TaxTMI 
TaxTMI 
2022 (5) TMI 668
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....n law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the action of AO of disallowing the appellant's claim of Rs10,94,26,870 u/s 10AA on the grounds that appellant is not carrying on the activity of manufacturing without appreciating the fact that appellant is carrying on the activity of assembling and contract manufacturing at the factory. The word assembling is covered under definition of manufacturing as per SEZ rules, 2005. Without prejudice to the above 2. On the facts and under the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the action of AO of disallowing the appellant's claim of Rs10,94,26,870 u/s 10AA of the Income Tax Act, 1961 on following grounds: a) On the grounds that appellant is not carrying on any manufacturing activity without appreciating the fact that letter from SEZ department have mentioned that they have taken 25.03.2013 as the date for commencement of production. b) On the grounds that SEZ unit did not have sufficient infrastructure without appreciating the fact the nature of business of the appellant is assembling of goods which dema....
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....t, he concluded that the assesse would not be entitled to deduction under section 10AA of the Act. b) The Assessing Officer regarding furniture/ electrical fittings at the SEZ unit stated that the wiring, cables, switches, fans were first put to use only in the last two months of the financial year. He noted from the addition to fixed assets details at SEZ unit that the entire spectrum of civil work in respect of the building itself - from foundation to erecting, with plastering, flooring, tiles, painting, etc., was completed in the months of February/ March, 2014. c) Notices under section 133(6) of the Act were issued to parties to verify purchase of goods for SEZ unit from Mumbai. In respect of notice issued to one M/s Nimkawala Enterprises, the Assessing Officer observed that goods were not dispatched by the said vendor to Surat, but were instead, taken delivery of by the assessee at Mumbai. d) The Assessing Officer regarding transportation charges of goods/ materials observed that cash vouchers were of petty amounts, holding that such charges were for transportation within Mumbai area. e) The Assessing Officer observed that there were evidenc....
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....additional evidences filed by the assessee there is no evidence adduced to demonstrate unambiguously as to the nature and extent of the so-called' assembly activity taking place at the SEZ unit. The various documents filed by the assessee are extraneous to this central fact and have virtually no role in establishing the nature of the assembly activity claimed to have taken place at the SEZ unit during the financial year. c) Ld CIT(A) agreed with the fundamental objection of the Assessing Officer as stated at para 11(v) of his order that there was no manufacturing/ assembly activity at SEZ unit. The copy of invoices showing export sale from its Surat SEZ unit, is extraneous. The Assessing Officer has not doubted that the physical act of exporting solar lanterns did not take place. Hence, the evidence of transportation from Mumbai to Surat is adequate only to establish that the solar lanterns, in some form, reached the SEZ unit. It is, therefore, manifest that transport bills from Mumbai to Surat are of no assistance in establishing that its assembly also took place at SEZ unit d) The assessee submitted that the plastic cones required for fitting of LED and this was....
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....hing to show that a portable plastic solar lamp is fragile equipment. They are simple devices that use sunlight to turn on/ off and recharge a power supply with PCB circuits. In their lifecycle, they undertake the journey from Mumbai to Surat, and then back to sea port/ airport at Mumbai and then are exported through the high seas to various cities across the globe. In this perspective, it was unclear how taking delivery at Mumbai unit was helpful. l) The onus is squarely on the assessee to infallibly demonstrate that the 'assembling' process claimed at SEZ unit led to a new, distinctive product taking birth at SEZ unit, in compliance to the said definition engrafted in the Act - instead of stating in general terms that there was 'assembly' with no evidence or even the broad contours of the purported assembly process being revealed. Merely pointing to the definition of 'manufacture' which included 'assembly' and claiming that it was engaged in some unspecified assembly at the SEZ unit, is wordplay and woefully inadequate to meet the legislative requirement. It was incumbent upon the assessee to demarcate which of the process/production was carried out at its SEZ unit. ....
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.... overlapping of work, use of resources and the manufacturing process, with almost all the so-called assembly work happening at its Mumbai unit. In this sense, it was a splitting up of the existing business at Mumbai, which is prohibited for claiming exemption under section 10AA of the Act. There is nothing to hold that that the Surat unit was an altogether a new unit in terms of assembling portable solar lamps on its own as a distinct and a separate entity. There is nothing to prove that the Surat SEZ unit could have existed on its own r) From all accounts, it is evident that the solar lanterns travelled from Mumbai to Surat and turned around to head back for Mumbai for export only with the objective of obtaining the SEZ tag. The plant/ machinery installed at its Mumbai unit from which the sales at its SEZ unit were derived, does constitute second-hand machines beyond the prohibited percentage as correctly observed by the Assessing Officer. s) It is well-settled that there is no res judicata in tax proceedings or an estoppel against the law 7. The Authorised Representative of the assesse (hereinafter referred to as Ld AR) placed reliance upon submissions made b....
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....of goods and the plastic cones required fitting of LED were given on a job-work basis by the Mumbai office and distributed to both Surat SEZ and Mumbai unit as per requirements. 13. The building was already a pre-existing structure with all the basic amenities present and therefore, required only upgradation and further, most civil/ electrical work was carried out during the earlier year; tax at source was deducted on payments for the civil/ electrical work and only because of the delay in submission of final bills by the contractors the expenses were reflected in the year under consideration. Refer ledger accounts of contractors carrying out the construction work at page nos 294 to 309, in particular the account of AUM PROJECTS (electrical and general contractor) at page nos 306 and 307 to show that the fittings work had started as early as August, 2012 and last payment is of 20.04.2013, and the account of Suashray Steel Work (for mezzanine) at page no 308 from August, 2013, which is not affecting production, Aum Electric Engg at page no 309. 14. The following documents relating to SEZ were submitted: (a) Letter dated 20.12.2011 for allotment of ready building in SE....
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....ts from the same vendors are purchased for both Mumbai and SEZ unit since the same product is' manufactured at both units. The export shipments are examined and sent in customs-sealed containers from the SEZ directly to the Nhava Sheva Port or Mumbai airport. 17. During the year under reference inter-unit transfer of stock from its Mumbai unit to Surat SEZ unit is valued at Rs.2,33,05,847 on a cost plus mark-up basis 18. The assessment proceedings for assessment year 2015-16 were concluded and the Assessing Officer had accepted the claim of deduction under section 10AA of the Act. 19. The assessee is a manufacturer-exporter of solar lantern and during the year under consideration and earlier years (and later years) exported such Lanterns to: UNITED NATIONS HIGH COMMISSIONER FOR REFUGEES (UNHCR) a unit of the UNITED NATIONS that is engaged in delivering humanitarian aid to refugees & displaced populations around the world. 20. He displayed the physical sample of the full Solar Lantern and referred to a coloured photo of full lantern and another photo of the lamp being used in the field 21. Further he submitted that till the previous financial year (2012-13), the expor....
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....bling, which were displayed: 1. For Assembly For QC Automatic Screwdriver Cutter/Blade DC Power Supply Soldering Iron Tweezer Multimeters Glue Gun Various Hand-Made Jigs Lux Meter Here it was emphasised on the fact that these tools do not require any significant amount of electricity or rather to put it more aptly, it required insignificant amount of electricity. 31. These tools were purchased in local market in Mumbai by Mumbai Office and then sent to Sachin as inter-unit transfer under Form F. They were expensed under to the profit and loss account under the head Pur - Tools & Jigs as they were all of relatively very small value and hence, the Assessing Officer is not right in stating that the Surat unit did not possess such tools - refer to the entire tools list on page nos 291-292 of the paper book. PURCHASE OF RAW MATERIAL Direct Imports in SEZ (21 import consignments) • Solar Panel, Battery & AC Charger (most critical parts of solar lantern) Rs. 3.28 cr Direct Local Purchase in SEZ • Electronics Circuit (from Railiks) • All Plastic Parts  Accessories • Pack....
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....tory: 37. Further he submitted the number of Workers at Mumbai and SEZ almost the same approx. 30-35 and the Salary and Wages for Workers was also at par at approx. 25 lacs each - refer page nos 311 to 324 @ page no 316. Further, he brought to our notice statement showing month wise salary together with extract of salary register for the month of April and August and challans evidencing payment of employee's contribution to provident fund - refer page nos 388 to 393. He submitted that a statement was also given during the course of hearing giving the month wise quantity and sales, total number of workers and electricity expense of both the units, for comparison; also to show that what the Assessing Officer mentions is not correct that the Surat unit had only 4-5 staff, but also had these workers all through out. 38. ** in P&L Mumbai has additional salary because of R&D staff and more number of office staff General Facts 39. Number of Solar Lanterns manufactured in SEZ: 81,996 pcs (fully exported) - sales value of INR 19.15 crore 40. Number of Solar Lanterns manufactured in Mumbai: 68,190 pcs sales value of INR 15.67 crore (61,112 for export and balance were other mod....
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....ing decisions - (a) Arihant Tiles & Marbles (P.) Ltd 320 ITR 79 (SC) (b) Pressure Piling Co. (India) Pvt Ltd 126 ITR 333 (Bom) (c) Veena Textiles (P) Ltd 40 CTR 233 (Mad) (d) V.N. Enterprises Ltd 439 ITR 624 (Cal) (e) Sultan & Sons Rice Mill 272 ITR 181 (All) 50. Considered the rival submissions and the material placed on record, we noticed that from the various papers and documents filed with us, the raw materials and imported goods have actually moved to the SEZ unit and there are sufficient evidences filed by the assesse. The AR has taken us through the payment to staff and labour which proves that the manufacturing activity has been undertaken at the SEZ unit. The employees' expenses and payment of provident fund does prove the case that employees were there at the SEZ unit for the purpose of manufacturing at SEZ unit. Undoubtedly, finished goods have moved out from the SEZ units only for the purpose of exports. We observe that the assessee has imported the key materials and sourced the local material thru their Mumbai unit and assembled the solar lantern, Ld AR demonstrated sample parts which goes into the lantern which consist o....
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.... observed that the assesse was asked to explain the extraordinary profits in respect of the SEZ unit compared to profit of the Mumbai unit in respect of the provisions mentioned in sec.80IA(8) of the Act. In this regard, Ld AR has already explained before us that the cost of goods sold are same in both the units, which Assessing Officer has not considered. This is only a passing comments relating to this issue. If the Cost of goods sold for goods manufactured are same in both units, the difference in the profit declared by both the units may be because of fixed expenses and establishment expenses involved in both the units. 54. The ground of appeal no 3 is regarding action of the lower authorities in making disallowance of labour charges Rs..13,91,286. The relevant facts are, the Assessing Officer disallowed labour charges amounting to Rs..13,91,286 for the following reasons - a. Shri Hemant Shigwan deposed in a sworn statement recorded under section 131 of the Act that he had not carried out any job-work for the appellant. He identified himself as a car driver earning barely Rs.12,000/- a month b. The Assessing Officer reproduced the relevant extract of the st....
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....er - 57. Ms. Harshada Shigwan resigned in July, 2012 and since then, she was entrusted the job work from her home. Further, she was permitted to raise a bill in her own name and sometimes, in the name of her husband. 58. The bills were prepared by their manager since she was unable to do so in the prescribed format required for audit. 59. The bills as per request of Ms Harshada Shigwan, sometimes were issued using the name of her husband and no objections were made as she was responsible for the same and assessee are not concerned with the 'internal arrangement' between Ms. Harshida Shigwan and her husband. 60. The Assessing Officer has not allowed the assessee an opportunity of cross examination of Mr Hemant Shigwan whose statement on oath has been relied upon. The Courts have time and again held that addition cannot be made if the Assessing Officer does not provide an opportunity of cross examination. Reliance is placed on the following decisions - (a) Andaman Timber Industries in Civil Appeal no 4228 of 2006 (SC) (b) Kishinchand Chhellaram 125 ITR 713 (SC) (c) H.R. Mehta 387 ITR 561 (Bom) 61. The assessee contend that the work has been a....