2018 (9) TMI 1859 - AT - Income Tax

Denial of deduction u/s 10B - deduction to the assessee on sales made to other EOUs - HELD THAT - Identical issue has been considered by the Hon ble Karnataka High Court in the case of Pr.CIT Vs. M.S.International Stone India P.Ltd 2018 (6) TMI 1478 - KARNATAKA HIGH COURT and TATA ELXSI LTD. 2007 (10) TMI 630 - ITAT BANGLORE ultimately held that sales made to other EOU would be considered to be in the ambit of deemed export . Thus we allow this common ground raised by the assessee in all three years. AO shall grant deduction to the assessee on sales made to other EOUs by treating them as deemed export . Addition made on account of suppression of sales and on account of under valuation of closing stock - AO has made reference to large number of information transmitted to him by the Custom Excise authorities - HELD THAT - We have confronted the ld.DR whether any steps have been taken during this period of nine years by the AO for collecting any other conclusive material. The DR was unable to supply any other information. Therefore we are of the view that a roving inquiry cannot be allowed in the affairs of the assessee endlessly. It was for the Revenue to bring concrete material on the record on which any liability can be fastened upon the assessee. The Revenue failed to bring any evidence. We could appreciate the request of the ld.CIT-DR for remitting the file to the AO if after the order of the ld.CIT(A) in the year 2010 the Revenue was able to lay its hand on any material which could be produced before the Tribunal by way of additional evidence. It appears that proceedings remained dormant even after the order of the CIT(A) when additions have been deleted. No efforts have been made to collect any further information for justifying the challenge to the order of the CIT(A). In such situation we cannot remit the issue to the file of the AO for re-investigation. We do not find any merit in these grounds of appeal. They are rejected. Production or manufacturing - segregation of scrap from mixed metal scrap - deduction u/s 10B and/or section 80I - HELD THAT - As decided in assessee s own case 2014 (4) TMI 484 - GUJARAT HIGH COURT activities undertaken by the assessee in segregating the scrap and carrying out process activities all that would amount to manufacture of article or thing whose export would entitle it for grant of deduction under section 10B as well as whose sales would entitle the assessee to claim deduction under section 80IB.

Summary

Issues Involved:
1. Denial of deduction under section 10B for deemed export sales.
2. Deletion of addition on account of suppression of sales.
3. Deletion of addition on account of under-valuation of closing stock.
4. Determination of whether the process employed by the assessee amounts to manufacturing or production under sections 10B and 80IB.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 10B for Deemed Export Sales:
The primary issue in the appeals was the denial of deduction under section 10B for deemed export sales made by the assessee to other export-oriented units (EOUs). The assessee contended that these sales should be considered as deemed exports and thus eligible for deduction under section 10B. The CIT(A) relied on the ITAT's decisions in Tata Elexi Ltd. Vs. ACIT and Naval Overseas P. Ltd. Vs. ITO, which were later reversed by the Karnataka High Court in Pr.CIT Vs. International Stones India P. Ltd. The High Court held that sales to EOUs should be considered deemed exports, thus entitling the assessee to deductions under section 10B. The Tribunal, following the High Court's judgment, allowed the assessee's claim and directed the AO to grant the deduction for sales made to other EOUs as deemed exports.

2. Deletion of Addition on Account of Suppression of Sales:
The Revenue's appeal included a grievance regarding the deletion of an addition made on account of suppression of sales amounting to ?15,82,45,177. The AO based this addition on a show cause notice from the Central Excise authorities, alleging under-invoicing of imports by the assessee. The CIT(A) deleted the addition, noting that the assessee was not given an opportunity for cross-examination and that the Customs & Central Excise Appellate Tribunal (CESAT) had set aside the Central Excise's order. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Revenue failed to provide concrete evidence to support the addition and that a roving inquiry could not be allowed indefinitely.

3. Deletion of Addition on Account of Under-Valuation of Closing Stock:
The Revenue also contested the deletion of an addition of ?1,14,36,789 for under-valuation of closing stock. Similar to the suppression of sales issue, this addition was based on the Central Excise's show cause notice. The CIT(A) deleted the addition for the same reasons, including the lack of opportunity for cross-examination and the CESAT's setting aside of the Central Excise's order. The Tribunal agreed with the CIT(A), noting the absence of any new evidence from the Revenue to justify the addition.

4. Determination of Whether the Process Employed by the Assessee Amounts to Manufacturing or Production:
The Revenue argued that the process employed by the assessee for segregating scrap did not amount to manufacturing or production, thus disqualifying the assessee from deductions under sections 10B and 80IB. The CIT(A) allowed the deduction, following the ITAT's earlier decision in the assessee's own case for previous years. The Gujarat High Court had upheld the ITAT's decision, confirming that the assessee's activities constituted manufacturing or production. The Tribunal, following the High Court's judgment, rejected the Revenue's grounds and upheld the CIT(A)'s decision to allow the deductions under sections 10B and 80IB.

Conclusion:
The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals, granting the assessee deductions under section 10B for deemed export sales, and upholding the deletions of additions for suppression of sales and under-valuation of closing stock. The Tribunal also confirmed that the assessee's processes amounted to manufacturing or production, entitling it to deductions under sections 10B and 80IB.