AI Drafter 
TaxTMI 
TaxTMI 
2023 (1) TMI 1151
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....et profit as shown in the books of accounts of the Appellant without finding any faults 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/-. There....
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....e first ground of appeal challenges violation of principle of natural justice in not granting proper, sufficient, fair and adequate opportunity of being heard in the assessment proceeding 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....
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....ity. Assessee has to take permission from them if any items are taken inside or outside the SEZ. d) Further, assessee also required to submit the performance report on annual basis to custom authorities. The complete details of transaction wise Import and Sale along 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. ....
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....pping Bill for Export mentioning therein the description, quantity, value, place of loading, Country of destination etc and duly authenticated by the Appraising Office SSEZ, Assistant Commissioner of Customs and Deputy Commissioner of Customs. • Copy of Bill of Brinks Arya India Private Ltd towards secured transportation from Surat to Mumbai in respect of Exports Shipment. • Payment made to C & F Agent, B.V. Chinai & Co. (India) Pvt. Ltd. towards warehousing charges, sundry and shipping charges, D.O. 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 asses....
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....g it abundantly clear that the import of diamond was for the purpose of export only. The firm is authorized to carry on the activities which are permitted by the letter of approval issued by the Development Commissioner. Thus assessee was granted a letter of approval (LOA) by the Development Commissioner, Surat w.r.t. section 15(9) of the SEZ Act, 2005 to set up a unit for undertaking the authorized operations of manufacturing and trading of the Diamonds and Jewellery as mentioned in the LOA which is not in dispute. As per the provisions of section 10AA of the I.T. Act, 1961 a unit established in 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....
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.... without operators, other business services, courier services, audio-visual services, construction and related services, distribution services (excluding retail services), educational services, environmental services, financial services, hospital services, other human health services, tourism and travel related services, recreational, cultural and sporting services, entertainment services, transport services, services auxiliary to all modes of transport, pipelines transport. Explanation: - The expression "Trading" for the purposes of the second schedule of the Act shall mean import for the purposes of export." Thus, trading activity has been included in the 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 o....
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.... The Section was introduced not as an amendment but as a modification to Income Tax Act, 1961 by the SEZ Act, 2005.Reference to the introduction of section in the I.T.Act, 1961can be found in the Second Schedule to the SEZ Act, 2005. Instructions given by the Ministry of Commerce and Industry under the SEZ Rules, 2006 *As per Instruction No. 4/2006, in respect of SEZ Rules (Issued by Department of Commerce) dated 24.5.2006. (F. No. F.5/1/2006-EPZ) which states as follows: "Subject: Modification in Instruction No. 1/2006 dated 24th March, 2006 of the Department of Commerce regarding setting up of trading units in the Special Economic Zones - Reg. This Department has been receiving representations on difficulties faced by the existing 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....
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.... Act, 2005 will apply more so when explanation to rule 76 clearly provides Trading for the purposes of the second schedule of the Act, (by which Section 10AA inserted in I. T. Act, 1961) shall mean import for the purposes of re-export. The Ld. A.O. in assessment order discussed irrelevant references to case laws and decisions that bear to relevance to case specifically on the fact that unit of assessee is established in the SEZ in accordance with section 10AA of I.T. Act, 1961 and SEZ Act, 2005. Thus the discussions references and decisions used in assessment order are not at all applicable in the case. It will be thus clear that trading activity in the nature of re-export of imported goods is falling under the head service u/s 10AA of I. T. Act, 1961 r/w section 2(z) of SEZ Act, 2005 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 ....
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.... picture to deduce the right income of the assessee to be assessed. In the instant case there is not even a single finding about the inaccuracy of the books of accounts maintained by the assessee. We sustained the position of books of accounts maintained by the assessee and consequently direct the A.O to except the results declared by the assessee in manufacturing and trading activity for the purposes of benefit u/s 10AA. Moreover similar issue with identical facts in assessee's own case has been decided in assessee's favour by ITAT, Mumbai vide ITA NO. 5764 and 5800/Mum/2012, A.Y. 2009-10. 7 In the result, ground no -1 raised by the assessee is allowed. 8. Ground Nos. 2 & 3, We have gone through the entire facts and precedents of law on the similar issue. We found interest on FDR along with Forward Premium, Bank Charges and Interest 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 asses....