I.T.O. 7(1)(3), MUMBAI V. RAJENDRA P. LUNKAD, MUMBAI

ITA 7747/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8309 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revised return
• Section: 10AA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BE NCH, MUMBAI , !' #$% , !& ! ' BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 7747/MUM/2012 ( ( ( ( ( / ASSESSMENT YEAR : 2008-09 ./I .T.A. NO. 2478/MUM/2013 ( ( ( ( ( / ASSESSMENT YEAR : 2009-10 THE ITO 7(1)(3), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. SHRI RAJENDRA P. LUNKAD, 99, RAMIBHAI HOUSE, OLD PRABHADEVI ROAD, PRABHADEVI, MUMBAI-400 025 ./I .T.A. NO. 7587/MUM/2012 ( ( ( ( ( / ASSESSMENT YEAR : 2008-09 SHRI RAJENDRA P. LUNKAD, 99, RAMIBHAI HOUSE, OLD PRABHADEVI ROAD, PRABHADEVI, MUMBAI-400 025 / VS. THE ITO 7(1)(3), AAYAKAR BHAVAN, MUMBAI-400 020 ) !& ./ * ./ PAN/GIR NO. : AABPL 2183N ( )+ / APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . ! / ASSESSEE BY: SHRI VIPUL JOSHI ,-)+ / . ! / DEPARTMENT BY: SHRI LOVE KUMAR SHRI RAJENDRA P. LUNKAD 2 / 0& / DATE OF HEARING : 02.12.2014 12( / 0& / DATE OF PRONOUNCEMENT :10.12.2014 !3 / O R D E R PER N.K. BILLAIYA, AM: ITA NOS. 7747/M/12 & 2478/M/13 ARE FILED BY THE REVENUE AND THE CROSS APPEAL NO. 7587/M/12 ARE FILE D BY THE ASSESSEE ARE PREFERRED AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-13, MUMBAI DT. 31.10.2012 PERTAINING TO ASSE SSMENT YEARS 2008-09 & 2009-10. ALL THESE APPEALS WERE HE ARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SA KE OF CONVENIENCE. ITA NO. 7747/M/12 A.Y. 2008-09-REVENUES APPEAL 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD . CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON AC COUNT OF EXEMPTION U/S. 10AA OF THE ACT IN RESPECT OF PROFI T EARNED FROM SEZ UNIT. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING/TRADING AND EXPORT OF FIBRE OPTICS PR ODUCTS UNDER THE NAME OF PROPRIETORY CONCERN M/S. PDR INTERNATIO NAL FROM SURAT SPECIAL ECONOMIC ZONE, SACHIN, SURAT. M/S. P DR INTERNATIONAL WAS APPROVED FOR MANUFACTURING/TRADIN G ACTIVITY BY SEZ AUTHORITIES. RETURN FOR THE YEAR WAS FILED ON 28.9.2008 DECLARING TOTAL INCOME OF RS. 7,72,680/-. DEDUCTIO N U/S. 10AA OF SHRI RAJENDRA P. LUNKAD 3 RS. 1,30,81,426/- WAS CLAIMED. THE RETURN WAS SELEC TED FOR SCRUTINY ASSESSMENT. THE ASSESSEE FILED A REVISED RETURN OF INCOME DECLARING INCOME AT RS. 18,11,772/- AND THE DEDUCTION U/S. 10AA WAS REVISED AT RS. 1,20,42,332/-. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS COMMENCED MANU FACTURING ACTIVITY FROM FINANCIAL YEAR 2005-06 AFTER OBTAININ G REGISTRATION FROM SEZ ON 11.8.2005. THE AO FURTHER OBSERVED THA T SEZ HAS PERMITTED THE ASSESSEE TO DO TRADING ACTIVITY FROM SURAT SPECIAL ECONOMIC ZONE VIDE APPROVAL DT. 5.2.2007. THE ASSE SSEE WAS ASKED TO SUBSTANTIATE THE CLAIM OF DEDUCTION U/S. 1 0AA. THE ASSESSEE FILED THE DETAILS. AFTER PERUSING THE DET AILS FILED BY THE ASSESSEE, THE AO NOTICED THAT THE ASSESSEE HAS NOT DEBITED ANY LABOUR CHARGES EXCEPT SALARY OF RS. 42,000/- ONLY P AID TO ONE EMPLOYEE. THE AO FOUND THAT THE ASSESSEE HAS MADE EXPORT OF HUGE AMOUNT ON SMALL PURCHASES. ON FINDING, NO LAB OUR EXPENSES, THE ASSESSEE WAS ASKED TO EXPLAIN THE MAN UFACTURING ACTIVITY. THE ASSESSEE FILED A DETAILED NOTE ON MA NUFACTURING PROCESS WHICH IS AS UNDER: WE ARE FIRST TAKING THE CONNECTOR SLEEVE AND WE MEASURE THE CONNECTRICITY OF THE SLEEVE USING CONNECTRICITY MEASURING EQUIPMENT. IT IS VERY IMPOR TANT TO ACHIEVE A CONCENTRICITY AND TO ADJUST THE PARAME TERS OF THE SLEEVE IN SUCH A WAY THAT THE CONCENTRICITY OF THIS PART IS MAINTAINED AS PER OUR REQUIREMENT. WE NEED TO DRILL A HOLE OF 126 MICRON, FOR THIS WE USE A VERY THIN WIRE TO MANUALLY DRILL THE HOLE. THIS IS OUR OWN INVENTED PROCESS AS WE NEED TO ACHIEVE A 126 MICRON HOLE WITH A TOLERANCE OF +/-0.05 MICRON. THE MEASUREMENT TO BE DONE THROUGH INTERFEROMETER SHRI RAJENDRA P. LUNKAD 4 EQUIPMENT. PASS THE SINGLEMODE 9/125 MICRON FIBER AND CHECK. ALSO PASS THE 62.5/125 MICRON FIBER AND CHECK., NOTE ON WHO HAS DONE MANUFACTURING ACTIVITY IN ABSENCE OF WAGES/LABOUR NOT DEBITED T PROFIT AND LOSS A/C. MR. R P LUNKAD HAS BEEN PIONEER IN THE FIELD OF FIBER OPTICS FOR DATACOM, TELECOM AND CATV. HE HAS A VAST EXPERIENCE IN THE FIELD. HE IS AN ENGINEER HAV ING OBTAINED HIS ENGINEERING DEGREE FROM USA IN THE YEA R 1967. HE HAS TO HIS CREDIT MANY PRODUCTS THAT HE DEVELOPED WITH IN INDIA IN OPTIC FIELD AND SAVED LO T OF FOREIGN EXCHANGE FOR THE COUNTRY AND CONTRIBUTED GR EAT DEAL IN TODAYS TELECOM/DATACOM FIELD. WITH HIS THI S BACKGROUND AND KNOWLEDGE ABOUT OPTIC PRODUCTS, FUTURE DEMAND IN INTERNATIONAL PRODUCT, HE SET UP U NIT IN SURAT FREE TRADE ZONE FOR EXPORT OF VERY SELECT IVE AND EXCLUSIVE PRODUCT THAT HAD REQUIREMENT IN INTERNATIONAL MARKET ONLY AND VERY SELECTIVE TECHNOCRATS KNEW ABOUT IT. THE PROCESS OF MAKING IT WAS VERY SECRETIVE AND HE OBVIOUSLY DID NOT WANT ANYONE TO LEARN ABOUT IT. IT DID NOT REQUIRE ANY LABOUR OR WORKER. IT WAS MOR E OF A BRAIN AND HIGHLY COMPLEX SKILLED WORK AND ONLY HE HAD COMPLETE KNOWLEDGE ABOUT HOW TO MAKE IT. FOR HIM IT WAS EASY TO MAKE WITH HIS VAST EXPERIENCE, KNOWLEDGE, SKILL AND EXPERIENCE. THE PERSON WORKING WITH HIM WAS HIGHLY SKILLED TECHNICIAN IN THE FIBER OPTIC FIELD. MAKING THE PRODUCT WAS NOT AT ALL TIME CONSUMING BU T REQUIRED ENORMOUS SKILL AND EXPERIENCE WHICH MR. R P LUNKAD HAD WITH HIM ABOUT 40 YEARS OF EXPERIENCE AND WORK IN ENGINEERING FIELD. FOR ANY ENGINEERING PERSON TO DRILL A HOLE OF 125 MICRON WITH +/- 0.5 M ICRON TOLERANCE IS A NIGHTMARE. THEN TO HAVE CONCENTRICIT Y OF THIS HOLE IS A TASK. MR. R P LUNKAD USED TO EXACTLY ACHIEVE THIS IN THE PRODUCT HE MADE AND EXPORTED FR OM SURAT SEZ. SHRI RAJENDRA P. LUNKAD 5 3.2. THE AO DID NOT ACCEPT THE EXPLANATION OFFERED BY THE ASSESSEE. THE AO WAS OF THE OPINION THAT THE ASSES SEE HAS NOT FURNISHED ANY SUPPORTING IN RESPECT OF THE MOVEMENT S OF GOODS FROM MUMBAI TO SURAT THOUGH ONE OF THE SUPPLIERS OF RAW MATERIAL HAS CONFIRMED THE SALE OF RAW MATERIALS TO THE ASSESSEE BUT HAS STATED THAT DELIVERY OF GOODS WERE TAKEN BY THE PARTY THEMSELVES FROM THEIR MUMBAI FACTORY. THE ASSESSEE EXPLAINED THAT THE MATERIALS WERE ALWAYS HAND CARRIED TO SEZ SURAT BY THE TECHNICIAN AS THE MATERIAL WAS LIGHT IN WEIGHT. TH IS EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO WHO OBSERVED THAT 100KG PLASTIC GRANULES, THOUSANDS OF NUMBERS OF FIB ER PLASTIC PRODUCTS CANNOT BE CARRIED BY A TECHNICIAN. 3.3. THE AO FORMED A FIRM BELIEF THAT THE ASSESSEE IS PURELY ENGAGED IN TRADING ACTIVITY. THE AO FURTHER OBSERV ED THAT THERE WAS NO OPENING STOCK OF GOODS AND THE FIRST PURCHAS E MADE BY THE ASSESSEE WERE ON 11.4.2007, THEREFORE, THE ASSESSEE COULD NOT HAVE EXPORTED THE GOODS PRIOR TO THAT DATE. THE AO FINALLY CONCLUDED BY DENYING THE DEDUCTION U/S. 10AA OF THE ACT. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A) AND EXPLAINED THE NATURE OF HIS BUSINESS. I T WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT ALL THE APPROV AL LETTERS FROM THE AUTHORITIES OF SEZ, SURAT WERE FURNISHED TO THE AO. IT WAS FURTHER EXPLAINED THAT SHIPPING BILLS FOR EXPORT FR OM SEZ WERE APPROVED BY SEZ AND CUSTOM AUTHORITY. ON EACH SHIP PING BILL, THE ACTIVITY OF EITHER MANUFACTURING OR TRADING WAS CLEARLY MENTIONED. SHRI RAJENDRA P. LUNKAD 6 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S AND AFTER ANALYZING THE MANUFACTURING PROCESS OF THE ASSESSEE , THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING OF OPTIC BICONIC CONECTOR AND OTHER I TEMS AS MENTIONED IN THE SHIPPING BILLS. THE LD. CIT(A) FU RTHER OBSERVED THAT SEZ HAVE GRANTED PERMISSION TO SET UP THE UNIT IN SEZ AREA AFTER BEING SATISFIED THAT THE ASSESSEES ACTIVITY WILL BE AMOUNTING TO MANUFACTURING ACTIVITY. THE LD. CIT(A) FURTHER OBSERVED THAT IN ALMOST ALL THE SHIPPING BILLS, ASSESSEES ACTIVI TY HAS BEEN MENTIONED AS MANUFACTURING WHICH HAS BEEN DULY AUT HENTICATED BY AN APPRAISING OFFICER AND SEZ AUTHORITY AND ALSO BY PREVENTIVE OFFICER. THE LD. CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF DEDUCTION U/S. 10AA OF THE ACT. HOWEVER, IN RESPECT OF TWO SHIPPING EXPORT BILLS OF RS. 6,21,750/- AND RS. 3,15,774/-, THE LD. CIT(A) OBSERVED THAT THE ACTIVITY WAS MENTIONED AS TRADING. THE LD. CIT(A) DIRECT THE AO TO DENY THE CLAIM OF D EDUCTION U/S. 10AA OF RS. 9,37,524/-. 5. AGGRIEVED BY THIS FINDING, THE REVENUE AND THE A SSESSEE BOTH ARE IN APPEAL BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E ASSESSMENT ORDER. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. IT IS AN UNDISPUTED FACT THAT THE ASSESSEES CON CERN WAS APPROVED BY SEZ AUTHORITIES. THE APPROVAL LETTER W AS SUBMITTED SHRI RAJENDRA P. LUNKAD 7 BEFORE THE AO. IT IS ALSO AN UNDISPUTED FACT THAT SHIPPING BILLS/INVOICES FOR EXPORT FROM SEZ WERE APPROVED BY SEZ AND CUSTOM AUTHORITIES. THE LD. CIT(A) HAS CATEGORICAL LY MENTIONED THAT ON EACH SHIPPING BILL/INVOICE, THE ACTIVITY OF MANUFACTURING /TRADING CARRIED OUT WAS CLEARLY MENTIONED. THE AO HAS NOT APPRECIATED THE FACTS PROPERLY WHEN HE OBSERVED THA T 100KG PLASTIC GRANULES, THOUSANDS OF NUMBERS OF FIBER PLA STIC PRODUCTS CANNOT BE CARRIED BY A TECHNICIAN ON HIS OWN FROM M UMBAY TO SEZ SURAT. THIS IS FACTUALLY INCORRECT BECAUSE DUR ING THE COURSE OF THE PROCEEDINGS BEFORE US, THE ASSESSEE SUCCESSF ULLY DEMONSTRATED BY DISPLAYING THE PRODUCTS IN THE OPEN COURT. IT CANNOT BE DENIED THAT THE WEIGHT OF EACH RAW MATERI AL USED COULD NOT BE MORE THAN 2 GMS, SUCH LIGHT WEIGHT PRODUCT C AN BE CARRIED IN A HAND BAG ALSO. FURTHER, THERE IS NO DENYING T HAT ON EACH SHIPPING BILL ENDORSEMENT OF MANUFACTURING ACTIVITY WAS PRESENT. THE END PRODUCT OF THE ASSESSEE AS DEMONSTRATED BY THE ASSESSEE IN THE OPEN COURT IS A HIGHLY COMPLEX SKILLED WORK WHICH CAN BE EXECUTED ONLY BY AN EXPERT AND THE ASSESSEE HIMSELF HAS A COMPLETE KNOWLEDGE ABOUT HOW TO MAKE IT WITH THE H ELP OF ONE TECHNICIAN. CONSIDERING ALL THESE FACTS IN TOTALITY , WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD . CIT(A) TO THIS EXTENT. APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 7587/M/2012 A.Y. 2008-09- ASSESSEES APPE AL 9. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE L D. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY NOT ALLO WING DEDUCTION U/S. 10AA OF THE ACT ON INCOME DERIVED FR OM TRADING OF IMPORT OF GOODS WHICH WERE RE-EXPORTED FROM SEZ. SHRI RAJENDRA P. LUNKAD 8 10. THE LD. CIT(A) AT PAGE-14 OF HIS ORDER HAS OBSE RVED THAT IN TWO SHIPPING EXPORT BILLS, THE ACTIVITY WAS MENT IONED AS TRADING. THESE TWO SHIPPING BILLS WERE FOR RS. 6,21 ,750/- AND RS. 3,15,774/- TOTALING TO RS. 9,37,524/-. THE CLAIM O F DEDUCTION U/S. 10AA WAS DENIED ON THIS. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE TRIBUNAL JAIPUR BENCH IN THE CASE OF DCIT VS GOENKA DIAMOND & JEWELLERS LTD. 146 TTJ 68 AND MUMB AI BENCH IN THE CASE OF GITANJALI EXPORTS CORPN. LTD. IN ITA NO. 6947 & 6948/M/2011. THE LD. COUNSEL FOR THE ASSESS EE BROUGHT TO OUR NOTICE OF INSTRUCTION NO. 1/2006 DT. 24.3.20 06 OF MIN. OF COMMERCE WHICH WAS MODIFIED BY ANOTHER INSTRUCTION DT. 24.5.2006 IN WHICH IT WAS MADE CLEAR THAT THE DEDUC TION U/S. 10AA WILL BE AVAILABLE IN RESPECT OF TRADING IN THE INDUSTRY OF RE- EXPORT OF IMPORTED GOODS. 12. THE LD. DR COULD NOT BRING ANY DISTINGUISHING FACTS/DECISION TO CONTROVERT THE SUBMISSIONS OF THE LD. COUNSEL. 13. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE LD. CIT(A) HAS HIMSELF OBSERVED THAT TW O SHIPPING EXPORT BILLS TOTALING TO RS. 9,37,524/- HAD ENDORSE MENT OF TRADING ACTIVITY. THE LD. CIT(A) ERRED IN TAKING THE VIEW THAT DEDUCTION U/S. 10AA IS ALLOWABLE ON PROFIT DERIVED FROM THE MANUFACTURING ACTIVITY AND NOT ON PROFIT DERIVED ON TRADING ACTIV ITY. SHRI RAJENDRA P. LUNKAD 9 14. WE HAVE CAREFULLY PERUSED THE DECISIONS RELIED UPON BY THE LD. COUNSEL. WE FIND THAT ON SIMILAR SET OF FACTS THE TRIBUNAL HAS ALLOWED THE CLAIM OF DEDUCTION BY DRAWING SUPPORT F ROM THE INSTRUCTIONS ISSUED BY MIN. OF COMMERCE & INDUSTRY. RESPECTFULLY FOLLOWING THE DECISION OF THE CO ORDIN ATE BENCH, WE SET ASIDE THE ORDER OF THE LD. CIT(A) TO THIS EXTEN T AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION U/S. 10AA AMOUNT ING TO RS. 9,37,524/-. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 2478/M/13 A.Y. 2009-10- REVENUES APPEAL 16. THE GROUNDS TAKEN BY THE REVENUE ARE IDENTICAL TO THE GROUNDS TAKEN IN ITA NO. 7747/M/2012 FOR A.Y. 2007- 08 WHEREIN WE HAVE GIVEN A DETAILED REASONING WHILE DI SMISSING THE APPEAL OF THE REVENUE. FOR SIMILAR REASONS, THE AP PEAL FILED BY THE REVENUE IS DISMISSED. 17. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DECEMBER, 2014 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER !& / ACCOUNTANT MEMBER MUMBAI; 4 DATED : 10 TH DECEMBER, 2014 . . ./ RJ , SR. PS SHRI RAJENDRA P. LUNKAD 10 !3 !3 !3 !3 / // / ,0 ,0 ,0 ,0 5!(0 5!(0 5!(0 5!(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 ,0 , , / DR, ITAT, MUMBAI 6. 8 9 / GUARD FILE. !3 !3 !3 !3 / BY ORDER, -0 ,0 //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI