ACIT, CIRCLE 1(2), SURAT vs. M/S NYA INTERNATIONAL,, SURAT

Since these two appeals filed by the Revenue pertaining to same assessee and identical and common issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.

713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International 3. Grounds of appeal raised by the Revenue (in AY.2013-14) are as follows: “1. Whether on the facts and circumstances of the case and in law, the CIT(A) has justified in deleting the addition made by the assessing officer on account of trading addition in context with fall in G.P. of Rs.1,02,65,58,335/- ?

The relevant material facts, as culled out from the material on record, are as follows. The assessee before us is a Firm and derives income from export of gold and silver jewelry, studded diamond during the year under consideration and claimed deduction u/s 10AA of the Income Tax Act 1961 at Rs.30,61,025/-. During the year the assessee has declared gross profit at Rs.1,49,05,707/- on the total sale of Rs.1098,59,07,624/- giving Gross Profit @ 0.13%, as against declared Gross Profit @ 18.83% in the immediately preceding year. Comparative figures of Gross Profit (GP) are as under: A.Y. Total turnover Gross profit shown GP rate shown 2012-13 401,97,55,479/- 75,72,99,497/- 18.83%

Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us.

Learned Departmental Representative (ld. DR) for the Revenue, argued that assessing officer has correctly made disallowance on account of trading addition as the assessee had failed to furnish the details for huge fall in Gross Profit declared in return of income (ROI). In the remand report, the assessing officer has pointed out that the value of closing stock of the silver for the A.Y. 2012-13 did not match with the value of opening stock of silver in the A.Y. 2013-14. Further, the assessee had not submitted the stock register, salary register, power consumption details etc. The assessee had not submitted the complete details during the assessment proceedings as well as in the remand proceedings. In absence of these details, the GP rate shown by the assessee was not verifiable, therefore, addition made by the assessing officer may be upheld.

On the other hand, Shri Rasesh Shah, Ld. Counsel for the assessee, pleaded that AO has not taken into account the fact that there was change in the nature of activities of the assessee in comparison to the earlier years which resulted in the low GP. During the year assessee has carried out trading activities as against the manufacturing activities carried out in earlier years and there was a substantial and manifold increase in the turnover during the relevant assessment year. Hence, the addition made by the AO without pointing out any defects and discrepancies in the sales, purchases etc. and without rejecting of books of accounts. Therefore, ld Counsel contended that order passed by the ld CIT(A) may be confirmed.

We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. This ground raised

We note that during the appellate proceedings, assessing officer was directed to submit a remand report regarding the additional evidences, filed by the 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International assessee. Accordingly, the assessing officer, vide his letter dated 09.03.2018, submitted his report wherein assessing officer stated as following: "On perusal of the assessment Order it is seen that the Assessing Officer had called for various details such as: (i) Purchase and sale bills. (ii) Stock Register (iii) justification of valuation of closing stock with supporting evidence. (iv) Month wise details of raw material purchased with supporting purchase bills (v) Month wise details of raw material consumed in manufacturing activity. (vi) Worker's Attendance register and wage payment record. (vii) Evidence of import of goods. (viii) Evidence of export of goods. (ix) Details of power expenses and copy of electric record. (x) Produce of books of accounts along with relevant record. On perusal of the submissions filed by assessee as additional evidence following anomalies have been noticed. (A) The value of closing stock of the silver for the AY 2012-13 doesn't match with the value of opening stock of silver in the AY 2013-14. The value of closing stock of silver for AY 2012-13 is mentioned in the audit report as Rs. 11,74,321/- whereas the value of opening stock of silver for AY 2013-14 Rs. 1,45,830/-. (B) The assessee has not submitted any details with regards to the salary paid apart from the ledger account of salary expenses for AY 2013-14. The assessee was asked to furnish salary / wage register and ID Cards of employees working in the unit (with SEZ Stamping). However, the assessee was unable to produce these details. (C) The assessee was asked to give stock register highlighting month wise and quantity wise details. However, the assessee submitted that the opening and closing stock of silver was same. The assessee has given inadequate details as per the query raised during the remand proceedings. (D) The assessee was asked to give details of power expenses and copy of electricity bills so as to justify the power consumption made during the AY 2013- 14. The assessee has not submitted any details with regards to this query. The observation made above clearly highlight that the assessee has not submitted the complete details even during the remand proceedings, which in a way, supports the observation made by the Assessing Officer in the Assessments order that is, .i.e. in absence of complete details / evidences, GP rate shown by the assessee is not verifiable from the records. Therefore, the issue dealt with in ground no. 2 can be decided on merits. "

During the appellate proceedings, the copy of the remand report was provided to the assessee. The assessee, in response to the remand report, submitted his reply dated 21.03.2018 wherein it was stated as follows:

After going through the remand report and considering the reply of the assessee on remand report, the ld CIT(A) observed that assessing officer has made the addition mainly on the ground that there is a sharp decrease in the gross profit in comparison to the earlier year and he has not pointed out any defects in the books of accounts. The main reason as stated by the assessee, for the drop in the gross profit is due to the increase in turnover to Rs.1115,86,54,472/- in AY 2013- 14 as against Rs.401,97,55,479/- in AY 2012-13. The observation of the assessing officer in the remand report that the value of closing stock of silver for A.Y. 2012- 13 does not match with the value of opening stock of silver in A.Y. 2013-14 was examined. It was observed that the contention of the assessee, that it was an 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International inadvertent typographical mistake in the report of A.Y. 2012-13 where the value of Gold and Silver was merged and reported at Rs.11,74,321/- was found to be correct. In fact, the assessment for A.Y. 2012-13 was finalized u/s 143(3) of the Act where full details of closing stock were submitted before the assessing officer and the issue was explained and clarified. The total value of closing and opening stock was Rs. 19,18,633/- and there was no anomaly as such and the assessee had submitted all the details like copies of purchase bills, sales bills etc. Moreover, all the gold imported by the assessee during the year have been completely exported and at the end of the year i.e. on 31.03.2013, there was only closing stock of silver of Rs.1,45,830/-. The assessee had submitted party wise details of purchases and sales along with all the supporting evidences and no discrepancies were found. The contention of the assessee that the details related to salary and power expenses are not affecting the gross profit margin in as much as in the year under consideration, the assessee firm had carried out only trading activities and the salary and power expenses were related to office administration expenses only, was also found to be a valid explanation. The details submitted shows that the assessee had also carried out the same trading activities in the next year also i.e. in A.Y. 2014-15 where book results of the assessee was accepted by the assessing officer in the scrutiny assessment proceedings. In the relevant financial year i.e. F.Y. 2013-14 relevant to A.Y. 2014-15, the assessee had shown turnover of Rs. 1703,31,68,213/- and earned a profit of Rs.2,93,50,422/-with G.P. ratio at 0.17%. The gross profit ratio of 0.17% was accepted by the assessing officer for A.Y. 2014-15 in his assessment order dated 30.12.2016 u/s 143(3) of the Act. Therefore, ld CIT(A) noted that in view of the above facts and circumstances, it is evident that the assessing officer has not taken into account the fact that there was change in the nature of activities of the assessee in comparison to the earlier years which resulted in the low GP. During the year it has carried out trading activities as against the manufacturing activities carried out in earlier years and there was substantial and manifold increase in the turnover during the relevant assessment year. Hence, the addition made by the assessing officer without pointing out any defects and discrepancies in the sales, purchases etc. and without rejection of 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International books of accounts is erroneous and therefore the addition made by the assessing officer of Rs. 102,65,58,335/- was deleted by ld CIT(A). We note that above conclusion reached by ld CIT(A) does not contain any error. That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Brief facts qua the issue are that during the assessment proceedings, the assessing officer noticed that assessee has introduced fresh unsecured loans of Rs.7,30,70,996/- during the year. Therefore, assessing officer issued several notices u/s 142(1) of the Act on 14.08.2015, 19.10.2015, 27.10.2015 and 18.12.2015, wherein the assessee was asked to file following information to establish identity, genuineness and creditworthiness of the creditors: (i) PAN (ii) Complete name and address of the creditors (iii) Confirmed copy of the ledger account (iv) Copy of income tax return and Balance sheet, (v) Copy of bank account from which loan was advanced by the creditors However, no details were filed by the assessee. Hence a show cause notice u/s 142(1) was issued to the assessee on 15.01.2016 as to why should not be an addition of Rs.7,30,70,996/- is made u/s 68 of the I T Act 1961 on account of unexplained loans. But no compliance was made by the assessee. Again one more opportunity was provided to the assessee, vide notice u/s 142(1) dated 18.02.2016. In response thereto, no compliance was made by the assessee and again said notice was remained uncompiled. In absence of complete details, evidences, sources of the unsecured loans cannot be examined. Hence, sources of loans of 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International Rs.7,30,70,996/- was remained unexplained. Therefore, assessing officer made an addition of Rs.7,30,70,996/- on account of unexplained cash credit u/s 68 of the IT Act, 1961.

On appeal, the ld. CIT(A), has deleted the addition. Aggrieved by the order of the ld. CIT(A), the Revenue is in further appeal before us.

On the other hand, the Ld. DR for the Revenue, argued that in the remand report, the AO has rightly pointed out that the loan given by the Dia jewel of Rs.l,00,00,000/-, the name of Nya International, does not figure in the schedule of loan and advances given. Further, Sangeeta Tosawad has filed the return of income of Rs.2,90,610/- only and financial statements submitted are not audited and therefore the creditworthiness of the loan giver is under shadow of doubt. Therefore, ld DR contended that order of assessing officer may be upheld.

The Ld. Counsel for the assessee, submitted that assessee had obtained new loans amounting to Rs.1,40,00,000/- and the other amounts of Rs. 5,91,66,064/- was the amount of capital balances of the retiring partners which was converted into loan account. The assessee had obtained the loan of Rs1,40,00,000/- during the year from two concerns namely Dia Jewels of Rs.1,00,00,000/- and Sangeeta Tosawad of Rs.40,00,000/- on which TDS had been deducted on the interest payments. The other amounts have been received from the five retiring partners and the capital balance as on 01.04.2012 were transferred to loan accounts and hence, their names were appearing under the head unsecured loans in the balance sheet and this amount is not a new loan. The assessee in support filed the copy of the confirmations bank statements, return of income, ( ROI), etc. from the two lenders who had given the amount of Rs. 1,40,00,000/-. Therefore, ld Counsel contended that assessee has proved the genuineness, identity and creditworthiness of the parties, hence, ld CIT(A) has rightly deleted the addition. 19. We have heard the rival parties and have gone through the material placed on record. We note that during the assessment proceedings, the assessing officer found that assessee has taken unsecured loans during the year of Rs.7,30,70,996/-.

The assessing officer, vide his letter dated 09.03.2018 submitted his report wherein he stated as following: "The assessing officer has made addition of Rs.7,30,70,996/- on account of unsecured loans treated as unexplained cash credit u/s 68 of the Act. The assesses has said in the additional evidence filed that assesses had obtained loans of Rs.1,40,00,000/- during the year under consideration. Further the capital balances of the partners, who retired, were transferred to the loan account. The assesses has mentioned the names of retiring partners viz. Abhay Pinakin Shah, Amit Kirtilal Shah, Chintan Chowdhary, Chirag Shantilal Shah, Vallabh A. Shah. The sum total of the amount of their capital balances comes out to be Rs.5,91,66,064.14/-. The names of the retiring partners appears in the annexure to the details of unsecured loans. In light of these facts the case can be decided on merits. During the financial year Chirag Shantilal Shah has introduced a capital of Rs.1,00,00,000/-, however the assesses didn't submit the details regarding the same (the assesses only submitted the ledger account of Chirag Shantilal Shah without any confirmation from him). However, the assessee has said that during the year loan has been taken from Dia Jewel and Sangeeta Rajendra Tosawad. The assessee has submitted various details to corroborate its contention. Dia Jewel has given loan of amount Rs.1,00,00,000/- to the assessee during the assessment year 2013-14. On perusal of the balance sheet of Dia Jewel it is found that a capital balance of Rs.12,06,21,205.54/- is appearing in the balance sheet. However, if we look at Schedule of loan and advances the bifurcation of the parties, to whom loan has been given, has not been provided. The assessee has submitted the contra conformation of Dia Jewel and the Bank account detail highlighting the loan transaction with the assessee. Therefore, this issue can be decided on merits. With regards to the loan taken from Sangeeta Tosawad the assessee has submitted the various details to corroborate its contention. Sangeeta Tosawad has filed the return of income disclosing the total income of Rs.2,90,610/-. However, she has given loan of Rs.40,00,000/-.Though the financial statements of Sangeeta Tosawad have been submitted but they are not the audited financial statements. Further, the assessee has not submitted the computation of Income of Sangeeta 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International Tosawad. In light of these facts, the credit worthiness of Sangeeta Tosawad appears to be doubtful. Therefore, this issue can be decided on merits."

The copy of the said remand report was provided to the assessee. The assessee, in response to the remand report, submitted his reply dated 21.03.2018 wherein the assessee stated as follows: "In para 4.3.1, the learned assessing officer has accepted the fact that out of the addition of Rs.7,30,70,996/- on account of unsecured loans, there was a capital balance of Rs.5,91,66,064.14 ps. which was the capital balance of the partners who retired from the firm and their closing balance were transferred to loan account. Thus, the learned assessing officer accepted that the assessee firm had obtained a loan of Rs.1,40,00,000/- only during the year under consideration. With regard to the closing capital balance of Rs.5,91,66,064,14 ps., as transferred to loan account in the current year, the learned assessing officer did not give any adverse comment or any observation and hence we have nothing more to submit in this regard and our original submission filed before your honour may please be considered along with the evidences submitted in different paper books and we request your honour to accept the same as genuine and the addition made u/s 68 of the Act may please be deleted. In para 4.3.2, the learned assessing officer observed that the assesses had taken loan of Rs.1,00,00,000/-from M/s Dia Jewels. He also observed that the capital balance of the said concern was found to be Rs. 12,06,21,205/- and the assessee has submitted contra confirmation of M/s. Dia Jewels along with bank account details highlighting the loan transactions. The learned assessing officer did not give any adverse comment or observation with regard to this loan and therefore, considering the evidences submitted and also considering the genuineness of transaction and credit worthiness of the depositor, we request your honour to accept the same as genuine and the addition made u/s 68 of the Act may please be deleted. In Para 4.3.3., the learned assessing officer observed that the assessee firm had taken loan of Rs.40,00,000/- from Sangeeta Tosawad and the return of income of the said person shows the total income of Rs.2,90,610/- and she had not submitted audited financial statements and her computation of income. In this regard, it is submitted that the assessee had fled her personal balance sheet along with the letter dated 16.02.2018 during remand proceedings. From the said balance sheet, your honour will appreciate that the said depositor is having her own capital of Rs. 5,16,58,895/- and the loan given by her to the assessee firm is also reflected in the said balance sheet. From the said balance sheet, your Honour will appreciate that the said depositor is having total assets of Rs. 5,25,14,894/- and against the same, her personal liability is only Rs. 8,56,000/- and thus, her net capital is worth Rs. 5,16,58,895/-. Thus, the credit worthiness of the said depositor is not at all doubtful and therefore, in view of the confirmation given by the depositor and transactions through banking channel made by the assessee and also considering other evidences submitted, we request your honour to accept the loan transaction as genuine and delete the addition made u/s 68 of the Act."

After going through the remand report of the assessing officer and reply of the assessee, the ld CIT(A) observed that out of the unsecured loans of 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International Rs.7,30,70,996/- there was capital balance of Rs. 5,91,66,064/- of the 5 partners who had retired from the firm and their closing balance was transferred to the loan account. This fact was verified during the remand report proceedings by the assessing officer. The assessee had obtained loan of Rs.1,40,00,000/- only during the year which included amount from Shantilal Shah (Dia Jewel) of Rs.1,00,00,000/- and Rs.40,00,000/- from Sangeeta Tosawad. During the remand repot proceedings the assessee had submitted contra confirmation of M/s Dia Jewels alongwith the bank account details which showed that the capital balance with M/s Dia jewels of Rs.12,06,21,205/-. In regards, to Sangeeta Tosawad the assessee had filed the contra confirmation from the lender along with her personal balance sheet before the assessing officer vide letter dated 16.02.2018. The balance sheet shows that she was having an own capital of Rs. 5,16,58,895/- and the loan amount reflected in her balance sheet. These facts shows that the unsecured loans taken by the assessee of Rs.7,30,70,996/- included capital balance of the 5 retiring partners and 2 from the lenders who had creditworthiness to provide the unsecured loans to the assessee. Hence, ld CIT(A) deleted the addition of Rs.7,30,70,996/-.The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismiss the ground raised by the Revenue.

In the result, ground No.2 raised by the Revenue is dismissed.

Ground No.3 raised by the Revenue relates to deletion of the addition of Rs.1,40,131/- made by the Assessing Officer on account of non-payment of TDS.

Succinct facts qua the issue are that this ground pertains to making addition of Rs.1,40,131/- on account of non-payment of outstanding TDS liability. The assessing officer, during the scrutiny proceedings noticed that assessee had shown outstanding TDS liability in the balance sheet to the tune of Rs.1,40,131/-. During the assessment proceedings, no details were furnished before the assessing officer, by the assessee, regarding the evidence of payment of TDS liability and therefore the assessing officer made the addition of Rs.1,40,131/-.

Ground No. 3 raised by the Revenue is dismissed.

Ground no.4 relates to deletion of addition of Rs.10,30,000/- made by the assessing officer on account of disallowance of expenses.

Succinct facts qua the issue are that this ground raised by the Revenue pertains to making ad hoc disallowance of 10% of local purchase, export charge, import charges, salary expenses, traveling expense, transportation charges amounting to Rs. 10,30,000/-. The assessing officer, during the assessment proceedings noticed that assessee had debited various expenses of Rs.1.03 crore in the Profit and Loss account under the head local purchase, export charges, import charges, salary expenses etc. The assessing officer held that the assessee did not file any details or evidence during the assessment proceedings and therefore he

On appeal, ld CIT(A) deleted the addition. Aggrieved, the Revenue is in appeal before us. We have heard both the parties. Learned DR for the Revenue, relied on the findings of assessing officer. Whereas ld Counsel submitted that export and import charges have increased substantially due to the increase in the turnover from Rs.401.97 crore to Rs.1098.59 crore. Also, the increase in salary expenses there has been increased under the head salary expenses due to trading activities while the expenses under the labour and wages expenses which was paid earlier due to manufacturing activities has gone down substantially. The assessee submitted that the books of accounts are audited, and the assessing officer has made ad-hoc disallowances without pointing out any defects in the books of accounts.

Ground no.5 raised by the Revenue relates to deletion of the disallowance of deduction, under section 10AA of the Act of Rs.30,61,025/- made by the assessing officer.

Succinct facts qua the issue are that ground no.5 raised by the Revenue pertains to disallowance of deduction of Rs. 30,61,025/- u/s 10AA of the Act. During the assessment proceeding, the assessing officer noticed that assessee has claimed deduction u/s 10AA of the Act, at Rs.30,61,025/- in the computation of income and since no details were furnished before the assessing officer, therefore, the assessing officer held that the assessee has not fulfilled the conditions for claiming deduction u/s 10AA of the Act, as no evidences, such as import and export bills was filled and therefore the assessing officer disallowed the deduction u/s 10AA of the Act and made addition of Rs. 30,61,025/-.

On appeal, ld CIT(A) deleted the addition. Aggrieved, the Revenue is in appeal before us. We have heard both the parties. Learned DR for the Revenue, relied on the findings of assessing officer. Whereas ld Counsel submitted that assessee is in the business of manufacturing, processing and import and export of goods in a unit established in SEZ. In the earlier year assessee had carried out manufacturing activities but in the relevant assessment year assessee was mainly engaged in trading activity in the nature of re-export of imported goods. The ld Counsel contended that during the assessment proceedings, assessee had filed the documents pertaining to its eligibility for deduction u/s 10AA of the Act which the assessing officer has not considered while framing the assessment order. The documents and evidences submitted by the assessee were as follows: a. Copy of Partnership Deed b. Copy of Lease Agreement with Diamond and Gem Development Corporation Ltd. (D.G.D.C) c. Copy of Bond Cum Legal Undertaking

We note that during the appellate proceedings, the assessing officer was directed to submit a remand report regarding the additional evidences filed by the assessee. The assessing officer vide his letter dated 09.03.2018 submitted his report before ld CIT(A), which is reproduced below: "The assessee submitted details in order to prove the eligibility of claim of deduction under section 10AA. On perusal of the original assessment records it is seen that the assessee has submitted almost all the documents during the time of assessment so this part of additional submissions does not come within the ambit of additional evidence. The assessee has also said in para 2.2 of ground no. 7 pressed before Id. CIT(A) that the assessee had submitted the details required to be eligible for claiming deduction u/s 10AA and the same has been submitted by the assessee before ld. CIT(A). The assessee has also submitted the bills pertaining to import, local purchase & exports. They were verified on, test check basis. As far as the local purchase is concerned, the assessee has purchased Gold from Parasmani Diamonds Pvt. Ltd. A summons u/s 131 of the Act was issued to the address mentioned in the copy of sales bill submitted by the assessee during remand proceedings so that this can verify the claim of purchase made by the assessee. The summons was served through affixture as the premise was found to be closed. On local inquiry by the inspector, it was found that the premise is closed since long time. Neither anybody attended nor any reply received on the stipulated date & time. Therefore, the claim of local purchase made by the assessee remains questionable. The assessee has also submitted the details of imports. The same was verified on test check basis. On perusal of the submissions it is found that some of the information was not available. Though assessee has claimed to have made purchase from M/s Euro Distributers Diamonds BVBA (Belgium) but no any 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International purchase invoice, bill of entry, airway bill etc. was submitted during the remand proceedings. The assessee claims to have made a purchase of Rs.13,94,25,503/-. This raises question on the admissibility of claim of deduction u/s 10AA of the Act. The debit advice for import payments for the purchases made from M/s East West Traders (Hong Kong) was also not submitted during the remand proceedings. The assessee has also submitted the bills pertaining to exports. They were verified on test check basis. The Export bill realization for some of the sales made to M/s East West Traders (Hong Kong) & M/s Elegant Palace Ltd (Hong Kong) was also not submitted during the remand proceedings. This raises question on the admissibility of claim of deduction u/s 10AA of the Act in the light of facts mentioned above. However, without any prejudice, the issues of claim of deduction u/s 10AA of the Act can be decided on merits."

The copy of the said remand report was provided to the assessee. The assessee in response, submitted his reply dated 21.03.2018 wherein it was contended as following: “In Point No. 4.7of Ground No. 7, related to eligibility of claim of deduction, the assessing officer stated that the assessee has submitted almost all the documents at the time of assessment proceedings and therefore, there are no additional submission / evidences and hence he did not give any comment with regard to the same. However, the assessing officer has stated further that assessee has submitted the bills pertaining to import, local purchase and exports and they were verified by him on test check basis. Regarding local purchase from Parasmani Diamonds Pvt. Ltd., the assessing officer stated that the said party was called by issuing summons but the business premises was found to be closed and on local inquiry by the Inspector also it was found that the premises was closed since long time. Since nobody attended, the assessing officer stated that the local purchases remained questionable. In this connection, it is respectfully submitted that the assessee had made local purchases of Rs.3,25,563/- only through one bill from the said party. The assessee had also made inquiry about the said party but since he had closed down his business, the assessee could not trace out them. However, as the assessee had submitted all the details of purchases and sales and there was no quantity remaining in the closing stock except the stock of silver which remained as it is from the beginning which can be seen from the value of the opening stock. Since the assessing officer has not doubted the sales made by the assessee firm, the question of raising doubt on local purchases does not arise. The learned assessing officer further observed that the assessee has submitted the details of Imports and the same were verified on test check basis. The assessing officer stated that the assessee could not furnish the purchase invoice and bill of entry of purchases from M/s Euro Distributors Diamonds BVBA (Belgium) having purchase value of Rs. 13,94,25,503/-. In this connection, it is submitted that the assessee had made purchases from nine different parties out of which the documents related to one party could not be submitted for the reason that the assessee had maintained party wise files related to all documents for purchases made through these parties. Since the business of the assessee was closed down and there were no operational activities in the business premises and since the 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International accounts staff had also- left, the partners of the assessee firm could not trace out the documents filed related to the transactions with the party. However, your Honour will appreciate that the assessee had carried out Import and export activities with all statutory compliance under the respective laws. Therefore, considering the fact that the assessee had produced almost full details in respect of imports, there should not be any doubt about only one missing bill and there should not be any question on the admissibility of deduction u/s 10AA of the Act as the assessee has fully complied with all the conditions laid down under the provisions of law. The learned assessing officer also stated that the assessee has not produced the Debit Advice for Import payment of purchase made from M/s East West Traders (Hong Kong). In this connection it is respectfully submitted that the assessee firm has submitted all the relevant documents including purchase bills, bill of entry and only the payment advice was not traceable. Therefore, when all material evidences suggesting genuine imports were submitted, there is no question about the admissibility of claim of deduction U/s 10 AA of the Act. The learned assessing officer also accepted that the assessee has submitted bills pertaining to exports which were verified by him test check basis. Only in case of M/s East West Traders (Hong Kong) an M/s Elegant Palace Ltd. (Hong Kong), the Export Bill Realization advice could not be submitted as the same were not traceable. However, the assessee has submitted all the documentary evidences related to export sales and which were verified by the assessing officer also. Therefore, there should not be any question about admissibility of deduction u/s. 10 AA of the Act".

The ld CIT(A) observed that during the course of the assessment proceedings, the assessing officer found that the assessee had undertaken trading of goods of Rs.30,61,025/- and this trading turnover has been reported as export which is not in accordance with provision of section 10AA of the Act. The assessing officer held that the deduction u/s 10AA of the Act is available for export of manufactured goods and for export of services only and not trading of goods. It was held that the export of trader goods cannot be regarded as 'export of services' as the term 'services' which is not defined in Income Tax Act but has been defined in section 2(z) of SEZ Act 2005 which define services as 'tradable services'. The SEZ Act restricted the tradable services to only those that are covered under the General Agreement on Trade in Services as defined by World Trade Organization. The assessing officer held that the diamond trading activity of the assessee does not figure in the list of services and sectors listed in the Annexure IB to the agreement establishing the World Trade Organization and also is does not figure in the schedule of commitments given by India to WTO. The 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International assessing officer held that the explanation given by the assessee is not satisfactory that the trading is covered by the definition of the services as laid out in SEZ Act and since section 10AA has been inserted in the Act by the SEZ Act it does not define the word 'Services' the meaning ascribed to it in SEZ Act 2005 has to be applied for the purpose of administration of IT Act with reference to section 10AA of the Act. The assessing officer relied on the notification No. 11521 [SO 890(E)(F. No. 142/49/2000-TPL)] dated 26.09.2000 and Circular No. 1/2013 (F. No. 178/84/2012-ITA.I) dated 17.01.2013 to hold that the trading activity was never included in the services for taking the benefits u/s 10AA of the Act. Therefore, assessing officer disallowed the claim of the assessee u/s 10AA of the Act.

Before ld CIT(A),the assessee submitted that manufacturing unit was setup in SEZ for processing and manufacture of cut and polished diamonds and diamond studded jewellery. It was stated that under the SEZ Act the section 2(z) define services to included tradable services as may be prescribed by the Central Government for the purpose of this Act and the Central Government has included trading as one of the services. In the SEZ Rules 2006, the Rule 76 list the services for the purpose of section 2(z) as 'trading', 'warehousing', 'R&D Services' etc. The section 51 of the SEZ Act provides that the provisions of SEZ Act and the Rules will have the overriding effect over the provisions contained in any other Act. The SEZ Act was promulgated first and the Income Tax deduction is just consequential as the provisions of SEZ Act has overrides the Income Tax Act. It was further submitted that Form No. 56F as prescribed under section 10AA (8) of the IT Act does not provide for deducting trading turnover from the total turnover. The assessee also relied on the Instruction No. 4/2006 dated 24.05.2006 issued by the Ministry of Commerce & Industry regarding grant of deduction u/s 10AA to the units carrying on trading in the nature of re-export of imported goods. The assessee also relied on the judgment in the case of Gitanjali Exports Corporation Ltd. Vs. DCIT & 6948/Mum/2011 dated 08.05.2013 (Mum ITAT) and Goenka Diamonds and Jewellery Limited (2012) 19 taxmann.com 91 (Jaipur).

The ld CIT(A) noted that under section 51(1) of the SEZ Act, lays down that the provision of this Act has overriding effect in case of contradiction between the SEZ Act and other Act. In the SEZ Act under Section 51, it has been clearly provided that the provision of SEZ Act will override the provision of any other Act, meaning thereby the provisions provided under the SEZ Act has to override on the provision of section 10AA of the Income Tax Act. Hence, by virtue of 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International section 51 of the SEZ Act, the provision of SEZ Act and Rules, the Circular issued by Government of India and the provision of Section 51 of the SEZ Act it is evident that trading done by the assessee is a service and, therefore, deduction under section 10AA is allowable on trading activities.

The ld CIT(A) observed that in the remand report, the assessing officer reported that assessee had submitted the bills pertaining to import, local purchase and exports and they were verified by him on test check basis. Regarding local purchase from Parasmani Diamonds Pvt. Ltd., the assessing officer stated that the said party was called by issuing summons but the business premises was found to be closed and on local inquiry by the Inspector also it was found that the premises was closed since long time. Since nobody attended, the assessing officer stated that the local purchases remained questionable. It is seen that the assessee had made local purchases of Rs.3,25,563/- only through one bill from the said party and party did not attend as it had closed down his business. However, the assessee had submitted all the details of purchases and sales and there was no quantity remaining in the closing stock except the stock of silver which remained as it is from the beginning which can be seen from the value of the opening stock. Since the assessing officer has not doubted the sales made by the assessee firm, the question of raising doubt on local purchases does not arise. The assessing officer further observed in the remand report that the assessee had submitted the details of imports and the same were verified on test check basis. The assessing officer stated that the assessee could not furnish the purchase invoice and bill of entry of purchases from M/s Euro Distributors Diamonds BVBA (Belgium) having purchase value of Rs. 13,94,25,503/-. The assessing officer also stated that the assessee has not produced the Debit Advice for Import payment of purchase made from M/s East West Traders (Hong Kong). During the remand report proceedings, the assessee had submitted all the documentary evidences related to export sales including purchase bills, bill of entry, etc. which were verified by assessing officer on test check basis.

Ground No. 5 raised by the Revenue is dismissed.

Now, we shall take Revenue`s appeal in for assessment year 2014-15, wherein the grounds raised

Ground no.1 relates to deletion of disallowance of deduction u/s 10AA of the Act of Rs.1,46,61,290/-.

Brief facts qua the issue are that the assessee derives income from business of wholesale trading export of diamonds, precious stones, etc. and has claimed deduction u/s 10AA of I.T Act, 1961 of Rs.1,46,61,290/-. As the ld CIT(A) deleted the disallowance of deduction under section 10AA of the Act, therefore the Revenue has challenged the deletion of addition of Rs.1,46,61,290/- made by the assessing officer on account of disallowance of exemption u/s 10AA of the I.T. Act. In the assessment order, the assessing officer noted that the assessee claimed exemption u/s 10AA of the Act, at Rs.1,46,61,290/- from trading of export of diamond, precious stones etc. The assessee's business operation was located in SEZ and it was claimed that profit from trading activities was eligible for deduction u/s 10AA of the Act. The assessing officer discussed in details the profits eligible for deduction u/s 10AA pertaining to SEZ units and concluded that the profits earned from trading activities by SEZ units was not eligible for deduction u/s 10AA of the Act, therefore assessing officer disallowed the deduction claimed by the assessee to the tune of Rs.1,46,61,290/-

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer observing as follows: “6. Decision: After considering the findings of the assessing officer and submissions of the assessee, I find that the assessee, vide ground no. 1, has challenged the addition of Rs.1,46,61,290/- made by the assessing officer on account of disallowance of exemption u/s 10AA of the IT. Act. In the assessment order, the assessing officer noted that the assessee claimed exemption u/s 10AA of the Act at Rs.1,46,61,290/- from trading of export of diamond, precious stones etc. The assessee's business operation was located in SEZ and it was claimed that profit from trading activities was eligible for deduction u/s 10AA of the Act. The assessing officer discussed in details the profits eligible for deduction u/s 10AA pertaining to SEZ units and concluded that the profits earned from trading activities by SEZ units was not eligible for deduction u/s 10AA of the Act. On the other hand, the AR has contended that the assessee was engaged in business of manufacturing, Page | 25 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International processing, import & re-export of goods in the SEZ and had carried out manufacturing activities in the earlier years upto A.Y. 2012-13. From A.Y. 2012- 13 onwards, the assessee claimed to be engaged mainly in trading activity in the nature of re-export imported goods. It was also stated that for A.Y. 2012-13 finalized u/s 143(3) of the Act, deduction u/s 10AA was fully allowed. The AR has referred to the decision of Hon'ble ITAT Jaipur in the case of Goenka Diamond Jewellers (146 TTJ 68) wherein it was held that the provision of SEZ Act 2005 would override the provisions of Income Tax Act and the assessee's claim of deduction of u/s 10AA in respect of trading from SEZ units of imported goods re- exported was allowed. The AR has also referred to the decision of Hon'ble ITAT Surat Bench in the case of ACTT v/s Shiv Krishna Exports (ITA no. 3220/A/2015/SRT) wherein the issue of 10AA deduction was allowed in favour of assessee and facts of that case squarely applies to the current case of the assessee. In view of the above facts and legal position, it is apparent that the jurisdictional ITAT Surat bench has decided the issue of deduction u/s 10AA pertaining to trading from SEZ units as eligible deduction. Hence, the addition of Rs.1,46,61,290/- by way of disallowance of deduction u/s. 10AA is not sustainable and the same is hereby deleted.”

Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. The Ld. DR for the Revenue stated that decision of the ld. CIT(A) is not acceptable. The ld DR pointed out that assessing officer has held that the exemption claimed u/s 10AA of the Act is applicable only for manufacturing unit whereas in this case assessee has been involved only in trading activities. The assessee has not rendered any service but involved fully in sales and purchases. Hence, deduction cannot be allowed to the assessee.

On the other hand, the Ld. Counsel for the assessee defended the order passed by the ld. CIT(A).

We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. While adjudicating the Revenue`s appeal in 2013-14, we have discussed the issue in detail in above para nos. 34 to 42 of this order. The facts and law remains the same therefore we do not repeat them again. We have gone through the above findings of ld CIT(A) and noted that there is no any infirmity in 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International the conclusion reached by ld CIT(A). Therefore, we approve and confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue.

In the result, ground No.1 raised by the Revenue is dismissed.

Ground nos.2 to 4 raised by the Revenue are interconnected and mix, therefore we take them together. These grounds relate to deletion of addition of Rs.6,96,00,000/- and deletion of interest expenses of Rs. 83,52,000/-.

Succinct facts qua the issue are that Revenue has challenged addition of Rs.5,38,00,000/-pertaining to unsecured loans received from seven parties as unexplained cash credit u/s 68 of the Act and the Revenue also has challenged the addition of Rs.1,58,00,000/- pertaining to capital introduced by the three partners as unexplained cash credit u/s 68 of the Act, as these additions were deleted by ld CIT(A). In the assessment order, the assessing officer noted following unsecured loans received by the assessee. Sr.no. Name of the lender Amount (Rs). 1 Sangeeta Tosawad 10,00,000 2 Chirag Shantilal Shah 50,00,000 3 Rajendra Tosawad 2,80,00,000 4 Kalpesh Harilal Choudhary 53,00,000 5 Ketan Kiritlal Shah 59,00,000 6 Narcsh Sureshmal Shah 32,00,000 7 Hemant Shah 54,00,000 Total 5,38,00,000

The assessing officer also noted amounts received from following three parties as under: S.NO. Name of the partner Capital Introduced Rs. 8 Dhaval Suresh Shah 54,00,000 9 Mihir Suresh shah 54,00,000 10 Pratik Haresh Harde 50,00,000 Total 1,58,00,000 55. The details pertaining to unsecured loans were called for by the assessing officer and after verifying the details, the assessing officer observed that the assessee did not give any credible evidence to prove the genuineness of the 713/SRT/2018 & 534/SRT/2019/AY.2013-14 to 2014-15 M/s. Nya International unsecured loans. Hence, Rs.6,96,00,000/-(Rs.5,38,00,000 + Rs,1,58,00,000) was added as unexplained cash credit.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deled the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.

Learned DR for the Revenue submitted that decision of the ld. CIT(A) is not acceptable, he pointed out that during the assessment proceedings, ample opportunities were provided to assessee but the assessee has failed to produce the required details. Hence, the assessing officer has rightly made the addition. assessing officer Placed reliance on the decision of Hon'ble Apex Court in the case of Sumati Dayal Vs CIT wherein the Apex Court has held that "In all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if the receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act, lies upon the assessee. Since the assessee has not proved the bona fide of the transaction therefore addition made by the assessing officer may be confirmed.

The Ld. Counsel for the assessee defended the order passed by the ld. CIT(A).

We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that in the appellate proceedings, assessee furnished additional evidences pertaining to unsecured loans which was forwarded to the assessing officer for remand report. The assessing officer furnished remand report dated 09.03.2018 which was forwarded to the assessee for rejoinder report. In the reply to remand report, the assessee has controverted the findings/observations of the assessing officer in the Remand

After considering the findings of the assessing officer in the remand report and assessment order as well as submissions of the assessee in the appellate proceedings including reply to remand report, the issues of unsecured loans, was discussed by the ld CIT(A), party- wise as follows: (i) Sangita Tosawad The assessing officer noted that the assessee had shown receipt of loan of Rs.10 lacs from Sangita Tosawad. In the assessment order, the said amount was treated as unexplained cash credit by the assessing officer. In the remand report dated 09.03.2018, the assessing officer reported that the capital balance of Sangita Tosawad as per Financial statements as on 01.04.2013 was shown at Rs.52,21,025/- and total income for the current A.Y. 2014-15 was declared at Rs.6,26,420/-. In the A.Y. 2013-14, Sangita Tosawad had declared total income at Rs. 2,90,610/- and gave loan of Rs.40 lacs to the assessee. Thus, the assessing officer observed that creditworthiness this lender remained doubtful. After going through the personal balance sheet of Sangita Tosawad as on 31.03.2014, I find that her opening capital balance as on 01.04.2013 was Rs.5,22,10,025/- as against the assessing officer's incorrect observations of capital balance of Rs.52,21,025/-. Further, the bank statement indicate loan of Rs. 10 lacs given to the assessee through bank account and in her bank account there is no indication of any cash deposits prior to such loan. Further, this lender had already advanced Rs. 40 lacs in earlier A.Y. and Rs. 10 lacs new loan was received in current A.Y. The assessing officer has not stated that the earlier A.Y. loan was also treated as unexplained cash credit in the A.Y. 2013-14. Thus, the requirement of sec. 68 of the Act for identity, creditworthiness and genuineness of the loan from Sangita Tosawad is found to be discharged by the assessee and the assessing officer has not controverted this fact evidenced from documentary submissions. (II) Chirag S. Shah The assessing officer noted an unsecured loan of Rs. 50 lacs was shown by the assessee in the current A.Y. and the same was treated as unexplained cash credit in the assessment order. In the remand report dated 09.03.2018, the assessing officer observed that no loan was received from Chirag S. Shah (ex-partner of the firm) and in reality, Chirag S. Shah was paid Rs. 50 lacs by the assessee firm through RTGS. Thus, there is no reason to treat Rs. 50 lacs pertaining to Chirag S. Shah as unexplained cash credits. (iii) Rajendra Tosawad

Therefore, ld CIT(A), in view of the above factual findings noted from the remand report, as well as submission of the assessee in reply to remand report, observed that the unsecured loan of Rs.6,96,00,000/- as unexplained cash credit is not sustainable. In the remand report, the assessee had filed documentary evidences along with bank statements of all the above persons (except Hemant Shah) which proved the creditworthiness of the lenders to advance loan. In the case of Hemant Shah also, ITR acknowledgement and confirmation indicating payment through bank was filed and the copy of ITR indicated total income of Rs.40,57,540/- for current A.Y. Considering the substantial total income of Rs.40,57,540/-, there is no other adverse findings to reject the genuineness of this loan. Thus, the assessing officer's comment in the remand report mentioning doubtful creditworthiness in most of the case of lenders is devoid of any merits. Further, if the assessing officer is merely doubtful of creditworthiness without any concrete facts, the loans cannot be treated as unexplained. Hence, the addition of Rs.6,96,00,000/- as unexplained cash credit was deleted by ld CIT(A). We note that conclusion reached by ld CIT(A) is correct and admit no interference by us, therefore we dismiss the ground raised by the Revenue.

In the result, ground nos. 2 to 4 raised by the revenue is dismissed.

Ground nos. 5 and 6 are general in nature hence do not require adjudication.

In the combined result, both appeals filed by the Revenue in are dismissed.