2016 (7) TMI 206 - AT - Income Tax

Claim of exemption u/s 10 A - profit attribution between SEZ and non SEZ unit - Held that - Assessee never stated before the ld. AO that no exports were made to Afghanistan and Pakistan from its non SEZ unit, instead it had only stated that exports from SEZ unit were made to Afghanistan and Pakistan. We hold that doubting the veracity of the transactions on this flimsy ground is not warranted. We hold that the assessee indeed had indulged in manufacturing activities in its SEZ unit during the year under appeal and had only continued the same from the earlier years. The previous year relevant to the Assessment Year 2011-12 is the seventh and the last year of availability of exemption u/s. 10A of the Act. The assessee s claim for exemption under section 10A of the Act had been always allowed by the assessing officer in the preceding financial years. It is a settled principle of law that a claim made under section 10A for a particular year cannot be disallowed unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside. When there is no change in the facts which were in existence during the earlier years with that of a subsequent assessment year, then the Income Tax officer cannot withdraw the claim for exemption under section 10A of the Act for subsequent years. Therefore, it is not open to the department to deny the benefit of Section 10A for subsequent assessment years. AO had not reworked the profits attributable to SEZ and non SEZ unit to justify his suspicion. In any case, there cannot be any outright rejection of the claim of exemption u/s 10 A of the Act. We find that the entire disallowance of claim of exemption u/s 10A of the Act which has been consistently claimed by the assessee over the years have been made by the ld. AO only on suspicion , surmise and conjecture and accordingly we have no hesitation to delete the same - Decided in favour of assessee TDS u/s 194C - Non deduction of tds on payment towards job work charges - addition u/s. 40(a)(ia) - Held that - We find that the issue needs to be set aside to the file of the ld.AO to decide the issue afresh in the light of the decision rendered in Ansal Land Mark 2015 (9) TMI 79 - DELHI HIGH COURT wherein it was held that the second proviso to section 40(a)(ia) of the Act has been held to be retrospective in operation and accordingly no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the payer (assessee herein) ) and the assessee is directed to produce evidence of the payee records to prove that the said job charges have been duly included in the returns filed by the said job worker. If the same is proved, then we direct the ld. AO not to make any disallowance u/s 40(a)(ia) of the Act in terms of second proviso to section 40(a)(ia) of the Act. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Justification of disallowance under Section 10A of the Income Tax Act.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act.
3. Chargeability of interest under Sections 234B, 234C, and 234D of the Income Tax Act.

Detailed Analysis:

1. Disallowance under Section 10A:
The primary issue in this appeal is whether the CIT(A) was justified in upholding the disallowance made under Section 10A of the Income Tax Act. The assessee, a company engaged in the export of tea and other products, claimed exemption under Section 10A for its Special Economic Zone (SEZ) unit in Coimbatore. The Assessing Officer (AO) disallowed the exemption on the grounds that no manufacturing or processing activity was carried out in the SEZ unit and that the profits were inflated to claim the exemption.

Upon reviewing the submissions and records, it was found that the CIT(A) had merely reproduced the AO's version without independent findings. The AO's suspicion was based on the high gross profit margin in the SEZ unit compared to the non-SEZ unit. However, the AO did not rework the profits of the respective units by applying provisions of Section 80IA(8) and 80IA(10) as mandated in Section 10A(7). The AO's summary rejection of the claim was unsupported by reworked figures.

The assessee provided evidence of manufacturing activities, including blending, processing, and packing of tea, supported by Central Excise Registration and other certifications. The AO's rejection based on the nature of expenses was also found to be flawed as the expenses listed were indeed related to manufacturing operations. Additionally, the AO's suspicion about exports to Afghanistan and Pakistan was unfounded as the assessee never claimed that exports were exclusive to the SEZ unit.

The Tribunal referred to the Special Bench decision in Madhu Jayanti International Ltd vs DCIT, which held that blending and processing of tea amounts to manufacturing for claiming exemption under Section 10A. Furthermore, the Tribunal noted that the assessee's claim for exemption had been allowed in previous years, and there was no change in facts to justify denial for the current year. The Tribunal emphasized the liberal interpretation of incentive provisions as held by the Supreme Court in Bajaj Tempo Ltd vs CIT.

The Tribunal concluded that the AO's disallowance was based on suspicion and conjecture, and therefore, the grounds raised by the assessee were allowed.

2. Disallowance under Section 40(a)(ia):
The second issue involved the disallowance of ?5,22,000 under Section 40(a)(ia) for non-deduction of tax at source on job work charges paid to M/s Sree Balaji Plastics. The assessee argued that it was not liable to deduct TDS on these payments. The Tribunal, considering the decision of the Delhi High Court in CIT vs Ansal Land Mark Township P Ltd, which held the second proviso to Section 40(a)(ia) to be retrospective, set aside the issue to the AO. The AO was directed to verify if the payee had included the job charges in their returns and, if so, not to make any disallowance under Section 40(a)(ia).

3. Chargeability of Interest under Sections 234B, 234C, and 234D:
The third issue regarding the chargeability of interest under Sections 234B, 234C, and 234D was deemed consequential and did not require adjudication.

General Grounds:
The general grounds raised by the assessee did not require adjudication.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing the AO to re-examine the disallowance under Section 40(a)(ia) and confirming the deletion of the disallowance under Section 10A. The chargeability of interest under Sections 234B, 234C, and 234D was noted as consequential. The order was pronounced on 01.07.2016.