ACIT 15(3), MUMBAI vs. H.K. DESINGNS(INDIA), MUMBAI

The only issue in appeal is the exigibility of the assessee’s claim for exemption of the income of its Undertaking u/s. 10AA of the Act, claimed at Rs.17,15,41,583/-. The Revenue has raised several objections with regard thereto, the principal being that (A.Y. 2010-11) Asst. CIT vs. H. K. Designs (India) the said undertaking has been formed by the reconstruction of the business already in existence (i.e., in the name and style ‘H. K. Jewels’). At the outset, it was clarified by the ld. Authorized Representative (AR), the assessee’s counsel, that this is a subsisting issue in the assessee’s case, beginning A.Y. 2007-08, the first year. The matter had travelled to the tribunal, which had decided the Revenue’s appeals for A.Ys. 2007-08 to 2009-10 (in 4058/Mum/2011 and 3212/Mum/2012 dated 04.11.2015), placing a copy thereof on record and adverting to relevant part/s thereof. The tribunal set aside the matter back to the file of the Assessing Officer (A.O.) for fresh examination. No orders have since been passed by the A.O., so that a similar direction would be in order. The ld. Departmental Representative (DR) did not object to this proposition by the ld. counsel.

We have heard the parties, and perused the material on record. The ld. CIT(A) has, following the appellate orders by the first appellate authority for earlier years, i.e., A.Ys. 2007-08 to 2009-10, allowed the assessee’s claim, holding its’ undertaking as an eligible undertaking u/s.10AA. The tribunal vide its order dated 04.11.2015 (supra), after examining the assessee’s claim in its’ various aspects, held as under: ‘13. The foregoing discussions would show that it is required to examine many factual aspects relating to the claim of the assessee by duly considering the submissions of the assessee, books of accounts of old and new M/s H.K.Jewels, the books of accounts of the assessee, the terms and conditions relating to Letter of Permission etc. With regard to the labour charges also, we notice that the Ld CIT(A) has not examined the crucial aspect, i.e., whether the claim of the assessee that the labour charges were received in foreign exchange is correct or not. Further, we notice that the various case laws referred to by Ld CIT(A) relate to the goods manufactured by the assessee by outsourcing, where as, in the instant case, M/s Vaibhav Gems Ltd has outsourced the production activities to the assessee. Hence those case laws would apply to M/s Vaibhav Gems Ltd and not to the assessee. To this extent, in our view, (A.Y. 2010-11) Asst. CIT vs. H. K. Designs (India) Ld CIT(A) has misdirected himself. Hence, this issue also requires fresh examination. There should not be any dispute that the law can be applied correctly only if the relevant facts are very much clear. The foregoing discussions show that there is no clarity on facts of the present case and hence they need to be brought on record correctly.

In view of the above, we set aside the orders passed by Ld CIT(A) for all the three years under consideration and restore all the issues to the file of the assessing officer with the direction to examine the issue afresh from all the angles that may be required. After affording necessary opportunity of being heard, the assessing officer may take appropriate decision in accordance with the law. The assessee is also directed to extend full cooperation to the assessing officer by furnishing all the details that may be called for by him for expeditious completion of the assessments.’

We find no reason whatsoever to take any different view of the matter, with it being rather the common contention of both the parties before us. We would further add that the A.O. shall in addition also examine the assessee’s claim with reference to each of the specific grounds raised by the Revenue per its’ appeal. We make this observation by way of abundant caution in-as-much as we have not gone into the merits of the case, so that it is not clear if the objections raised by the Revenue would stand to be addressed by the examination on the various aspects as directed by the tribunal. Also, as is generally the case, where the assessee stands denied exemption on the ground of not qualifying therefor, there is no examination on the quantum of the exemption, which thus gets overlooked, resulting in a set aside for the purpose, leading to a fresh round of proceedings. As such, whatever be the A.O.’s conclusion on the merits of the principal issue, i.e., with regard to the eligibility of the assessee’s claim, he shall also examine the same with reference to the quantum of deduction, issuing definite findings of fact, where and to the extent he is in disagreement with the assessee’s working thereof. This, as would be apparent, is only to ensure proper and timely disposal of the matter, at least in the second round, complete in all respects, which may otherwise tend to or get inadvertently overlooked, and does not cause any (A.Y. 2010-11) Asst. CIT vs. H. K. Designs (India) prejudice to either side. We decide accordingly. The Revenue’s appeal is accordingly disposed of on the afore-said terms.