TaxTMI 
TaxTMI 
2016 (9) TMI 1516
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....3 for A.Ys. 2005-06, 2006-07 & 2007-08 respectively, are in respect of assessment proceedings completed u/s. 143(3) of the Act, whereas the appeals in ITA Nos. ITA No. 3775, 3776 & 3783/Mum/2011 for A.Ys. 2005-06 2006-07&2007-08respectively are in respect of assessment proceedings carried out u/s. 143(3) r.w.s. 153C of the Act. 3. We shall first take up the appeal in ITA No. 2329/A/2008 for A.Y. 2005-06 in relation to the assessment proceedings u/s. 143(3) of the Act as a lead case. In the said appeal, the Revenue has taken the following grounds of appeal: "1.The Ld. CIT(A) has erred in law and on the facts of the case in deleting the addition of Rs. 1,51,33,873/- made u/s. 68 on account of share application money received from ShriAshish Jain. The Ld. CIT(A) has also erred in admitting fresh evidence in violation of Rule 46A. 2. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of deduction u/s. 10A at Rs. 74,72,739/- 3. The LdCIT(A) has erred in law and on the facts of the case in deleting the addition of Rs. 89,33,998/- on account of valuation of closing stock. 4. The Ld. CIT(A) has erred in law and o....
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....t furnish any details about his tax assessment particulars. I find from the details furnished by the A.R. that identity of the shareholder is proved and also receipt of money from ShriAshish Jain through banking channel is proved. The appellant has furnished a certificate regarding remittance from Standard Chartered Bank, New York, copy of share certificate of ShriAshish Jain was also furnished. The A.R. has cited several decisions to claim that only identity of the share applicant was required to be proved. To meet the objections raised by the A.O. the appellant has also filed a statement of net worth of ShriAshish Jain duly certified by the auditors Peter Y. H. Lam & Co., Certified Public Accountants, Hong Kong which clarifies that ShriAshish Jain is carrying on business activity in the name of M/s. Alma Diamonds Co. Limited of which he is the Managing Director and that his company is enjoying credit limit of US $ 1 Million and it also confirms that he has remitted US Dollars of 329,935 for share capital in the appellant company. It also confirmed that ShriAshish Jain as a tax payer in Hong Kong. In view of the above details furnished it is held that creditworthiness of the share....
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....hase cost as on 31.3.2005. The A.O worked out the value of closing stock of raw materials and worked out the difference in valuation of Rs. 89,33,998/- after taking into account FIFO method and added the same to the income of the assessee. 9. In appeal, the learned CIT(A) deleted the additions so made by the AO by observing as under: "I have considered the submissions of the A.R. carefully. The A.R. has made a detailed submissions saying that the appellant has adopted market rate of valuation of raw materials like gold and diamond as the market rate was lower as on 31.3.2005. The A.O. has taken into consideration the selling price of raw materials for the period after 31.3.2005 and nto the selling rate as on 31.3.2005. Further, the A.O. has not brought on record any material nor has given any reasons to reject the certificate filed by the appellant from the Bank of Scotia Mocatta giving the rate of gold as on 31.3.2005 as USD 427.50 per OZ for 0.995 purity as evidence for the cost price of gold as on 31.3.2005. Further, the A.O. has increased value of loose diamonds in store and on production as WIP, but has ignored the value of diamonds which have got studded in jewell....
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....nds of appeal: "1. The Ld. CIT(A) erred in law and on facts allowing the claim of deduction u/s. 10AA of the Act. 1.1 The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the assessee is not the owner of the unit but has got it sub-contracted through unit in a SEZ Zone. 1.2 The Ld. CIT(A) erred in law and on facts in not appreciating the fact that the assessee who is claiming deduction u/s. 10AA of the Act should manufacture the goods itself by employing its machinery or equipments. 1.3 In doing so, the Ld. CIT(A) has erred in law and facts in not appreciating that the assessee was not an entrepreneur as defined in section 2 of the SEZ Act 2005 and was not even granted a letter of approval by the concerned Development Commissioner. 2. The Ld. CIT(A) erred in law and on facts in deleting the disallowance of Rs. 62,35,814/- made on account of incorrect valuation of closing stock. 2.1 In doing so, the Ld. CIT(A) erred in law and on facts in observing that the assessee Company is showing profits in the subsequent years without appreciating that the assessee cannot be given benefit of wrong valuation of inve....
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....ins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April 2006 shall be allowed specified deduction. It is clear from the language of the section that the deduction is available in respect of manufacture or production of articles or things or providing any services. Further, for the purposes of section manufacture have been assigned the same meaning as laid down in clause (r) of section 2 of Special Economic Zones Act, 2005. 6.11 As per the provisions of section 2(r) of SEZ Act 2005 "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, blending, repair, remaking, reengineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining. This itself shows that the word manufacture used in section 10AA takes various activities in its compass. Further, even for the sake of argument if we hold ....
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....IT(A) the Revenue has come in appeal before us. 16. The learned DR has vehemently contented before us that no manufacturing activity has been carried out by the assessee at its SEZ units. The entire work was outsourced to the third party and, therefore, the assessee was not entitled to claim deduction u/s. 10AA of the Act. The learned AR, on the other hand, while relying on the decision of the Hon'ble Bombay High Court in the case of Neo Pharma Private Ltd. [1982] 137 ITR 879 has contended that under an agreement the assessee had got the articles manufactured in another company under its direct supervision and quality control and the raw material was also supplied by the assessee. Under such circumstances the risk was of the assessee for the entire operation undertaken and the products manufactured at the assessee's cost were the property of the assessee. That, under such circumstances, itis to be deemed that the resultant products were manufactured by the assessee and, therefore, the assessee has rightly claimed deduction u/s. 10AA. The learned AR has further relied upon the findings of the learned CIT(A) as reproduced above. He has further contended that even under the prov....
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....ssessee referred to is not of the unit but the relevant words are "from his unit".Thirdly, the assessee must begin to manufactureor to produce articles or things or provide any services during the relevant previous year. A perusal of the above reproduced provisions and further from the reading of the entire provisions of section 10AA, it reveals that the location of the unit is very important. To claim deduction u/s. 10AA, the unit must be established in SEZ. These SEZs are established by the Central Government or the State Government or by the third parties with the permission or sanction of the Government for the purpose of development of the area and for encouraging exports. Even the preamble of the "The Special Economic Zones Act, 2005" reads as under: "An Act to provide for the establishment, development and management of the SpecialEconomic Zones for the promotion of exports and for matters connected therewith orincidental thereto." The definition of "entrepreneur" as referred to in clause (j) of section 2 of SEZ Act 2005 reads as under: "(j) "entrepreneur" means a person who has been granted a letter of approval by the Development Commissioner under sub-....
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.... SEZ for fulfilling the terms and conditions mentioned in the LOP xi) You are requested to confirm acceptance of the above terms and conditions to the Development Commissioner, MEPZ -SEZ within 45 days. xii) If you fail to comply with the condition stipulated above, this letter of approval is liable for cancellation/revocation. xiii) In the case of any adverse remarks noticed against the Directors of your company, the LOP will be cancelled. xiv) All future correspondence for amendments/changes in terms and conditions of the approval letter or for extension of its validity, if required etc., may be addressed to the Development Commissioner, MEPZ - SEZ. This issues with the approval of Development Commissioner, MEPZ -SEZ Yours faithfully, SD/- (C.R.KALAVATHY) ASST. DEVELOPMENT COMMISSIONER FOR DEVELOPMENT COMMISSIONER" The above reproduced approval letter read with section 15(9) of the SEZ Act 2005 and Rule 19 of the SEZ Rules 2006 reveals that the facilities and privileges as admissible to the units situated in SEZ have been granted to the assessee for the manufacture of plain gold jewelleryupto 500 kg on the....
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....ue of any law other than this Act." So a perusal of the relevant provisions reveal beyond doubt that to get the income tax benefits under the Act there must be some manufacture or production of a thing or providing of services by a unit situated in SEZ and having approval of the competent authority in this respect. The manufacturing activity or services activity should be provided by the unit situated in the SEZ. The location of the unit in the SEZ and the required approvals of the competent authority to carry out the operations are very much necessary. Hence as per the provisions of section 10AA of the Income Tax Act 1961, the assessee is entitled to deduction on the manufacturing activity only as approved in the above reproduced approval letter of the Development Commissioner of the SEZ. The assessee's unit has not been approved for providing of any services. Even, we find that in the case in hand the assessee has allegedly imported raw material/gold and exported the jewellery. It is not the case that the assessee has offered /provided any services to itsoff shore customers. The assessee, in fact, had obtained services of third party for getting the jewellery manufactured. ....
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....ntract a part of its production or any production process, to a unit(s) in the Domestic Tariff Area or in a Special Economic Zone or Export Oriented Unit or a unit in Electronic Hardware Technology Park unit or Software Technology Park unit or Bio-technology Park unit with prior permission of the Specified Officer to be given on an annual basis and subject to following conditions, namely:- (a) the finished goods requiring further processing or semi-finished goods including studded jewellery, taken outside the Special Economic Zone for sub- contracting shall be brought back into Unit within one hundred and twenty days or within such period as may be extended by the Specified Officer for reasons to be recorded in writing for grant of such extension; (b) cut and polished diamonds and precious and semi-precious stones (except rough diamonds, precious or semi-precious stones having zero duty) shall not be allowed to be taken outside the Special Economic Zone for sub-contracting; (c) a gem and jewellery Unit may receive plain gold or silver or platinum jewellery from the Domestic Tariff Area or from an Export Oriented Unit or from a Unit in the same or another ....
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....brought back to the premises of the Unit immediately on expiry of such sub- contracting arrangement and submission of a quarterly verification report from the Central Excise Officer having jurisdiction over the sub-contractor that such goods are lying in the sub-contractor's premises and are being used for production of goods on account of the Unit; (i) raw materials, components and consumables excluding fuel may be sent along with these goods, or separately. (2) The Development Commissioner may also permit sub-contracting of part of the production process abroad and in such cases, the goods may be exported from the sub-contractor's premises abroad subject to following conditions, namely:- (a) sub-contracting charges shall be declared in the export declaration forms and invoices and other related documents; (b) the export proceeds shall be fully repatriated in favour of the Unit. (3) A Developer or a co-developer or on their behalf their contractor, as the case may be, may also temporarily remove the goods, procured or imported duty free by them for their authorized operations, to a place in the Domestic Tariff Area or a unit in the same....
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....he Special Economic Zone for more than a period of two years with an unblemished track record; (e) the Specified Officer or the Authorized Officer may make random checks either at the job worker's premises or after receipt of goods from the job worker at the Special Economic Zone gate for the purpose of verification of goods which were sent and received: Provided that where the precious metal in bullion form, having marking of fineness or purity or make or serial number is taken out of the Special Economic Zone for sub-contracting, appraisement of precious metals shall not be mandatory; (f) a Unit shall remove the goods under serial numbered challans pre- authenticated by the owner or Managing Director or working partner or the company secretary or by any person duly authorized in this behalf by the company or firm, as the case may be, and complete description of goods shall be provided on the challan; (g) the authorized officer at the Special Economic Zone gate shall note down the identification marks of the goods for verification of the goods when received back after sub-contracting: Provided that where sensitive items are sent out for subcontr....
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.... of jurisdictional Central Excise Officer if the sub-contractor is a Central Excise registrant: Provided that in case of clearance of waste or scrap at subcontractor's premises on payment of duty or destruction thereof the same shall be in accordance with the Standard Input Output Norms notified for the Duty Exemption Entitlement Scheme under the Foreign Trade Policy or as fixed by Approval Committee: Provided further that where the sub-contractor's premises are located abroad, the scrap, waste or remnants generated at the sub-contractor's premises may either be returned to the Unit or may be disposed off abroad. (4) A Unit may sub-contract a part of production or production process in another Unit within the same Special Economic Zone subject to the following conditions, namely:- (i) the movement of goods shall be under serially numbered challans and record of such movement of goods shall be maintained by the Unit; (ii) raw material imported or procured by the Unit for manufacture of capital goods may be transferred to another unit for the purpose of manufacture or fabrication of capital goods for use by the Unit which had imported or p....