INCOME TAX ACT, 1961

Section 10AA

Deduction under section 10AA - Allowability - AO doubting manufacturing activity - Assessee pleading allowance of similar claim in preceding year, however, on dissimilar facts

Assessee firm stated to be engaged in trading of gold ornaments and manufacturing of gold medallions claimed deduction under section 10AA. AO noticed that all the import and export took place in March, 2012. Import parcels were received at around 2.30 P.M. and all the activities were stated to be completed within a span of 4 hours 30 minutes. Further, export proceeds were never realized by the assessee even after lapse of 3 years and rate of profit in export/SEZ business was shown to be substantially higher than profit in domestic transactions, all importers as well as exporters pertained to almost same area in same country, i.e., Dubai, whereas payments were routed through New York and Bahamas and not credited to the accounts of exporters from whom assessee made imports. Bank account numbers were same in case of suppliers, namely, Solitaire General Trading FZE and Sky Diamond Jewellery FZE. All these factors led AO to disbelieve manufacturing activities and accordingly, AO denied deduction under section 10AA. Assessee pleaded that similar disallowance made by AO in preceding year stood deleted by appellate authorities.Held: Principle of res-judicata is not applicable to income-tax proceedings and each year is independent unit of assessment. Assessee is expected to substantiate its claim in each of the year and rule of consistency would be applicable only in cases where factual matrix as demonstrated to be substantially the same. However, in the instant case, on perusal of assessment order as well as order of CIT(A) for assessment year 2011-12, it was clear that facts were different in that year. In assessment year 2011-12, main focus of AO was on electricty consumption and labour charges as against facts of the concerned year wherein AO had brought on record specific facts of time taken in manufacturing process, fact of abnormal profits, discrepancies in bank accounts, non-realization of export proceeds even beyond 3 years, evidence of labour operations, machineries used by assessee to carry out manufacturing operations, electricity consumption, stamping die, etc., which remained to be controverted by the assessee. Accordingly, keeping in view the entirety of facts and circumstances, issue was restored to AO for re-adjudication de novo with a direction to assessee to substantiate claim of deduction under section 10AA.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2012-13

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