2016 (12) TMI 1798 - AT - Income Tax

Exemption u/s 10AA - disallowance of claim as assessee did not carry out any manufacturing activity in the SEZ premises - AO has disallowed the exemption on the ground that since the assessee failed to establish genuineness of electricity and labour charges - CIT-A allowed the deduction - HELD THAT - In this case the assessee has placed on record the copy of letter dated 12.3.2014 from the then officer on special duty, addressed to the ITO14(2)(4) Mumbai, vide which certain information u/s 136 were supplied. From the contents of the said letter, it can be inferred that the unit was in operation on 28.3.2011 as contended by the assessee. AO has also mentioned in assessment order that on perusal of details it revealed that the assessee had carried out its business activities from its SEZ unit, Sachin, Surat from 27.3.2011 to 29.3.2011. As per the assessee the process of manufacturing gold medallions from gold bars require few heavy machines and apart from other expenses, it requires two types of direct expenses i.e., labour charges and electricity charges. AO has disallowed the exemption on the ground that since the assessee failed to establish genuineness of electricity and labour charges the particulars furnished to substantiate its contention that gold medallions were manufactured from gold bars during the relevant period, cannot be accepted. As during assessment proceedings the assessee furnished the whereabouts of the firm from whom the assessee had hired generator set to fulfill the requirement of electricity in manufacturing process and the concerned person was examined by the AO. Similarly, AO has examined the person who made available the manpower to the assessee. So, in our considered opinion the assessee has discharged the onus on it to prove that during the relevant previous year, it carried out the business activities from SEZ unit, Sachin to avail the claim of deduction u/s 10AA AO has not accepted the evidence adduced by the assessee to establish that since there was no electricity connection generator was hired and manpower was also arranged to carry out the manufacturing activities. Therefore, no legal or factual infirmity in the order passed by the Ld. CIT(A), we uphold the same and dismiss the grounds of appeal of the revenue.

Summary

Issues:
- Disallowance of exemption u/s 10AA of the Income Tax Act, 1961
- Failure to prove manufacturing activities in SEZ premises
- Reliance on case laws
- Disallowance based on presumption and suspicion
- Entitlement of exemption u/s 10AA

Analysis:
1. Disallowance of Exemption u/s 10AA: The revenue appealed against the order allowing the disallowance of exemption u/s 10AA by the Ld. CIT(A). The AO contended that the assessee did not carry out any manufacturing activity in the SEZ premises. The Ld. CIT(A) held in favor of the appellant, stating that the appellant is entitled to claim exemption u/s 10AA. The Departmental Representative argued that the AO had established the lack of manufacturing activities, emphasizing the absence of power connection for such activities.

2. Failure to Prove Manufacturing Activities: The Ld. CIT(A) was criticized for not appreciating that the assessee failed to prove manufacturing activities in the SEZ premises, shifting the onus onto the assessee. The revenue contended that the disallowance was based on material facts and strengthened by the AO's remand report during the appellate proceedings.

3. Reliance on Case Laws: The Ld. CIT(A) was accused of erroneously deleting the disallowance by relying on irrelevant case laws. The revenue argued that the facts of the instant case differed significantly from those in the cases cited by the Ld. CIT(A).

4. Disallowance Based on Presumption and Suspicion: The Ld. CIT(A) was criticized for concluding that the AO's addition was based on presumption and suspicion. The revenue argued that the AO had firmly established the absence of manufacturing activity at the SEZ premises in the assessment order.

5. Entitlement of Exemption u/s 10AA: The main issue revolved around whether the assessee was entitled to exemption u/s 10AA. The Ld. CIT(A) ruled in favor of the assessee, citing evidence on record and similar judgments. The Mumbai Tribunal's decision in ACIT v/s Gia Exports was referenced to support the assessee's claim for exemption.

6. Final Decision: The Tribunal upheld the Ld. CIT(A)'s order, dismissing the revenue's appeal for the assessment year 2011-12. The Tribunal concluded that the assessee had proven the manufacturing activities in the SEZ unit, Sachin, Surat, and was entitled to claim exemption u/s 10AA based on the evidence presented during the assessment proceedings. The decision was based on the evidence on record and in line with previous judgments on similar issues.