ITO 8(3)(2), MUMBAI V. STECKBECK JEWELLERY P. LTD, MUMBAI

ITA 7088/MUM/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9170 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 13-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP

Judgement Text

, E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , ! '# $ %, & ' BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI AMIT SHUK LA, JM . / ITA NO. 7088/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ) ITO 8 (3)( 2 ) R. NO.201, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. RD. MUMBA-400020 .. / APPELLANT V/S M/S. STECKBECK JEWELLERY LTD. UNIT NO.34, SDF-II SEEPZ-SEZ, ANDHERI (E), MUMBAI 400096 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAJCS4719A REVENUE BY : SHRI NEIL PHILIP (DR) RESPONDENT BY : SHRI VIJAY MEHTA (AR) ! ' # $% / DATE OF HEARING 10.03.2015 &' () # $% / DATE OF ORDER 25 .03.2015 $ / ORDER '# $ %, & (! / PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE A GAINST ORDER DATED 6 TH AUGUST 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS)18, MUMBAI, FOR THE QUANTUM OF ASSESSMENT P ASSED UNDER M/S. STECKBECK JEWELLERY P. LTD. 2 SECTION 143(3), FOR THE ASSESSMENT YEAR 2007-08, ON F OLLOWING GROUNDS OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO GRANT DEDUCTION U/S.10AA OF THE IT ACT AMOUNTING TO RS.3,97,78,755/-WITHOUT APPRECIATI NG THE FACTS BROUGHT OUT ON RECORD BY THE A.O. THAT THERE WAS RE CONSTRUCTION OF BUSINESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NOT APPRECIATING THAT THE ASSESSEE COMPANY ITSELF IN FORM NO.3AA HAS STATED THAT IT HAS MADE SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLED CAPACITY OF THE INDUSTRIAL UNDERTAKING EXISTING BEFORE 1 ST APRIL, 2005. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING & EXPORTING OF GOLD & DIAMOND STUDDED JEWELERY. A COMPANY NAMELY, DEVIZE ELECTRO MECHANICAL PVT. LTD. (DEMPL) WAS INCORPORATED ON 30 .09.2003 WITH THE MAIN OBJECTIVE OF MANUFACTURING ELECTRONICS HARD WARE, HOWEVER, NO BUSINESS COULD START AS ON 31 ST MARCH 2004 AND 31.03.2005. THE BALANCE SHEET ALSO REVEALED THAT THERE WAS NO FIXED A SSETS WITH THE COMPANY. LATER ON THE SHARES OF DEMPL WERE TRANSFERR ED TO M/S. CLASS INVESTMENT HOLDING, VIDE AGREEMENT DATED 13.05.2005 F OR A CONSIDERATION OF RS.75,00,000/-. EARLIER DEMPL HAD MADE AN APPLICATION FOR OBTAINING LETTER OF PERMISSION (LOP) F ROM THE DEVELOPMENT COMMISSIONER FOR MANUFACTURING OF STUDDE D JEWELRY M/S. STECKBECK JEWELLERY P. LTD. 3 ON.24.01.2005. THE LOP WAS RECEIVED ON 23.09.2005. LATER ON THE NAME OF DEMPL WAS CHANGED TO M/S. STECKBECK JEWELRY PVT. LTD., W.E.F. 11.11.2005. THE PRESENT ASSESSEE MADE AN APP LICATION FOR CHANGE OF NAME OF LOP ON 21.11.2005 WHICH WAS GRANTE D BY THE DEVELOPMENT COMMISSIONER IN THE NAME OF THE ASSESSEE ON 04.01.2006. FROM APRIL, 2006, THE ASSESSEE STARTED THE COMMERCIAL PRODUCTION AND CLAIMED THE DEDUCTION U/S.10AA. THE AS SESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION U/S.10AA ON THE GR OUND THAT THE ASSESSEE WAS FORMED BY RECONSTRUCTION OF DEMPL AND TH AT DEMPL WHILE APPLYING FOR LETTER OF PERMISSION ON.14.12.2007 TO START THE MANUFACTURING, WAS REQUIRED TO MANUFACTURE NEW PROD UCTS AND FOR CONVERSION OF EXISTING DTA UNIT INTO EOU. HOWEVER ON V ERIFICATION OF APPLICATION DATED 14.12.2007, THE AO NOTED THAT THERE IS NO REQUEST FROM DEMPL FOR CONVERSION OF EXISTING DTA UNIT TO EO U. IN PART III OF APPLICATION, IT WAS MENTIONED THAT THE PROPOSAL WAS FOR ESTABLISHMENT OF NEW MANUFACTURING UNDERTAKING BY EFFECTING SUBSTAN TIAL EXPANSION FOR MANUFACTURING NEW PRODUCT. LASTLY, HE HELD THAT THE DEDUCTION U/S.10AA IS ALLOWABLE ONLY TO THE PERSON IN WHOSE NAM E THE LETTER OF PERMISSION IS ISSUED BY THE DEVELOPMENT COMMISSIONE R I.E., TO DEMPL AND NOT TO THE ASSESSEE. 3. BEFORE, THE CIT(A), THE ASSESSEE SUBMITTED THAT IT H AD STARTED THE PRODUCTION DURING THE RELEVANT PREVIOUS YEAR OF THE A.Y. 2007-08 M/S. STECKBECK JEWELLERY P. LTD. 4 ONLY AND ALL THE CONDITIONS PRESCRIBED IN SECTION 10A A STANDS FULFILLED WHICH WERE AS UNDER; (A) THE TOTAL INVESTMENT OF THE APPELLANT IN THE Y EAR IN WHICH THE UNIT WAS SET 95 TIMES MORE THAN THE INVESTMENT MADE BY T HE ERSTWHILE COMPANY (I.E. DEMPL) IN THE YEAR. (B) THE APPELLANT HAS EMPLOYED 91 EMPLOYEES DURING THE YEAR ENDED 31 ST MARCH, 2007 AS COMPARED TO 4 EMPLOYEES DURING THE YEAR ENDED 31 MARCH 2006 AND NO EMPLOYEE FOR THE YEAR ENDED 31 MARCH 20015. (C) AS MENTIONED EARLIER, NEITHER THE APPELLANT NOR THE ERSTWHILE COMPANY HAVE STARTED ANY BUSINESS ACTIVITY OR SET U P ANY OTHER MANUFACTURING FACILITIES EXCEPT THE UNIT IN SEZ FOR MANUFACTURING JEWELLERY. AS SUCH SEZ UNIT IS A SEPARATE AND DISTI NCE UNIT FOR MANUFACTURING OF STUDDED JEWELLERY. (D) THE APPELLANT HAS MADE EXPORT OF RS.66,54,84,49 6/- DURING THE YEAR ENDED 31 ST MARCH 2007, WHICH WAS THE FIRST YEAR OF THE OPERAT ION. AS SUCH, THE APPELLANT HAS GENERATED SUBSTANTIAL RE VENUE IN FY 2006- 07. FURTHER, NEITHER THE DEMPL NOR THE ASSESSEE HAD CARR IED OUT ANY MANUFACTURING ACTIVITY OF JEWELLERY BEFORE OBTAINING THE APPROVAL FROM DEVELOPMENT COMMISSIONER, HENCE IT CANNOT BE SAID THA T BUSINESS WAS ALREADY IN EXISTENCE. 4. THE LD. CIT(A) DULY APPRECIATED THE FACTS OF THE CA SE AND ASSESSEES CONTENTION AND DIRECTED THE AO TO ALLOW THE DEDUCTION U/S.10AA, AFTER OBSERVING AND HOLDING AS UNDER:- M/S. STECKBECK JEWELLERY P. LTD. 5 I HAVE CAREFULLY CONSIDERED THE INFORMATION ON REC ORD. THE ASSESSMENT ORDER WAS MADE ON THE LAST DAY OF TIME B ARRING I.E., 30.12.2009. IT APPEARS THAT THE AO DID NOT HAVE SUF FICIENT TIME TO APPRECIATE THE SEQUENCE OF EVENTS IN THIS CASE. IT IS EVIDENT FROM THE COPIES OF BALANCE SHEET AND P&L ACCOUNT AS ON 31.03 .2004 AND ON 31.03.2005 THAT DMPEL HAD NOT STARTED ANY BUSINESS ACTIVITY. IT WAS TAKEN OVER BY M/S. STECKBECK JEWELLERY PVT. LTD. DU RING MAY, 2005. DMPEL HAD NO ASSETS AS ON 31.03.2005. THE APPELLANT HAD PURCHASED DMPEL FOR AN AMOUNT OF RS.75,00,000/- AS DMPEL HAD ALREADY APPLIED FOR LOP FOR MANUFACTURING DIAMOND STUDDED JEWELLERY . BY PURCHASING THE COMPANY WHICH WAS ALREADY INCORPORATED AND HAD ALREADY APPLIED FOR LOP, THE APPELLANT SAVES LOT OF TIME. IN ADDITI ON, HE WOULD ALSO BE ENTITLED TO THE PREMISES IN SEEPZ ON LEASE IN PLACE OF DMPEL. THE LOP WAS ALSO SUBSEQUENTLY TRANSFERRED IN THE NAME OF M/ S. STECKBECH JEWELLERY PVT. LTD. BY DEVELOPMENT COMMISSIONER ON 04.01.2006. IN THIS SCENARIO, WHERE DMPEL DID NOT HAVE ANY ASSETS AND HAD NOT STARTED THE BUSINESS, THE QUESTION OF RECONSTRUCTIO N DOES NOT ARISE, ACCORDINGLY THE AO IS DIRECTED TO ALLOW THE DEDUCTI ON U/S.10AA. 5. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS MADE BY THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDING GIVEN BY THE AO AS WELL AS CIT(A) AND MATERIAL PLACED ON RECORD, FOLLOWING R ELEVANT FACTS ARE REITERATED; SR.NO. DATE EVENT 1. 30.09.2003 DEMPL WAS INCORPORATED. 2. 31.03.2004 NO BUSINESS STARTED BY DEMPL 3. 24.01.2005 APPLICATION BY DEMPL TO SEZ FOR MANUFACTURING STUDDED JEWELLERY. 4. 31.03.2005 NO BUSINESS STARTED BY DEMPL 5. 23.09.2005 APPROVAL BY SEZ FOR MANUFACTURING OF M/S. STECKBECK JEWELLERY P. LTD. 6 STUDDED JEWELLERY. 6. 07.11.2005 OBJECT CLAUSE OF COMPANY AMENDED. 7. 11.11.2005 NAME OF COMPANY CHANGED FROM DEMPL TO STECKBECK 8. 04.01.2006 NAM E OF THE COMPANY CHANGE IN THE RECORDS OF SEZ. 9. 28.04.2006 COMMERCIAL PRODUCTION STARTED AND SEZ INTIMATED. 6. THE AFORESAID FACTS ARE ALSO CORROBORATED BY THE FA CT THAT AS ON 31.03.2004 AND 31.03.2005 THE DMPEL HAD NOT STARTED A NY BUSINESS ACTIVITY. THE SAID COMPANY WAS TAKEN OVER BY THE ASSES SEE, DURING MAY, 2005 AND AS ON THAT DATE ALSO, DMPEL HAD NO ASSET S. THE ASSESSEE HAD PURCHASED THE SHARES OF DMPEL FOR AN A MOUNT OF RS.75,00,000/- AND THEREAFTER HAD APPLIED FOR LETTER OF PERMISSION FOR MANUFACTURING OF DIAMOND STUDDED JEWELLERY. LETTER OF PERMISSION WAS TRANSFERRED IN THE NAME OF THE ASSESSEE. ONCE THE DMP EL HAS NO ASSETS AND HAD NOT STARTED ANY BUSINESS ACTIVITY, THEN MERE PURCHASE OF SHARES OF SUCH COMPANY WILL NOT BE CONSIDERED AS RECONSTRUCTION OF BUSINESS. A CHANGE IN THE OWNERSHIP OF THE COMPANYS OR THE UNDERTAKING WILL NOT RESULT INTO RECONSTRUCTION AS HEL D BY THE AO. ACCORDINGLY, CONCLUSION DRAWN BY THE CIT(A) ON THE F ACTS OF THE CASE IS NOT ONLY FACTUALLY COVERED BUT ALSO LEGALLY SOUND. T HUS, THE GROUNDS RAISED BY THE DEPARTMENT ARE DISMISSED. M/S. STECKBECK JEWELLERY P. LTD. 7 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF MARCH 2015. SD/- SD/- SD/ - . D. KRUNAKARA RAO ACCOUNTANT MEMBER SD/ - '# $ % & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, )* DATED: 25 .03.2015 PATEL &' # $*+ ,+$ / COPY OF THE ORDER FORWARDED TO : (1) -$ / THE ASSESSEE; (2) . / THE REVENUE; (3) ! /$( ) / THE CIT(A); (4) ! /$ / THE CIT, MUMBAI CITY CONCERNED; (5) +23 $4, % 4, ! ' / THE DR, ITAT, MUMBAI; (6) 3 6' / GUARD FILE. + $ $ / TRUE COPY &' ! / BY ORDER 7 / 8 . / (DY./ASSTT. REGISTRAR) % 4, ! ' / ITAT, MUMBAI