TaxTMI 
TaxTMI 
TaxTMI 
2017 (10) TMI 1263
X X X X Extracts X X X X
X X X X Extracts X X X X
....n SEZ Unit at Manikanchan SEZ, Salt Lake City, Kolkata and the profit of the said unit amounting to Rs. 79,69,851/- was claimed as deduction under section 10AA of the Act. During the course of assessment proceedings, the claim of the assessee for deduction under section 10AA was examined by the AO and on such examination he held that the assessee was not entitled for the said deduction on the following grounds: i. As evident from the details furnished by the assessee, all the karigars were located outside SEZ Unit and the assessee has no findings to show that the said karigars had taken permission from the Customs Authority to work within the SEZ Unit. ii. Invoices for purchase of 24 carat gold used by the assessee were issued by the bank of Nova Scotia to the address located outside the SEZ Unit and the said purchase invoices were not stamped by the Customs Authority for its entries into SEZ Unit. On the basis of the above two grounds, the AO held that no manufacturing activity was carried on by the assessee company in its SEZ Unit during the year under consideration and it was not entitled to claim deduction under section 10AA. He accordingly disallowed the claim of the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e SEZ unit to manufacture the said jewellery which was subsequently exported. Manikanchan SEZ does not have residential facility and hence all the artisans who work in complex live outside the complex. Therefore the contention of the AO that because the karigars stay outside the SEZ they are not involved in the manufacturing is totally baseless and illogical. iv. The AO himself has stated that the SEZ unit purchases 24 carat gold bars and exported gold jewellery which are also evident from purchase & sales invoices produced before him during the assessment proceedings. The Gold bars have entered the SEZ premises and have been duly stamped by the Customs Authorities. Only in case of purchases from Bank of Nova Scotia such stamping is not done because they are authorised canalizing agents to import gold and supply to the SEZ/DTA units by the Govt. of India. Similarly all the export invoices are also stamped by the Customs Authorities present at the Manikanchan SEZ. We are enclosing herewith a few sample purchase and sales invoices for your ready reference vide enclosures nos: 3, it is a matter of common knowledge that 24 ct gold bars cannot to be converted into gold/studded jewell....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Having regard to the facts and circumstances of the case, and in the absence of any material placed on record to the contrary, the Assessing Officer was not justified in holding that the appellant company has not carried out any manufacturing activities at the SEZ unit during the relevant financial year. In Marghabhai Kishabhai Patel & Co. v CIT (1977) 108 ITR 54 (Guj), it has been held that unless the transaction is proved as sham or not bona fide. It is not open to the tax authorities to disregard the figures of transactions shown in the assessee's books of account. Therefore, in my view, the appellant company fulfilled the conditions laid down for claim of deduction under section 10AA of the Act, the action of the Assessing Officer in rejecting the claim is not justified. The Assessing Officer is directed to allow the claim of deduction under section 10AA as made in the return of income and allow appropriate relief to the appellant accordingly. This ground of appeal is allowed accordingly. 7. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The learned DR has submitted the claim of the assessee for deduct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion under section 10AA. Ground no 1 of the revenue's appeal is accordingly treated as allowed for statistical purposes. 8. In ground no 2, the revenue has challenged the action of the Ld. CIT (A) in deleting the addition of Rs. 22,54,476/- made by the AO on account of making charges of 22 carat gold ornaments. 9. From the perusal of the details of closing stock furnished by the assessee, it was noticed by the AO that the assessee has not included making charges paid @ Rs. 70 per gm while valuing the 22 carat semifinished gold articles. In this regard, it was explained by the assessee that the market rate of 22 carat gold ornaments in semi-finished stage is always fixed at your gold rate and the cost of making charges is not included in arriving at the valuation of stock of such items. This explanation of the assessee was not found acceptable by the AO and he revalued the closing stock of 22 carat gold ornaments in progress by including the making charges at Rs. 70/- per gm which resulted in the addition of Rs. 22,54,476/- to the total income of the assessese. 10. The addition of Rs. 22,54,476/- made by the AO on account of alleged under valuation of closing stock of 22 carat go....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reased profit before its actual realization. This is the theory underlying the rule that closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy'. In Sanjeev Woolen Mills v CIT (2005) 149 Taxman 431/279 ITR 434 (SC), the Hon'ble Court held that 'permissibility of valuation of stock at market value would be only if market value of stock is lower than cost of stock; where market value of stock had been taken into consideration while arriving at chargeable income although market value of stock was more than the cost value of stock, rejection of accounts maintained by assessee for valuation of closing stock by Assessing Officer was in accordance with law. The Apex Court in the case of CIT v Dynavision Ltd. (2012) 26 taxmann.com 40/210 Taxman 239 (SC); has held that 'where assessee had consistently been following method of valuation of closing stock which was cost or market price whichever was lower', any addition on account of undervaluation of closing stock was unjustified more so when Assessing Officer revalued closing stock without making any adjustment to opening sto....