9911796707
TMI Blog2013 (11) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... ri N. K. Saini,JJ. For the Petitioner : Shri Dinesh Boob For the Respondent : Shri N. A. Joshi- D.R. ORDER Per N. K. Saini, A.M. This appeal has been filed by the department against the order dated 11/03/2013 of ld. CIT(A), Johdpur. The following grounds have been raised in this appeal: 1. The CIT(A) has erred in not appreciated all the facts of the case properly and in giving finding that a new marketable item with substantial value addition came in to existence as a result of various process of manufacture/production carried out by the assessee on the items purchased in its raw form amounting to Rs. 2,64,20,904/ -. 2. The CIT(A) has erred in deleting disallowance of claim made u/s 10AA to the extent of Rs. 2,64,20,904/- for goods traded and not manufactured by it as eligible articles. 3. The CIT(A) has erred in relying upon facts and scrutiny assessment order for A.Y. 2007-08 and 2008-09 in allowing exemption u/s 10AA in the assessment year 2009-10 as the AO had examined the books of accounts in the year under consideration and therefore, had given finding that there was no manufacturing activity on the goods purchased and disclosed under heading "VAT free goods" amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar expression used in the provisions of section 10AA as used in section 80lA of the lT Act. In the section 10AA(1), the Expression is as " hundred percent of profit or gains derived from the export of such articles or things or from services " and in section 80lA(1), includes any profits and gains derived by an undertaking ". Hence, the CIT (A) ought to have followed decision of the Hon'ble SC in case of M/s Liberty lndia. 12. The CIT(A) has erred in giving finding that the provision of section l0BA are similar to the provisions of section 80HHC. The CIT(A) has not noticed that in clause "bba" of explanation to section 8OHHC, the expression "profits of the business " is defined and it includes income accrued/received from DEPB/DDB, where as there is no such definition in section 10AA. The Sub- Section 7 of section 10AA gives a formula for determination of eligible deduction only." 2 Vide grounds No. 1 to 8, the grievance of the department relates to the deletion of disallowance of claim made by the Assessing Officer under section 10AA of the I.T. Act, 1961 (hereinafter referred to as "Act", for short). 3. The facts related to this issue in brief are that the assessee has filed e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Om Prakash Lohar 4,83,531/- Total 2,54,46,185/- 4. The Assessing Officer further observed that what the assessee has purchased were handicraft items and what the assessee had exported were also handicraft items, hence, there was no change in the name, character or use. Therefore, it was established that the assessee has exported the articles and things not manufactured by it, but had exported trading items. Therefore, assessee was not entitled for exemption under Section 10AA of the Act in respect of goods not manufactured by it. Accordingly, exemption of Rs.3,18,08,031/- under section 10AA of the Act claimed by the assessee was disallowed to the extent of profit from export of trading goods, which was worked out as under:- Total purchases 43092141/- Purchases of VAT exempted handicraft item 34348670/- Percentage of VAT exempted handicraft items of total purchases 79.80% Total export turnover of the undertaking 91664665/- Export turnover of the undertaking in respect of trading goods (not manufactured by assessee) (79.80% of total export turnover of the undertaking) 73148403/- Profit of the undertaking as per Form 56F 31808031/- Less D.D.B. included by audito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise rules and regulation and rules relating to the SEZ. It was explained that the assessee was engaged in the business of manufacturing of artistic wooden/iron/marble/glass handicrafts items and the unit is situated in Special Economic Zone at RICCO Boranada, Jodhpur. It was stated that exemption under section 10AA of the Act is given to such units established under SEZ Act, 2005. It was further stated that for setting up of any unit in any SEZ zone, first permission from Development Commissioner of the SEZ is required. The proposal is scrutinized by the approval committee, which consists of various members. The said committee includes officer in rank of Additional Secretary to the Government of India in the Ministry of Department of Central Government dealing with commerce, two officers from the Ministry of the Finance dealing with revenue, economic affairs, officers from Ministry of Commerce, Industrial Policy and Promotion, science and technology, representative of State government and even representative from the Central Board of the Direct Tax under the Ministry of the Finance represent the Board granting such approval. It was pointed out that the assessee had been granted l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and the entire relevant evidence i.e. purchase vouchers, export invoice, manufacturing expense, labour records to show the details about process of manufacturing/production carried out by the assessee and after such scrutiny and investigation, the Assessing Officer had accepted that the entire activity carried out by the assessee amounted to manufacture/production in SEZ, which was eligible for deduction under Section 10AA of the Act. It was further stated that the unit of the assessee was duly registered as a manufacturing unit with District Industrial Centre as an SSI unit and registered as a manufacturing unit with various other authorities of the Government i.e. the Chief Inspector of the Factory, Government of Rajasthan, Export Promotion Council for Handicraft, Ministry of Textile Government of India, under Rajasthan Sales Tax law. Therefore, assessee has been accepted as a manufacturing unit by all concerning Government authorities which support the assessee's claim that assessee was wholly engaged in the business of manufacturing/production of handicraft articles exported by it. It was explained that the assessee carries out series of the manufacturing / product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nicle Plating & other plating material Rs. 45,11,844/- Component (glass, clocks etc.) Rs. 21,59,358/- Raw material (weight matter etc.) Rs. 15,35,253/- Hardware Rs. 1,30,344/- Packing materials Rs. 51,75,039/- Misc. expenses Rs. 1,82,756/- Total Rs.1,46,79,370/- It was also stated that the assessee incurred expenses of Rs. 56,47,777/- on account of labour charge. The authorities like Dy. Chief Inspector, Factory and Boiler Department had also inspected and found that the large number of labour employed and ESI & PF had been deducted. It was also contended that the assessee's unit was established in sizable infrastructure facilities spreading over 4200 sq.mt and also having sufficient plant and machinery to carryout manufacturing activities. The assessee had power connection of 50kwh in the year under consideration and incurred electric expenses of Rs. 6,56,987/-. Thus, the assessee fulfills all the requirements under the law in relation to claim of deduction made under section 10AA of the Act. The assessee submitted copies of the following certificates issued by the various government authorities:- a. Copy of registration certificate issued by District Industries Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme court in the case of CIT Vs. Sesa Goa Ltd. reported in 271 ITR 331 (SC). 8. Learned CIT(A) after considering the submissions of assessee observed that the assessee was engaged in the business of handicraft items and purchased raw material of Rs. 3,79,53,527/- which included VAT exempted purchases of Rs. 3,43,48,670/-. He further observed that the contention of the Assessing Officer that the assessee had purchased VAT free goods, which were finished goods from manufacturer themselves and selling of those amounted to trading not manufacturing. He further observed that the Assessing Officer had presumed that the assessee had exported the purchase items in the same form. On the contrary, the assessee had furnished illustration with photographs which showed that all the VAT exempted items purchased by the assessee were pieces of unfinished handicraft items, so those purchases of VAT exempted items and other consumable materials required to be physically checked and verified by the customs authorities. The learned CIT(A) pointed out that purchase invoices certified by the customs authorities had a remark as "unfinished items" and the assessee had submitted a chart with photograph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for 100% EOU and discussed the same in para 6.5 of the impugned order, for the cost of repetition, the same is not reproduced herein. Learned CIT(A) was of the view that the definitions given in different relevant provisions relating to factories and exports, clearly shows that the various processes of manufacture/production were applied on the eligible articles or things namely handicraft articles or things having artistic value. Reliance was placed on the case of Goverdhan Prasad Singhal VS. ITO reported in (2009) 27 DTR (Jp.) 1 and the decision in the case of DCIT Vs. Manglam Arts reported in 17 DTR (JP) (Trib.) 97 and Arts & Crafts Exports Vs. ITO reported in 66 DTR (Mum) (Trib.) 69. Learned CIT(A) categorically stated that the assessee was engaged in the business of manufacture/production and exports of wooden handicraft items. In addition to the handicraft items of iron, metal, glass etc. and such handicraft items manufactured and exported by the assessee contained artistic value. He further stated that the assessee purchased raw material in the form of word, iron and semi- finished skelton thereafter carries out the following process:- i. Thorough checking of unfinished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also allowed in subsequent orders by the Assessing Officer and there is no change in the business activities of the assessee as compared to the earlier years. Learned CIT(A) categorically stated that the Assessing Officer did not point out any instance or facts which suggested that there was any change in activity of the assessee, therefore, the deduction allowed cannot be withdrawn unless and until there is contrary distinguishable facts. Reliance was placed in the case of Grace Exports Vs. ITO reported in 79 ITR 361. Learned CIT(A) also observed that the assessee-firm was duly registered as manufacturing concern/100%-EOU with various government authorities, the said registration was granted after necessary enquiries and satisfaction about the fulfillment of various preconditions. Learned CIT(A) pointed out that the various government and concerned authorities after verification and scrutinizing the activity of the assessee issued the following certificates:- i. Copy of registration certificate issued by district Industries Centre, Jodhpur registering No. 080151100653. ii. Registration Certificate granted under the provision of Factories Act, 1948 NO. 28531 dated 22/11/2010. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In his rival submissions, learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that in the preceding A.Y.s 2007-08 & 2008-09, the Assessing Officer after making the deep scrutiny allowed the claim under section 10AA of the Act while passing the assessment order under section 143(3) of the Act and there is no change in the nature of business and manufacturing process of the assessee during the year under consideration vis-a-vis earlier years, therefore, learned CIT(A) was fully justified in allowing the claim of the assessee. It was further submitted that this issue is squarely covered by the decision dated 31/01/2013 of this bench of the tribunal in ITA NO. 336/Jodh/2011 and others in the case of M/s. Suraj Exports India Sardar Shahar, Churu Vs. ITO, Churu, copy of the said order was furnished is placed on record. The relevant portion is reproduced as under:- "We have cogitated rival arguments vis-a-vis evidence on record. We have examined the decisions on which parties have placed their respective reliance. We have found that the ratio of the decision of Hon'ble Apex Court rendered in the case of Liberty India Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred electric expenses of Rs. 6,56,987/- which was also accepted by the Assessing Officer. The assessee was engaged in manufacturing activities, this fact is established from various certificates issued by the government and concerned authorities, who after verification and scrutiny, issued the certificates which are to be issued only to the concerns engaged in manufacturing activities. Those certificates were as under:- i. Copy of registration certificate issued by district Industries Centre, Jodhpur registering No. 080151100653. ii. Registration Certificate granted under the provision of Factories Act, 1948 NO. 28531 dated 22/11/2010. iii. Copy of the registration certificate issued by Export Promotion Council for Handicraft. iv. Copy of approval issued as per SEZ Act, 2005 by office of the development Commissioner, Noida Special Economic Zone, Ministry of Commerce and Industry, Department of Commerce Government of India. v. Copy of letter dated 27/04/2006 of Development Commissioner, Noida, Special Economic Zone. vi. Copy of registration granted under the provisions of Rajasthan Sales Tax Act showing the appellant as "manufacturer of all types of handicrafts". vii. Copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of handicrafts. It is labour oriented unit and no heavy machinery is used for production. There is no fixed system of manufacturing; it depends upon the order of export. As and when assessee received the order, he decided the manufacturing process and style of working. Assessee is having good setup for manufacturing different types of handicrafts items. Assessee generally deals with Iron handicrafts. A detailed process chart with photos of items showing the steps involved in manufacturing one after another process is enclosed. The Steps involved in production and export is as under:- 1) Receipt of purchase order from the foreign buyer. 2) Production planning for in house and at outsides. 3) Issue of Pos and JOs to suppliers and in house in charges with the specified 'models' each for production of 'semi-finished' goods, which too in different steps. Iron sheets or angles were cut down in the shape of items, which is done by different persons which are specialized in different items as per size and frama and some time these skeletons was purchased directly from supplier to save time and headache of scrape. 4) These cut size items are assembled and engraving and shaping as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to variety of items each person or team of persons are specialized in the special work, which is also as needed from order to order. Hence, assessee prefer's contractor over the direct employee, as there is no difference in working both are doing work in assessee's premises." 4.2 The explanation of the assessee was examined with the books of account, purchase bills/vouchers and vouchers raised by the contractor. As much as profit & gains raised to the assessee on export sales, the taking of goods commenced from SEZ i.e. w.e.f. 03/01/2007, is eligible for 100% deduction, being first year of the business u/s 10AA of the I.T. Act, 1961." 14. From the above narrated facts, it is clear that the department has allowed claim of the assessee for deduction under section 10AA of the Act in the preceding years. Since, there is no change in the facts of the year under consideration therefore, on the principle of consistency also, the claim of the assessee was allowable. Furthermore, this issue is covered by the decision of this bench of the tribunal in the case of M/s. Suraj Exports India Sardar Shahar, Churu Vs. ITO, Churu (supra). We, therefore, considering the totality of facts as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Mumbai bench of Hon'ble Income Tax Appellate Tribunal in the case of Arts and Crafts Exports vs. Income-tax Officer reported in 66 DTR 69 (Mumbai), after considering the decision of Liberty India (supra) has taken a clear cut decision in favour of the assessee. The held portion of the Mumbai bench is as under:- "Para 11.14-As regards deduction u/s 10 BA in respect of DEPB, we find that sub-section (4) of section 10BA a defines profits derived from eligible articles. Section 28 (iiic), (iiid) and (iiie) provides that these income are profits and gains of business. The said sub-section(4) of Section 10B A is reproduced below:- For the purposes of sub-section (1), the profits derived from export out of India of the eligible articles or things shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things bears to the total turnover of the business carried on by the undertaking. The relevant part of Section 28 reads as under: 28. The following income shall be chargeable to Income-tax under the head "profits and gains of business or profession". (iiic) any duty of customs or exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
