TaxTMI 
TaxTMI 
2015 (12) TMI 293
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....precious stones manufactured out of gold, silver, platinum metal. During the year under consideration, the assessee claimed deduction u/s 10B of the Act to the tune of Rs. 14.31 crores. The assessing officer examined the said claim of the assessee and took the view that the assessee has not carried out any manufacturing activity and accordingly held that the assessee is not eligible for deduction u/s 10B of the Act. The grounds on which such a view was entertained by the assessing officer have been summarized as under in the assessment order:- "4.8 If we look the facts of the case of the assessee, the following evidences prove that no manufacturing activity was carried out by the assessee i. No plants & machinery were found during survey. ii. No designs of jewellery were found during survey although it is mentioned in the orders of the purchaser that jewellery is to be supplied as per designs. No satisfactory reply could be given by the assessee, when confronted with this during the survey. iii. Inspectors were deputed to examine some of the alleged workers of the assessee during survey on the address given by the assessee. They could not be found and at the given address and t....
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....ing activity and hence not eligible for deduction u/s 10B of the Act. 3. The assessing officer, in the alternative, has taken the view that the activities claimed to have been carried on by the assessee cannot also be considered as eligible manufacturing activity as per the definition of the term "manufacture" given under SEZ Act and his discussions in this regard are extracted below:- "5. Without prejudice to the above As far as the meaning of the word manufacturing within the purview of section 10B is concern the income tax Act is silent on this issue hence the SEZ Act 2005 has to be referred. In the SEZ Act 2005 word manufacturing has been defined as under: "manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blendinq, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining; As far as the alleged manufacturing activity claimed to be carried out by the assessee is conc....
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.... they affix their signatures in the purchase register maintained by the assessee. Accordingly he submitted that the import of diamonds stand proved by the assesee. The Ld A.R invited our attention to the copies of purchase register to prove the above said submissions. He further submitted that the assessee has maintained finished stock register, wherein the details of all finished goods are entered into. He further submitted that the finished jewellery has been exported and the same is evidenced by the sales invoices. He submitted that the assessing officer has not doubted about the import of diamonds, purchase of gold bars and export of manufactured jewellery. In fact the above said activities are duly supported by the Bond Register and DPCC register maintained by the assessee under the provisions of Central Excise and Customs Act and the said registers have also been inspected by the Excise and Customs authorities. 6. The Ld A.R submitted that the assessee gets the gold melting work and conversion of 24K gold into 14K/18K gold are done through third parties on job work basis. Then the required dies are prepared in wax and required mounting is produced there from. The mountings s....
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....nar Industries V/s CIT (2011) 338 ITR 227 (Kerala High Court); iii) ITO V/s Ektara Exports (P) Ltd (2006) 152 Taxman 18 (Kolkata Tribunal); iv) CIT V/s M/s Ektara Exports (P) Ltd ITA No.657 of 2008 (Calcutta High Court): and v) T.Two International (P) Ltd. V/s ITO (2010) 122 ITR 255 (Mumbai) 7. The ld D.R, on the contrary, submitted that the survey operations conducted by the revenue at the Bombay premises and Surat premises clearly proved that the assessee does not possess any machinery at both the places. Further, the assessee has claimed to have engaged only four workers. However, the said workers were not available at the given addresses. Further the assessee has accounted for labour charges of Rs. 1,18,918/- and Salary and wages of Rs. 2.75 lakhs only and the same is very meagre when compared to the sale figure of Rs. 79.81 crores. Further the assessee has not booked any expenditure on consumables like Lacquer, Plaster of paris, heating oil/coal, polish, soldering material or packing material. He submitted that the assessee has purchased 24K gold, but the jewellery was claimed to have been manufactured in 18K/14K gold. For converting the gold into 18k/14K, the assessee is ....
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.... 10. He further submitted that the assessing officer has taken alternative view that the manufacturing work done through job work given to outsiders who carry out the work at outside the premises of the assessee would not fall under the category of "manufacturing" under SEZ Act. 11. In the rejoinder, the ld.AR submitted that the firm Blackstone Gem was started in the year 2012 only and hence finding that the workers are employed therein has employed in that firm does not have bearing for the year under consideration. 12. We have heard the rival contentions and perused the record. We notice that the tax authorities have doubted the claim of manufacture of jewellery for the reasons that the expenditure booked by the assessee on labour and wages are not proportionate to the volume of sales declared by the assessee. During the course of hearing, the Ld. DR also pointed out that the assessee has not incurred any expenditure towards the consumables. Further, the survey carried out by the Revenue authorities revealed that the assessee did not possess any machinery. On the basis of the above stated facts, the tax authorities have come to the conclusion that the assessee has not carried o....
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....ubstantiate the claim of purchase of diamonds and gold and manufacture of jewellery. A perusal of the said documents would show that the assessee has duly recorded the details relating to the same and they have also been inspected by the Central Excise and customs authorities. Further, it is noticed that the Superintendent of Central Excise have conducted audit relating to collection of MOT charges and the copy of audit report has also been furnished in the paper book. We understand that the Merchant Overtime Fee (MOT Charges) are the charges which are required to be paid by an exporter for availing the services of Central Excise officers beyond officer hours or on Sunday, Saturday or public holidays, i.e., after the official hours. The Ld A.R, during the course of arguments, submitted that the assessee has availed the services of Central excise officers in connection with the movement of goods at the time of import, issue and export of jewellery. The involvement of Central excise department in the activities carried on by the assessee, in our view, supports the case of the assessee. In fact, the records maintained by the assessee with regard to import of diamonds, purchase of gold....
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.... not been disputed and hence the non-furnishing of designs may not, in our view, militate against the assessee. The ld D.R also referred to the report given by the Tax auditor, wherein the activities of the assessee was stated to have been stated as trading. However, the activities carried on by the assessee, i.e., purchase of gold/diamonds and export of jewellery contradicts the said observation of the tax auditor. The assessee has also furnished copy of audit report given by the tax auditor for AY 2011-12, wherein the tax auditor has stated the nature of business as "Manufacturing Industry - Others". 19. We may now refer to some of the decision relied upon by the assessee. In the case of Ekta Exports Pvt Ltd (supra), the Hon‟ble Calcutta High Court has taken the view that the activities relating of fixation of level, burron, ironing, packing garments involved in conversion of cloth into shirts would amount to manufacturing, since cloth and shirt are two different articles. In the case of CIT Vs. Lovlesh Jain (2011)(16 taxmann.com 366), the Hon‟ble Delhi High Court has held that the conversion of pure gold into jewellery amounts to manufacture. In the case before Hon&....