TaxTMI 
TaxTMI 
2015 (8) TMI 126
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....were executed in premises of the assessee firm situated in SEZ on or before 31/10/2006. Therefore, the assessee firm is not entitled for exemption U/s 10AA of the I.T. Act, 1961 as terms and conditions of SEZ as mentioned in LOP wee not 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 account of disallowance of interest. Assessee has claimed expenses on interest of Rs. 34,58,349/- on the interest bearing loans, whereas it has given non interest bearing funds to the tune of Rs. 1,00,65,000/- to M/s Eros Exports on various dates. Therefore, interest calculated @ 12% per annum on the amounts given to M/s Eros Exports on various dates, comes to Rs. 4,40,500/-." Grounds in Assessee's C.O. No. 78/JP/2012 (A.Y. 2009-10) "1. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of Rs. 1,31,130/- out of interest expenses holding that part of borrowed funds has been utilized in providing interest free loans to M/s Eros Exports, proprietory concern of the partner of the assessee firm by not accepting the explanation that a....
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....n and studded, were given for one year from date of issue of letter dated 06/12/2005 allowed for three years in place of one year. Therefore, in this case the Letters 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 28/10/2006, whereas plant and machinery was purchased by assessee firm for 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 premises of the unit of the assessee firm situated in SEZ on or before 31/10/2006. 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. The Assessing Officer gave the show cause notice on this issue, which was availed by the assessee vide letter dated 22/12/2011, which has been reproduced by the Assessing Officer on page Nos. 4 to 8 of asses....
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....d exemption claimed by the assessee at Rs. 1,98,09,347/- for A.Y. 1009-10 U/s 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 this 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 order. The disallowance U/s 10A was made by the Assessing Officer in A.Y. 2007- 08 at Rs. 43,33,426/-. 4. Being aggrieved by the order of the Assessing Officer, 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 the SEZ scheme for the production of gold and silver, plain and studded jewellery, precious and semi precious jewellery vide letter dated 31/10/2003 subject to certain conditions 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 Letter of permission it was mentioned as follows:- "This LOP is valid for one year from its date of issue within which you should....
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.... the SEZ. 8. Details of date wise register showing issue of each semi precious stone to a particular worker was placed on record. 9. The shipping bill for export of duty free bills dated 28/10/2006 has been signed by the Superintendent (customs) situated at Jaipur SEZ. It has been mentioned that the shipment went by flight No. IC-612 dated 29/10/2006." He further examined Section 10AA of the Act on reestablishment, reconstruction or revival of undertaking referred to in Section 33B of the Act and considered the manufacturing activity carried out by the assessee on page No. 8 and 9 of the order. She further held that in Section 10AA, the assessee's claim of exemption on profit and gain from export or article or thing begun with A.Y. relevant to previous year in which the unit begins to manufacture or produce 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/produce article or things and exported them by 31/3/2007 to claim exemption under this Section, which has been complied by the assessee. The Assessing Officer was not required to step into the shoes of the inspecting team of the office....
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....eopen the case U/s 147 read with Section 148 of the Act. 5. At the outset, the ld AR of the assessee reiterated the arguments made before the ld CIT(A). The AR further submitted that notice U/s 148 can be invoked only if there are reasons to believe that income has escaped assessment. The power of the Assessing Officer is very wide but they are not plenary. The reason to believe should not be misunderstood with mere change of opinion U/s 147 of the Act. The power to reassess is different from the power to review, which is not permissible. The Assessing Officer should have tangible 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 manufacturing 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 assessee's 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 total sale of Rs. 1,30,67,585/-. The assessee has start....
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.... in the business of manufacturing and exporting of precious and semi precious 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 the said unit right from A.Y. 2007-08. During the year under consideration, 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 gain 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 produce article or thing during the previous year relevant to any assessment year commencing on or after first day of April, 2006. Section 2(i) of SEZ Act defines entrepreneur and from the conjoint reading of Section 10AA and SEZ Act, the entrepreneur is to be granted approval by the Development Commissioner. In the assessee's case, the 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....
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....inst the provisions of the Law. 2. The only objection of the A.O. is that assessee has 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, the A.O. has failed to understand the nature of the activity of the assessee. The activity of the assessee is such that it can be done by karigars with the help of their hand tools which are made and carried by themselves. In fact the initial production process was started by the assessee from the hand tools of the Karigars. This fact is also evident from the gate pass entry maintained at the SEZ entry gate where on 23/10/2006 there is a reference of old nageena machine brought to the unit of the assessee. This document was also provided to the A.O. by the Assistant Development Commissioner of the SEZ. This proves that 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 dated 28/10/2006. The goods were shipped by flight No. IC 612 dated 29/10/2006 as evident from the noting on the bac....
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....chinery the assessee could not have been started production but as claimed by the assessee that the assessee's activity 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 produced the gate pass entry maintained by the SEZ authority to demonstrate that old Nageena machine was brought to the unit of the assessee. The final produce was exported by the assessee on 28/10/2006. The goods were shipped by flight NO. IC 612 dated 29/10/2006, which is evident from the noting on the back of the shipping bills. The invoice 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, revenue's appeal in both the years are dismissed. 9. Ground No. 2 of the revenue's appeal for A.Y. 2009-10 and ground No. 1 of the assessee's C.O. are against deleting the addition of Rs. 3,09,370/- on account of disallowances of interest and alternate claim allowed deduction U/s 10AA with reference to disallowance of interest at Rs. 1,31,130/-. During ....
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....artner. 12. At the outset, the ld AR reiterated the arguments made before the ld CIT(A). The interest free loan was given to the proprietory concern of partner for business purposes as the assessee has made purchase from the firm, therefore the Hon'ble Supreme Court decision in the case of S.A. Builders Vs. CIT 288 ITR 1 is applicable. If the Hon'ble 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. 13. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee, itself admitted that direct nexus between borrowings and advancing loan to the tune of Rs. 3,50,000/- on 14/4/2008 and Rs. 8,00,000/- on 21/4/2008. The assessee had not advanced these loans for business purposes to the proprietory concern as during the year under consideration, there is no business transaction as per the copy of account given on page 43. On verification of copy of account of M/s Eros Craft in the books of assessee's account that the assessee had also advanced a loan on 08/10/2008 at Rs. 15,000/- and Rs. 6....