE OF PRONOUNCEMENT: 26-04-2013 ORDER PER A. K. GARODIA : THIS IS A REVENUES APPEAL DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-IV, SURAT DATED 20-11-2 012, FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED FOUR GROUNDS OF APPEAL WH EREIN GROUNDS NO.3 AND 4 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. GROUNDS NO.1 AND 2 ARE REPRODUCED HEREIN BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF R S.43,91,993/- MADE BY THE AO ON ACCOUNT OF DISALLOWING CLAIM OF D EDUCTION U/S 10AA OF THE ACT DESPITE THE FACT THAT MAJOR PART OF THE MANUFACTURING ACTIVITIES WERE CARRIED OUT THROUGH T HE JOB WORKERS WHO WERE OPERATING OUTSIDE THE SPECIAL ECONOMIC ZON E (SEZ), WHEREAS THE ASSESSEE CLAIMED EXEMPTION U/S 10AA OF THE ACT ON IT A NO.377/AHD/2013 (AY: 2006-07) ITO, W-8(4), SURAT VS SHRI VALLABHBHAI D. GADHIYA 2 THE ENTIRE TURNOVER WHICH CLEARLY VIOLATES THE MAND ATE OF THE PROVISIONS OF SECTION 10AA OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF R S.25,93,656/- MADE BY THE AO, ON ACCOUNT OF ABNORMALLY HIGHER GP SHOWN BY THE ASSESSEE IN COMPARISON TO OTHER ENTITIES ENGAGED IN SIMILAR BUSINESS IN ORDER TO CLAIM HIGHER DEDUCTION U/S 10A A OF THE ACT. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE ON THE A PPOINTED DATE OF HEARING ALTHOUGH NOTICE OF HEARING IS DULY SERVED O N THE ASSESSEE AS PER THE ACKNOWLEDGMENT AVAILABLE ON RECORD AND HENCE, WE PR OCEED TO DECIDE THIS APPEAL OF THE REVENUE EX-PARTE QUA THE ASSESSEE. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE OF THE R EVENUE SUPPORTED THE ASSESSMENT ORDER. HE HAS DRAWN OUR ATTENTION TO PA GE 13 PARA 6.3.1 OF THE ORDER OF THE LEARNED CIT(A) AND SUBMITTED THAT THE TRIBUNAL DECISION FOLLOWED BY THE LEARNED CIT(A) WHICH HAS BEEN RENDERED IN THE C ASE OF DCIT CIRCLE-2 VS GOENKA DIAMOND & JEWELLERS LTD. REPORTED IN 146 TTJ 68 (JP) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED DEPARTMENTAL REPRESENTATIVE OF THE REVENUE AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE TRIBUNAL DECISION FOLLOWED BY THE LEA RNED CIT(A). WE FIND THAT AS PER THE ASSESSMENT ORDER IN PARA 6, THE AO HAS NOTE D THAT THE CLAIM OF THE ASSESSEE REGARDING EXEMPTION U/S 10 AA IS TO BE DIS ALLOWED TO THE EXTENT OF RS.25,93,656/- ON ACCOUNT OF SHOWING HIGHER GROSS P ROFIT BY SUPPRESSION OF EXPENSES AND ALTERNATIVELY, DISALLOWANCE TO THE EXT ENT OF RS.43,91,993/- HAS TO BE MADE RELATING TO EXPORT TURNOVER EARNED FROM OUT SOURCED MANUFACTURING OF GOODS. THEREAFTER, IT IS OBSERVED BY THE AO IN PAR A 7 OF THE ASSESSMENT ORDER THAT TO AVOID DUPLICATION AND TO FOSTER THE PRINCIP LE OF NATURAL JUSTICE, THE HIGHER OF THE TWO DISALLOWABLE AMOUNTS BETWEEN PARA 6(A) A ND 6 (B) COMES TO RS.43,91,993/- AND ACCORDINGLY, HE MADE ADDITION OF THIS AMOUNT. IT A NO.377/AHD/2013 (AY: 2006-07) ITO, W-8(4), SURAT VS SHRI VALLABHBHAI D. GADHIYA 3 6. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A), IT WAS HELD BY HIM THAT THE AO HAS NOT GIVE N ANY COGENT BASIS FOR DISALLOWING THE DEDUCTION U/S 10AA AND JUSTIFICATIO N FOR ESTIMATING THE GROSS PROFIT. REGARDING THIS OBJECTION OF THE AO THAT THE ASSESSEE HAS RECORDED HIGHER PROFIT BY REDUCING THE EXPENSES, IT IS OBSERVED BY THE LEARNED CIT(A) IN PARA 6.2.1 OF HIS ORDER THAT THE QUESTION OF ESTIMATING THE PROFIT ON THE BASIS OF COMPARABLE CASES CAN BE MADE ONLY WHEN BOOK RESULTS OF THE ASSESSEE ARE NOT ACCEPTABLE ON ANY INDEPENDENT VERIFICATION EITHER B ECAUSE OF SUBSTANTIAL DEFECTS IN THE BOOKS OF ACCOUNTS OR FOR THE REASON THAT THE BOOKS OF ACCOUNTS ARE NOT SUPPORTED BY PROPER BILLS, VOUCHERS AND OTHER DOCUM ENTS. HE HAS GIVEN A CLEAR FINDING THAT IN THE PRESENT CASE; THE AO HAS NOT PO INTED OUT ANY SUCH DEFECTS AND HAS ALSO NOT REJECTED THE SAME BY INVOKING THE PROV ISIONS OF SECTION 145(3) OF THE ACT. THEREFORE, THE ASSESSMENT ORDER ON THIS ASPECT IS BAD IN LAW AND ON FACTS AND, THEREFORE, CANNOT BE SUSTAINED. BEFORE US ALSO , NOTHING COULD BE SHOWN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE OF THE REVE NUE THAT THE AO HAS REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROV ISIONS OF SECTION 145(3) BY POINTING OUT SUBSTANTIAL DEFECTS IN THE BOOKS OF AC COUNTS OR BY SHOWING THAT THE BOOKS OF ACCOUNTS ARE NOT SUPPORTED BY BILLS, VOUCH ERS AND OTHER DOCUMENTS. HENCE, ON THIS ASPECTS OF THE MATTER, WE DO NOT FIN D ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNED CIT(A). ACCORDINGLY GROUND NO. 2 OF THE REVENUES APPEAL IS DISMISSED. 7. REGARDING THE FIRST ISSUE AS TO WHETHER THE ASSE SSEE IS MANUFACTURING THE GOODS BY ITSELF OR CLAIMED DEDUCTION U/S 10AA OF TH E ACT BY GETTING THE SAME OUTSOURCED, WE FIND THAT AS PER THE PROVISIONS OF S ECTION 10AA, IT IS THE REQUIREMENT THAT THE ASSESSEE SHOULD MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR PROVIDE ANY SERVICES DURING THE RELEVANT PREVIOU S YEAR AND GET ANY PROFIT DERIVED FROM EXPORT OF SUCH ARTICLES OR THINGS OR S ERVICES. THE ASSESSEE IS ELIGIBLE FOR 100% EXEMPTION FOR FIVE CONSECUTIVE YEARS IN TH E BEGINNING AND FOR NEXT FIVE YEARS, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF 50 % OF SUCH PROFITS. AS PER EXPLANATION (1), THE WORD MANUFACTURE HAS BEEN DE FINED AND IT IS STATED THAT IT IT A NO.377/AHD/2013 (AY: 2006-07) ITO, W-8(4), SURAT VS SHRI VALLABHBHAI D. GADHIYA 4 WILL HAVE THE SAME MEANING AS ASSIGNED TO IT UNDER CLAUSE ( R ) OF SECTION 2 OF SPECIAL ECONOMIC ZONE ACT, 2005 (SEZ). IT IS NOTED BY THE LEARNED CIT(A) IN PARA 6.3 OF HIS ORDER THAT AS PER SECTION 2 ( R ) O F THE SEZ ACT, 2005, DEFINITION OF MANUFACTURE MEANS TO MAKE, PRODUCE, FABRICATE, ASSE MBLE, PROCESS OR BRING INTO EXISTENCE BY HAND OR BY MACHINE, A NEW PRODUCT HAVI NG A DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDE PROCESS SUCH AS REFRIGERATION, CUTTING, POLISHING, BLENDING, REPAIR, REMAKING, RE-ENGINEERI NG ETC. THE PROVISIONS OF SECTION 10AA HAVE TO BE READ IN ITS ENTIRETY AND AS PER SUB SECTION 4 (II), IT IS NECESSARY THAT NEW BUSINESS IS NOT FORMED BY TRANSF ER TO THE NEW BUSINESS, ANY MACHINERY OR PLANT INITIALLY USED FOR ANY PURPOSE. IF THE MANUFACTURING ACTIVITIES CAN BE OUTSOURCED, THEN THESE PROVISIONS OF SUB SEC TION 4 (II) OF SECTION 10AA BECOMES REDUNDANT BECAUSE IN SUCH A SITUATION, INST EAD OF RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE OR INSTEAD OF TRANSFE RRING THE MACHINE OR PLANT BY AN EXISTING ENTITY TO NEW BUSINESS, THE NEW BUSINES S CAN GET THEIR MANUFACTURING DONE BY THE OLD ENTITY ON CONTRACT BASIS AND WILL B E ELIGIBLE FOR DEDUCTION U/S 10AA. HENCE, IN OUR CONSIDERED OPINION, THE ASSESSE E CANNOT CLAIM DEDUCTION U/S 10AA IN RESPECT OF PRODUCTION WHICH HE HAS NOT UNDERTAKEN BUT HAS OUTSOURCED. HENCE, WE FEEL THAT IN THE FACTS OF THE PRESENT CASE, AFTER CONSIDERING THE RELEVANT PROVISIONS AS DISCUSSED ABOVE, THE ORD ER OF THE LEARNED CIT(A) IS REQUIRED TO BE REVERSED AND THAT OF THE AO BE RESTO RED. WE ORDER ACCORDINGLY. 8. BEFORE PARTING, WE WOULD LIKE TO DISCUSS THE DE CISION OF JAIPUR BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DCIT VS GOENKA DIAMOND & JEWELLERS LTD. (SUPRA). IN THAT CASE THE ISSUE IN DISPUTE WAS THAT WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10AA OF THE ACT ON ACCOU NT OF RE-EXPORT OF IMPORTED GOODS. IN THAT CASE, IT WAS HELD THAT IN SEZ, TRADI NG BY WAY OF EXPORT OF IMPORTED GOODS IS ALLOWED. IN THE PRESENT CASE, THE EXPORT I S NOT OF IMPORTED GOODS BUT OF LOCAL GOODS FOR WHICH PROCESSING IS DONE OUTSIDE AN D HENCE, IN THE FACTS OF THE PRESENT CASE, THE RATIO OF THIS DECISION IS NOT APP LICABLE. IT A NO.377/AHD/2013 (AY: 2006-07) ITO, W-8(4), SURAT VS SHRI VALLABHBHAI D. GADHIYA 5 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED IN TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 26-04-2013. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (A. K. GARODIA) ACCOUNTANT MEMBER LAKSHMIKANTA DEKA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 17-04-2013/23-04-2013 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 18-04-2013/23-04-2013 OTHER MEMB ER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: