TaxTMI 
TaxTMI 
2016 (10) TMI 8
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....ith the existence assets and liabilities under the partnership firm. Return of income for Asst. Year 2007-08 was filed on 31.10.2007 declaring income at Rs.NIL after claiming deduction u/s 10A of the Act at Rs. 1,59,72,013/- being 100% profits earned from running the undertaking in the SEZ. During the course of assessment proceedings ld. Assessing Officer observed that assessee has shown gross profit rate of 19.76% and net profit rate of 18.94% which as per his view were abnormally high in comparison to other assessees engaged in similar type of business. He also observed that export of goods involved few percentage of own manufactured goods and remaining were either traded or got manufactured from outside source on job work basis. Reply by the assessee to the observation of ld. Assessing Officer was not satisfying and he accordingly went ahead to make additions by taking two views. Firstly he invoked provisions of section 10AA r.w.s. 80IA(10) of the Act and calculated reasonable profits eligible for deduction at Rs. 16,86,590/- u/s section 10AA of the Act and alternatively also calculated deduction u/s 10AA of the Act at Rs. 1,10,73,625/- on the basis of his working towards export....
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.... Department a statement cf gross profit rates of other cotton mills without showing that statement, to the assessee and without giving him an opportunity to show that that statement had no relevance whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether this mills were similarly situated and circumstanced. Not, only did the Tribunal not show the information given by the representative of the Department to the appellant, but it refused even to look at the trunk load of books and papers which assessee produced before the Accountant Member in his chamber. No harm would have been done if after notice to the Department the trunk had been opened and some time devoted to see what it contained. The assessment in this case and in the connected appeal, we are tolc1, was above the figure of Rs. 55 lakhs and it was meet and proper when dealing with a matter of this magnitude not to employ unnecessary haste and show impatience, particularly when it was known to the Department that the books of the assessee were in tie custody of the Sub-Divisional Officer, Both the ITO and the Tribunal in....
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....e of substantial defects in the same or because the same are not supported by proper bills, vouchers and other documents. However, same is not at all the case as it is seen that no defect whatsoever in the maintenance of books of accounts and other records have been pointed out. AS such book results are required to be accepted & in fact it is seen that assessing officer has also not rejected the same by invoking provisions of section 145 of the Act. I also find that this is also not the case where assessee has arranged its affairs with sister concern in such a manner which has resulted in more than ordinary profit to assessee. The provisions of section 10AA(9) refers to the provisions of section 80IA(10) of the Act and said section is reproduced hereunder: "Where it appears to the Assessing .Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible busi....
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....ed lower expenses as compared to its competitors the provisions of section 80IA(10) are attracted. Profitability of various units depends upon several factors which seldom remain common vis-a-vis different entities. After going through the entire facts & circumstances of the case, I am of the considered opinion that there is no cogent basis for curtailing deduction u/s 10AA by invoking provisions of section 80IA(10) of the Act & there is no justification in estimating N.P at 2%. Accordingly, addition made by assessing officer is hereby deleted and this ground of appeal is allowed. As regards the alternate contention of assessing officer that deduction u/s 10AA should be allowed only on the export of goods which has been manufactured by assessee on his own, I find that there is no prohibition under the Act that in order to claim deduction u/s 10AA of the Act entire manufacturing activity must be carried out by assessee himself. It is quite normal that in the course of business, it may not be possible to carry out entire manufacturing activity in-house & help of outside job workers might have to be taken. In absence of any specific provision in the Act, it is not possible to....
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.... prayed that the order of the Id. CIT (A) be set aside and the Assessing Officer's order dated 30712/2009 be restored. 5. Ld. DR submitted that - The Assessee is engaged in the business of manufacturing of cut & polished diamonds and its unit is situated in SEZ Sachin, which has formed w.e.f. 01.01.2007. The assessee has claimed deduction u/s. 10AA of the Act on the income earned from the SEZ Surat unit. During the course of assessment proceedings, the A.O. found that the assessee has imported rough diamonds and manufactured cut and polished diamonds. However, on verification of stock register, it was noticed that only a small part of rough diamonds were manufactured by the assessee. Majority diamonds were polished by his sister concerns through job work. 2. Besides, the AO found that the assessee has disclosed G P @ 19.76% and N P @ 18.94% whereas in the line of business average GP @ 5% to @ 6% and NP @ 2% to @ 3% is disclosed by various assesses. Therefore, the AO issued show cause notice on 22.12.1999 asking the assessee as to why claim of deduction u/s. 10AA should not be restricted to the extent of 2% as against 18.94% i.e. excess NP @ 16.94% should no....
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....gh profits as compared to other concerns who are engaged in the similar business. Therefore, the assessing officer correctly re-computed the working of deduction u/s. 10AA of I.T. Act and these facts were not considered by the Ld. CIT (A)V, Surat. Therefore, to keep the issue alive, the decision of the CIT(A) requires to be challenge before the Hon'ble ITAT, Ahmedabad as per the grounds of appeal. 6. On the other hand ld. AR relied on the findings of ld. CIT(A) and submitted that as far as invoking of provisions of sec.10AA(9) of the Act is concerned it is to bring to notice that assessee has not entered into any business transaction with the sister concern in such a manner so as to show more profits. Further no material was brought on record regarding alleged connection between the assessee and the customers so as to prove that goods were sold at higher rates or purchased at lower price. Ld. AR referred and relied on following two judgment and decision :- 1. CIT vs. Schmetz India (P) Ltd. [IT Appeal No.4508/2010 9Bom)] 26 taxmann.com 336 (Bom) 2012; and 2. A.K.Kearney India (P) Ltd. v/s ACIT, Range-1 (Del-ITAT) 50 taxmann.com 26 (Del-Tri)2014 Further as....
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....r was of the belief that assessee intentionally tried to show huge profits in order to form capital as the profits are deductible @ 100% from the undertaking working under SEZ. It was for this reason that he invoked the provisions of section 10AA(9) r.w.s. 80IA(10) of the Act and accordingly estimated the NP @ 2% of the total turnover as against 18.94% declared by the assessee and calculated the deduction u/s 10AA at Rs. 16,86,590/-. 7.1 We further observe that there is no iota of evidence put forth by the Revenue which indicates that book results are defective or certain expenses have been incurred outside the books or excess revenue has been achieved from the foreign buyers. It seems that ld. Assessing Officer has made presumption by applying results of other industries/sister concern on an estimate basis without pointing out any defect in the business transaction entered by the assessee. 7.2 We further find that in the case of CIT vs. Schmetz India (P) Ltd. (2012) 26 taxmann.com 336 (Bom) has held as under :- With regard to the first issue it is found that the Tribunal has considered the entire evidence and on facts come to the conclusion that the profits earned b....
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....ssue is overturned and it is directed to allow deduction as claimed. 8. Now going into the aspects raised in second ground as to whether assessee is eligible for deduction u/s 10AA for goods manufactured from outside source on job work basis by way of sending raw material for cutting and polishing and in the case of SEZ, we find that there are some practical aspects attached with the SEZ. Units of Special Economic Zone are normally located little far from the main city which happens to be so in the case of assessee where the SEZ was located at 20-22 kms. away from Surat city. It is well evident that business is generally centred in the main town with skilled labourers having their small place of business. In the case of SEZ units when the entrepreneurs come across such a situation where the export orders have to be met before a particular dead line and the staff available in the unit may not be sufficient to cope up with such a situation, then the only option available with the assessee is to send the raw material to outside labour parties for getting them manufactured in a finished form. It is also known that the SEZ is a custom bound area and every movement of goods/ material/....
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....Nos.1204, 1205 & 1206 and AMP 1207 of 2010 dated 7th February, 2011 in which it has been held as under: "The Revenue has come forward with these appeals and seeks to raise the following question of law as substantial question of law: & quot;e : Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to deduction u/s 80IB of the Act, treating the production of corrugated boxes from kraft sheets as manufacture for the purpose of Section 80IB of the Act, is valid? 2. To appreciate the stand of the appellant, it is necessary to refer to the brief facts of the case. The respondent/assessee company claims that it is engaged in the activity of manufacturing of paper corrugated boxes and on that basis claimed deduction under Section 80IB of the Income-tax Act, on the profits derived in its business. According to the respondent/assesses, it procures paper corrugated sheets of different sizes, which is its raw material, put them into the designed machines for chiseling them at the required places in order to fold those sheets and pin them at the folded points and after pinning at the folded points ....
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....low in not allowing the claim of the assessee u/s 801B is unwarranted and uncalled for. As such, while accepting the appeal of the assessee, we direct to grant deduction u/s 801B of the Act as claimed by the assessee." 9. We further observe that ld. AR has relied on the decision of Hon. Bombay High Court in the case of CIT vs. Anglo French Drug Co.(Eastern) Ltd.191 ITR 0092 (Bom), wherein it has been held as under :- "It is not necessary that the manufacturing company must manufacture the goods by its own plant and machinery at its own factory. If, in substance, the manufacturing company has employed another company for getting the goods manufactured by it under its own supervision or control, the assessee can be considered as a company engaged in manufacturing of goods and, thus, an industrial company. It is not absolutely necessary that the assessee must depute the supervisory staff or exercise direct supervision over the manufacturing process. It is sufficient if, on an overall view of the matter, it is found that it was the assessee-company which was the real manufacturer and the assessee had merely employed the agency of someone else through whom the goods were cau....