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TMI Blog2016 (10) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... he employees and machines. We do not find any reason to interfere with the finding of ld. CIT(A). We uphold the same. Accordingly, ground no.1 is dismissed. Secondly, the alternate view taken by ld. Assessing Officer for proportionately denying deduction u/s 10AA of the Act for goods manufactured from outside parties cannot stand for in view of our above discussion and the judgments of Hon. Bombay & Calcutta High Courts and decision of the Co-ordinate Bench Delhi in the case of Rajiv Bhatnagar vs. DCIT (2012 (12) TMI 1104 - ITAT DELHI) and it is well decided that such activities of getting manufactured goods from outside sources on job work basis are also covered under manufacturing activities. We find no reason to interfere with the order of ld. CIT(A) on this issue also. Ground no.2 is dismissed. - ITA No.68/Ahd/2011 - - - Dated:- 12-8-2016 - Shri S. S. Godara, JM, and Shri Manish Borad, AM. For The Appellant : Shri Prasoon Kabra, Sr.DR For The Respondent : Shri Rasesh Shah, AR ORDER PER Manish Borad, Accountant Member . This appeal by the Revenue is directed against the order of ld. CIT(A) V, Surat, dated 28.10.2010 in appeal no. CAS-V/227/09-10 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. After carefully analysing the facts of the case, I find that assessing officer has made the1 addition by invoking provisions of section 10AA(9) mainly on the ground that assessee has shown much higher profits than that reported by other entities engaged in similar line of business. It is the main contention-of assessing officer that assessee has not fully booked all the expenditure required for carrying on the business activity and for making such a contention, he placed reliance on the G.P N.P ratios of certain entities. In this context, it has been argued by appellant that the results of said entities are not comparable as said entities tire carrying out the business activity in Domestic Tariff Area and not in SEZ. Further, appellant in his letter dated 28/12/2Q09 also asked assessing officer to allow him to inspect the records of various entities referred to in the show cause notice of assessing officer. However, it is seen that assessing officer has not supplied any such data to appellant nor allowed inspection of the records of such entities. I am of the opinion that conclusion cannot be drawn purely on the basis; of G.P N.P ratios of other entities without supplying c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial at all. There must be something more than bare suspicion to support the assessment under s. 23(3). It is seen that in the instant case, assessing officer has not supplied complete data of various entities relied upon by him and as such prima facie reliance cannot be placed on the same for making any addition. Besides this, it is also seen that there is variation in profit margin of alleged comparable cases considering the fact that in case of M/s Mangukia Brothers, huge declaration has been made in the course of survey this indicates that it is not possible to lay down any standard profit margin in this line of activity. . As regards expenditure pattern of M/s Pramukh. Gems sister concern of assessee, I agree with the contention of appellant that comparison of selling, administrative and financial expenses cannot be made as various factors affecting the business, capital structure, policy decision etc. are not the same. As regard operating expenses, it is seen that difference-is only of 6.53% and therefore, in absence of any evidence on record, the above expenditure ratios cannot be taken as the basis for estimating the N.P only to the extent of 2% as against 18.94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her entity on the ground that they are sister concerns, it does not lead to the conclusion that profits have been inflated by assessee. I am of the opinion that there is no cogent evidence which indicates that assessee has inflated profit by arranging transactions with group concerns in such a manner which results in higher profit to assessee. Even otherwise, the addition in such a case can be made only in respect of transactions carried out, with sister concern and not in respect of entire business. In my opinion the provisions of section 80IA(10) can be invoked only if there are definite evidences which indicates that transactions done with group concerns are not at arms length price no such transactions have even been referred to. In this regard, I find that ratio of Honourable ITAT Ahmedabad Bench decision in case of M/s D. Javantilal Exports- ITA No. 1647/A/08 dated 19/12/2008 is directly applicable to the facts of the case. In that case also, the department's contention was that assessee has claimed insufficient expenses thereby shown higher profit which was claimed as deduction u/s 10A of the Act. Further addition in said case was made by invoking provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 92 (Bom), assessee was a pharmaceutical company which got its products manufactured from an associate concern it was held that assessee was engaged in manufacturing of articles. In view of these judicial pronouncements and the above discussion, I am of the opinion that deduction u/s 10AA of the Act is required to be allowed on entire export proceeds consequently the action of assessing officer in working out the eligible amount at ₹ 1,10,73,625/- only on the export value of goods manufactured by assessee on his own is not tenable. Hence, the deduction u/s 10AA of the Act is to be allowed as per the claim made in the return of income and addition made is hereby deleted and this ground of appeal is allowed. 4. Aggrieved, Revenue is now in appeal before the Tribunal by taking following grounds :- 1. On the facts and in the circumstances of the case and in law the Id. C1T(A) has erred in deleting the addition of ₹ 1,42.85.423/- made by the A.O. on account of disallowance of deduction u/s 10 AA of Me Act despite the fact that the major part of the manufacturing activity was carried out through its sister concerns situated outside the SEZ area in contravention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line of business. 4. The A O alternatively worked out the deduction u/s 10AA of the Act to the extent of ₹ 16,86,590/- as against ₹ 1,10,73,590/- claimed by the assessee. The A.O. relied upon the judgement of the Hon'ble Supreme Court in the case of Streling Foods Vs CIT 237 ITR 579 and Cambay Electric Supply Ind Company 113 ITR 84 held that the deduction claimed by the assessee is confirmed to the extent it has manufactured the diamonds in the SEZ as per stock register. Accordingly, the A.O. worked out the total income at ₹ 1,42,35,423/-. 5. On appeal, the Ld CIT (Appeals) held that there is no prohibition under the Act that in order to claim deduction u/s. 10AA of the Act, entire manufacturing activity must be carried out by the assessee himself. Moreover, considering the entire facts and circumstances of the case, there is no justification in estimating the NP @ 2% as there is no cogent basis on the part of the Assessing Officer for curtailing deduction u/s. 10AA by invoking provisions of Section 801A (10) of the Act. The Ld CIT ( Appeals) allowed the appeal of the assessee and deleted the addition made by the A.O. 6. The decision of the CIT (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. ITO vs. Skyjet Aviation (P) Ltd. 66 TTJ 0211 (Ahd.ITAT) 7. CIT vs. Pruthviraj Bhoorchand [IT Ref.No.50/1994] (Guj-HC) 152 Taxman 375 (Guj) 2006. 8. ITO vs. Makers Mart (ITA No.333/Jodh/2013(Jodh-ITAT) 50 taxmann.com 106 (Jodh-tri) 2014) 7. We have heard the rival contentions and perused the material on record. Solitary grievance of the Revenue in this appeal is against the action of ld. CIT(A) deleting the disallowance u/s 10AA of the Act at ₹ 1,42,85,423/- on profits earned from running the unit under SEZ. We find that Revenue has raised two grounds which are inter connected against the order of ld. CIT(A) wherein it has been held that both the alternatives namely invoking of provisions of section 10AA(9) r.w.s. 80IA(10) of the Act was not justified on the part of Assessing Officer and secondly goods manufactured from outside labourers on job work basis are also to be deemed as manufactured goods by units running in SEZ. While examining the first issue we observe that ld. Assessing Officer has not objected to the eligibility of assessee towards deduction u/s 10AA of the Act which undoubtedly proves that assessee has complied with all the basic conditions require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 10A. These are findings one of fact. The revenue have not been able to show that the findings are perverse or arbitrary. In the circumstances, issues raised by the revenue do not raise substantial questions of law in the instant facts and are, therefore, dismissed. [Para 8] 7.3 We observe that the Co-ordinate Bench, Delhi in the case of A.T. Kearney India (P) Ltd. vs. Addl. CIT, Range-1, New Delhi in IT Appeal No.348(Delhi) of 2013 for Asst. Year 2009-10 (2014) 50 taxmann.com 26 (Delhi-Trib) dealt with similar issue and while deciding the same has held as under :- 11 . Adverting to the facts of the extant case, we find that the AO simply relied on the TP study report submitted by the assessee to form a bedrock for the disallowance of the part of the amount of deduction u/s 10A, without firstly showing that there existed any arrangement between the assessee and its overseas related party, by which the transactions were so arranged as to produce more than the ordinary profits in the hands of the assessee. The assessment year under consideration is 2009-10. Neither the proviso to sub-section (10) existed at that time, nor such a proviso can be applied as we are deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its order dated 17.12.2012 has observed as under :- 12. After having considered the facts, material on record and other relevant details, we find that all the conditions to qualify for deduction u/s 80IB of the Act is found to have been fulfilled by the assessee, inasmuch as, first conditions of employing 10 or more labour when use of power is not disputed has been fulfilled because courts have held that contract labour also qualifies for deduction as envisaged under relevant provisions and useful reference can be made by the decision of Hon'ble Gujarat High Court in the case of CIT vs. Prithviraj Bhoorchand, 280 ITR 94, head notes of which are as under: Industrial undertaking- special deduction under section 801-Condition precedent -employment of specified number of employees-workers engaged on contract labour basis - Finding that assessee controlled the work and the manner of doing it-Workers were employees for purposes of section 80-1-LT. Act, 1961, s.80-1 . Similarly, it is also settled position of law that outsourcing of some of the processes will not disqualify the assessee from claiming or allowing deduction if end product is otherwise eligible for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, that would amount to a 'manufacturing activity* and therefore, the respondent/assessee was entitled for deduction under Section 801B of the Act. The Commissioner of Incometax (Appeals) therefore directed the Assessing Officer to ascertain the exact quantum of deduction after making proper verification to grant the relief. 5. The Tribunal also took the same view and held that the conversion of corrugated sheets into boxes would amount to 'manufacture' having noted the nature of activity of the respondent/assessee, which disclose that the plain corrugated sheets are put into the designing machine in order to chisel them into different shapes and pin them at the folded points to convert the plain sheets into corrugated boxes. 6. We are also convinced that such an activity of transforming the plain corrugated sheets into a different product of boxes, though to gain space for transportation, such boxes are kept in a folded position, one cannot say that the boxes continue to retain its original characteristics of corrugated sheets. Therefore, there is no scope to take a different view than what has been stated by the Commissioner of Income-tax (Appeals), as con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of a printing press or to be a book-binder himself. A paper is not a book, though it is printed on papers. A publisher may get the books printed from any printer but the printer is not the manufacturer but a mere contractor. The findings of the Tribunal conclusively show that the assessee was carrying on the activity of manufacturing and also of processing of books which are also goods.-CIT vs. Casino (P) Ltd. (1973) 91 ITR 289 (Ker) : TC24R.272#1 concurred with; CIT vs. Commercial Laws of India Pvt Ltd. (1977) 107 ITR 822 (Mad) : TC24R.246 dissented from. 11. Respectfully following the judgment of Hon. Bombay High Court and that of Calcutta High Court and also the decision of the Coordinate Bench and in view of our above discussion we are of the considered view that assessee in the course of running its undertaking in SEZ is allowed to send raw material outside the SEZ area for getting it in a finished form on job work basis through outside labourers and further this activity of getting goods manufactured through outside sources is duly covered under the manufacturing activities. 12. We have also come across the assessment orders u/s 143(3) of the Act in the case of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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