9911796707
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Issues Involved:
1. Disallowance of exemption under section 10A of the Income-tax Act, 1961. 2. Disallowance of deduction under section 80HHC of the Income-tax Act. 3. Direction to rework the disallowance under section 43B of the Income-tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Exemption under Section 10A: The assessee, engaged in cutting, polishing, and exporting diamonds, claimed an exemption under section 10A for a newly established unit in a free trade zone. The Assessing Officer disallowed this claim, arguing that the assessee's activities did not amount to manufacturing, referencing the Supreme Court's decision in CIT v. Gem India Mfg. Co. The CIT(A) upheld this decision. The Tribunal, however, found in favor of the assessee, noting that the unit was set up in the financial year 1999-2000 and had previously been granted the exemption. It was argued that the definition of "manufacture" under section 10A included processes such as cutting and polishing, and that subsequent legislative amendments were clarificatory and retrospective. The Tribunal held that the benefit could not be withdrawn based on the same set of facts, emphasizing principles of equity, justice, and stability. Consequently, the Tribunal allowed the appeal for the year under consideration, recognizing the retrospective application of Explanation 4 to section 10A. 2. Disallowance of Deduction under Section 80HHC: The assessee claimed a deduction under section 80HHC for labor charges at the Navsari Unit, arguing that these were linked to its diamond cutting and polishing activities. The CIT(A) disallowed this claim, stating that the job work and computer-related activities were not part of the composite activity of the assessee. The Tribunal, however, sided with the assessee, referencing the jurisdictional High Court's decision in CIT v. Bangalore Clothing Co., which held that labor charges received should be considered part of operational income. Thus, the Tribunal allowed this ground of the appeal. 3. Direction to Rework Disallowance under Section 43B: The assessee contended that certain payments, though made beyond the due date, were within the grace period and should be allowed. The CIT(A) remanded the matter to the Assessing Officer for verification. The Tribunal found no fault in the CIT(A)'s direction, noting that payments made within the due date should be allowed, as consistently held by the Tribunal. Additional Ground: The assessee raised an additional ground for an alternative deduction under section 80HHC for exports from the Sachin Unit. However, since the main issue was decided in favor of the assessee, the Tribunal did not address this additional ground. Conclusion: The Tribunal allowed the appeal of the assessee for statistical purposes, granting relief on the primary issues of exemption under section 10A and deduction under section 80HHC, while upholding the CIT(A)'s direction on section 43B disallowance.
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