9911796707
TMI Blog2019 (6) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... ly audited. b) On the facts and under the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of AO in concluding that the profitability ofbusiness of SEZ unit and non SEZ units is same, without appreciating the fact that the SEZ unit is into business of manufacturing of Gold coins whereas non SEZ unit is into trading of gold and diamond hence both the line of businesses although in Gem and Jewellery industry cannot be deemed to be same by any stretch of imagination and profitability in manufacturing is always higher. c) On the facts and under the circumstances of the case and in law, the Learned CIT(A) erred in confirming the conclusion of the AO that the profitability should be same between SEZ and non SEZ businesses as the goods from both the units are exported to common parties without appreciating the fact that different goods/products are exported. Gold coins are exported by SEZ and Jewellery and diamonds are exported by non SEZ units. d) On the facts and under the circumstances of the case and in law, the Learned CIT(A) erred in confirming the addition made by the AO in restricting the benefit of Sec 10A at RS 5.92 Crores instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved that the hedging was made for such non SEZ transactions only." 3. Briefly stated, the assessee is stated to be engaged in the business of manufacturing of plain gold jewellery/coins and trading in gold and diamond. The return filed by the assessee for AY 2011-12 was subjected to scrutiny assessment. In the course of scrutiny assessment, the AO noted that the assessee during the year started the manufacturing unit at Cochin which is located in Special Economic Zone (SEZ). The assessee has another non SEZ units at Surat & Mumbai as well. The assessee claimed deduction under s.10AA of the Act amounting to Rs. 13,69,95,563/- for the AY 2011-12 out of profits of SEZ unit at Cochin. It was claimed that the assessee is engaged in manufacturing activity at Cochin SEZ where gold coins and plain gold jewellery are manufactured from gold bars. The Surat and Mumbai Units on the other hand are engaged in mere trading of gold and diamond. The AO however alleged a similarity in the nature of business of SEZ unit and non SEZ unit and observed that there is substantial variation in net profit ratio between the SEZ and non SEZ units. The AO thus referred to the provisions of Section 10AA(9) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alternative contention of the assessee that where gross profit for SEZ unit has been estimated (at 3%) separate disallowance of Rs. 17,70,848/- is not called for by way of re-allocation of expenses over and above the estimations so made. The CIT(A) accordingly deleted the aforesaid disallowance towards expenses allocated to SEZ unit. The relevant operative paras of the order of the CIT(A) addressing various issues is reproduced hereunder: "Ground no 1. Since Ground 1a to 1f are related to common issues, the same are adjudicated together as follows: Under these ground of appeal, the appellant has agitated disallowance of Rs. 13,69,95,563/- us/ 10AA in respect of SEZ unit. The AO has observed that the appellant is engaged in the business of manufacturing and trading in gold and diamonds. During the year under appeal the appellant combines a manufacturing unit at Cochin located in SEZ on which deduction u/s 10AA was claimed to the tune of Rs. 13,69,95,563/-. The AO further observed that the appellant has got non-SEZ unit at Mumbai and Surat. On making the inquiries the AO found that the appellant had offered very high net profit in respect of SEZ unit at Cochin as compared t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the AO is reasonable and on sound footing. The AO has correctly found that excessive profits were offered in SEZ units as compared to loss/meagre profit in non-SEZ units. I also find that mere maintenance of separate books of accounts cannot be held to be determinative of true and correct profits of either units. Once the differential profits were pointed by the AO the onus pnhim was - duly discharged. Whereas thereafter mere denial of such differential profit by itself does not absolve the appellant of rebutting allegation of AO. I also find that the parties in UAE might not be related to the appellant. But at the same time differential profit worked out by the appellant remained inadequately rebutted at the end of the appellant. Infact the provision of section 801A(10) clearly empowers the AO to rework and deduce the correct profit attributable to sez AND non SEZ units under such circumstances. I am therefore of the considered opinion that the claim of the deduction worked out by the AO restricting the same to Rs. 5,92,02,308/- instead of Rs. 13,69,95,563/- is correct and deserves to be upheld. This ground of appeal is treated as dismissed. Ground no. 2 Under these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gth in the argument of the appellant that after estimating the gross profit and reallocating expenses in forgoing ground 1& 2, the AO could not have made further disallowance of expenses which tantamount double additions duc to the same facts. I am t1herefore of the considered opinion that disallowance of R.17,70,848/- deserves to be deleted. I therefore direct the AO to delete the same and grant relief. Accordingly ground no 3 treated as allowed." 8. Aggrieved by the order of the CIT(A), the assessee preferred the appeal before the Tribunal. 9. The learned Counsel for the assessee submitted at the outset that the AO committed gross error on facts as well as in law in estimating the profits of SEZ unit at 3% of turnover arbitrarily as against the actual profits declared at 6.95% without appreciating the fact that the accounts of SEZ unit are separately maintained and duly audited. The learned counsel submitted that the separate book results of SEZ unit and non SEZ units cannot be disturbed without rejection of books of accounts and without pointing out specific defects. The learned AR also emphasized that the conditions specified under s.80IA(8) r.w.s. 80IA(10) of the Act has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t business structure as well as product would not itself be capable to penalizing the efficient working of SEZ unit as held in several decisions. The learned AR thereafter propagated that department must show the business between the assessee and other is not only closely connected person but also is 'so arranged' that business transacted by them produces more than ordinary profits to the assessee. Such ingredients are missing in the instant case and no arrangement has been established by the Revenue in the instant case and accordingly the Revenue was not justified in invoking the provisions of Section 80IA(10) of the Act. 9.3 Augmenting its case, the learned AR heavily relied upon the decision of the Hon'ble Bombay High Court in the case of Malay Sanghvi vs. ITO (2017) 391 ITR 382 (Bom) wherein the claim of deduction under s.80IB of the Act was held to be allowed without any restriction on appropriate application of Section 80IA(10) of the Act in view of inability of the Revenue to place any evidence to prove that there was any arrangement between assessee unit and his wife's unit which resulted in inflated profits to the eligible unit of the assessee. The learned AR also referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e connection' between the parties to whom the products have been sold and in the absence of any 'arrangement' successfully demonstrated by the Revenue whereby business transacted between them yielded more than ordinary profits to eligible unit of assessee, the adjustments permissible under s.80IA(10) of the Act for reduction of eligible claim under s.10AA of the Act is not tenable at all. 9.5 The learned AR further added that the assessee had declared a reasonable profit of 6.95% of turnover which cannot be visualized as extraordinary profit. The learned AR further questioned the wisdom of the AO to estimate profit at 3% of the turnover without showing any cogent basis. The learned AR thereafter submitted that the books of accounts for eligible and non-eligible accounts were maintained separately and no defect was found per se in the books. The books of accounts have not been rejected and therefore the book results of eligible SEZ unit ought to have been accepted as declared. The learned AR accordingly urged for reversal of estimating of profits of eligible unit by AO for the purposes of quantification of deduction under s.10AA of the Act. 10. The learned DR, on the other hand, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbai and Surat gives an impression of yielding extraordinary profits in eligible unit. It is the case of the AO that both eligible and non eligible units are engaged in similar line of business. While Cochin unit is engaged in selling of plain gold coins, the non eligible units are also engaged in selling of gold and diamond. The parties to whom the aforesaid commodities are supplied from different units are also the same. It is also the case of the AO that Cochin unit is merely engaged in conversion of gold bar to gold coin and therefore hardly any manufacturing activity is involved which is also proved by meager manufacturing expenses in few thousands. While the Cochin unit where the deduction is available under s.10AA of the Act and consequently the profit is not taxable, the assessee has declared a whopping profit of Rs. 13.69 Crores on a turnover of Rs. 197.34 Crores, the Mumbai & Surat units (non eligible units) on the other hand have declared a loss of Rs. 66.06 Lakhs on a turnover of Rs. 165.42 Crores despite similarity in business model. It is thus the case of the AO that in view of similar nature of business of SEZ unit and non SEZ unit, substantial variation in the net p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore, adjustment to the eligible profit under s. 10AA of the Act is without authority of law. It is also the case of the assessee that the AO could not have estimated profit @ 3% under the normal provisions in the absence of rejection of books accounts under s.145(3) of the Act and in the absence of any specific defects pointed out in the books. 11.3 At this stage, we observe that the profits eligible for deduction under s.10AA of the Act can suitably be reduced by the AO where the provisions of Section 80IA(8) or 80IA(10) of the Act found to be attracted. At this juncture, we refer to Sub-section (8) and Subsection (10) to Section 80IA of the Act to which the reference has been made under s.10AA(9) of the Act. It is the case of the assessee that it has neither transferred any goods or services held for the purpose of eligible business to any other business carried on by the assessee nor has transferred any goods or service held for the purpose of any other business carried on by the assessee to the eligible business. The AO has not brought any material on record to prove so. In the light of such fact situation, we hold that the conditions for applicability of Sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for invoking Section 80IA(8), (9) & (10). The Hon'ble Bombay High Court in Schmetz India (P) Ltd. (supra) has also observed that merely because an assessee makes an extraordinary profit, it would not lead to the conclusion that same was organized / arranged. The onus is on AO to prove the presence of any arrangement between the parties which have resulted in extraordinary profits to the eligible unit. The AO could have, at least, brought variation in price of supply of commodity from different units on record to establish collusion/arrangement. The onus remains undischarged except for presence of suspicious circumstances. 11.5 We have perused the decision rendered by Hon'ble Punjab & Haryana High Court in the case of Deepak Verma (supra) relied upon on behalf of the Revenue. The aforesaid case relates to re-allocation of expenses between eligible unit and non eligible unit. We agree with the case made out on behalf of the AO for re-allocation of expenses to the extent of Rs. 17.70 Lakhs and therefore do not delineate with the same any further. 11.6 Therefore, in the light of factual position and applicable law as interpreted by the judicial fiats, we are of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
