ITO, Jaipur V. M/S EROS CRAFTS, Jaipur

ITA 876/JPR/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91880 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 21-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Difference of opinion; Non compliance; Commercial expediency; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 10AA; 10B; 147; 148; 263

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 876/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 INCOME TAX OFFICER, WARD 1(4), JAIPUR. CUKE VS. M/S EROS CRAFTS, 750 ACHARIYON KA RASTA, KISHANPOLE BAZAR, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AABFE 5392 G VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT IZR;K{KSI.K @ C.O. NO. 78/JP/2012 (ARISING OUT OF VK;DJ VIHY LA-@ ITA NO. 876/JP/2012) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S EROS CRAFTS, 750 ACHARIYON KA RASTA, KISHANPOLE BAZAR, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD 1(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA- @ PAN/GIR NO.: AABFE 5392 G IZR;K{KSID @ OBJECTOR IZR;FKHZ @ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 631/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER, WARD 1(4), JAIPUR. CUKE VS. M/S EROS CRAFTS, 750 ACHARIYON KA RASTA, KISHANPOLE BAZAR, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AABFE 5392 G VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 2 JKTLO DH VKSJ LS @ REVENUE BY : SHRI KAILASH MANGAL (JCIT) FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.C. PARWAL (CA) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 22/05/2015 ?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 20/07/2015 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THE ITA NO. 876/JP/2012 FILED BY REVENUE AND CROSS OBJECTION BEING C.O. NO. 78/JP/2012 BY ASSESSEE ARISE FROM TH E ORDER DATED 18/09/2012 PASSED BY THE LEARNED CIT (A)-I, JAIPUR FOR A.Y. 2009-10 AND ANOTHER APPEAL BEING ITA NO. 631/JP/2013 FILED BY THE REVENUE FILED AGAINST THE ORDER DATED 25/04/2013 PASSED BY THE LD CIT(A)-I, JAIPUR FOR A.Y. 2007-08. THE GROUNDS OF REVENUES A PPEALS AND GROUNDS OF THE ASSESSEES C.O. ARE AS UNDER:- GROUND IN REVENUES ITA NO. 876/JP/2012 (A.Y. 2009 -10) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS)-I, JAIPUR IS JUSTIFIED IN:- 1. DELETING THE ADDITION OF RS. 1,98,09,347/- ON AC COUNT OF EXEMPTION U/S 10AA OF THE I.T. ACT, 1961. NO MANUFACTURING ACTIVITIES WERE EXECUTED IN PREMISES O F THE ASSESSEE FIRM SITUATED IN SEZ ON OR BEFORE 31/10/2006. THEREFORE, THE ASSESSEE FIRM IS NOT ENT ITLED FOR EXEMPTION U/S 10AA OF THE I.T. ACT, 1961 AS TERM S AND CONDITIONS OF SEZ AS MENTIONED IN LOP WEE NOT ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 3 FULFILLED. SO CLAIMED OF RS. 1,98,09,347/- FOR THE A.Y. 2009-10 DISALLOWED U/S 10AA OF THE I.T. ACT, 1961. 2. DELETING THE ADDITION OF RS. 3,09,370/- ON ACCO UNT OF DISALLOWANCE OF INTEREST. ASSESSEE HAS CLAIMED EXPEN SES ON INTEREST OF RS. 34,58,349/- ON THE INTEREST BEAR ING LOANS, WHEREAS IT HAS GIVEN NON INTEREST BEARING FUN DS TO THE TUNE OF RS. 1,00,65,000/- TO M/S EROS EXPORTS O N VARIOUS DATES. THEREFORE, INTEREST CALCULATED @ 12% P ER ANNUM ON THE AMOUNTS GIVEN TO M/S EROS EXPORTS ON VARIOUS DATES, COMES TO RS. 4,40,500/-. GROUNDS IN ASSESSEES C.O. NO. 78/JP/2012 (A.Y. 20 09-10_ 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWA NCE OF RS. 1,31,130/- OUT OF INTEREST EXPENSES HOLDING THAT PART OF BORROWED FUNDS HAS BEEN UTILIZED IN PROVIDIN G INTEREST FREE LOANS TO M/S EROS EXPORTS, PROPRIETOR Y CONCERN OF THE PARTNER OF THE ASSESSEE FIRM BY NOT ACCEPTING THE EXPLANATION THAT ADVANCES WERE GIVEN I N COMMERCIAL EXPEDIENCY AND PARTNERS OTHERWISE HAVE SUFFICIENT CAPITAL TO GIVE SUCH ADVANCE. 1.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S FURTHER ERRED ON FACTS AND IN LAW IN DIRECTING THE A .O. TO RECOMPUTED THE INCOME/GAINS FROM EXPORTS WITHOUT ALLOWING THE CLAIM OF EXEMPTION U/S 10AA WITH REFEREN CE TO DISALLOWANCE OF INTEREST EXPENSES OF RS. 1,31,130 /-. GROUND IN REVENUES ITA NO. 631/JP/2013 (A.Y. 2007- 08) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN :- 1. DELETING THE DISALLOWANCE OF RS. 43,33,426/- ON ACCOUNT OF DEDUCTION U/S 10AA MADE BY THE A.O. 2. THE REVENUE HAS FILED ADDITIONAL GROUND IN A.Y. 2 007-08, WHICH IS REPRODUCED AS UNDER:- ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 4 1. WHETHER THE LD CIT(A) HAS ERRED IN QUASHING THE ORDER PASSED U/S 147/143(3) OF THE ACT. 3. THE GROUND NO. 1 OF BOTH YEARS THE REVENUES APP EAL IS AGAINST DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER U/S 10AA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE LD A SSESSING OFFICER OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF MANUFACTURING AND EXPORTING OF GEMS STONE. THE ASSES SEE FIRM FILED ITS RETURN FOR A.Y. 2007-08 ON 29/12/2009 AT NIL INCOME AND ON 26/09/2009 FOR A.Y. 2009-10 AT NIL INCOME. THE ASSES SMENT FOR A.Y. 2007-08 WAS REOPENED U/S 148 OF THE ACT AFTER RECORD ING THE REASONS. THE NOTICE U/S 148 WAS ISSUED ON 10/2/2012 FOR A.Y. 2 007-08. AFTER RECORDING THE REASONS THE ASSESSEE CHALLENGED THE R EOPENING PROCEEDING FOR A.Y. 2007-08. THE LD ASSESSING OFFICE R FURNISHED THE COPY OF REASONS RECORDED TO THE ASSESSEE. NOTICE U/ S 142(1) AND 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE ALONGWI TH QUESTIONNAIRE ON 29/06/2012 FOR A.Y. 2007-08. THE CASE WAS HEARD O N VARIOUS DATES. THE LD ASSESSING OFFICER EXAMINED THE CLAIM OF THE A SSESSEE U/S 10AA OF THE ACT IN BOTH THE YEAS BUT ASSESSMENT FOR A.Y. 2009-10 WAS COMPLETED ON 29/12/2011, THEREFORE, WE FIRST DECIDE THE APPEAL OF REVENUE FOR A.Y. 2009-10 ON THIS ISSUE. THE LD ASSES SING OFFICER ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 5 OBSERVED ON THE BASIS OF DETAIL FURNISHED BY THE AS SESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE DEVELOPME NT COMMISSIONER, NOIDA SPECIAL ECONOMIC ZONE, NOIDA TH E PERMISSION UNDER THE SPECIAL ECONOMIC ZONE (SEZ) SCHEME, TO ST ART PRODUCTION OF ITEMS OF PRECIOUS AND SEMI PRECIOUS STONES/GOLD JEWE LLERY PLAIN AND STUDDED/SILVER JEWELLERY PLAIN AND STUDDED, WERE GIV EN FOR ONE YEAR FROM DATE OF ISSUE OF LETTER DATED 06/12/2005 ALLOWE D FOR THREE YEARS IN PLACE OF ONE YEAR. THEREFORE, IN THIS CASE THE LETTE RS OF PERMISSION (LOP) WAS VALID UP TO 31/10/2006. THE ASSESSEE IN A .Y. 2007-08 HAD SHOWN EXPORT OF GOODS WORTH RS. 7,75,420/- ON 28/10/2 006, WHEREAS PLANT AND MACHINERY WAS PURCHASED BY ASSESSEE FIRM F OR ITS UNIT IN SEZ ON OR AFTER 07/11/2006. THE AUDITOR OF THE FIRM ALSO HAS MENTIONED THESE FACTS IN FORM NO. 3CD REPORT FOR A.Y. 2007-08 THAT FIRST MACHINE VALUING OF RS. 18,809/- WAS PURCHASED ON 07/11/2006 AND OTHER ITEMS OF PLANT AND MACHINERY WERE PURCHASED DURING PERIOD DECEMBER, 2006 TO MARCH, 2007. THE ASSESSING OFFICER CONCLUDED THAT NO MANUFACTURING ACTIVITIES WERE EXECUTED IN THE PREMIS ES OF THE UNIT OF THE ASSESSEE FIRM SITUATED IN SEZ ON OR BEFORE 31/1 0/2006. THEREFORE, THE ASSESSEE FIRM WAS NOT ENTITLED FOR EXEMPTION U/ S 10AA OF THE ACT AS TERMS AND CONDITIONS OF SEZ AS MENTIONED IN LOP WAS NOT FULFILLED. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 6 THE ASSESSING OFFICER GAVE THE SHOW CAUSE NOTICE ON T HIS ISSUE, WHICH WAS AVAILED BY THE ASSESSEE VIDE LETTER DATED 22/12/ 2011, WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER ON PAGE NO S. 4 TO 8 OF ASSESSMENT ORDER. AFTER CONSIDERING THE ASSESSEES REPLY, HE OBSERVED THAT THE LOP WAS VALID UP TO 31/10/2006 AND THE ASSE SSEE COULD NOT START MANUFACTURING ACTIVITY ON OR BEFORE 31/10/200 6, WHICH ALSO GOT SUPPORT FROM THE AUDITORS COMMENT MADE IN 3CD FORM . THE ASSESSEE CLAIMED THAT PURCHASE OF MACHINERY WAS MADE ON 30/10 /2006 BUT PAYMENT WAS MADE ON 07/11/2006, THEREFORE, IT WAS ACC OUNTED ON 07/11/2006, HAD ALSO NOT CONVINCED THE ASSESSING OF FICER AS THE ASSESSEE MADE FIRST EXPORT SALE ON 28/10/2006 I.E. WITHOUT HAVING ANY MACHINERY IN THE SEZ UNIT. THE ASSESSEE HAD ALSO NO T CLARIFIED THAT WHEN THE SAID MACHINERY WAS REACHED AND INSTALLED IN THE SEZ UNIT, THERE WAS NO EVIDENCE PRODUCED BEFORE THE ASSESSING OFFICER THAT MACHINERY WAS INSTALLED ON 30/10/2006, AS SUCH MANUF ACTURING AND PRODUCTION ACTIVITIES COULD NOT COMMENCED WITHOUT PL ANT AND MACHINERY. FURTHER HE CONSIDERED THE ASSESSEES PLE A THAT THE MANUFACTURING WAS GOT DOWN BY SMALL HAND TOOLS, WHICH THE LABOUR CARRIES WITH THEM BUT IT HAS BEEN HELD THAT THE ASSE SSEES MANUFACTURING OF PRECIOUS AND SEMI PRECIOUS STONE I S HIGHLY QUALITY ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 7 STANDARD MACHINES ARE REQUIRED TO MEET THE INTERNAT IONAL STANDARD, WHICH CANNOT BE OBTAINED BY HANDMADE TOOLS. THE ASSE SSEE FILED COPY OF LETTER DATED 19/12/2011 OF ASSISTANT DEVELOPMENT COMMISSIONER, SEZ, JAIPUR, IN WHICH FIRST EXPORT SALE HAS BEEN SHO WN ON 28/10/2006 VIDE SHIPPING BILL NO. 369/06-07 AND BEFORE EXPORT THEY HAD DULY COMMENCED THEIR PRODUCTION. BUT IN THE LATTER, THE INSTALLATION DATE OF MACHINERY HAS NOT BEEN MENTIONED AND WHEN THE PRODUC TION WAS STARTED. AS SUCH THIS CERTIFICATE WAS ISSUED ON THE BASIS OF EXPORT BILLS PROVIDED BY THE ASSESSEE TO THE SEZ AUTHORITIES. I N HIS LETTER DATED 27/12/2011, THE ASSISTANT DEVELOPMENT COMMISSIONER, SEZ, JAIPUR HAS ACCEPTED THAT AS PER SEZ ACT/RULES THE ASSESSEE DEC LARED THE GOODS AND ON SELF DECLARATION, THE CUSTOMS OFFICERS ALLOW ED EXPORT. THEREFORE, ASSESSEES CONTENTION THAT PURCHASES AND SALES WERE DULY ATTESTED BY CUSTOM AUTHORITIES ALSO HAVING NO FORCE . IT IS FURTHER OBSERVED THAT NO MANUFACTURING ACTIVITIES WERE EXECU TED IN THE PREMISES OF THE UNIT OF THE ASSESSEE FIRM SITUATED IN SEZ ON OR BEFORE 31/10/2006, THEREFORE, THE ASSESSEE FIRM IS NOT ENT ITLED FOR EXEMPTION U/S 10AA OF THE ACT AS THE TERMS AND CONDITIONS OF ECONOMIC ZONE AS MENTIONED IN LOP WAS NOT FULFILLED. THEREFORE, HE DI SALLOWED EXEMPTION CLAIMED BY THE ASSESSEE AT RS. 1,98,09,347/- FOR A. Y. 1009-10 U/S ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 8 10AA OF THE ACT. THE LD ASSESSING OFFICER ALSO GAVE THE SIMILAR FINDINGS FOR A.Y. 2007-08. HE GAVE THE SHOW CAUSE NOTICE ON T HIS ISSUE, WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 07/11/ 2012 WHICH HAS BEEN REPRODUCED ON PAGE 5 TO 8 OF THE ASSESSMENT OR DER. THE DISALLOWANCE U/S 10A WAS MADE BY THE ASSESSING OFFICE R IN A.Y. 2007- 08 AT RS. 43,33,426/-. 4. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A) IN BOTH THE YEARS, WHO HAD ALLOWED THE APPEAL BY OBSERVING AS UNDER:- 1. THE ASSESSEE FIRM WAS GRANTED PERMISSION UNDER TH E SEZ SCHEME FOR THE PRODUCTION OF GOLD AND SILVER, PLAIN AND STUDDED JEWELLERY, PRECIOUS AND SEMI PRECIOUS JEWELLE RY VIDE LETTER DATED 31/10/2003 SUBJECT TO CERTAIN CON DITIONS LIKE HAVING TO EXPORT ITS ENTIRE PRODUCTION; TAKING POSSESSION OF THE ALLOTTED LAND WITHIN THE 3 MONTHS OF THE ISSUE OF THE APPROVAL LETTER AND IMPLEMENTATION OF THE PROJECT WITHIN THE NEXT 6 MONTHS. IN PARA 3 OF LETTE R OF PERMISSION IT WAS MENTIONED AS FOLLOWS:- THIS LOP IS VALID FOR ONE YEAR FROM ITS DATE OF IS SUE WITHIN WHICH YOU SHOULD IMPLEMENT THE PROJECT AND COMMENCE PRODUCTION AND WOULD AUTOMATICALLY LAPSE I F AN APPLICATION FOR THE EXTENSION OF VALIDITY OF MADE B EFORE THE END OF THE SAID PERIOD. DATE OF COMMENCEMENT OF ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 9 PRODUCTION SHALL BE INTIMATED TO THE DEVELOPMENT COMMISSIONER, NSEZ, NOIDA. THE LETTER OF PERMISSION WAS GRANTED BY THE ASSISTAN T DEVELOPMENT COMMISSIONER, OFFICE OF THE DEVELOPMENT COMMISSIONER, NOIDA SPECIAL ECONOMIC ZONE, MINISTRY OF COMMERCE AND INDUSTRY. 2. A CORRIGENDUM WAS ISSUED VIDE LETTER NO. 1-25/200 3- SEZ(J)/PROJ/501 DATED 06/12/2005 BY THE ASSISTANT DEVELOPMENT COMMISSIONER, SEZ, SITAPURA, JAIPUR WHER EIN THE FOLLOWING WAS MENTIONED BELOW: ITEM NO. 3:- PLEASE READ THIS LETTER OF PERMISSION IS VALID FOR THREE YEARS IN PLACE OF ONE YEAR. ALL OTHER TERMS AND CONDITIONS SHALL REMAIN UNCHAN GED. PLEASE KEEP THIS CORRIGENDUM ATTACHED TO THE ORIGIN AL LOP. THE CORRIGENDUM READ WITH THE ORIGINAL LETTER OF PERMISSION UNDER THE SEZ SCHEME IMPLIED THAT THE ASSESSEE HAD BEEN GIVEN AN EXTENSION FOR 3 YEARS TO START PRODUCTION THAT IS UP TO 31/10/2006. 3. THE ASSESSEE PURCHASED SEMI PRECIOUS STONES WORTH RS. 21,84,304/- ON 23/10/2006 FROM EROS EXPORTS AND SEM I PRECIOUS STONES FOR RS. 1,12,725/- FROM GUNJAN GEMS VIDE BILLS DATED 27/10/2006. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 10 4. SIX LOTS OF CUT & POLISHED SEMI PRECIOUS STONES WERE SENT BY INVOICE DATED 28/10/2006 TO M/S FINE GEMS AND IN C., NEW YORK, USA. THE TOTAL BILL OF EXPORT WAS $17,100/-. THE CUT & POLISHED SEMI PRECIOUS STONES MENTIONED IN TH IS INVOICE WERE AGATE, AMETHYST, GARNET, TOURMALINE, PE RIDOT BEADS. ON PERUSAL OF THE PURCHASE BILLS IT IS SEEN THAT THE SEMI PRECIOUS STONES EXPORTED MATCHED WITH THE ROUGH STONES MENTIONED IN THE PARTICULARS OF THE PURCHASE BILL DATED 23/10/2006 OF EROS EXPORTS. 5. THE GOODS WERE SENT THROUGH A CARRIER AGENT BY THE NAME OF LEMUR EXPRESS VIDE THEIR BILL DATED 28/10/2006. 6. THE SHIPPING BILL OF EXPORT OF DUTY FREE GOODS WAS AVAILABLE ON RECORD AND SHOWED AN EXPORT OF SEMI PRE CIOUS STONES WORTH RS. 7,75,420/- EQUIVALENT TO $17,100/-. THIS SHIPPING BILL WAS SIGNED BY SUPERINTENDENT (CUSTOMS) SEZ, SITAPURA, JAIPUR AND VERIFIED BY INSPECTOR, CUSTOM DUTY, AIR CARGO COMPLEX, JAIPUR. 7. A COPY OF GATE REGISTER OF THE SEZ WAS PRODUCED F OR THE RELEVANT PERIOD. IT SHOWS THAT ON 23/10/2006 A DRIVE R NAME NATHU LAL SHARMA BROUGHT NAGINE KI MACHINE FOR THE UNIT OF EROS CRAFTS IN THE SEZ. 8. DETAILS OF DATE WISE REGISTER SHOWING ISSUE OF EAC H SEMI PRECIOUS STONE TO A PARTICULAR WORKER WAS PLACED ON RECORD. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 11 9. THE SHIPPING BILL FOR EXPORT OF DUTY FREE BILLS D ATED 28/10/2006 HAS BEEN SIGNED BY THE SUPERINTENDENT (CUSTOMS) SITUATED AT JAIPUR SEZ. IT HAS BEEN MENTI ONED THAT THE SHIPMENT WENT BY FLIGHT NO. IC-612 DATED 29/10/2006. HE FURTHER EXAMINED SECTION 10AA OF THE ACT ON REES TABLISHMENT, RECONSTRUCTION OR REVIVAL OF UNDERTAKING REFERRED T O IN SECTION 33B OF THE ACT AND CONSIDERED THE MANUFACTURING ACTIVITY C ARRIED OUT BY THE ASSESSEE ON PAGE NO. 8 AND 9 OF THE ORDER. SHE FURT HER HELD THAT IN SECTION 10AA, THE ASSESSEES CLAIM OF EXEMPTION ON PROFIT AND GAIN FROM EXPORT OR ARTICLE OR THING BEGUN WITH A.Y. RELE VANT TO PREVIOUS YEAR IN WHICH THE UNIT BEGINS TO MANUFACTURE OR PROD UCE SUCH ARTICLE OF THING. THE I.T. ACT IS CONCERNED WITH THE A.Y. AND AS PER SECTION 10AA (1)(I), THE ASSESSEE SHOULD HAVE MANUFACTURED/PRODU CE ARTICLE OR THINGS AND EXPORTED THEM BY 31/3/2007 TO CLAIM EXEM PTION UNDER THIS SECTION, WHICH HAS BEEN COMPLIED BY THE ASSESSEE. THE ASSESSING OFFICER WAS NOT REQUIRED TO STEP INTO THE SHOES OF T HE INSPECTING TEAM OF THE OFFICE OF THE DEVELOPMENT COMMISSIONER, SEZ TO VERIFY WHETHER THE LOP SHOULD BE CANCELLED OR NOT BY 30/10/2006. TH IS WAS THE JOB OF THE DEVELOPMENT COMMISSIONER, SEZ AND THEY HAVE NOT GIVEN ANY ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 12 ADVERSE FINDING AGAINST THE ASSESSEE NOR HAVE THEY WITHDRAWN THE LOP FOR NON COMPLIANCE OF THE TERMS AND CONDITIONS SPEC IFIED THEREIN. SHE FURTHER HELD AS UNDER:- MOREOVER, THE ASSESSEE HAS CONTINUED TO AVAIL EXEMP TION U/S 10AA FROM A.Y. 2007-08. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY IN A.Y. 2007-08 AND THESE DET AILS WERE FURNISHED BEFORE THE A.O. IN THE YEAR OF COMMENCEME NT IN THE SAID YEAR. ONCE THE DEPARTMENT HAD REACHED A CO NCLUSION IN THE YEAR OF COMMENCEMENT OF PRODUCTION AND EXPOR TS I.E. A.Y. 2007-08, THE EXEMPTION CANNOT BE WITHDRAWN IN SUBSEQUENT A.Y. WITHOUT CANCELLING THE ORDER OF A.Y. 2007-08 BY INITIATING PROCEEDINGS EITHER U/S 263 OR U/S 147 . THIS HAS NOT BEEN DONE. THEREFORE, THE EXEMPTION ALLOWED IN TH E YEAR OF COMMENCEMENT CANNOT BE NOW REVOKED IN SUBSEQUENT A.YS. IT WOULD TANTAMOUNT TO REVIEWING THE A.OS ORDE R PASSED U/S 143(3) IN A.Y. 2007-08 WHICH WOULD BE BEYO ND THE JURISDICTION OF THE A.O. ACCORDINGLY SHE ALLOWED CLAIM OF EXEMPTION U/S 11AA OF RS. 1,98,09,347/-. 4.1 IN A.Y. 2007-08, THE CASE WAS REOPENED U/S 148 O F THE ACT BY RECORDING THE REASONS U/S 147 BY THE ASSESSING OFFI CER. THE LD CIT(A) HAS HELD REOPENING PROCEEDING AS INVALID. THIS ISSUE WAS CHALLENGED BY THE REVENUE IN ADDITIONAL GROUND MADE BY THE REVENU E. IT IS ARGUED BY THE LD DR THAT A.Y. 2007-08 WAS THE FIRST YEAR FOR C LAIMING DEDUCTION ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 13 U/S 10AA. THE LD ASSESSING OFFICER RECORDED THE REA SONS U/S 147 AND COPY OF REASONS WAS SUPPLIED TO THE ASSESSEE. THE BA SIS OF REASON TO BELIEVE WAS THAT THE DEVELOPMENT COMMISSIONER, SEZ V IDE LETTER DATED 1/11/2003 A PERMISSION WAS GRANTED TO THE APPELLANT TO START PRODUCTION OF JEWELLERY WITHIN ONE YEAR, WHICH WAS SUBS EQUENTLY EXTENDED FOR THREE YEARS. THE SEZ AUTHORITY ISSUED L OP AND PERMISSION WAS VALID UP TO 31/10/2006. THE ASSESSEE PURCHASED TH E MACHINERY ON 07/11/2006 WHEREAS THE EXPORT CLAIMED TO BE MADE ON 31/10/2006. THE MAIN OBJECT OF THE DEDUCTION PROVIDED U/S 10AA WA S TO PROVIDE EMPLOYMENT, BOOST INVESTMENT AND INCREASE THE EXPOR T OF THE COUNTRY. AS PER DETAIL SUBMITTED BY THE ASSESSEE, THE MACHIN ERY WAS PURCHASED, LATER THAN EXPORT WAS MADE BY THE ASSESSEE, WHICH WA S SUFFICIENT REASON BEFORE THE ASSESSING OFFICER TO REOPEN THE C ASE U/S 147 READ WITH SECTION 148 OF THE ACT. 5. AT THE OUTSET, THE LD AR OF THE ASSESSEE REITERA TED THE ARGUMENTS MADE BEFORE THE LD CIT(A). THE AR FURTHER SUBMITTED T HAT NOTICE U/S 148 CAN BE INVOKED ONLY IF THERE ARE REASONS TO BEL IEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE POWER OF THE ASSESSING OFFICE R IS VERY WIDE BUT THEY ARE NOT PLENARY. THE REASON TO BELIEVE SHOU LD NOT BE MISUNDERSTOOD WITH MERE CHANGE OF OPINION U/S 147 OF THE ACT. THE ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 14 POWER TO REASSESS IS DIFFERENT FROM THE POWER TO REVI EW, WHICH IS NOT PERMISSIBLE. THE ASSESSING OFFICER SHOULD HAVE TANGI BLE MATERIAL TO JUSTIFY THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME. IN A.Y. 2007-08, THE ASSESSEE HAD ISSUED NOTICE U/S 148 ON THE BASIS OF FINDING GIVEN IN A.Y. 2009-10 ON THE GROUND THAT MA NUFACTURING ACTIVITY HAS NOT STARTED ON OR BEFORE 31/10/2006. THIS ISSUE HAD BEEN EXAMINED BY THE ASSESSING OFFICER U/S 143(3) IN HIS ORDER DATED 29/12/2009 AND HAD ACCEPTED THE ASSESSEES CLAIM U/ S 10AA AND GAVE THE OBSERVATION AS UNDER:- THIS IS THE FIRST YEAR OF THE ASSESSEE. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10AA FOR RS. 43,33,426/- AGAINST TOTA L SALE OF RS. 1,30,67,585/-. THE ASSESSEE HAS STARTED HIS BUSINES S FROM 01/10/2006 AT SEZ, SITAPURA INDUSTRIAL AREA, JAIPUR FOR PRECIOUS AND SEMI PRECIOUS STONES AND JEWELLERY. SALES AS WELL AS PURCHASES ARE VOUCHED AND VERIFIED. THE ASSESSEE HA S SHOWN GP OF RS. 48,89,042/- AND AFTER CLAIMING EXPENSES O F RS. 5,55,616/-, NP OF RS. 43,33,426/- IS CLAIMED EXEMPT U/S 10AA OF THE IT ACT, 1961. THE CLAIM OF THE ASSESSEE FOR DE DUCTION U/S 10AA STAND VERIFIED FROM THE RECORD OF SEZ DOCUMENT S FILED BY THE ASSESSEE. AFTER DISCUSSION NIL INCOME IS ASSESS ED. WHEN THE LD ASSESSING OFFICER CONCLUDED THAT MANUFA CTURING ACTIVITIES IN SEZ UNIT HAD BEEN STARTED FROM 01/10/2006 IN SCR UTINY ASSESSMENT. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 15 THEREAFTER REOPENING ON THE BASIS OF SAME ISSUE U/S 148 IS TANTAMOUNT TO CHANGE THE OPINION. THE AR ALSO RELIED ON THE FOL LOWING DECISIONS:- I. NYK LINE (INDIA) LTD. VS. DY. CIT (2012) 346 ITR 3 61 (BOM) (HC) (PB). II. TITANOR COMPONENTS LTD. VS. ACIT & ORS. 343 ITR 1 83 (BOM)(HC). III. JINDAL PHOTO FILE LOD. VS. DCIT 234 ITR 170 (DE L.) IV. CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561/187 TAXMAN 312 (2010) (SC) V. CIT VS. SIMON CARVES LTD. 105 ITR 212 (SC) VI. MARUDHAR HOTELS PVT. LTD. VS. DCIT 259 ITR 509 (RAJ.) HE FURTHER RELIED ON THE ORDER OF THE LD CIT(A) AND REQUESTED TO QUASH THE PROCEEDING INITIATED U/S 148 OF THE ACT FOR A.Y . 2007-08. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS UND ISPUTED FACT THAT IN THIS CASE SCRUTINY ASSESSMENT WAS COMPLETED ON 29/12 /2009 U/S 143(3) OF THE ACT. THE LD ASSESSING OFFICER HAD VER IFIED THE RECORD OF SEZ FILED BY THE ASSESSEE AND AFTER VERIFICATION OF IT, HE HAS ALLOWED THE DEDUCTION U/S 10AA OF THE ACT. THE ASSESSING OFFICER HAS FORMED OPINION IN FIRST ASSESSMENT U/S 143(3) OF THE ACT O N DEDUCTION U/S 10AA OF THE ACT. THE CASE LAW RELIED BY THE ASSESSEE IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (SUPRA) IS SQUARELY AP PLICABLE IN ASSESSEES CASE, ACCORDINGLY, THE ASSESSING OFFICER HAD CHANGE D HIS OPINION BY ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 16 REOPENING THE CASE U/S 148 OF THE ACT. THEREFORE, WE CONFIRM THE ORDER OF THE LD CIT(A) ON REOPENING THE CASE U/S 148 OF TH E ACT. 7. NOW THE REVENUE IS IN APPEALS BEFORE US FOR BOTH THE ASSESSMENT YEARS. THE LD DR SUPPORTED THE ORDER OF THE ASSESSIN G OFFICER. AT THE OUTSET, THE LD AR REITERATED THE ARGUMENTS MADE BEF ORE THE LD CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEE IS ENGAGED I N THE BUSINESS OF MANUFACTURING AND EXPORTING OF PRECIOUS AND SEMI PR ECIOUS STONES IN THE NAME OF M/S EROS CRAFT. ITS UNIT IS SITUATED AT SEZ, SITAPURA, JAIPUR. IT MADE FIRST EXPORT ON 28/10/2006. IT HAS CLAIMED AND ALLOWED DEDUCTION U/S 10AA ON THE EXPORT MADE BY IT FROM TH E SAID UNIT RIGHT FROM A.Y. 2007-08. DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE DECLARED A NET PROFIT OF RS. 1,98,09,347/- FROM THE SEZ UNITS. SECTION 10AA PROVIDES FOR DEDUCTION OF 100% OF PROFIT OR GA IN DERIVED FROM EXPORT OF ARTICLE OR THING MANUFACTURED OR PRODUCED BY AN ENTREPRENEUR FROM ITS UNIT REFERRED TO IN CLAUSE (I) OF SECTION 2 OF SEZ ACT, 2005 PROVIDED THAT THE UNIT BEGINS TO MANUFACTURE OR PRO DUCE ARTICLE OR THING DURING THE PREVIOUS YEAR RELEVANT TO ANY ASSE SSMENT YEAR COMMENCING ON OR AFTER FIRST DAY OF APRIL, 2006. SE CTION 2(I) OF SEZ ACT DEFINES ENTREPRENEUR AND FROM THE CONJOINT READING OF SECTION 10AA AND SEZ ACT, THE ENTREPRENEUR IS TO BE GRANTED APPR OVAL BY THE ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 17 DEVELOPMENT COMMISSIONER. IN THE ASSESSEES CASE, T HE LOP WAS GRANTED FOR PRODUCTION OF GOLD AND SILVER, PLAINT & STUDDED JEWELLERY AND PREVIOUS AND SEMI PRECIOUS STONES ON 31/10/2003 , WHICH WAS VALID FOR ONE YEAR. LATER ON, IT WAS EXTENDED FOR THREE YE ARS VIDE LETTER DATED 06/12/2005, ACCORDINGLY, THE ASSESSEE WAS TO IMPLEME NT THE PROJECT AND COMMENCED THE PRODUCTION ON OR BEFORE 31/10/200 6. IT IS FURTHER PROVIDED THAT IF AN APPLICATION FOR EXTENSION OF VA LIDITY IS NOT MADE BEFORE THE END OF THE SAID PERIOD, THE LOP WOULD AUT OMATICALLY LAPSED. IN PURSUANCE OF THE SAID LOP, THE ASSESSEE STARTED THE PRODUCTION OF PRECIOUS AND SEMI PRECIOUS STONES ON OR BEFORE 31/1 0/2006. IT IS EVIDENT FROM THE FACT THAT THE ASSESSEE HAD PURCHAS ED ROUGH STONE OF RS. 21,84,304/- FROM M/S EROS EXPORTS PROPRIETOR SH RI SANJAY GODHA ON 23/10/2006 AND ROUGH STONE OF RS. 1,12,725/- FROM M /S GUNJAN GEMS ON 27/10/2006. THE LD AR HAS ALSO DRAWN OUR ATTENTION ON PAGE NO. 16 AND 17 OF THE PAPER BOOK TO SHOW THAT THE ASSESSEE M ADE PURCHASES ON 23/10/2006 AND 27/10/2006. THESE ROUGH STONES WERE ISSUED TO THE KARIGARS FOR PRODUCTION FROM 24/10/2006 AS EVID ENT FROM THE STOCK REGISTER, FOR WHICH, HE HAS DRAWN OUR ATTENTION ON PA GE NO. 22 TO 28 OF THE PAPER BOOK. THE FINISHED PRECIOUS AND SEMI PRECI OUS STONES WERE ALSO EXPORTED BY THE ASSESSEE ON 28/10/2006 TO M/S FINE GEMS, NEW ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 18 YORK, USA. ALL THESE DETAILS WERE PROVIDED TO THE A. O. AT THE TIME OF ASSESSMENT PROCEEDINGS FOR A.Y. 2007-08. THE LD ASSE SSING OFFICER HAD CONCLUDED THAT PRODUCTION HAD BEEN STARTED ON OR BE FORE 31/10/2006. THE AR FURTHER SUBMITTED THAT THE ASSESSEE HAD FURNI SHED A CERTIFICATE DATED 19/12/2011 BEFORE THE ASSESSING OFFICER DURIN G THE ASSESSMENT PROCEEDINGS IN A.Y. 2009-10. THE LOP GRANTED TO THE ASSESSEE HAS NOT BEEN CANCELLED BY THE APPROVAL COMMITTEE U/S 16 OF THE SEZ ACT, 2005 TILL DATE. HE FURTHER SUBMITTED AS UNDER:- 1. SECTION 51 OF THE SEZ ACT FURTHER PROVIDES THAT THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWITHSTAN DING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTH ER LAW FOR THE TIME BEING IN FORCE. THEREFORE, ONCE UNDER THE SEZ ACT THE DATE OF COMMENCEMENT OF PRODUCTION HAS BEEN ACCEPTED TO BE ON OR BEFORE 31/10/2006, IT CANNOT B E HELD OTHERWISE UNDER THE INCOME TAX ACT. IT MAY FURTHER BE NOTED THAT UNDER THE INCOME TAX ACT, THERE IS NO CON DITION AS TO THE DATE BEFORE WHICH THE ASSESSEE SHOULD COMM ENCE THE PRODUCTION. THE ONLY CONDITION IS THAT ASSESSEE MUST COMMENCE PRODUCTION AFTER 01/4/2006. ADMITTEDLY ASSESSEE HAS COMMENCED PRODUCTION AFTER 01/4/2006. HENCE THE DEDUCTION WITHDRAWN BY THE A.O. U/S 10AA IS AGAINST THE PROVISIONS OF THE LAW. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 19 2. THE ONLY OBJECTION OF THE A.O. IS THAT ASSESSEE H AS NOT PURCHASED PLANT AND MACHINERY BEFORE 31/10/2006 AND THEREFORE, IT IS PRESUMED THAT PRODUCTION HAS NOT COMMENCED BEFORE THAT DATE. IN TAKING SUCH A VIEW, T HE A.O. HAS FAILED TO UNDERSTAND THE NATURE OF THE ACT IVITY OF THE ASSESSEE. THE ACTIVITY OF THE ASSESSEE IS SUCH T HAT IT CAN BE DONE BY KARIGARS WITH THE HELP OF THEIR HAND TOOLS WHICH ARE MADE AND CARRIED BY THEMSELVES. IN FACT TH E INITIAL PRODUCTION PROCESS WAS STARTED BY THE ASSESS EE FROM THE HAND TOOLS OF THE KARIGARS. THIS FACT IS ALSO EV IDENT FROM THE GATE PASS ENTRY MAINTAINED AT THE SEZ ENTR Y GATE WHERE ON 23/10/2006 THERE IS A REFERENCE OF OLD NAGE ENA MACHINE BROUGHT TO THE UNIT OF THE ASSESSEE. THIS DOCUMENT WAS ALSO PROVIDED TO THE A.O. BY THE ASSIST ANT DEVELOPMENT COMMISSIONER OF THE SEZ. THIS PROVES THA T THE OLD MACHINERIES WERE BROUGHT TO THE SEZ UNIT OF THE ASSESSEE ON 23/10/2006 THROUGH WHICH PRODUCTION OF PRECIOUS/SEMI PRECIOUS STONES COMMENCED. THESE GOODS WERE ALSO EXPORTED VIDE INVOICE AND SHIPPING BILL DA TED 28/10/2006. THE GOODS WERE SHIPPED BY FLIGHT NO. IC 6 12 DATED 29/10/2006 AS EVIDENT FROM THE NOTING ON THE BACK OF SHIPPING BILL. THE INVOICE AND SHIPPING BILL IS DULY SIGNED BY SUPERINTENDENT (CUSTOM), JAIPUR SEZ ON 28/11/200 6. THUS, THERE CANNOT BE ANY DISPUTE THAT GOODS WERE PRODUCED BY SEZ UNIT OF ASSESSEE ON OR BEFORE 28/10 /2006. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 20 IN THESE FACTS THE DEDUCTION U/S 10AA WITHDRAWN BY TH E A.O. IS BY INCORRECT APPRECIATION OF THE FACT. 3. OTHERWISE ALSO AS PER LOP ASSESSEE WAS NOT COMMENC E PRODUCTION ON OR BEFORE 31/10/2006. PRODUCTION CONN OTES A CONTINUOUS SERIES OF ACTIVITIES. ALL THE ACTIVITIES WHICH GOES TO MAKE UP THE PRODUCTION NEED NOT NECESSARILY BE S TATED SIMULTANEOUSLY IN ORDER THAT THE PRODUCTION MAY COMMENCE. THE PRODUCTION WOULD COMMENCE WHEN THE ACTIVITY WHICH IS FIRST IN POINT IN TIME AND WHICH MU ST NECESSARILY PROCEEDS ALL OTHER ACTIVITIES IS STARTE D (91 ITR 170 (GUJ). IN PRESENT CASE THERE IS NO DISPUTE AS T O THE FACT THAT ASSESSEE PURCHASED THE RAW MATERIAL ON 23/10/20 06 AND 27/10/2006. THE MOMENT ASSESSEE PURCHASED THE GOODS FOR PRODUCTION, THE PRODUCTION HAS COMMENCED. THE ACTUAL EXPORT OF GOODS PRODUCED ON 28/10/2006 FURTH ER ESTABLISH THAT PRODUCTION HAS COMMENCED BEFORE 28/10/2006. IN VIEW OF THE ABOVE, THE VARIOUS OBSERVATION MADE BY THE A.O. ARE NOT CORRECT TO REJECT THE CLAIM OF THE ASS ESSEE. ACCORDINGLY, THE A.O. BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION U/S 10AA TO THE ASSESSEE. ACCORDINGLY, HE PRAYED TO CONFIRM THE ORDER OF THE LD CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE WAS ISSUED ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 21 FIRST LOP VIDE LETTER DATED 31/10/2003 FOR ONE YEAR , WHICH WAS LATER ON EXTENDED FOR THREE YEARS VIDE LETTER DATED 06/12/20 05. AS PER THIS LETTER, THE ASSESSEE HAS TO MANUFACTURE OR PRODUCE THE ARTICLE/GOODS IN SEZ UNIT ON OR BEFORE 31/10/2006. THE AR HAS FURNISH ED THE EVIDENCE FOR PURCHASE OF ROUGH STONES AND HAD ALSO FURNISHED THE EVIDENCE TO ISSUE FOR THE SAME TO THE KARIGARS ON 24/10/2006. TH E ASSESSEE HAS EXPORTED THE GOODS ON 28/10/2006 TO M/S FINE GEMS, NEW YORK, USA. THESE DETAILS WERE PROVIDED TO THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS FOR A.Y. 2007-08. HOWEVER, CE RTIFICATE OF COMMENCEMENT OF PRODUCTION ISSUED BY THE ASSISTANT DEVELOPMENT COMMISSIONER ON 19/12/2011 WERE PRODUCED DURING THE ASSESSMENT PROCEEDINGS FOR A.Y. 2009-10. THE ASSESSING OFFICER S OBJECTION WAS THAT THE ASSESSEE HAD PURCHASED MACHINE ON 31/10/20 06. WITHOUT MACHINERY THE ASSESSEE COULD NOT HAVE BEEN STARTED PRODUCTION BUT AS CLAIMED BY THE ASSESSEE THAT THE ASSESSEES ACTIVIT Y IS AS SUCH THAT IT CAN BE DONE BY KARIGARS WITH THE HELP OF HAND TOOLS, WHICH ARE MADE AND CARRIED BY THEMSELVES. THE ASSESSEE ALSO PRODUCE D THE GATE PASS ENTRY MAINTAINED BY THE SEZ AUTHORITY TO DEMONSTRAT E THAT OLD NAGEENA MACHINE WAS BROUGHT TO THE UNIT OF THE ASSE SSEE. THE FINAL PRODUCE WAS EXPORTED BY THE ASSESSEE ON 28/10/2006. THE GOODS WERE ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 22 SHIPPED BY FLIGHT NO. IC 612 DATED 29/10/2006, WHICH IS EVIDENT FROM THE NOTING ON THE BACK OF THE SHIPPING BILLS. THE IN VOICE AND SHIPPING BILL WAS DULY SIGNED BY THE SUPERINTENDENT, CUSTOM, JAIPUR SEZ ON 28/10/2006. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD CIT(A) WAS RIGHT TO ALLOW 10AA DEDUCTION IN A.Y. 2007- 08 AND 2009- 10. ACCORDINGLY, REVENUES APPEAL IN BOTH THE YEARS ARE DISMISSED. 9. GROUND NO. 2 OF THE REVENUES APPEAL FOR A.Y. 20 09-10 AND GROUND NO. 1 OF THE ASSESSEES C.O. ARE AGAINST DEL ETING THE ADDITION OF RS. 3,09,370/- ON ACCOUNT OF DISALLOWANCES OF INTERE ST AND ALTERNATE CLAIM ALLOWED DEDUCTION U/S 10AA WITH REFERENCE TO DI SALLOWANCE OF INTEREST AT RS. 1,31,130/-. DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE HAD TAKEN UNSECURED LOAN OF RS. 3.6 CRORES AND PAID INTEREST AT RS. 34,58,349/- WHILE ON THE OTHER HAND, THE ASSE SSEE HAD GIVEN INTEREST FREE LOANS TO M/S EROS EXPORTS TO THE TUNE OF RS. 1,00,65,000/- IN TOTAL ON VARIOUS DATES. WHOSE PROPRIETOR IS SHRI SANJAY GODHA, WHO IS ALSO A WORKING PARTNER OF ASSESSEE FIRM. FURTHER ON PERUSAL OF CAPITAL ACCOUNT OF SHRI SANJAY GODHA, IT WAS FOUND THAT HE H AD WITHDRAWN AMOUNT OF RS. 5,33,06,426/- OUT OF HIS TOTAL CAPITA L OF RS. 5,70,16,905/- IN THE ASSESSEE FIRM. THE ASSESSING OF FICER GAVE SHOW ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 23 CAUSE NOTICE AS TO WHY NO INTEREST SHOULD NOT BE CHA RGED FROM M/S EROS EXPORTS ON TOTAL LOAN AMOUNT OF RS. 1,00,65,00 0/-. THE AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD NOT CHARGE D ANY INTEREST OR NOT GIVEN ANY INTEREST TO THE PARTNERS ON THEIR CAP ITAL OR DRAWINGS. HENCE, THE FIRM HAD NOT CHARGED ANY INTEREST TO THE ADVANCE GIVEN TO M/S EROS EXPORTS. THE LD ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION MADE BY THE ASSESSEE, THEREFORE, HE CHA RGED INTEREST @ 12% ON LOAN AT RS. 1,00,65,000/- TO M/S EROS EXPORT S ON VARIOUS DATES, WHICH WAS CALCULATED AT RS. 4,40,500/-, FOR WH ICH HE RELIED ON THE DECISION OF LD. CIT(A)-I, JAIPUR IN THE CASE OF M/S MEHAR CHAND JAIN & SONS FOR THE A.Y. 2007-08 IN ITA NO. 459/09-10 DA TED 10/05/2010. 10. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD ALLOWED THE APPEAL PARTLY BY OBSERVING THAT THE ASSESSEE HAD AD MITTED A CLEAR CUT NEXUS BETWEEN TAKING UNSECURED LOAN ON INTEREST AND ADVANCING INTEREST FREE OF RS. 3,50,000/- TO SHRI SANJAY GOD HA ON 14/4/2008 AND RS. 8 LACS ON 21/4/2008 @ 12%. THE INTEREST ON THIS A DVANCE WAS WORKED OUT AT RS. 1,31,030/-. THE LD CIT(A) HAD NOT AC CEPTED THE ASSESSEES CLAIM ON THIS DISALLOWANCE OF INTEREST DE DUCTION U/S 10AA ON ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 24 RELYING ON THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF S.A. BUILDERS PVT. LTD. VS. CIT. 11. NOW REVENUE IN APPEAL AND ASSESSEE IN C.O. BEFOR E US. THE LD DR ARGUED THAT THE INTEREST @ 12% IS TO BE CHARGED ON TOTAL OUTSTANDING OF RS. 1,00,65,000/- MADE TO THE PROPRI ETORY CONCERN OF ONE OF THE PARTNER SHRI SANJAY GODHA, PROPRIETOR OF M/S EROS EXPORTS AS THE LD ASSESSING OFFICER HAS ESTABLISHED THE NEX US BETWEEN BORROWINGS ON INTERESTING AND ADVANCING INTEREST FRE E LOAN TO PROPRIETORY CONCERN OF THE PARTNER. 12. AT THE OUTSET, THE LD AR REITERATED THE ARGUMEN TS MADE BEFORE THE LD CIT(A). THE INTEREST FREE LOAN WAS GIVEN TO T HE PROPRIETORY CONCERN OF PARTNER FOR BUSINESS PURPOSES AS THE ASS ESSEE HAS MADE PURCHASE FROM THE FIRM, THEREFORE THE HON'BLE SUPRE ME COURT DECISION IN THE CASE OF S.A. BUILDERS VS. CIT 288 ITR 1 IS APP LICABLE. IF THE HONBLE ITAT IS NOT SATISFIED WITH THE SUBMISSION OF THE ASSESSEE, THE DEDUCTION U/S 10AA MAY BE ALLOWED ON DISALLOWANCE OF INTEREST AS THIS INCOME IS ALSO DERIVED INCOME FROM 10B UNIT. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 25 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE, ITSELF ADMITTED THAT DIRECT NEXUS BETWEEN BORROWINGS AND ADV ANCING LOAN TO THE TUNE OF RS. 3,50,000/- ON 14/4/2008 AND RS. 8,0 0,000/- ON 21/4/2008. THE ASSESSEE HAD NOT ADVANCED THESE LOANS FOR BUSINESS PURPOSES TO THE PROPRIETORY CONCERN AS DURING THE Y EAR UNDER CONSIDERATION, THERE IS NO BUSINESS TRANSACTION AS PER THE COPY OF ACCOUNT GIVEN ON PAGE 43. ON VERIFICATION OF COPY O F ACCOUNT OF M/S EROS CRAFT IN THE BOOKS OF ASSESSEES ACCOUNT THAT THE ASSESSEE HAD ALSO ADVANCED A LOAN ON 08/10/2008 AT RS. 15,000/- AND RS. 65,00,000/- ON 10/10/2008. THERE WAS NO CREDIT ENTRY IN THE ACCOUNT AS CLAIMED BY THE ASSESSEE THAT THERE WAS A BUSINESS TRANSACTION WITH THE PROPRIETORY CONCERN NAMELY M/S EROS CRAFT. THE L D CIT(A) HAS WRONGLY CONCLUDED THAT THESE PAYMENTS WERE FOR BUSINE SS PURPOSES. ON VERIFICATION OF THE CAPITAL ACCOUNT OF SHRI SANJ AY GODHA, THE OPENING BALANCE WAS AT RS. 3,83,56,407/- WHICH WAS RE DUCED TO RS. 37,10,476/- AS ON 31/3/2009, WHICH WAS SHOWS THAT TH E ASSESSEE HAD PAID RS. 3,26,00,000/- TO PARTNERS ON VARIOUS DATES AS CLAIMED BY THE AR THAT NEITHER THE PARTNERSHIP PROVIDE THE INTERES T ON CAPITAL OR CHARGED INTEREST ON DEBIT BALANCE OF THE PARTNER EV EN THESE FACTS ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 26 ACCEPTED AS SUCH THERE WAS INTEREST FREE ADVANCE TO THE PROPRIETORY CONCERN AT RS. 1,00,65,000/- AS REITERATED BY THE A SSESSING OFFICER IN ASSESSMENT ORDER. THEREFORE, WE FIND THAT THE ORDER OF THE LD CIT(A) IS NOT JUSTIFIED. WE CONFIRM THE ORDER OF THE ASSESSIN G OFFICER. FURTHER THE ASSESSEES CLAIM THAT DEDUCTION U/S 10AA IS TO BE A LLOWED ON DISALLOWANCE OF INTEREST IS NOT ACCEPTED AS THIS INC OME HAS NOT BEEN DERIVED FROM SEZ UNIT, THEREFORE WE REVERSE THE ORDE R OF THE LD CIT(A) AND CONFIRM THE ORDER OF THE LD ASSESSING OFFICER. 14. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2007-0 8 IS DISMISSED, REVENUES APPEAL FOR A.Y. 2009-10 IS PARTLY ALLOWED AND C.O. OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/07/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 20 TH JULY, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ITO, WARD 1(4), JAIPUR. ITA 876/JP/2012, CO 78/JP/2012 & ITA 631/JP/2013_ITO VS. M/S EROS CRAFTS 27 2. IZR;FKHZ @ THE RESPONDENT- M/S EROS CRAFTS, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 876/JP/2012, C.O. 78/JP/2012 & ITA NO. 631/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR