Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income ... vs Vhn Diamonds, Mumbai on 19 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "F", MUMBAI
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
AND
SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
ITA No. 5440/Mum/2017
Assessment Year : 2012-13
Deputy Commissioner of M/s. VHN Diamonds,
Income Tax-25(1), E-82, Bharat Diamond Bourse,
MUMBAI Vs. Bandra Kurla Complex,
Bandra (East),
MUMBAI
[PAN : AAHFV 4786 B]
(Appellant) (Respondent)
Appellant By : Shri Rajeev Gubgobra, DR
Respondent By : Shri Bhupendra Shah, AR
Date of Hearing : 17-12-2018 Date of Pronouncement : 19-12-2018
ORDER
Per Rajesh Kumar, Accountant Member:
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax(Appeals)-37, Mumbai, dated 09-06-2017. The grounds raised by Revenue are as under:
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made of Rs. 3,80,67,381/- on account of deduction claimed u/s. 10AA of the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the addition was made on the basis of Form 56 submitted by the assessee as well as the letter of the Development Commissioner and other evidences gathered during scrutiny proceedings.2 ITA No. 5440/Mum/2017
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not offering an opportunity to the Assessing Officer under Rule 46A to examine the additional submissions of the assessee during appellate proceedings.
4. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
5. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary."
2. The facts in brief are that the assessee is a firm and is engaged in the business of import/export, sale/purchase manufacturing/trading of diamonds besides manufacturing and export of jewellery in Special Economic Zone (SEZ), Surat under the name and style of VHN Diamonds. During the year, the assessee claimed deduction u/s. 10AA of the Income Tax Act (Act) to the tune of Rs. 3,80,67,381/- in respect of the activity of manufacturing of cutting and polishing of diamond and making of jewellery VHN Diamonds unit in SEZ. During the year, the total turnover of assessee from the said undertaking was Rs. 20.26 Crores whereas total profit resulting therefrom were Rs. 3,80,67,381/- which were claimed u/s 10AA of the Act. The Assessing Officer (AO) rejected the claim of assessee u/s. 10AA of the Act for various reasons such as the assessee has not commenced its production on 1st September, 2011 as the 3 ITA No. 5440/Mum/2017 assessee has submitted to the Development Commissioner of SEZ vide letter dt. 5th September, 2011, that the commercial production was commenced on 5th September, 2011, that Plant and Machinery from D.S. Jewellers and Tools was purchased vide invoice dt. 04-10-2011 thereby drawing an inference that the Plant and Machinery must have been installed after 04-10- 2011 and thus concluding that production has commenced on 5th September, 2011. AO also noted that the validity of letter issued by the Development Commissioner expired on 23-03-2011 and thereafter, assessee did not obtain any valid approval from the Development Commissioner. Therefore, assessee did not have any valid approval from the Development Commissioner as per the provisions of Special Economic Zone Act, 2005 and Special Economic Zone Rules, 2006 and accordingly it could not be treated as an entrepreneur within the meaning of Section 10AA r.w.s. 2(j) and 15(9) of the SEZ Act, 2005. Finally, the Ld.AO observed that assessee has shown purchase of silver worth Rs. 4,52,608/- for manufacturing diamonds studded jewellery, which was disclosed in the Profit & Loss A/c of VHN Diamonds. However, in the consolidated Balance Sheet and Profit & Loss A/c, the assessee did not disclose any quantity of silver bought. 4 ITA No. 5440/Mum/2017 Finally, the AO rejected the contentions and submissions of assessee and disallowed the claim u/s. 10AA of the Act to the tune of Rs. 3,80,67,381/-.
3. In the appellate proceedings, CIT(A) after considering the submissions of assessee decided the issue by observing and holding as under:
"5.17 After considering the totality of facts, rival submissions and on the basis of discussion mentioned above, I find force in the argument of the appellant. The appellant is engaged in manufacturing of diamond jewellery. The appellant has started commercial production from 05-09- 2011 and appellant has also started export from 29-09-2011.The Development Commissioner has extended the validity upto the 29-09- 2012 for the commencement of commercial production. Further, appellant has submitted relevant documents and established that appellant is engaged in the manufacturing of diamond jewellery. Further, appellant has submitted copy of assessment order u/s. 143(3) for the A.Y.2013-14 and A.Y.2014-15 wherein A.O. has accepted that appellant has fulfiled the eligibility criteria u/s. 10AA of I.T.Act and allowed the deduction in the A.Y.2013-14. Further, it is found that the activity carried out at SEZ unit is distinctly different from the activity carried out at Non SEZ unit. The books of account have been separately maintained and all the expenses incurred for the respective unit have been showed in separate profit and loss account. However, considering the nature of business of appellant, some of the common expenses cannot be ruled out which is debited by the appellant in the taxable unit. The A.O. has disallowed Rs.16,16,239/- and reduced from claim of deduction. The disallowance of Rs.16,16,239/- is appeared to be excessive, the A.O. is directed to disallow 20% of Rs.16,16,239/- i.e. Rs.3,23,247/-. In view of the above, I have come to the conclusion that appellant is eligible for deduction of Rs.3,77,44,134/- (Rs.3,80,67,381/-
- Rs.3,23,247/-) u/s.10AA of I.T.Act. This ground of appeal is partly allowed".
4. We have heard the rival submissions and perused the material on record. We find from the perusal of appellate order 5 ITA No. 5440/Mum/2017 that the Ld. CIT(A) has recorded findings of the fact that assessee has fulfilled all the conditions as envisaged u/s. 10AA of the Act. Ld. CIT(A) recorded findings of the fact that the commercial production started on 5th September, 2011 and the assessee has started exporting the manufactured products from 29-09-2011. Ld. CIT(A) also noted that the Development Commissioner of SEZ extended the validity upto 29-09-2012 for commencement of production. We further find from the order of CIT(A) that even in the assessment proceedings u/s. 143(3) of the Act for the AYs. 2013-14 & 2014-15, AO has accepted the fact that the assessee has fulfilled the necessary conditions as envisaged u/s. 10AA of the Act and allowed the deduction u/s 10AA of the Act accordingly. We find merit in the contentions of Ld. AR that the purchase of silver for manufacture of diamonds studded jewellery was duly disclosed in the Profit & Loss A/c of VHN Diamonds to the tune of Rs. 4,52,608/-, whereas the same could not be disclosed under the proper head in the consolidated Balance Sheet and Profit & Loss A/c inadvertently and the quantity of silver purchased, was also not disclosed. In our opinion, the mere mistake on the part of assessee in making the consolidation of accounts could not be a reason for rejecting the 6 ITA No. 5440/Mum/2017 claim of deduction u/s. 10AA when the assessee has fulfilled all the conditions precedent for allowing the said deduction which stands accepted by the revenue itself in the following years. The assessee candidly admitted that the purchase bills of the silver to the tune of Rs. 4,52,608/- were duly filed before the AO vide letter dt. 11-03-2015 and it was inadvertently shown under the head of 'local purchases' under rough diamond. Considering all the facts of the case in totality, we do not find any reason to interfere with the order of Ld. CIT(A), which is a reasoned and speaking order dealing with each and every observations/objectionss of the AO on the basis of which AO rejecting the claim of assessee. Under these circumstances, we are inclined to uphold the order of CIT(A) by dismissing the appeal of Revenue.
5. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 19th day of December, 2018 Sd/- Sd/-
(SANDEEP GOSAIN) (RAJESH KUMAR) याियक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER मुंबई/Mumbai; दनांक /Dated : 19th December, 2018 TNMM 7 ITA No. 5440/Mum/2017
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु (अपील) / The CIT, Mumbai
4. आयकर आयु / CIT(A), Mumbai
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file आदेशानुसार/ BY ORDER, स यािपत ित //True Copy// उप/सहायक पंजीकार (Dy./Asst. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai