TaxTMI 
TaxTMI 
2023 (1) TMI 1151
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts in the financial records and/or rejecting the books of accounts as per provisions of section 145 of the Income Tax Act so as to estimate Net Profit and as such direction be given to restore the Net Profit as shown in the regular books of accounts. 2. on the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in law treating the income from Fixed Deposit as income from other source where in the nexus of business transaction was already proved. 3. on the facts and in the circumstances of the case and in law, the Learned CIT (A) erred not allowing the expenditure from the income which was incurred solely for the purpose of earring the same. 4. Appellant reserves the right to add, amend, modify or alter the above grounds of appeal at any stage of appellate proceedings." 2. Brief facts of the case are that the assessee is a partnership firm, filed its return of income on 13.10.2010 declaring total income at Rs. Nil by claiming deduction under section 10AA of the Income Tax Act, 1961 (for short 'the Act') amounting to Rs. 13,13,66,314/-. Thereafter a survey action under section 133A of the Act was conducted in this case on 21.09.2010. Assessee's....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roceeding by the AO. This ground of appeal is not pressed by the appellant. It is seen from the assessment order that enough opportunities of being heard were given and the order was passed u/s 143(3) of the Act. There is no merit in this ground and the same is dismissed accordingly. 7. The second ground of appeal can be divided in to two, i.e., (A) which challenges the denial of deduction u/s. 10AA of the Act in regard to manufacturing activities amounting to Rs.6,05,38,408/- & (B) trading in polished diamond amounting to Rs. Rs.7,37,03,040/-in respect of income deriving in the SEZ at Sachin, Surat. 7.1 This first ground (A) of appeal is related to addition of Rs.6, 05, 38,408/- in respect of income derived from manufacturing activity which the AO has denied deduction u/s. 10 AA of the-Income Tax Act. Identical and similar ground of appeal was taken up before the Id. CIT (A) -25 had passed an order in favour of the appellant wherein, the said income from manufacturing activity was treated as income eligible in for deduction u/s.10 AA of the Income Tax Act. A survey action u/s 133A had been conducted by the AO on the manufacturing unit of the appellant at unit No.430 plot ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....long with the flow of transactions are explained as under:- * The SEZ unit of assessee is working only for Export purposes. The unit is generally dormant when there is no export order. * Once the order for exports is received, Gold Bars are imported from Dubai. An Invoice copy is furnished along with the packing list which has the following details as follows. * Name of assessee and address of unit No. 430, SEZ, Surat. * The description, quantity and the purity of Gold. * * The name of the manufacturer of Gold. * The description of AWB Number and the mode of transport. The valuation amount in USD. * * Individual Gold Bar Numbers of 1 kg each as per the Packing List * Import Cover Note mentioning therein the description, quantity and value as mentioned in the Purchase Invoice. * Airway bill mentioning the gross weight, the airport of departure to destination, the nature and quantity of the goods, etc. * House Airway Bill stating all the above description like value declared for Customs, origin place to final destination, the number of pieces and gross weight etc. * Receipt of Diamond & Gem Development Corporation Limited, SEZ Unit, Sachin, bein....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Charges and Agency charges towards import of goods from Dubai. * Copy of Bank Realization Certificate issued by bank on their receiving Export proceeds in Convertible Foreign Exchange. * Customer Advice from Bank on receiving inward Foreign Remittance from the Overseas Seller towards the proceeds of Export Invoice. In view of the above flow of transactions which have through the above process that leaves without any doubt that in the absence of any documents found or seized to disapprove the above facts and evidences, the core' evidences cannot be ignored that indeed there was a manufacturing activity taken place in assessee's SEZ Unit. All the THREE PURCHASES AND SUBSEQUENT THREE SALES TRANSACTIONS have gone through the above process that leaves without any doubt that in the absence of any documents found or seized to disapprove the above facts and evidences, the core evidences cannot be ignored that indeed there was a manufacturing activity taken place in the SEZ Unit of assessee. "There were total 3 transactions of manufacturing and sales during the year under consideration and the appellant has even the flow of each transaction of purchase and sale backed b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....SEZ is entitled to get an exemption of its income from manufacturing and services i.e. trading activities. The Section 10AA of I. T. Act, 1961 was inserted in Income Tax Act, 1961 by second schedule of Special Economic Zones Act, 2005 w.e.f. 10-02- 2006. For sake of convenience and ready reference relevant portion of section 10AA is reproduced below: 10AA. (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (f) of section 2 of the Special Economic Zones Act, 2005 from his Unit, who begins 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, a deduction of i). Hundred percent of profits and gains derived from the from the export of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services as the case may be, and fifty per cent of such profits and gains for further five assessment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e definition of "service" under Rule 76 of the SEZ Rules, 2006. Explanation to Rule76 states that "trading", for the purposes of the Second Schedule of the Act, shall mean import for the purposes of re-export. *Under Income Tax Act: The term "trading" has not been defined. According to Explanation under section 10AA of the Income-tax Act, "export in relation to Special Economic Zone" means taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise. which The Ministry inter alia of introduced Commerce, an Govt. explanation of India which has issued defined the notification word trading dated "Trading" 10-08-2006for the purpose of the second schedule of the Act, shall mean import for the purpose of re export. Similarly the Ministry of Commerce, Govt. of India has also clarified vide instruction no.4/2006 that the trading activities will be allowed to carry out all forms of trading activity but the benefits u/s 10AA will be available to trading in the nature of re-export of imported goods. A copy of said instruction enclosed (P.B. No.220). The said instruction is also made available on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting SEZ units holding approval to do trading, that their exports are adversely affected and also that several of their orders are held up due to the restriction on trading on account of the above instruction. Taking cognizance of these representations, in partial modification of the above-referred Instruction dated 24th March, 2006, it has been decided that while units in the Special Economic Zones who hold approval to do trading activities will be allowed to carry out all forms of trading activity, the benefits under Section 10AA will exclude trading other than trading in the nature of re-export of imported goods. Appropriate amendments in this regard are being issued. In the meantime, sourcing from domestic area may be permitted by units in the SEZs which are allowed to do trading, subject to this circular being cited and on production of an undertaking by the concerned unit that no Income tax benefits will be availed by the unit for trading, except in the nature of re-export of imported goods. Development Commissioners are requested to note the above and take appropriate action." The instruction specifies that the activity of trading in the nature of re-export of imported go....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r/w rule 76 of SEZ Rules, 2006 and above referred notification. Assessee also submitted herewith clarification issued by Development Commission SEZ, Sachin, Surat issued to the assessee company which is self explanatory and states that assessee company is entitled to the benefit of section 10AA of I. T. Act, 1961 in respect to import of goods which are re-exported to buyers in other countries in view of provisions of section 2(z) of SEZ Act, 2005 r/w Section 27 and section 51 of SEZ Act, 2005 r/w rule 76 of SEZ Rules. 2006. In view of the above it is evident that not only profits and gains of manufactured goods but also trading of goods are allowed for getting the exemption us 10AA of the I.T. Act, 1961 if imported goods are re-exported by a unit duly approved by development commissioner of concerned SEZ. The assessee company's entire purchases are import in SEZ unit. The entire goods are exported to foreign country. Further the assessee company also fulfils all other terms & conditions laid down in section 10AA of the I.T. Act, 1961 and as such deduction is claimed as per provisions of law and allowable as such. In view of the above under the SEZ Act 2005 trading is incl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rest paid are inextricable part of the business of the assessee. We rely on the decision of Hon'ble Karnataka High Court (Full Bench) in the case of CIT Vs. Hewlett Packard Global Soft Ltd. (2017) 87 taxmann.com 182, CIT Vs. Motorola India Electronics Pvt. Ltd. (2014) 265 CTR 94 and Rajesh Exports Ltd. Vs. ACIT (2008) TIOL 457 (Bang.). 9. The assessee in the ordinary course of business had to furnish fixed deposits on the Import Export transactions to banks for the purpose of availing loans and making payments to the suppliers. A new Fixed Deposit is given to the Banks for each and every import export transaction who after completing all the formalities gives fresh loans to our clients. Thus each and every Fixed Deposit has a corresponding Bank Loan for each and every Import Export trading transactions undertaken by our clients. Therefore none of the Fixed Deposits are independent of business. The Banks charges interest/processing charges etc on all such loans given. The Net residue (difference between the Interest Earned and the Finance Loan and other Charges etc) if any, by our clients is nothing but an outcome of undertaking an Import Export Transaction which is in the normal c....