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TMI Blog2012 (4) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... ding year. On being asked by the AO to furnish the details of the parties to whom labour charges have been paid, the nature of job work done by these parties, the processes employed in the course of labour work, the place of carrying out the work i.e. whether within the SEZ location or otherwise, In response, the assessee furnished the details before the AO. From the said details, it transpired that job work charges to the extent of Rs. 83,71,311/- had been paid to such parties who had carried out the manufacturing process outside the SEZ location which amounted to the above 44.35% total charges paid at Rs. 1,88,71,966/-. The assessee had further submitted that increase in the export turnover of 40% during the year would not have been possible but for such outsourced job work activities which are permissible as per the applicable statutory regulations governing SEZ operations. After considering the submissions of the assessee, the AO had observed that deduction u/s 10A is available in respect of an undertaking which manufactures or produces article or thing in any Special Economic Zone (SEZ). He further observed that the assessee had not at all specified the manufacturing process w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Economic Zone (SEZ). (d) The assessee company had stated that after receiving the manufactured goods from the job work parties which are situated outside the SEZ some processes are carried out along with packing and labeling. However, the assessee company has nor specified manufacturing processes which have been carried out by it in SEZ. (e) It is, therefore, held that the assessee is not entitled to deduction in respect of the profit derived from the export of goods which have been manufactured by the job work parties outside the SEZ. (f) The total job work changes paid were Rs. 1,88,71,966/- out of which Rs. 83,71,311/- were paid to the parties in DTA. Therefore 44.35% of the total labour charges were paid to the parties in DTA. (g) Increase in the export turnover in comparison to the preceding year was Rs. 34,18,24,319/- and therefore, 44.35% of the same, i.e., Rs. 15,15,19,085/- is the export turnover which is generated from the ineligible activities (outside the SEZ). (h) The profit of Rs. 5,10,25,214/-is 4.54% of the total turnover. Therefore, the same percentage of profit to the ineligible portion of the export turnover of Rs. 15,15,19,085/- is taken as not eligible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder:- "I have considered the facts of the case and submission made by appellant. The facts as available on record show that an amount of Rs. 83,71,311/- have been paid as job work charges to parties engaged in manufacuring process outside the SEZ location. This payment was 44.35% of the total labour charges paid at Rs. 1,88,71,966/-. Since this manufacturing process took place outside FTZ (Free Trade Zone), AO had disallowed proportionate claim of deduction u/s 1OA holding that the amount is not covered under the provisions of section, 1OA. The appellant has izlqfrq4 deduction on this on the ground that the only condition laid down in section 1OA is that undertaking must derive income from export and there is no condition that the manufacturing process should take place inside SEZ. Appellant has stated the following: "It is not important as to where the work, which results in ultimate export, is executed, i.e. whether executed in India or outside India. The important point to be noted is irrespective of the fact that the work may be executed inside the SEZ or outside the SEZ, the export price which is realized should reflect the element of cost which has gone into paying labour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty undertaken inside FTZ. The very purpose of setting etc. shows that the basic idea is that the manufacturing activity should take lace' inside It is not merely a paper formality as the appellant seems to suggest. In this regard, appellant's reliance on Board's instruction referred above, and Explanation 3 of section totally misplaced. On the contrary, instruction and explanation 3 go against the claim made by appellant. The Instructions referred to by the appellant and explanation 3 have made exception to the provision of section IOA that manufacturing process should be undertaken by the in free trade zone etc. in this exception manufacturing activity undertaken outside viz. but within the country has not been included. The only exception has been made in respect of onsite development of computer programme and job work done abroad. No exception has been made regarding manufacturing done outside FTZ but in the domestic tariff area. Explanation 3 and circular No. 91 are very specific and precise. Their scope cannot be enlarged by putting unreasonable interpretation to this explanation or board's circular. The very fact that no exception has been made in respect of domestic tariff a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, observation of AO is very relevant wherein he has observed as under: "Moreover, the assessee has not at all specified the manufacturing processes which have been carried out within the SEZ after receiving the manufactured goods from the job work parties which are located outside the SEZ The assessee has merely slated that some processes are carried out along with packing and labeling without specifying the nature of such processes." Secondly, the issue involved is not whether the manufacturing process belonged to appellant or not. The issue is whether the manufacturing process has been done within the free trade zone area or not. It is undisputed that manufacturing process has not been done within the free trade zone area. Therefore, even if manufacturing process has been done under the supervision of appellant and technically considered as appellant's own manufacturing even then It cannot be considered as manufacturing process done by the undertaking within the FTZ which is an essential condition for deduction u/s 10A. It must be noted that 10A is qua undertaking established in Free Trade Zone. Therefore, presuming that manufacturing has been under the supervision, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, the assessee has not submitted the details as what was the work done by insiders and what was the work done by the outsiders or whether any work has been done by the assessee or not is not clear from the facts of the case. He, therefore, submitted that the issue needs examination and unless the assessee manufactures the goods, not eligible for deduction u/s 10A of the Act. Therefore, he submitted that the issue may be restored to the file of the AO for examination in the light of the above submissions. 8. We have heard both the parties, perused the record and gone through the orders of the authorities below. The case of the assessee is that the assessee is a manufacturing company and exporting studded diamond and gold jewellery The company of the assessee is situated in SEZ and the assessee is eligible for deduction u/s 10A of the Act. According to the AO, the assessee has not submitted the details like what was the work done in SEZ and what was the work done inside SEZ and outside the SEZ. The AO was in doubt that whether the assessee manufactured in its company or not. The AO, therefore, has estimated the ineligible portion of the export turnover relatable to job work activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the matter in appeal before the CIT(A). Before the CIT(A), the assessee filed a detailed written submissions, which were reproduced by the CIT(A) in his order at pages 10 to 15. After considering the submissions of the assessee, the CIT(A) confirmed the action of the AO following the decision in the case of the assessee in AY 2002-03. Aggrieved, the assessee is in appeal before us. 11. The learned counsel for the assessee has agreed that the issue is covered against the assessee by the decision of the Tribunal in assessee's own case for AY 2002-03 in ITA No 7053/Mum/05 vide order dated 03/06/2011. However, he has submitted that any expenses incurred to earn the income may be allowed in the light of section 57 clause (iii) of the Act. We have heard both the sides, perused the records, gone through the orders of the authorities below. The Tribunal in the assessee's own case for A.Y. 2002-03 (supra) wherein the Tribunal held as under:- "9. We have considered both the parties and have perused the record of the case. All the decisions relied upon the learned counsel for the assessee were rendered prior to the decision of the Hon'ble Supreme Court in the case of Liberty India, wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 10.96 crores and the total interest paid was Rs. 1,90,72,728/-. Applying the proportion of total funds to the amount of investments and loans and advances, the AO worked out the disallowance of interest u/s 14A of the Act, to Rs. 37,26,026/- on the ground that the interest attributable to the land and advances given without interest out of borrowed funds. On appeal, before the CIT(A) the assessee filed its written submission vide letter dated 12/12/06, which was extracted by the CIT(A) in his order at page 20. After considering the submissions of the assessee, the CIT(A) following the details reasons discussed in AY 2002-03 in assessee's case, confirmed the action of the AO. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 17. Before us, the learned counsel for the assessee submitted that the issue is covered by the decision of the Hon'ble Jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT & Anrs., 328 ITR 81) and submitted that the AO may kindly be directed to recompute the disallowance after taking into account of the facts of the case. The learned DR on the other hand, has not controverted the aforesaid submission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stical purposes. 24. Ground No. 2 is directed against the action of the CIT(A) in directing the AO to allow deduction u/s 10A of the Act, after verifying alternate claim of the assessee that disallowance of deduction u/s 14A has been made out of interest claim of 10A without appreciating the facts of the case. 25. Before the CIT(A), the contention of the Assessee is that the disallowance of Rs. 37,26,026/- made by the AO u/s 14A of the Act, had not been taken into consideration while computing income eligible for deduction u/s 10A. He, therefore, submitted that the income eligible for deduction u/s 10A as computed by the AO of Rs. 3,29,17,549/- ought to have been enhanced by the aforesaid disallowance of Rs. 37,26,026/- and thereafter the deduction u/s 10A needs to be computed. While confirming the said disallowance made by the AO u/s 14A, the CIT(A) after taking into consideration the said alternate submission of the assessee, the CIT(A) directed the AO to verify the claim of assessee and if it is found that disallowance u/s 14A has been made out of interest claim of 10A unit then deduction u/s 10A may be allowed and consequently after verification as per law. 26. After hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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