DCIT 14(2)(1), MUMBAI vs. JEWELEX INDIA P.LTD, MUMBAI

The first issue in this appeal of Revenue is against the order of CIT(A) deleting the same of Rs. 1,85,609/- being bogus purchases. For this Revenue has raised following ground No.1: -

Briefly stated facts are that the assessee is engaged in the manufacturing and export of jewelry. During the course of assessment proceedings, the AO noticed that the assessee has shown purchase of Rs.1,10,890/- from Ozonetex Trading Co. Pvt. Ltd. and further a sum of Rs. 74,719/- from M/s Karan Enterprises. The investigation wing of department informed the AO through DGIT(investigation) vide his letter No. DGIT(Inv.)/Corr.field/2012-13 dated 26- 12-2012 that the above two parties have confessed before sale tax department that they are actually not selling any material but only issuing of bills to various persons. According to Sale Tax Department of Maharashtra there only hawala dealers. This fact was confessed by key person of these two parties that the assessee has neither purchased nor sold material of any short. In view of all these facts the AO treated the purchase as bogus and disallowed by giving following reasons: - “i. That these parties had confessed before the Sales Tax Department that they had actually not sold any material of any sort to the assessee but only issued bills totaling to Rs 1,85,609/- during the year. ii. They had further stated that bills were issued without actual delivery of any material and whatever amounts have been received towards these alleged sales by cheque has been withdrawn from banks and returned back to the alleged purchaser in cash. iii. In view of this, it is revealed that assessee has made bogus purchases from M/s Ozonetex trading Co. P Ltd amounting to Rs.1,10,890/- and from M/S Karan Enterprises amounting to Rs. 74,719/-. It means that they Page 2 of 8

Aggrieved assessee preferred the appeal before CIT(A). the CIT(A) deleted the disallowance by following the decision of Mumbai Tribunal in the case of DCIT vs. Rajeev G Kalathil in by observing that the AO conclude that the investigation has not taken in a logical end. Aggrieved Revenue is in second appeal before us.

We have heard the rival contentions and gone through the facts and circumstances of the case apart from merits. The learned Counsel for the assessee made alternative submission that the purchase made from M/s Karan enterprises were hardware items supplied to Unit 7 located at SEEPZ Andheri, Mumbai. According to him, material purchases were used in installation of CCTV and other equipments. He argued that purchase being for capital purposes, were capitalized under head office equipment. Similarly, the assessee added purchase ceramic tiles from Ozonetex Trading Co. Pvt. Ltd. These tiles were also supplied to Unit VII SEEPZ Andheri, Mumbai and were used in factory building. It was stated that the expenditure was capitalized to the cost of the building and being capital expenditure, the same can be deducted from the cost of the building. According to him, in both the cases the consequences will be capital cost will be deducted and depreciation is to be disallowed. We find Page 3 of 8

We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the AO while computing the deduction under section 10A /10AA of the Act reduced the profit of eligible undertaking by the loss incurred by non-eligible undertaking. The assessee is engaged in the business of manufacturing of diamond studded jewelry and processing of diamonds. The jewelry manufacturing unit of the assessee are operating from SEEPZ, a notified special economic zone and diamond division is located in domestic derive area. It was claimed by the assessee that for the period of ten years the profit derived by undertaking operating from SEZ are eligible for deduction under section 10A / 10AA of the Act. According to whom the assessee has five undertaking engaged in the manufacturing of jewelry and one undertaking engaged in processing of diamonds. The jewelry manufacturing undertakings are operating from SEZ. It was explained that dealt with the undertakings of profit derived by three undertakings are eligible for deduction under section 10A/10AA of the Act and profit of other two undertakings which have completed the tax holiday period and the profit of diamond division are CO No. 60/Mum/2017 Jewelex India P. Ltd. AY:09-10 taxable under normal provisions of the Act. The assessee has given the complete detail as under: -

It was stated that during the year under consideration diamond division has incurred loss, whereas jewelry units have earned profit. The AO while computing deduction under section 10A/10AA of the Act losses from the diamond division were reduced from the profit of the eligible undertakings thereby reducing the deduction under section 10A/10AA of the Act. In view of the above facts the learned Counsel for the assessee stated that the issue now is squarely covered by the decision of the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. (2017) 391 ITR 274 (SC), wherein it is held reads as under: - “16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that,

If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression "total income of the assessee" in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in Section 10A as 'total income of the undertaking'.

For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of Page 6 of 8

In view of the above, the learned Counsel for the assessee stated that the issue now stands cover when this was pointed out to the learned CIT DR, he fairly conceded the position.

After hearing the rival contention and going through the facts and circumstances of the case, we, respectfully following the judgement of Hon’ble Supreme Court in the case of CIT vs. Yokogawa India Ltd. (supra) allow the claim of the assessee. This issue of Revenue’s appeal is dismissed. In the result the appeal of Revenue is partly allowed as indicated above. 11. Coming to the CO of the assessee which is in regard to the reopening of assessment. For this assessee has raised following two grounds: - “1. The learned Commissioner of Income-tax (Appeals) erred in upholding that the notice issued by the learned Assessing officer under section 148 of the Act for reopening the regular assessment originally completed under section 143(3) of the Act was good in law and need not be cancelled.