INCOME TAX OFFICER WARD 3(3)(1), SURAT vs. M/S.BALAR NAVADIY MFG.CO.,, SURAT

आयकर अपील�य अ�धकरण, सुरत �यायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND Dr ARJUN LAL SAINI, ACCOUNTANT MEMBER आ.अ.सं./ITA No.349/SRT/2017 (AY 2011-12) (Hearing in Physical Court) Income Tax Officer, Ward- M/s Balar Navadiy Mfg. 3(3)(1), Room No.418, 4th Co., Balar Building, Opp. Vs Floor, Aayakar Bhawan, Panchratna Tower, Lambe Majura Gate, Surat-395001 Hanuman Road, Surat-395006 PAN : AAFFB 3054 J अपीलाथ� /Appellant ��यथ� /Respondent

�नधा�रतीक�ओर से /Assessee by Shri Rasesh Shah, C.A राज�वक�ओर से /Revenue by Shri Vinod Kumar, Sr-DR सुनवाई की तारीख/Date of hearing 27.05.2022 उ�घोषणा क� तार�ख/Date of pronouncement 12.07.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue is directed against the order of ld. Commissioner of Income tax (Appeals)-3 Surat [for short to as ‘Ld. CIT(A)’] dated 13.09.2017 for assessment year (AY) 2011- 12, which in turn arises out assessment order passed by Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide order dated 31.03.2014. The Revenue has raised the following grounds of appeal:-

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co.

“1.Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the appeal of the ae even though the assessee firm totally fails to prove that it used new plants and machinery for producing articles for claiming deduction u/s 10B of the Act. 2. Whether, on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in allowing the appeal of the assessee even though the AR of the assessee firm had not produced any documentary evidence in support of its claim of rejection sale during assessment proceedings. 3. On the basis of the facts and circumstances of the case the learned CIT(A) ought to have upheld the order of the Assessing Officer. It is therefore prayed that the order of the CIT(A) maybe set aside and that of the Assessing Officer be restored.” 2. Brief facts of the case are that assessee-firm is a partnership- firm engaged in the business of importing, exporting of rough & polishing diamond. During the year under consideration, the assessee has shown its income from manufacturing and exporting of polished diamond. The assessee filed its return of income for assessment year 2011-12 declaring income of Rs.33,890/-. In the computation of income the assessee claimed exemption of Rs.1.748 crores, under section 10B. The return of income was selected for scrutiny. During the assessment, the Assessing Officer noted that the assessee has

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. shown export sales of polished diamond of Rs.8.16 crores and rejection at Rs.8,62,790/-. The assessee has shown profit of Rs.1.748 crores, which was claimed as exempt under section 10B of the Act. The Assessing Officer examined the deduction claimed by assessee and asked to substantiate its claim under section 10B. The assessee furnished necessary evidence to substantiate its claim of exemption. On perusal of such details, the Assessing Officer was of the view that basic nature of business activities of import, export and manufacturing of precious stone. The assessee obtained approval of setting up 100% Export Oriented Unit (for short to as ‘EOU’) at Balar Building, Lambe Hanuman Road, Surat-395006 from the Development Commissioner, Kandla Special Economic Zone (for short to as ‘KSEZ’), Gandhidham vide permission dated 04-05/12/2033. On further perusal of record, the Assessing Officer was of the view that the assessee filed its return of income for assessment year 2008-09 for the first time showing details of plant and machinery, in the year 2008-09 and assessee was not made any such business activities. Thus, it appears that plant and machinery acquired and installed at 3

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. “Balar Building, Lambe Hanuman Road, Surat-395006 were not installed at business premises and kept idle up to 1.10.2009. The assessee has not furnished any evidence like date of purchase of plant and machinery, place of instalment date and bank account. To substantiate the setup of plant and machinery as per the condition of KSEZ as well as Foreign Trade Policy, the assessee has to invest minimum of Rs.1.00 crores to establishment of 100% export oriented unit (EOU). The assessee-firm has shown plant and machinery in financial year 2007-08 wherein no manufacturing activities has been done. The assessee has claimed depreciation after year which proved plant and machinery was either used by assessee or by other persons. The assessee has not satisfied that plant and machinery in the unit to claim exemption under section 10B of the Act is new plant and machinery. The assessee has to satisfy all the terms & conditions in the year of commensurate production i.e. initial year. The assessee has not satisfied the initial test in the year of commencement of production and in succeeding year, which cannot alter situation and cannot contain that the requisite conditions have been satisfied in the 4

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. succeeding year. The Assessing Officer took his view that assessee-firm failed to establish that assessee set-up new plant and machinery for producing article for claiming deduction under section 10B in the initial year. The assessing officer also made certain other observation, which leads him to disallow the benefits under section 10B. 3. Aggrieved by the disallowance of exemption under section 10B the assessee filed appeal before the Ld. CIT(A). Before Ld. CIT(A), the assessee filed detailed written submission as recorded in para-6.2 of the order of Ld. CIT(A). In the written submission, assessee submitted that the immediate preceding assessment year, assessee have been allowed deduction claim under section 10B. The action of Assessing Officer in rejecting the claim of exemption under section 10B on the ground that assessee was carrying a business of cutting & polishing of precious and semi-precious stone. Section 10B of the Act was inserted on 01.04.2004, while permission was granted to the assessee by the Competent Authority of KSEZ bears the date on 4-5/12/2003. Thus, it is not justified and that assessee have commenced its business 30.06.2003 i.e. after insertion of 5

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. above extension under section 10B and has claimed exemption for assessment year 2010-11 and 2011-12 respectively. The assessee stated that in the provision of Section 10B, there is no reference that assessee claiming exemption under the said section in respect of income earned from cutting & polishing of diamond in permission dated 4- 5/12/2003 issued by concerned Special Economic Zone (for shot to as ‘SEZ’) should be a date after 01.04.2004. The assessee initially obtained permission vide order / letter dated 4-5/12/2003, which was extended by the Development Commissioner of KSEZ upto 04.12.2009, vide its letter dated 10.10.2008 on the basis of application dated 11.08.2008, which was granted by Competent Authority vide letter dated 10.10.2008. The assessee has to commence manufacturing activities from 04.12.2009, whereas the assessee commenced the manufacturing activities of cutting & polishing diamond from 01.01.2009 and thus, well in the extended period approved by the Competent Authority of KSEZ. The Assessing Officer erred in suo motu assuming superior position that the permission granted by Competent Authority of Section 10B, 6

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. nowhere stated that claiming exemption under section 10B by assessee should be in its possession a letter of permission issued by the Competent Authority of SEZ. Thus, the Assessing Officer erred in imposing one more condition on the assessee. The assessee further stated that even it is presumed, without accepting that revalidation of letter of permission by Competent Authority of SEZ is invalid then also, the Competent Authority vide permission dated 10.10.2008 authorized the assessee to commence the manufacturing of cutting & polishing of diamond latest by 04.12.2009, should be consider as proper and valid letter of permission. The assessee also explained requirement of Section 10B. On the other objection of Assessing Officer that as per Foreign Trade of diamond, the assessee was required for establishing 100% EOU and that assessee has not made investment of such amount. The assessee explained that in Schedule-1 attached to in the audited balance-sheet pertaining to capital investment made by partners in the assessee’s unit, the total investment made by the partner is more than Rs.7.50 crores. Thus, the objection of Assessing Officer is totally incorrect and 7

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. misleading. On the other objection of Assessing Officer that there was huge inter-firm transaction about the purchase from its sister concern Balar Exports. The assessee submitted that during the assessment vide letter dated 24.03.2013, it was categorically submitted that there was no inter-firm transaction in the form of purchase from its sister concern and the Assessing Officer was not able to disprove the contention of the assessee. On the objection of Assessing Officer that assessee’s is sharing electricity expenditure from common electricity connection. The assessee submitted that such observation is likely to be ignored as there was one electric connection in the building wherefrom two separate assessee are functioning and electricity expenditure has to be shared by both of them. On the objection of the Assessing Officer that the purchase made from Ambika Industries and A. Royal Company are not accounted in the books of account of assessee and relevant plant and machinery purchased, though the said bills are not appearing in the balance-sheet of the assessee. The assessee explained that as a matter of fact, the bill dated 27.12.2008 for purchase of machinery from Ambica 8

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. Industries is duly accounted for in the machinery account, in the books of account in the preceding financial year. Similarly, item purchased from A Royal Company, vide bill dated 13.10.2008 was also accounted in the office equipment account in the books of account accounted in the financial year 2008-09. On making the aforesaid submission, the assessee submitted that they are s eligible for exemption under section10B. The assessee claimed their case is also covered by the decision of co-ordinate Bench of ITAT Tribunal in the case of Janak Dehydration P. Ltd. in ITA No.2325/AHD/2006 dated 27.09.2010 and the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. Saurashtra Cement And Chemicals Industries Ltd. (1980) 123 ITR 669 (Guj) and Hon'ble Supreme Court in the case of CIT vs. Delhi Patra Prakashan Ltd. (2013) 355 ITR 14 (Del) and Hon'ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. vs. ITO GA-1 Ward-A Rajkot (1977) 106 ITR 1 (SC). 4. The ld CIT(A) after considering the contents of the assessment order and the submissions of the assessee held that the first 9

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. year of exemption under section 10B was assessment year 2010-11, wherein assessee made such claim and was allowed by assessing officer under scrutiny assessment under section 143(3). There is no change in the facts and circumstances, and the proposition in law, the Assessing Officer has not taken any step to make a remedial action in assessment year 2010- 11. Thus, there is no uniformity in the action of the Assessing Officer. The permission for starting business was allowed vide order dated 4/5.12.2003 and the deduction for income in such business in the statue book came into effect to the fact that from 01.04.2004 by virtue of which the assessee has become eligible for deduction for the business of cutting & polishing semi-precious and precious stone / diamond on the profit of unit located in SEZ. The ld CIT(A) held that Act does not specify that business has to be approved by Competent Authority of SEZ after 01.04.2004 for claiming such deduction, so, such fact is irrelevant. The assessee commenced its business on 01.01.2009 and accordingly claim of deduction under section 10B in assessment year 2010-11 which was allowed in assessment order under section143(3). 10

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. The second reason for Assessing Officer was about the splitting of re-construction existing business. The Ld. CIT(A) after summarizing of objection of Assessing Officer and the reply of assessee held that the Assessing Officer has not doubted the purchased of plant and machinery in the earlier assessment order, otherwise the issue was afresh to examine in the scrutiny assessment for assessment year 2010-11. The Assessing Officer has not been able to point out any specific default in fulfilling the condition. 5. The Ld. CIT(A) also noted that once the claim is similar deduction is allowed in the scrutiny assessment, in an initial year, the similar cannot be disallowed without withdrawing or disturbing the similar claim or relief in the earlier year as has been held by the Hon'ble jurisdictional High Court in the case of Saurashtra Cement And Chemicals Industries Ltd. (supra) and Hon'ble jurisdictional High Court held that assessee is eligible for deduction under section 10B. Aggrieved by the order of ld CIT(A) in reversing the action of assessing officer on the claim of exemption under section 10B, the revenue has filed present appeal before the Tribunal. 11

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. 6. We have heard the submission of Ld. Senior Departmental Representative (Sr. DR) for the Revenue and Ld. Authorized Representative (AR) for the assessee and have also gone through the order of authorities below. Ld. Sr. DR for the Revenue submits that during the assessment, the assessee has not furnished any documentary evidence like date of purchase of plant and machinery, place of installation, date of put to use, bank account, ledger account. Further details of plant and machinery available from the record, for financial years 2007-08 & 2008-09. It was seen that there was some discrepancies noticed therein. The assessee has failed to discharge its onus to prove that plant and machinery was used for production purpose were new plant and machinery and not manner used for production purpose was new and the plant and machinery. As per the terms and condition of KSEZ the permission granted KSEZ as well as Foreign Trade policy, the assessee had to invest a minimum of Rs.1.00 crore for establishment of 100% EOU. The assessee failed to discharge the onus likely upon that plant and machinery installed in the unit to which exemption is claimed is new plant and 12

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. machinery. The assessee failed to furnish the requisite details. Thus, disallowance under section 10B for Rs.1.74 crores is not sustainable by taking view that Assessing Officer has not been able to point out any specific default in fulfilling the condition laid down under section 10B of the Act. The Ld. CIT(A) also directed the Assessing Officer to delete the addition of Rs.13,68,959/- by treating the sale of rejected diamond as the books of account were rejected by Assessing Officer. The Ld. Sr. DR for the Revenue submits that in absence of fulfilling required condition of Section10B, the assessee is not eligible for the relief which granted by the Ld. CIT(A). The ld Sr DR for the revenue prayed for reversing the order of ld CIT(A) and to restore the order passed by assessing officer. 7. On the other hand, Ld. AR for the assessee supported the order of Ld. CIT(A). The Ld. AR for the assessee submits that investment in the fixed assets i.e., in the plant and machinery is started in the financial year 2008-09, which is evident from the opening balance showing in the schedule of fixed assets which ended till the year ending on 31.03.2011. The total investment made in the plant and machinery is more than the 13

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. requisite investments. The total capital investment by partner is Rs.7.50 crores. The Ld. AR for the assessee submits that otherwise this cannot be a reason for disallowance under section 10B as there is no such condition prescribed in the language of this section. The Ld. AR for the assessee further submits that assessee was allowed similar deduction / exemption in preceding assessment year, which has not been disturbed by withdrawal or by revising the order by superior officer or making re-opening of assessment order of preceding. Thus, the ground of appeal raised by Revenue is directly covered by the decision of Hon'ble jurisdictional High Court in the case of Saurashtra Cement And Chemicals Industries Ltd. (supra). 8. We have considered the rival submission of both the parties and gone through the order of lower authorities. We have also deliberated on various case laws. We find that Assessing Officer made the disallowance claimed under section10B mainly by taking view that in the letter of permission granted by Development Commissioner, KSEZ, Gandhidham dated 4- 5.12.2003, wherein the provision intervening the assessee for 14

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. carrying on cutting and polishing semi-precious stone claimed deduction under section 10B was inserted by Finance Act, 2003 to the effect from 01.04.2004, therefore, the assessee claimed such deduction. The assessee has not applied for extension of validity of letter of permission within a period of three years for the reason original approval. The assessee has not made any substantial investment in plant and machinery and thus the business has come into existence by splitting of or re-construction already in existence. Further as appeared its Foreign Trade Policy requirement, the minimum investment of Rs.1 crore for establishment of 100% EOU categorical on which assessee claimed exemption is not complied with. 9. We find that before Ld. CIT(A) the assessee has filed detailed written submission as recorded above and the Ld. CIT(A) after considering the submission of assessee held that the first year of exemption under section 10B was assessment year 2010- 11, wherein assessee made such claim and was allowed under scrutiny assessment under section 143(3). There is no change in the facts and circumstances, and the proposition in law, the Assessing Officer has not taken any step to make a remedial 15

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. action in assessment year 2010-11. The ld CIT(A) held that there is no uniformity in the action of the Assessing Officer qua the preceding assessment year. The ld CIT(A) recorded that permission for starting business was allowed vide order dated 4-5.12.2003 by competent authorities of KSEZ and the deduction for income in such business came into statue book from 01.04.2004 by virtue of which the assessee has become eligible for deduction for the business of cutting & polishing semi-precious and precious stone / diamond on the profit of unit located in SEZ. The Act does not specify that business has to be approved by Competent Authority of SEZ after 01.04.2004 for claiming such deduction. The ld CIT(A) held that such fact is irrelevant and that the assessee commenced its business on 01.01.2009 and accordingly claim of deduction under section 10B in assessment year 2010-11 which was allowed in assessment order under section143(3). The ld CIT(A) further noted that the second reason for assessing officer was about the splitting of re-construction existing business. The Ld. CIT(A) after summarizing of objection of Assessing Officer and the reply of assessee held that the 16

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. Assessing Officer has not doubted the purchased of plant and machinery in the earlier assessment order, otherwise the issue was to be examine in the scrutiny assessment for assessment year 2010-11. The Assessing Officer has not been able to point out any specific defect in the record in fulfilling the condition. The Ld. CIT(A) also noted that once the claim is similar deduction is allowed in the scrutiny assessment, in an initial year, the similar cannot be disallowed without withdrawing or disturbing the similar claim or relief in the earlier year as has been held by the Hon'ble jurisdictional High Court in the case of Saurashtra Cement And Chemicals Industries Ltd. (supra) and Hon'ble jurisdictional High Court held that assessee is eligible for deduction under section 10B. 10. We find that during the hearing of the present appeal, no contrary facts or law is brought to our notice to take other view. The ld CIT(A) allowed relief to the assessee by following the binding decision of Jurisdictional High Court in Saurashtra Cement And Chemicals Industries Ltd. (supra). Therefore, we do not find any reason to interfere with the order

ITA No349/SRT/2017 (A.Y 11-12) M/s Balar Navadiy Mfg.Co. passed by Ld. CIT(A), which we affirm. The ground of appeal raised by the Revenue is dismissed. 11. In the result, the appeals of the Revenue is dismissed. Order pronounced in the open court on 12/07/2022 as well as by placing the result on the Notice Board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) [लेखा सद�य/ACCOUNTANT MEMBER] [�याियक सद�य JUDICIAL MEMBER] Surat, Dated: 12/07/2022 Dkp. Out Sourcing Sr.P.S Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)- 4. CIT 5. DR 6. Guard File True copy/ By order // True Copy // Sr.P.S./Assistant Registrar, ITAT, Surat