Income Tax Appellate Tribunal - Mumbai
Ito 14(3)(4), Mumbai vs Shree Jewels, Mumbai on 31 July, 2017
Shree Jewels AY:2008-09,2009-10 & 2010-11 आयकर अपीलीय अिधकरण "ई"
ायपीठ मुंबई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH, MUMBAI
ी सी. नाग साद, ाियक सद एवं
ी मनोज कुमार अ वाल, ले खा सद के सम ।
BEFORE SHRI C.N. PRASAD, JM AND
SHRI MANOJ KUMAR AGGARWAL, AM
आयकर अपील सं./I.T.A. Nos.7579 & 7580/Mum/2012,
2422/Mum/2014 & 6175/Mum/2014
(िनधा रण वष / Assessment Years: 2008-09, 2009-10 & 2010-11) Income Tax Officer 14(3)(4) Shree Jewels 6th Floor 199/201, 3rd Floor Earnest House बनाम/ Gold Coin Building Nariman Point Vs. Sheikh Memon Street Mumbai-400 021 Zaveri Bazar Mumbai 400 002 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No.ABHFS-0073M (अ पीलाथ# /Appellant) : ( $थ# / Respondent) & आयकर अ पील सं./I.T.A. Nos.7450&7451/Mum/2012 & 2379/Mum/2014 (िनधा रण वष / Assessment Years: 2008-09, 2009-10 & 2010-11) Shree Jewels Income Tax Officer 14(3)(4) बनाम/ th 199/201, 3rd Floor 6 Floor Gold Coin Building Vs. Earnest House 2 Shree Jewels AY:2008-09,2009-10 & 2010-11 Sheikh Memon Street Nariman Point Zaveri Bazar Mumbai-400 021 Mumbai 400 002 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No.ABHFS-0073-M (अ पीलाथ# /Appellant) : ( $थ# / Respondent) Revenue by : Ram Tiwari, Ld. DR Assessee by : Reepal Tralshawala, Ld. AR सुनवाई की तारीख / : 14/07/2017 Date of Hearing घोषणा की तारीख / : 31 /07/2017 Date of Pronouncement आदे श / O R D E R Per Manoj Kumar Aggarwal (Accountant Member)
1. These are cross appeals by Assessee and Revenue for Assessment Years [AY] 2008-09, 2009-10 & 2010-11 which assails separate orders of Ld. Commissioner of Income Tax (Appeals)-25 [CIT(A)] dated 30/10/2012 & 30/01/2014. The revenue has filed another appeal for AY 2008-09 against order of Ld. CIT(A) deleting penalty u/s 271(1)(c). Since, the issues arises out of common set of facts, we take up the same by way of this combined order for the sake of convenience and brevity. First, we take up revenue's appeal ITA No. 7579/Mum/2012 & assessee's appeal ITA No. 3 Shree Jewels AY:2008-09,2009-10 & 2010-11 7450/Mum/2012 for AY 2008-09 which contest the order of Ld. CIT(A) dated 30/10/2012 qua allowance of deduction u/s 10AA to the assessee.
2. Briefly stated, the assessee being resident firm engaged in the business of manufacturing & export of gold coins and medallions was assessed for AY 2008-09 u/s 143(3) of the Income Tax Act on 28/12/2010 at Rs.3,11,80,770/- as against 'Nil' return filed by the assessee on 21/09/2008. The assessee reflected turnover of Rs.32.33 crores and reflected net profit of Rs.3.12 crores which translates into NP rate of 9.64%. The assessee claimed deduction u/s 10AA for entire profit against manufacturing unit located at SEZ, Sachin, Surat being eligible unit / location entitled for deduction u/s 10AA. This deduction has been denied by Ld. AO and the same is the subject matter of this appeal. 2.1 The assessee's business premises at Mumbai & Surat were subjected to a survey action u/s 133A on 21/09/2010. It was found that the Mumbai premises was being used only as correspondence address whereas the Surat unit was found lying unattended and locked. The said unit was found to be in dilapidated condition and no employee connected with the unit was found at its premises and locks at the gates were found in rusted condition. The survey team found 2-3 junked machines lying in the premises and the unit was in shabby condition. A statement of a person namely Vimal Surti, Accountant of Global Proserve Ltd. (a unit just adjacent to assessee's unit) was recorded wherein he specifically stated that no business activity was being carried out from the said unit in the last 2 years which created serious 4 Shree Jewels AY:2008-09,2009-10 & 2010-11 doubt on assessee's claim u/s 10AA and consequently, the assessee was issued a show cause notice dated 13/12/2010 to explain his stand. 2.2 In reply, the assessee controverted the stand of revenue and explained that the assessee ceased his business operations much before the date of survey which is corroborated by the fact that the assessee vide its letter dated 08/02/2010 had already requested the Development Commission of Surat SEZ for de-bonding (closure) of the said unit and therefore, the business premises were locked and machines were found in rusted conditions. Nevertheless, no adverse inference could be drawn on the basis of the given facts since the presence of machines at the unit, by itself, corroborates the stand of the assessee that manufacturing activity was being carried out at the said unit in the past. The assessee also disputed the stand of revenue in placing reliance on the statement of a third person without confronting the same to the assessee and requested for the cross examination of the concerned person.
2.3 However, not convinced, Ld. AO appreciated the production process and electricity requirements to manufacture Gold Coin / Medallions and correlated the electricity consumption vis-à-vis date of purchase / sale reflected by the assessee and inferred that no manufacturing activity was being carried out by the assessee at the said unit.
2.4 The Ld. AO further corroborated the same by drawing adverse inferences from the statement of Shailesh Jain prop. S.L.Industries who worked as labour contractor for the assessee and finally came to conclusion 5 Shree Jewels AY:2008-09,2009-10 & 2010-11 that since no manufacturing activity was carried out by the assessee, deduction u/s 10AA was not available to him.
2.5 The Ld. AO, in the alternative, noted that the declared NP rate of 9.64% was on the higher side and upon comparison of the same with NP declared by five other assessee in similar line of business came to conclusion that the profit in this line of business could not be more than 2%. Finally, applying the provisions of Section 10AA(9) read with Section 80IA(10) the Ld. AO, in the alternative, proposed deduction only to the extent of 2% of the turnover achieved by the assessee.
3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 30/10/2012 and raised various contentions. The assessee vehemently protested the action of AO and in support, submitted import / export documents, documents relating to movement of goods to and from strong room of SEZ from assessee's premises, custom approvals, computation of electricity consumption from expert, confirmation of labor contractor, confirmation of government approved valuer who had checked the purity of Gold Medallions at assessee's premises etc. Consequently, remand report was called from Ld. AO who, while contesting the stand of the assessee, justified the denial of exemption.
3.1 The assessee placed reliance on many judicial pronouncements standing in his favor under identical set of facts and circumstances and stressed that it had already intimated the Development Commissioner of Surat SEZ on 08/02/2010 for de-bonding (closure) of the unit and received 6 Shree Jewels AY:2008-09,2009-10 & 2010-11 communication dated 15/04/2010 from the Ministry of Commerce and Industry in respect of closure of unit in SEZ which explained the condition of factory premises at the time of survey on 21/09/2010. 3.2 The assessee also pointed out the payment made by him towards electricity charges from time to time and possibility of default in the Phase- III electricity meters installed at the said unit. He further controverted the stand of revenue by pointing out that labor contractor was duly paid for the job work through banking channels after deduction of due TDS and therefore, no adverse inference could be drawn against the assessee. 3.3 The assessee further pointed out that the assessee was obliged to file Annual Progress Report [APR] of the unit on manufacturing carried out to the Development Commissioner which contained complete quantitative details of import / export / forex earned by the unit and placed on record the copies of APR in support of the contention that the manufacturing activity, in fact, was carried at the said unit by the assessee.
3.4 Regarding estimation of profit, the assessee justified the declared NP of 9.64% and contended that all transactions were with unrelated third parties and export realization was in foreign currency and all import / export transactions were subject to strict government regulations and approved by independent government agencies at various stages. The assessee also distinguished the line of business carried out by the five comparable parties selected by Ld. AO and justified the profit declared by him. 3.5 Finally, after elaborate discussion, Ld. CIT(A) agreed with various contentions of the assessee and concluded the matter as follows:-
7Shree Jewels AY:2008-09,2009-10 & 2010-11
5. I have gone through written submissions carefully and also the assessment order and subsequent remand reports of the AO as well as order of Ld. CIT(A) and Hon'ble ITAT as relied upon by the Ld. AR. There is merit in the contention made by the Ld. ARs that manufacturing activity did take place in the SEZ unit of the assessee in instant years for on/ facts discussed hereafter as divulging from records.
1) It is evident that the appellant had on 8/2/2010 written a letter to the Development-
Commissioner of Surat SEZ intimating the Debonding (Closure) of the unit in SEZ. The Appellant had also received a communication from Ministry of Commerce and industry dated 15/4/2010 in response to its letter dated 8/2/2010 for closure of business activity in SEZ Unit. The SEZ unit was closed on 8/2/2010 and the Survey Action took place on 21/9/2010. During the course of survey no indiscriminating documents were found. The fact that machineries and manufacturing were found at the SEZ Unit of the appellant in spite of debonding of the SEZ Unit (i.e. after a gap of more than 8 months of closure) itself speaks that manufacturing activities were carried out in the SEZ premise. The same have been accepted by AO that machinery were found at the unit during the Survey Action. The AO has mentioned in the assessment order that the unit was lying unattended and locks were badly rusted and the unit was in a dilapidated condition but the AO chose to ignore and comment on the vital point made by the Appellant that the unit was debonded (closed) from 8th February 2010, much before the Survey Action took place on 21/09/2010.
2) The machineries for manufacturing were found at the premise of the assessee. The same has been accepted by the AO in the assessment order and remand reports which is also evidenced by photographs taken by survey officials. The said facts have been fortified by statements recorded on oath on 21/9/10 and 24/10/2012 of labour contractors declaration and operations carried out through the same machines. There is force in the argument of the Ld.AR that import and export takes place only when there is order in hand and therefore the machines remain idle in remaining period for want of order of export of gold medallion.
3) The assessee was given permission by the Development Commissioner, a Govt. Authority, to carry out manufacturing inside SEZ. The assessee cannot carry out any other activity inside the SEZ as per permission/approval letter of Development Commissioner. The appellant has stated that there were in all Five transaction of import and Export during the life time of the partnership firm and the same has been reconfirmed by a letter dated 20/12/2010 from the office of the Development Commissioner that Five Transactions took place from A.Y. 2008/09 to A.Y. 2010/11 proving once against that manufacturing activity took place in SEZ, Sachin.
4) Each and every movement (import and export) of the unit inside the SEZ is under the direct control of customs and SEZ authorities, The 'unit is not allowed to handle the imported goods before it reaches the strong room of the SEZ controlled by Govt. authorities. The unit has to give the goods back to the strong room for export and the unit has no further role in shipping of goods to the buyer. Such movements are clearly authenticated in documents of these Govt. Agencies i.e.to say customs and SEZ authority.
8Shree Jewels AY:2008-09,2009-10 & 2010-11
5)During the Course of Survey Action in SEZ Unit at Sachin, the AO had recorded a statement of one third party i.e. one Mr. Vimal Surti purportedly to be an Accountant of an Adjacent Unit, who in his statement has stated that he has never seen any business activity being carried out for the past two years. The AO has relied on a third party statement who is nowhere connected with the business activity of the appellant and in spite of repeated requests which are on records, the AO has not given a copy of the statement recorded on oath nor has given any opportunity to the appellant to cross examine the said party. The said statement has no evidentiary value and cannot be used against the appellant in the absence of any cross examination of the said unknown party. The appellant is unaware whether the said Mr. Vimal Surti was located in the SEZ all the time and how can he be sure that there is no activity being carried out in the unit when he is not a part of the appellants business in any way. However it is a factual data that the last manufacturing activity did take place in the month of 22 & 23 June 2009 and the statement seems to be recorded on 21st September 2010, thus around one and a quarter year had elapsed since the last manufacturing activity did take place. Thus, in any case the statement of the said Ms. Vimal Surti has no much relevance on the issue in light of apparent and patent facts of the case, Similarly a statement on oath was recorded at Mumbai of one Mr. Mahendra P. Jain at Mumbai address during the Survey action on 21/9/2010. The appellant has not been provided with a copy of the statement to comment on the same till date. However from the gist of the findings which the AO has chose to disclose, the following facts can be deduced as under:-
• That Mr. Mahendra P Jain is a distant relative of Sri Mukesh Jain, one of the partners of the appellant.
• That no business activity of the appellant were undertaken from the said premise at the time of survey which is a fact as the appellant had closed business.
• That tine were certain documents tying in a small Almirah which were kept in his premise by Shri Mukesh Jain, one of the partners of the appellant. •That the AO has himself agreed that the documents found were couple of sale and purchase invoices and audit report of the Appellant. Thus, this statement also impliedly fortifies the stand of the assessee. The appellant has explained the electric consumption and also pointed out that whenever there is a manufacturing activity undertaken the electric consumption has been recorded by the electric company in the same month of production or in the subsequent month. Also it has been pointed out that the Electric meter were faulty and the appellant had paid Rs. 9,100/- as energy charges and Rs, 900/-as reconnection charges on 19/7/2007. Similarly the appellant had paid Rs. 13,900/- (Rs.13,000/- plus Rs. 900/-) as Energy charges and Rs.1,100/- ( Rs. 900/- plus Its. 200/-) as reconnection charges on 29/7/2009. Thus the Electric Company had charged for all the electricity consumption amounts from the appellant due to faulty readings in the Meter.
6) Several Govt. Agencies in India and aboard are involved in import and export carried out by the assessee including RBI. All the payments of the import as well as export had been routed through banking channel of the RBI.9
Shree Jewels AY:2008-09,2009-10 & 2010-11
7) There were total three transactions of purchase, manufacturing and sale during the year under consideration and the assessee had given the flow of each of such purchase and sale transaction supported by documentary evidences wherein more than one Govt. Agencies are involved. It is evident that a process of manufacture was carried out at the SEZ, premise of the assessee as the documentary and circumstantial evidences clearly establish that gold bars were imported and after due process of manufacturing gold medallion were exported in both assessment years.
8) Proper deduction of TDS for payment to the labour contractor was made who had confirmed his job work at the premise of the assessee by an affidavit as well as statement on oath before the AO as well as during the course of appellate proceeding.
9) The Ld.AR had submitted that Govt. recognized approved valuer M/s Salim J. Daginawala had visited assessee premise in Sachin SEZ for checking purity of medallion manufactured by the assessee which itself proves manufacturing activity at the SEZ by an independent person, more so when he is a recognized Govt. approved valuer. On being asked, the assessee furnished relevant document from him which clearly states that he had checked the purity of gold medallion of the assessee at unit No. 404 on plot No.248 on each occasion.
10)The AO could not rebute convincingly any of the submissions of the appellant in the remand reports like documents and evidences related to SEZ authority and custom authority categorical confirmation of labour contractor. etc. Even otherwise it is undisputed that manufacturing activity was limited for three transactions on three different days. The nature and scope of activity is not such that operations should remain in continuity for months or for a whole year. Therefore the electric consumption would be minimal as applicable for respective days.
11) The AO was not able to establish the close connection so as to take the recourse of section 80IA(10). The assessee had proved by facts and also giving an affidavit (on being asked) that none of his purchase (import) and sale (export) parties were related to the asssessee.
12) The value addition in export bills is divulging which is also duly appearing in customs documents.
13) The Ld.AR had submitted three appellate orders of CIT's(A) and one ITAT order. The facts and issues were similar. In one of the appellate order in the case of GIA Exports, the facts were almost identical wherein the Ld. CIT(A)-41, Mumbai had upheld the deduction us/ 10AA In that case business activity was in the same SEZ i.e. Sachin,Surat wherein survey / search action Was carried out and search action carried out in parent concern wherein the said party / assessee was partner.
In view of such patent facts, it immensely transpires that manufacturing had taken place at assessee's premise in SEZ in instant assessment years beyond doubt and therefore the assessee qualifies for deduction u/s 10AA of the Act in instant assessment years."
10Shree Jewels AY:2008-09,2009-10 & 2010-11 3.6 However, having held so, Ld. CIT(A) restricted the deduction u/s 10AA to 8% of the turnover, being estimated profit from the manufacturing unit after appreciating the provisions of Section 44AD. 3.7 Aggrieved, both assessee as well as revenue is in appeal before us. The revenue is aggrieved by grant of deduction u/s 10AA whereas the assessee is aggrieved by profit estimation @8% as against higher profits declared by him.
4. The Ld. Departmental representative [DR] justified the stand of Ld. AO and contended that the complete onus to prove the manufacturing activity was on assessee and Ld. AO was justified in his conclusion since the survey action revealed that the unit was lying unattended in dilapidated condition which controverts the claim of the assessee. Our attention was also drawn to the fact that the nature of manufacturing activity carried out by assessee required heavy electricity consumption whereas the same was very minimum and hence not justified and therefore, cast serious doubts on the claim of the assessee.
4.1 Per Contra, the Ld. Counsel for assessee [AR] vehemently supported the stand taken by Ld. CIT(A) and contended that the whole manufacturing activity carried out by assessee was subject to strict government control and regulations over various stages and therefore, the same could not be doubted. The assessee controverted each and every stand of the revenue by submitting relevant documents / information from time to time and therefore, no adverse inference could be drawn against the assessee.
11Shree Jewels AY:2008-09,2009-10 & 2010-11 4.2 Regarding profit estimation, the Ld. AR drew our attention to the fact that all transactions were with unrelated third parties supported by purchase / sale documents and benefit could not be denied merely on the basis of doubts / conjectures or surmises. The accounts of the assessee were subjected to audit and the revenue could not point out even single instance of suppression in sales / purchase / expenses figure reflected by the assessee and therefore there was no occasion / justification to estimate the profit and assessee was entitled for full deduction of profit as reflected by him.
5. We have heard the rival contentions and perused the relevant material on record. After going through the same and after weighing the respective contentions, we find that Ld. CIT(A) has clinched the issue in the right perspective since the whole manufacturing activity carried out by the assessee was in SEZ which was subject to strict government control and regulations at various stages. The movement of goods was well documented and under government monitoring. Further, the assessee has carried out only three import and export transactions during the year and manufacturing activity has taken place only for few days at the said unit and the transactions are well supported by various import / export documents and subject to custom approvals and clearances at various stages. The progress of the unit was subject to reporting to government agency by way of Annual Progress Report. The revenue could not point out any discrepancies in the documents which is quite evident from the assessment order and observations / conclusions drawn by Ld. AO.
12Shree Jewels AY:2008-09,2009-10 & 2010-11 5.1 The revenue has doubted the claim of the assessee on the basis of survey action which was carried out on 21/09/2010 whereas the assessee himself has pointed out that the unit was already closed by him much earlier vide his letter dated 08/02/2010 written to the Development Commissioner. The reply received from the ministry vide letter dated 15/04/2010 is placed on record which supports the contention of the assessee. This is further corroborated by the fact that the assessee's turnover in AY 2011-12 & 2012-13 has fallen drastically and the assessee has not claimed any deduction u/s 10AA in AY 2011-12 & 2012-13 but, in fact, sold the machinery in AY 2011-12. Therefore, we find the same in tune with the contentions / conduct of the assessee.
5.2 The another factor which has led the Ld. AO to disbelief the stand of the assessee is electricity consumption. However, we find that the assessee has carried out only three import transactions during the year and the unit has run only for very few days. The assessee has deposited electricity charges from time to time as observed by Ld. CIT(A). Further, Ld. AO himself has noted that there was some electricity consumption in Phase-1 and Phase-III electricity meters but the same is not in tune with manufacturing pattern carried out by the assessee. The assessee has explained his position by pointing out the possibility of default in Phase-III meters. Therefore, the stand of the revenue, in itself, is not final and conclusive and subject to subjective interpretation. It is settled position that no additions could be made merely on the basis of mere doubts / conjectures / surmises. Therefore, the benefit of the same has to be given 13 Shree Jewels AY:2008-09,2009-10 & 2010-11 to the assessee particularly when all the other factors stand in assessee's favor.
5.3 As far as the estimation of profit is concerned, we find that the accounts of the assessee were subject to audit and the same has been accepted by the revenue. No discrepancies have been pointed in the same and the assessee has already submitted that all the transactions were with unrelated third parties. The revenue has not doubted the sale / purchase / expenses figures reflected by the assessee. Therefore, comparing the same, in vaccum with the profit margins of third parties, without doubting the assessee's figures, is not justified. Therefore, we find no justification in estimating the profit margins earned by the assessee and therefore, inclined to concur with the stand of the assessee.
5.4 Our above views are further fortified by the decision of this Tribunal rendered in ACIT Vs. Gia Exports [ITA No. 8080 to 8082/Mum/2011 order dated 19/06/2013] where similar view has been taken and similar conclusions have been drawn.
6. Therefore, we are inclined to dismiss the revenue's appeal and allo assessee's appeal. We held so.
7. Now, we take up assessee's appeal ITA No.7451/Mum/2012 and revenue's appeal ITA No. 7580/Mum/2012 for AY 2009-10. In this AY, the assessee suffered similar disallowance u/s 10AA for Rs.233.59 Lacs. The Ld. CIT(A), vide impugned order dated 30/10/2012, while allowing the claim of the assessee, has restricted the same to 8%. The order of Ld. CIT(A) is common order for AY 2008-09 & 2009-10. Since, the issue is identical in all 14 Shree Jewels AY:2008-09,2009-10 & 2010-11 respect with AY 2008-09 except for figures and minor variations, our observations / conclusions mutatis mutandis apply to the same. Resultantly, the revenue's appeal stands dismissed whereas the assessee's appeal stands allowed.
8. The assessee's appeal ITA No.2379/Mum/2014 and revenue's appeal ITA No. 2422/Mum/2014 for AY 2010-11 contest similar issue on identical set of facts. In this AY, the assessee suffered similar disallowance u/s 10AA for Rs.152.48 Lacs. The Ld. CIT(A), vide impugned order dated 30/01/2014 while allowing the claim of the assessee, has restricted the same to 8%. Since, the issue is identical with AY 2008-09 in all respect except for figures and minor variations, our observations / conclusions mutatis mutandis apply to the same. Resultantly, the revenue's appeal stands dismissed whereas the assessee's appeal stands allowed.
9. ITA No.6175/Mum/2014 is revenue's appeal for AY 2008-09 against the order of Ld. CIT(A) order dated 03/07/2014 qua deletion of penalty u/s 271(1)(c). The assessee was saddled with penalty of Rs.18.05 Lacs on 18/03/2014 against denial of exemption u/s 10AA. The same has been deleted by Ld. CIT(A) by placing reliance on the decision of Hon'ble Supreme Court in CIT Vs. Reliance Petroproducts Pvt. Ltd. [322 ITR 158]. Since, we have already decided the quantum addition in assessee's favor as above, there is no reason to delve into the correctness of imposition of penalty. Resultantly, the revenue's appeal stands dismissed.
15Shree Jewels AY:2008-09,2009-10 & 2010-11
10. In Nutshell, all the four appeals filed by the revenue stands dismissed whereas all the three appeals filed by the assessee stands allowed.
Order pronounced in the open court on 31st July, 2017.
Sd/- Sd/-
(C. N. Prasad) (Manoj Kumar Aggarwal)
ाियक सद / Judicial Member लेखा सद / Accountant Member
मुंबई Mumbai; िदनांक Dated : 31 .07.2017
Sr.PS:- Thirumalesh
आदे श की ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ# / The Appellant
2. $थ# / The Respondent
3. आयकर आयु,(अपील) / The CIT(A)
4. आयकर आयु, / CIT - concerned
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड0 फाईल / Guard File आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai