DEPUTY COMMISSIONER OF INCOME TAX-25(1), MUMBAI V. VHN DIAMONDS, MUMBAI

ITA 5440/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8961 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 24-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOB R A
• Section: 143(3); 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 5440/MUM/2017 ASSESSMENT YEAR : 2012-13 DEPUTY COMMISSIONER OF INCOME TAX-25(1), MUMBAI VS. M/S. VHN DIAMONDS, E-82, BHARAT DIAMOND BOURSE, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI [PAN : AAHFV 4786 B] ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI RAJEEV GU BGOBRA , DR RESPONDENT BY : SHRI BHUPENDRA SHAH , AR DATE OF HEARING : 1 7 - 1 2 - 201 8 DATE OF PRONOUNCEMENT : 19 - 1 2 - 201 8 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-37 , MUMBAI, DATED 09-06-2017. THE GROUNDS RAISED BY REVENUE AR E AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION M ADE OF RS. 3,80,67,381/- ON ACCOUNT OF DEDUCTION CLAIMED U/S. 10AA OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT TH E ADDITION WAS MADE ON THE BASIS OF FORM 56 SUBMITTED BY THE ASSES SEE AS WELL AS THE LETTER OF THE DEVELOPMENT COMMISSIONER AND O THER EVIDENCES GATHERED DURING SCRUTINY PROCEEDINGS. ITA NO. 5440/MUM/2017 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT OFFERING AN OPPORTU NITY TO THE ASSESSING OFFICER UNDER RULE 46A TO EXAMINE THE ADD ITIONAL SUBMISSIONS OF THE ASSESSEE DURING APPELLATE PROCEE DINGS. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR TO ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A FI RM AND IS ENGAGED IN THE BUSINESS OF IMPORT/EXPORT, SALE/PURC HASE MANUFACTURING/TRADING OF DIAMONDS BESIDES MANUFACT URING AND EXPORT OF JEWELLERY IN SPECIAL ECONOMIC ZONE (SEZ), SURAT UNDER THE NAME AND STYLE OF VHN DIAMONDS . DURING THE YEAR, THE ASSESSEE CLAIMED DEDUCTION U/S. 10AA OF THE INCOME TAX ACT (ACT) TO THE TUNE OF RS. 3,80,67,381/- IN RESPECT O F THE ACTIVITY OF MANUFACTURING OF CUTTING AND POLISHING OF DIAMOND A ND MAKING OF JEWELLERY VHN DIAMONDS UNIT IN SEZ. DURING THE YEAR, THE TOTAL TURNOVER OF ASSESSEE FROM THE SAID UNDERTAKIN G WAS RS. 20.26 CRORES WHEREAS TOTAL PROFIT RESULTING THEREF ROM WERE RS. 3,80,67,381/- WHICH WERE CLAIMED U/S 10AA OF THE AC T. THE ASSESSING OFFICER (AO) REJECTED THE CLAIM OF ASSESS EE U/S. 10AA OF THE ACT FOR VARIOUS REASONS SUCH AS THE ASSESSEE H AS NOT COMMENCED ITS PRODUCTION ON 1 ST SEPTEMBER, 2011 AS THE ITA NO. 5440/MUM/2017 3 ASSESSEE HAS SUBMITTED TO THE DEVELOPMENT COMMISSIO NER OF SEZ VIDE LETTER DT. 5 TH SEPTEMBER, 2011, THAT THE COMMERCIAL PRODUCTION WAS COMMENCED ON 5 TH SEPTEMBER, 2011, THAT PLANT AND MACHINERY FROM D.S. JEWELLERS AND TOOLS WAS PUR CHASED VIDE INVOICE DT. 04-10-2011 THEREBY DRAWING AN INFE RENCE THAT THE PLANT AND MACHINERY MUST HAVE BEEN INSTALLED AF TER 04-10- 2011 AND THUS CONCLUDING THAT PRODUCTION HAS COMME NCED ON 5 TH SEPTEMBER, 2011. AO ALSO NOTED THAT THE VALIDITY OF LETTER ISSUED BY THE DEVELOPMENT COMMISSIONER EXPIRED ON 2 3-03-2011 AND THEREAFTER, ASSESSEE DID NOT OBTAIN ANY VALID A PPROVAL FROM THE DEVELOPMENT COMMISSIONER. THEREFORE, ASSESSEE D ID NOT HAVE ANY VALID APPROVAL FROM THE DEVELOPMENT COMMISSIONE R AS PER THE PROVISIONS OF SPECIAL ECONOMIC ZONE ACT, 2005 AND SPECIAL ECONOMIC ZONE RULES, 2006 AND ACCORDINGLY IT COULD NOT BE TREATED AS AN ENTREPRENEUR WITHIN THE MEANING OF SE CTION 10AA R.W.S. 2(J) AND 15(9) OF THE SEZ ACT, 2005. FINALLY , THE LD.AO OBSERVED THAT ASSESSEE HAS SHOWN PURCHASE OF SILVER WORTH RS. 4,52,608/- FOR MANUFACTURING DIAMONDS STUDDED JEWEL LERY, WHICH WAS DISCLOSED IN THE PROFIT & LOSS A/C OF VHN DIAMONDS. HOWEVER, IN THE CONSOLIDATED BALANCE SHEET AND PROF IT & LOSS A/C, THE ASSESSEE DID NOT DISCLOSE ANY QUANTITY OF SILVER BOUGHT. ITA NO. 5440/MUM/2017 4 FINALLY, THE AO REJECTED THE CONTENTIONS AND SUBMIS SIONS OF ASSESSEE AND DISALLOWED THE CLAIM U/S. 10AA OF THE ACT TO THE TUNE OF RS. 3,80,67,381/-. 3. IN THE APPELLATE PROCEEDINGS, CIT(A) AFTER CONSI DERING THE SUBMISSIONS OF ASSESSEE DECIDED THE ISSUE BY OBSERV ING AND HOLDING AS UNDER: 5.17 AFTER CONSIDERING THE TOTALITY OF FACTS, RIV AL SUBMISSIONS AND ON THE BASIS OF DISCUSSION MENTIONED ABOVE, I FIND FOR CE IN THE ARGUMENT OF THE APPELLANT. THE APPELLANT IS ENGAGED IN MANUFACT URING OF DIAMOND JEWELLERY. THE APPELLANT HAS STARTED COMMERCIAL PRO DUCTION FROM 05-09- 2011 AND APPELLANT HAS ALSO STARTED EXPORT FROM 29- 09-2011.THE DEVELOPMENT COMMISSIONER HAS EXTENDED THE VALIDITY UPTO THE 29-09- 2012 FOR THE COMMENCEMENT OF COMMERCIAL PRODUCTION. FURTHER, APPELLANT HAS SUBMITTED RELEVANT DOCUMENTS AND ESTA BLISHED THAT APPELLANT IS ENGAGED IN THE MANUFACTURING OF DIAMON D JEWELLERY. FURTHER, APPELLANT HAS SUBMITTED COPY OF ASSESSMENT ORDER U/S. 143(3) FOR THE A.Y.2013-14 AND A.Y.2014-15 WHEREIN A.O. HA S ACCEPTED THAT APPELLANT HAS FULFILED THE ELIGIBILITY CRITERIA U/S . 10AA OF I.T.ACT AND ALLOWED THE DEDUCTION IN THE A.Y.2013-14. FURTHER, IT IS FOUND THAT THE ACTIVITY CARRIED OUT AT SEZ UNIT IS DISTINCTLY DIFF ERENT FROM THE ACTIVITY CARRIED OUT AT NON SEZ UNIT. THE BOOKS OF ACCOUNT H AVE BEEN SEPARATELY MAINTAINED AND ALL THE EXPENSES INCURRED FOR THE RE SPECTIVE UNIT HAVE BEEN SHOWED IN SEPARATE PROFIT AND LOSS ACCOUNT. HO WEVER, CONSIDERING THE NATURE OF BUSINESS OF APPELLANT, SOME OF THE CO MMON EXPENSES CANNOT BE RULED OUT WHICH IS DEBITED BY THE APPELLA NT IN THE TAXABLE UNIT. THE A.O. HAS DISALLOWED RS.16,16,239/- AND RE DUCED FROM CLAIM OF DEDUCTION. THE DISALLOWANCE OF RS.16,16,239/- IS AP PEARED TO BE EXCESSIVE, THE A.O. IS DIRECTED TO DISALLOW 20% OF RS.16,16,239/- I.E. RS.3,23,247/-. IN VIEW OF THE ABOVE, I HAVE COME TO THE CONCLUSION THAT APPELLANT IS ELIGIBLE FOR DEDUCTION OF RS.3,77,44,1 34/- (RS.3,80,67,381/- - RS.3,23,247/-) U/S.10AA OF I.T.ACT. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND FROM THE PERUSAL OF AP PELLATE ORDER ITA NO. 5440/MUM/2017 5 THAT THE LD. CIT(A) HAS RECORDED FINDINGS OF THE FA CT THAT ASSESSEE HAS FULFILLED ALL THE CONDITIONS AS ENVISAGED U/S. 10AA OF THE ACT. LD. CIT(A) RECORDED FINDINGS OF THE FACT THAT THE C OMMERCIAL PRODUCTION STARTED ON 5 TH SEPTEMBER, 2011 AND THE ASSESSEE HAS STARTED EXPORTING THE MANUFACTURED PRODUCTS FROM 29 -09-2011. LD. CIT(A) ALSO NOTED THAT THE DEVELOPMENT COMMISSI ONER OF SEZ EXTENDED THE VALIDITY UPTO 29-09-2012 FOR COMMENCEM ENT OF PRODUCTION. WE FURTHER FIND FROM THE ORDER OF CIT( A) THAT EVEN IN THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT F OR THE AYS. 2013-14 & 2014-15, AO HAS ACCEPTED THE FACT THAT TH E ASSESSEE HAS FULFILLED THE NECESSARY CONDITIONS AS ENVISAGED U/S. 10AA OF THE ACT AND ALLOWED THE DEDUCTION U/S 10AA OF THE A CT ACCORDINGLY. WE FIND MERIT IN THE CONTENTIONS OF L D. AR THAT THE PURCHASE OF SILVER FOR MANUFACTURE OF DIAMONDS STU DDED JEWELLERY WAS DULY DISCLOSED IN THE PROFIT & LOSS A /C OF VHN DIAMONDS TO THE TUNE OF RS. 4,52,608/-, WHEREAS THE SAME COULD NOT BE DISCLOSED UNDER THE PROPER HEAD IN THE CONSO LIDATED BALANCE SHEET AND PROFIT & LOSS A/C INADVERTENTLY A ND THE QUANTITY OF SILVER PURCHASED, WAS ALSO NOT DISCLOSE D. IN OUR OPINION, THE MERE MISTAKE ON THE PART OF ASSESSEE I N MAKING THE CONSOLIDATION OF ACCOUNTS COULD NOT BE A REASON FOR REJECTING THE ITA NO. 5440/MUM/2017 6 CLAIM OF DEDUCTION U/S. 10AA WHEN THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS PRECEDENT FOR ALLOWING THE SAID DEDU CTION WHICH STANDS ACCEPTED BY THE REVENUE ITSELF IN THE FOLLOW ING YEARS. THE ASSESSEE CANDIDLY ADMITTED THAT THE PURCHASE BILLS OF THE SILVER TO THE TUNE OF RS. 4,52,608/- WERE DULY FILED BEFOR E THE AO VIDE LETTER DT. 11-03-2015 AND IT WAS INADVERTENTLY SHOW N UNDER THE HEAD OF LOCAL PURCHASES UNDER ROUGH DIAMOND. CON SIDERING ALL THE FACTS OF THE CASE IN TOTALITY, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A), WHICH IS A REASONED AND SPEAKING ORDER DEALING WITH EACH AND EVERY OBSERVATIONS/OBJECTIONSS OF THE AO ON THE BASIS OF WHICH AO REJECTING THE CLAIM OF ASSESSEE. UNDER THESE CIRCU MSTANCES, WE ARE INCLINED TO UPHOLD THE ORDER OF CIT(A) BY DISMI SSING THE APPEAL OF REVENUE. 5. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF DECEMBER, 2018 SD/- SD/- ( S A N DEEP GOSAIN ) (RAJESH KUMAR) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /MUMBAI; /DATED : 19 TH DECEMBER, 2018 TNMM ITA NO. 5440/MUM/2017 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT, MUMBAI 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, //TRUE COPY// / (DY./ASST. REGISTRAR) , / ITAT, MUMBAI