2016 (2) TMI 707 - AT - Income Tax

Deduction under Section 10AA - whether what was manufactured by the assessee is pendant and it can also be known as medallion.? - Held that - The product manufactured by the assessee even though called as medallion , it is pendant in the Indian context. It is an ornament worn by hanging in the chain or necklace. It is common knowledge that the award / medal conferred on special and ceremonial occasions would be normally known as medallions . It does not mean that the medallions could not be worn as ornament/jewellery in the normal course. In our opinion, the pendant and medallion can be used as ornament/jewellery along with chain and necklace. At the best, one may say that pendant and medallion are nothing but a designery jewellery to be worn along with chain or necklace. By taking into consideration of the utility of the medallions, this Tribunal is of the considered opinion that medallion is also a pendant. Therefore, merely because the product manufactured by the assessee was described as medallion, it cannot be said that there was any violation of approval granted by the Development Commissioner, Special Economic Zone. Irrespective of nomenclature used by the assessee or the Special Economic Zone, this Tribunal is of the considered opinion that what was manufactured by the assessee is pendant. Therefore, there is no violation of conditions imposed by the Development Commissioner. Coming to quality/purity of the gold, the contention of the Revenue is that the purity of gold is 99.5% in the product manufactured by the assessee. The pendants usually have the purity of 91.6%. No doubt, the purity of the gold would depend upon the product manufactured by the assessee. When the product is manufactured with diamond as a designery stone, the purity is normally less than 90%. In other words, the pendant or medallion with diamond would have the purity of gold at 18 Carat. In case, the ordinary stones are used, the purity would be normally 20 to 22 Carats. If the pendant or medallion is made without any natural or artificial stone, then it can have the purity of 99.5% or 24 Carat. Therefore, the purity would depend upon the design and stones implanted on the pendant or medallion. Therefore, this Tribunal is of the considered opinion that merely because the pendant / medallion is of 99.5% purity, it would not lose its character as pendant. As already observed, this Tribunal is of the considered opinion that what was manufactured by the assessee is pendant and it can also be known as medallion. In view of the above, we are unable to uphold the orders of the lower authorities and accordingly, the same are set aside. The Assessing Officer is directed to grant deduction under Section 10AA of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of deduction claimed under Section 10AA of the Income-tax Act, 1961.
2. Commencement of production at the Special Economic Zone.
3. Nature of the product manufactured (gold medallions vs. gold pendants).

Detailed Analysis:

1. Disallowance of Deduction Claimed Under Section 10AA of the Income-tax Act, 1961:
The primary issue in these appeals is the disallowance of the deduction claimed under Section 10AA of the Income-tax Act, 1961. The assessee, a partnership firm engaged in manufacturing gold jewellery, claimed this deduction based on the approval granted by the MEPZ Special Economic Zone. The Assessing Officer rejected this claim on two grounds: delay in the commencement of production and the manufacturing of unauthorized items.

2. Commencement of Production at the Special Economic Zone:
The assessee argued that it commenced trial production of gold pendants/medallions in April 2009, within one year from the date of approval on 10.06.2008. The MEPZ Special Economic Zone also confirmed that the assessee started production on 14.04.2009. The Tribunal noted that once the Special Economic Zone accepted the commencement date, the Assessing Officer could not assert a delay. The Tribunal found that the assessee had indeed commenced production within the stipulated time, thus fulfilling the conditions for the deduction under Section 10AA.

3. Nature of the Product Manufactured (Gold Medallions vs. Gold Pendants):
The Assessing Officer contended that the assessee manufactured gold medallions instead of the authorized gold bangles and pendants, thus violating the approval terms. The assessee maintained that what they produced were pendants, which could also be referred to as medallions. The Tribunal examined the definitions and common parlance meanings of "pendant" and "medallion," noting that both terms are often used interchangeably. The Tribunal concluded that the products manufactured by the assessee, described as medallions, were essentially pendants. The Tribunal also addressed the purity of the gold, stating that the purity level (99.5%) did not change the product's classification as a pendant. The Tribunal emphasized that the functional utility and common understanding of the terms supported the assessee's claim.

Conclusion:
The Tribunal concluded that the assessee met the conditions for the deduction under Section 10AA, as they commenced production within the approved timeframe and manufactured the authorized products. The Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to grant the deduction. Consequently, both appeals of the assessee were allowed.