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2019 (11) TMI 1100 - AT - Income TaxDeduction u/s 10AA - genuineness of the manufacturing activity - principle of res-judicate - assessee failed to discharge the onus of proving that it carried out any manufacturing activity at its SEZ unit situated at Surat - HELD THAT - Complete onus to demonstrate fulfilment of primary conditions of Sec. 10AA was on the assessee and it was obligatory on the part of the assessee to substantiate the fact that his claim squarely fall within four corners of Sec.10AA. However, upon perusal of findings of AO with respect to time taken in manufacturing process, explanation for abnormal profits, discrepancies in bank accounts, non-realization of export proceeds even beyond 3 years, evidence of labor operations, machineries used by the assessee to carry out manufacturing operations, electricity consumption, stamping die etc., we find that the assessee remained unsuccessful to controvert the same and failed to discharge the primary onus casted upon him, in this regard. FAA while observing that Ld. AO doubted the genuineness of the manufacturing activity but made no comment or made no discussion about trading activity, granted relief to the assessee and the same, under the circumstances, could not be stated to be correct approach in the matter. We are of the considered opinion that Ld. CIT(A) had plenary powers in disposing off an appeal and the powers of first appellate authority were coterminous and coextensive with that of Ld. AO and nothing prevented Ld. CIT(A) to conduct further inquiry in this direction. No such exercise is shown to have been carried by learned first appellate authority and therefore, we are not convinced with the approach of Ld. CIT(A) in granting relief merely because Ld. AO failed to carry out the desired investigations. In AY 2011-12, the main focus of Ld. AO was on electricity consumption and labor charges as against the facts of the present year wherein Ld. AO has brought on record specific facts of time taken in manufacturing process, fact of abnormal profits, discrepancies in bank accounts, non-realization of export proceeds even beyond 3 years, evidence of labor operations, machineries used by the assessee to carry out manufacturing operations, electricity consumption, stamping die etc. which remained to be controverted by the assessee. More so, the principle of res-judicate is not applicable to Income Tax proceedings and each year is independent unit of assessment. The assessee is expected to substantiate its claim in each of the year. The rule of consistency would be applicable only in cases where the factual matrix is demonstrated to be substantially the same. Keeping in view the entirety of facts and circumstances, we deem it fit to set-aside the order of Ld. first appellate authority on this issue and restore the issue of deduction u/s 10AA to the file of Ld. AO for readjudication de-novo with a direction to the assessee to substantiate his claim of deduction u/s 10AA. Appeal stands allowed for statistical purposes.
Issues Involved:
1. Eligibility of the assessee for deduction under Section 10AA of the Income Tax Act, 1961. 2. Whether the assessee carried out any manufacturing activity in the SEZ premises. 3. The validity of the disallowance made by the AO on account of exemption claimed by the assessee. 4. The relevance of the case laws relied upon by the CIT(A). 5. The correctness of the CIT(A)'s decision to allow the deduction. Detailed Analysis: 1. Eligibility of the Assessee for Deduction under Section 10AA: The primary issue revolves around the eligibility of the assessee for deduction under Section 10AA of the Income Tax Act, 1961. The assessee claimed a deduction of ?22,72,10,669, which was denied by the AO on the grounds that the assessee did not carry out any manufacturing activity in the SEZ premises. The CIT(A) allowed the deduction, which was contested by the revenue. 2. Whether the Assessee Carried Out Any Manufacturing Activity in the SEZ Premises: The AO noted several discrepancies and concluded that no manufacturing activity was conducted by the assessee in the SEZ premises. The AO's observations included: - The entire process from import to export was completed in an improbably short span of 4 hours and 30 minutes. - The assessee lacked sufficient machinery and labor to carry out the manufacturing. - The electricity consumption did not reflect any manufacturing activity. - No entry or exit of labor was recorded in the SEZ area. - The manufacturing process described by the assessee was not feasible within the given timeframe. 3. The Validity of the Disallowance Made by the AO: The AO disallowed the deduction based on the presumption that the assessee did not conduct manufacturing activities in the SEZ. The AO also noted that the assessee failed to provide critical documents and information to substantiate the genuineness of the transactions. The AO's conclusion was that the transactions were a colorable device for evading taxes. 4. The Relevance of the Case Laws Relied Upon by the CIT(A): The CIT(A) allowed the deduction by relying on various judicial pronouncements, including the case of ACIT vs. Gia Exports and the assessee's own case for the earlier assessment year (AY 2011-12). The CIT(A) observed that the AO's disallowance was based on presumptions and not on concrete evidence. 5. The Correctness of the CIT(A)'s Decision to Allow the Deduction: The CIT(A) allowed the deduction by stating that the AO's disallowance was based on presumptions and that the assessee had provided sufficient documents to substantiate the manufacturing activity. The CIT(A) also noted that the AO did not make any adverse comments on the trading activity of the assessee. Tribunal's Observations and Decision: The Tribunal observed that the AO had brought specific discrepancies on record, and the assessee failed to provide sufficient documentary evidence to substantiate the manufacturing activity. The Tribunal noted that the CIT(A) did not conduct further inquiry despite having the power to do so. The Tribunal also distinguished the facts of the current year from the earlier assessment year (AY 2011-12) and found that the principle of res judicata does not apply to income tax proceedings. Conclusion: The Tribunal set aside the order of the CIT(A) and restored the issue of deduction under Section 10AA to the file of the AO for re-adjudication de novo. The Tribunal directed the assessee to substantiate the claim of deduction under Section 10AA with sufficient evidence. Final Order: The appeal was allowed for statistical purposes, and the order was pronounced in the open court on 21st November 2019.
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