AI Drafter 
TaxTMI 
TaxTMI 
2013 (11) TMI 274
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....08 and 2008-09 in allowing exemption u/s 10AA in the assessment year 2009-10 as the AO had examined the books of accounts in the year under consideration and therefore, had given finding that there was no manufacturing activity on the goods purchased and disclosed under heading "VAT free goods" amounting to Rs. 2,64,20,904/-. Hence, the assessee has not fulfilled conditions given in section 10AA(1). 4. The CIT(A) has erred at Para 6.9 on page 28 of the order in relying upon various certificates and registrations obtained under different statute for different purpose, whereas the provisions of section 10AA of the IT Act specially provides conditions which are to be satisfied to become eligible for exemption. 5. The CIT(A) has erred in allowing exemption u/s 10AA for total profit of the unit on the basis of labour expenses, consumable items expenses, PF, ESI etc. and plant and machinery by ignoring specific finding of the AO that in respect of goods purchased under head " VAT free goods ", there was no manufacturing activity and it had simply traded/ exported only. Therefore, the assessee has not fulfilled condition provided in section 10AA(1). 6. The CIT(A) has erred in not....
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....ction only." 2 Vide grounds No. 1 to 8, the grievance of the department relates to the deletion of disallowance of claim made by the Assessing Officer under section 10AA of the I.T. Act, 1961 (hereinafter referred to as "Act", for short). 3. The facts related to this issue in brief are that the assessee has filed e-return of income on 29/09/2009, showing total income of Rs. 81,440/-. The assessee revised the return on 26/08/2010 and shown same income of Rs. 81,440/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, Assessing Officer noticed that the assessee had claimed deduction of Rs. 3,18,08,031/- under section 10AA of the Act. He was of the view that the deduction under section 10AA of the Act was allowable to the unit set up in Special Economic Zone (SEZ) in respect of profit derived from export of articles or things manufactured by the unit. The Assessing Officer discussed the provisions of Section 10AA of the Act at pages 2 & 3 of the assessment order dated 26/12/2012 and pointed out that the assessee purchased raw-material as per the following details:- Against 1 Form 63,22,987/- Against VAT invoice 16,107/- VAT....
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....under:- Total purchases 43092141/- Purchases of VAT exempted handicraft item 34348670/- Percentage of VAT exempted handicraft items of total purchases 79.80% Total export turnover of the undertaking 91664665/- Export turnover of the undertaking in respect of trading goods (not manufactured by assessee) (79.80% of total export turnover of the undertaking) 73148403/- Profit of the undertaking as per Form 56F 31808031/- Less D.D.B. included by auditor in profit (cannot be considered for exemption in view of Supreme Court decision in Liberty India (317 ITR 218 SC) 5139084 Profit of the undertaking after excluding D.D.B. 26668947/- Profit of the undertaking from export of trading goods (not manufactured by assessee) i.e. 79.80% of Total profit of the undertaking) 21281820/- Exemption u/s 10AA i.e. profit of the undertaking from export of goods manufactured by assessee) i.e. 20.20% of total profit of the undertaking 5387127/- The Assessing Officer allowed exemption under section 10AA of the Act to the extent of Rs. 53,87,127/-.....
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....sists of various members. The said committee includes officer in rank of Additional Secretary to the Government of India in the Ministry of Department of Central Government dealing with commerce, two officers from the Ministry of the Finance dealing with revenue, economic affairs, officers from Ministry of Commerce, Industrial Policy and Promotion, science and technology, representative of State government and even representative from the Central Board of the Direct Tax under the Ministry of the Finance represent the Board granting such approval. It was pointed out that the assessee had been granted letter of approval by the office of Development Commissioner, Noida SEZ, Ministry of commerce and Industry, Department of the Commerce Government of India, in accordance with the scheme of Government and bond-cum-legal undertaking was executed on 13/04/2006 in accordance with the terms and condition of letter of permission, which had been duly accepted by the Development Commissioner, Noida, SEZ in accordance with their letter dated 27/04/2006. It was further stated that the agreement executed on 13/04/2006 with the concerning government authorities clearly reveals that the unit of the ....
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....it and registered as a manufacturing unit with various other authorities of the Government i.e. the Chief Inspector of the Factory, Government of Rajasthan, Export Promotion Council for Handicraft, Ministry of Textile Government of India, under Rajasthan Sales Tax law. Therefore, assessee has been accepted as a manufacturing unit by all concerning Government authorities which support the assessee's claim that assessee was wholly engaged in the business of manufacturing/production of handicraft articles exported by it. It was explained that the assessee carries out series of the manufacturing / production process on the raw structures to transform or to convert into finished handicraft items, which becomes totally different, distinct and new commercial commodity which is exported by the assessee. Assessee submitted to the learned CIT(A) that after purchase of handicraft items in its raw form or sketch form, the assessee carries out various activities of manufacture/production on such raw items to make it fit for export. The various activities carried out by the assessee were as follows:- i. Thorough checking of unfinished goods procured (Filing/grinding/welding/sanding/filing etc....
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.... found that the large number of labour employed and ESI & PF had been deducted. It was also contended that the assessee's unit was established in sizable infrastructure facilities spreading over 4200 sq.mt and also having sufficient plant and machinery to carryout manufacturing activities. The assessee had power connection of 50kwh in the year under consideration and incurred electric expenses of Rs. 6,56,987/-. Thus, the assessee fulfills all the requirements under the law in relation to claim of deduction made under section 10AA of the Act. The assessee submitted copies of the following certificates issued by the various government authorities:- a. Copy of registration certificate issued by District Industries Centre, Jodhpur registering No. 080151100653. b. Registration certificate granted under the provision of Factories Act 1948 NO. 28531 dated 22/11/2010. c. Copy of the registration certificate issued by Export Promotion Council for Handicraft. The reliance was placed on the following case laws:- 1. Madhu Jayanti International Ltd. in ITA No. 1463/Kol/2007 A.Y. 2004-06 order dated 20/07/2012. 2. CIT Vs. Emptee Poly-Yarn (P) Ltd. reported in 320 ITR 665. 3....
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....goods, which were finished goods from manufacturer themselves and selling of those amounted to trading not manufacturing. He further observed that the Assessing Officer had presumed that the assessee had exported the purchase items in the same form. On the contrary, the assessee had furnished illustration with photographs which showed that all the VAT exempted items purchased by the assessee were pieces of unfinished handicraft items, so those purchases of VAT exempted items and other consumable materials required to be physically checked and verified by the customs authorities. The learned CIT(A) pointed out that purchase invoices certified by the customs authorities had a remark as "unfinished items" and the assessee had submitted a chart with photographs where purchase cost, process expenses and sale price were given, which clearly established that the activity carried out by the assessee was a manufacturing as provided under section 10AA of the Act. He further pointed out that the assessee furnished the copies of VAT assessment before the Assessing Officer which clearly revealed that supplier had supplied only unfinished and semi-finished items on which finishing work and artis....
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....lue. Reliance was placed on the case of Goverdhan Prasad Singhal VS. ITO reported in (2009) 27 DTR (Jp.) 1 and the decision in the case of DCIT Vs. Manglam Arts reported in 17 DTR (JP) (Trib.) 97 and Arts & Crafts Exports Vs. ITO reported in 66 DTR (Mum) (Trib.) 69. Learned CIT(A) categorically stated that the assessee was engaged in the business of manufacture/production and exports of wooden handicraft items. In addition to the handicraft items of iron, metal, glass etc. and such handicraft items manufactured and exported by the assessee contained artistic value. He further stated that the assessee purchased raw material in the form of word, iron and semi- finished skelton thereafter carries out the following process:- i. Thorough checking of unfinished goods procured. (Filing/grinding/welding/sanding/filling etc.) ii. Initial polishing/sanding/buffing/coating iii. Final buffing/polishing/prime coating iv Plating/lacquering/colour coating v Engraving vi Antique polish vii Fitting/Assembling viii Barcoding/packing/marking. 9. The learned CIT(A) further observed that if the aforesaid activities carried out by the assessee are examined in the light of wide....
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....s contrary distinguishable facts. Reliance was placed in the case of Grace Exports Vs. ITO reported in 79 ITR 361. Learned CIT(A) also observed that the assessee-firm was duly registered as manufacturing concern/100%-EOU with various government authorities, the said registration was granted after necessary enquiries and satisfaction about the fulfillment of various preconditions. Learned CIT(A) pointed out that the various government and concerned authorities after verification and scrutinizing the activity of the assessee issued the following certificates:- i. Copy of registration certificate issued by district Industries Centre, Jodhpur registering No. 080151100653. ii. Registration Certificate granted under the provision of Factories Act, 1948 NO. 28531 dated 22/11/2010. iii. Copy of the registration certificate issued by Export Promotion Council for Handicraft. iv. Copy of approval issued as per SEZ Act, 2005 by office of the development Commissioner, Noida Special Economic Zone, Ministry of Commerce and Industry, Department of Commerce Government of India. v. Copy of letter dated 27/04/2006 of Development Commissioner, Noida, Special Economic Zone. vi. Copy o....
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....re of business and manufacturing process of the assessee during the year under consideration vis-a-vis earlier years, therefore, learned CIT(A) was fully justified in allowing the claim of the assessee. It was further submitted that this issue is squarely covered by the decision dated 31/01/2013 of this bench of the tribunal in ITA NO. 336/Jodh/2011 and others in the case of M/s. Suraj Exports India Sardar Shahar, Churu Vs. ITO, Churu, copy of the said order was furnished is placed on record. The relevant portion is reproduced as under:- "We have cogitated rival arguments vis-a-vis evidence on record. We have examined the decisions on which parties have placed their respective reliance. We have found that the ratio of the decision of Hon'ble Apex Court rendered in the case of Liberty India Vs. CIT reported 225 CTR 233 (Hon'ble Supreme Court) is not applicable to the facts of this case. The section under interpretation before Hon'ble Supreme Court was 80IA. In sec. 80IA, no formulate for computation of profit derived by the undertaking is laid down, whereas in section 10BA and section 80HHC formula is prescribed for the purpose. Therefore, in our considered opinion, sec. 10BA and....
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....Those certificates were as under:- i. Copy of registration certificate issued by district Industries Centre, Jodhpur registering No. 080151100653. ii. Registration Certificate granted under the provision of Factories Act, 1948 NO. 28531 dated 22/11/2010. iii. Copy of the registration certificate issued by Export Promotion Council for Handicraft. iv. Copy of approval issued as per SEZ Act, 2005 by office of the development Commissioner, Noida Special Economic Zone, Ministry of Commerce and Industry, Department of Commerce Government of India. v. Copy of letter dated 27/04/2006 of Development Commissioner, Noida, Special Economic Zone. vi. Copy of registration granted under the provisions of Rajasthan Sales Tax Act showing the appellant as "manufacturer of all types of handicrafts". vii. Copy of registration certificate issued under the provisions of CST Act showing the assessee as manufacture of handicrafts. 12. In the present case, it is also admitted fact that in the preceding assessment years 2007-08 and 2008-09, the deduction claimed by the assessee under section 10AA of the Act was allowed while passing the assessment orders under section 143(3) of the A....
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....e generally deals with Iron handicrafts. A detailed process chart with photos of items showing the steps involved in manufacturing one after another process is enclosed. The Steps involved in production and export is as under:- 1) Receipt of purchase order from the foreign buyer. 2) Production planning for in house and at outsides. 3) Issue of Pos and JOs to suppliers and in house in charges with the specified 'models' each for production of 'semi-finished' goods, which too in different steps. Iron sheets or angles were cut down in the shape of items, which is done by different persons which are specialized in different items as per size and frama and some time these skeletons was purchased directly from supplier to save time and headache of scrape. 4) These cut size items are assembled and engraving and shaping as per requirement of items under supervision of supervisors. Welding, moundling and giving shapes and attaching small attachments which are needed as accessories & requirement of items. 5) These items were now given for finishing for removing the welding signs and balancing the same. 6) Now these items are polished as per requirement of buyer i.e. nickel ....
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....of account, purchase bills/vouchers and vouchers raised by the contractor. As much as profit & gains raised to the assessee on export sales, the taking of goods commenced from SEZ i.e. w.e.f. 03/01/2007, is eligible for 100% deduction, being first year of the business u/s 10AA of the I.T. Act, 1961." 14. From the above narrated facts, it is clear that the department has allowed claim of the assessee for deduction under section 10AA of the Act in the preceding years. Since, there is no change in the facts of the year under consideration therefore, on the principle of consistency also, the claim of the assessee was allowable. Furthermore, this issue is covered by the decision of this bench of the tribunal in the case of M/s. Suraj Exports India Sardar Shahar, Churu Vs. ITO, Churu (supra). We, therefore, considering the totality of facts as discussed hereinabove, are of the view that learned CIT(A) was fully justified in directing the Assessing Officer to allow the claim of the assessee under section 10AA Act. Accordingly, we do not see any merit on this issue in the appeal of department. 15. The next issue vide grounds No. 9 to 12 relates to deduction under section 10AA of the ....
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....egards deduction u/s 10 BA in respect of DEPB, we find that sub-section (4) of section 10BA a defines profits derived from eligible articles. Section 28 (iiic), (iiid) and (iiie) provides that these income are profits and gains of business. The said sub-section(4) of Section 10B A is reproduced below:- For the purposes of sub-section (1), the profits derived from export out of India of the eligible articles or things shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things bears to the total turnover of the business carried on by the undertaking. The relevant part of Section 28 reads as under: 28. The following income shall be chargeable to Income-tax under the head "profits and gains of business or profession". (iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under Section 5 of th....