2017 (9) TMI 1885 - AT - Income Tax

ITAT Chennai confirms deduction for manufacturing activities under Section 10AA, dismissing Revenue's appeal

The ITAT Chennai upheld the Ld.CIT(A)'s decision to allow the deduction under Section 10AA for manufacturing activities, dismissing the Revenue's appeal. ... Deduction u/s 10AA - activity of the assessee is manufacturing OR not ? - assessee is a firm engaged in the business of manufacture and exporting of Pulverized garnet abrasive grit - CIT-A allowed the claim - HELD THAT:- SEZ Authorities has recognized the SEZ unit of the assessee and also held that the activity of the assessee is manufacturing as per the SEZ Act - materials exported by the assessee consisting of 50% grade is also not in dispute. SEZ Authorities had also certified that assessee’s SEZ unit has commenced production on 29.02.2012 and this establishes the fact that the pre-fabricated building of the assessee was completed earlier to 29.02.2012. AO could not establish that the assessee had formed its SEZ unit by splitting up or by reconstruction with cogent evidence. AO has also accepted that the assessee’s unit processed the raw materials by removing 10 to 20% of the impurities. The comparison of the market price and invoice price by the Ld.AO were proved to be incorrect because the price of the finished product was stated as ₹ 15,269/- in the year book 2013 while as the appellant has sold the same at the price of ₹ 17,098/-. AO could also not establish that the assessee had suppressed the purchase cost of semi-furnished goods in order to claim higher deduction U/s.10AA - certificates issued by the concerned officers of the SEZ unit could not be proved to be not genuine. CIT(A) had made a categorical finding on all the above stated facts and the Ld.DR could not convincingly argue or disprove the findings of the Ld.CIT(A) - we hereby sustain the order of the Ld.CIT(A) on merits. - Decided against revenue. Issues:- Appeal against order allowing deduction U/s.10AA of the Act for manufacturing activity.Analysis:1. Issue of Claimed Deduction U/s.10AA:- The Revenue challenged the Ld.CIT(A)'s decision allowing the deduction U/s.10AA of the Act, arguing that the assessee's activity was not manufacturing.- The assessee, engaged in manufacturing and exporting Pulverized garnet abrasive grit, claimed the deduction for the assessment year 2013-14.- The Ld.AO disallowed the deduction, stating that the activity did not amount to manufacturing under the SEZ Act.- The Ld.CIT(A) reversed this decision, highlighting that the SEZ authorities recognized the manufacturing activity and the distinct material produced by the assessee.- The Ld.CIT(A) also noted that the SEZ unit had commenced production before the specified date, as certified by the SEZ authorities.- The Ld.CIT(A) further emphasized that the impurities removed by the SEZ unit were within the accepted range and that the pricing of the finished product was justified.- The ITAT Chennai upheld the Ld.CIT(A)'s decision, stating that the SEZ unit's activities were recognized as manufacturing, the production had commenced as certified, and the pricing was reasonable. The Revenue's appeal was dismissed.2. Manufacturing Process Details:- The manufacturing process involved procuring raw materials, separating heavy minerals through various processes, and exporting the final products.- The raw sand was processed to extract minerals like Garnet, Ilmenite, and Rutile, with specific methods for separation and classification based on size and quality.- The process included mining activities, mineral separation, and final product packaging based on customer requirements.- The SEZ unit's operations were certified by SEZ authorities, and the production commencement date was verified.- The ITAT Chennai found no evidence to dispute the manufacturing nature of the activities carried out by the assessee.3. Comparative Analysis and Pricing:- The Ld.CIT(A) and ITAT Chennai analyzed the market price, invoice price, and the claim of suppressed purchase costs by the assessee.- The pricing of the finished product was found to be reasonable and in line with market standards, as opposed to the Revenue's claims.- The ITAT Chennai concluded that the Revenue failed to provide substantial evidence to challenge the pricing or the genuineness of certificates issued by SEZ authorities.- The Ld.CIT(A)'s decision to allow the deduction U/s.10AA was upheld based on the factual findings and lack of evidence supporting the Revenue's contentions.This detailed analysis of the legal judgment showcases the intricacies of the case, the arguments presented by both parties, and the final decision rendered by the ITAT Chennai regarding the deduction U/s.10AA for the manufacturing activity in question.