Income Tax Appellate Tribunal - JaipurVaibhav Global Ltd., Jaipur vs Department Of Income Tax on 2 August, 2016vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

    Jh Hkkxpan] ys[kk lnL; ,oa Jh yfyr dqekj] U;kf;d lnL; ds le{k
       BEFORE: SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM


                    vk;dj vihy la-@ITA No. 805/JP/2014
                    fu/kZkj.k o"kZ@Assessment Year : 2007-08

A.C.I.T.                      cuke       M/s Vaibhav Global Ltd.,
Circle-5, Jaipur.              Vs.       K-6B, Fatehtiba, Adarsh Nagar,
                                         Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACV 4679 F
vihykFkhZ@Appellant                   izR;FkhZ@Respondent

      jktLo dh vksj ls@ Revenue by : Shri Rajendra Singh (Addl.CIT)
      fu/kZkfjrh dh vksj ls@ Assessee by : Shri G.G. Mundra (CA)

      lquokbZ dh rkjh[k@ Date of Hearing : 14/07/2016.
      mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 02/08/2016.

                                vkns'k@ ORDERPER: LALIET KUMAR, J.M.

      This is an appeal filed by the revenue against the order dated

12/09/2014 of the learned C.I.T.(A)-II, Jaipur for A.Y. 2009-10. The

effective ground of the appeal is as under:-"On the facts and in the circumstances of the case and in law
           the ld CIT(A) has erred in:-2ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd."(i)   Whether on the facts and in circumstances of the case
                 and in law the Ld. CIT (Appeals) has erred in deleting
                 the addition of Rs.41,63,703/- in spite of fact that the
                 addition was made in view of CBDT instruction No.
                 02/2008 dated 22/02/2008."2.    Brief facts of the case are that the assessee company derived

income from manufacturing and export of gems stones, diamonds and

studded jewellery. The assessee filed its return of income on 25/10/2007

declaring total income of Rs. 3,07,95,460/-. The case was scrutinized U/s

143(3) of theIncome Tax Act, 1961(in short the Act). The ld Assessing

Officer observed that there are 100% Export Oriented Unit (EOU) and

DTA units of the assessee company. The assessee claimed deduction U/s

10A for its units situated in SEZ Mumbai and U/s 10B for 100% EOU

situated at Jaipur. Apart from it one DTA unit situated at Jaipur and is

engaged in business of color gems stones. The other DTA unit is stated in

Mumbai and is engaged in the business of trading of diamonds.


2.1   For the assessment year 2007-08, the ld Assessing Officer passed

an assessment order and have made a trading addition of Rs.

1,65,89,139/- on the basis of CBDT circular No. 02/2008 dated

22/2/2008. However, the ld CIT(A) on appeal had granted relief of Rs.

1,62,02,059/- to the assessee. Against that the revenue has filed the3ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.appeal and the Tribunal vide order dated 25/2/2011 has confirmed the

order passed by the ld CIT(A) with the following direction:-"These findings of ld. CIT (A) are finding of fact. Therefore, we are of
          the considered view that the finding of ld. CIT (A) deserves to be
          upheld. The ld. CIT (A) has ascertained that Board instructions are not
          applicable for the year under consideration. It was further noted that
          even in Board Instructions, no such instruction has been given that
          profit @ 6% has to be taken on the total turnover shown by assessee
          as it has been stated that where assessee voluntarily shown 6% or
          more profit on diamond that would be accepted. It does not mean
          that Board has instruction to apply 6% N.P. rate blindly. Books of
          account are audited. Each and every aspect has been clarified by the
          Auditor. Quantitative details are also maintained. All the purchases
          and sales are vouched. There is no material on record that assessee
          has suppressed its sales or has received money back from its
          customers on account of purchases. Therefore, we are of the view
          that ld. CIT (A) was justified in applying g.p. rate of 2.6% against
          2.46% as there were certain defects on which g.p. rate of 0.14% was
          enhanced. We further noted that similar additions were made for
          earlier year also and they have been deleted by the Tribunal. Copies of
          orders of the Tribunal are placed on record. In view of these facts and
          circumstances and in view of the reasoning given by ld. CIT (A), we
          confirm his order in this respect."4ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.2.2   The ld Assessing Officer after recording the reasons for reopening,

issued earlier notice U/s 148 of the Act on 26/3/2012, which was duly

served upon the assessee. After the reasoning given by the ld Assessing

Officer, as mentioned in the assessment order, which is as under:-"The assessee claimed deductionu/s 10Afor its units situated in
             SEZ Mumbai andu/s 10Bfor 100% EOU situated at Jaipur. Apart
             from it one DTA unit situated at Jaipur and is engaged in business
             of color Gem Stones. The other DTA unit is situated in Mumbai and
             is engaged in the business of trading of Diamonds. After
             verification it was found that in respect of DTA, Mumbai turnover
             of this unit was Rs.39,89,47,504/-(Rs.27,64,85,644+ inter unit sale
             of Rs.12,24,61,860/-) but the assessee has shown the turnover of
             Rs.27,64,85,644/- and the assessee has proposed for application
             of NP rate of 6% on turnover of Rs.27,64,85,644/- only, while
             making the assessment 6% of NP was applied on declared
             turnover of Rs.27,64,85,644/-. This rate of NP is also applicable on
             the inter unit sale turnover of Rs.12,24,61,860/- which works out
             to Rs.73,47,711/-. Thus income was under assessed by
             Rs.73,47,711/-.I have therefore, reason to believe that on account of failure on
             the part of the assessee to disclose fully and truly all material facts
             income amounting of Rs.73,47,711/- has escaped assessment
             within the meaning ofsection 147."5ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.The assessee was called upon to given reply and thereafter the ld

Assessing Officer have determined the market value of the goods or

service (diamond) for the purposes ofSection 80IA(8)of the Act after

calculating the profit on the NP rate of 6% in view of the instruction in

CBDT circular. The relevant paragraph is as under:-"I have considered the facts and circumstances of the case and
              the submissions of the assessee. The assessee has not
              maintained any quantitative or qualitative details of opening
              stock and closing stock etc. and has not maintained any day-to-
              day stock register or manufacturing register etc. as discussed in
              preceding paras of this order. The valuation of closing stock
              shown by the assessee is also not reliable as the assessee had
              valued the opening and closing stock at different rates. Looking
              to all these defects the assessee's books of account can't be
              accepted as complete and correct and therefore, the true profits
              of the firm can't be deduced and hence provisions ofsection
              145(3)are clearly applicable in the case of assessee.
                  The assessee has shown GP rate of 2.46% on turnover of
              Rs.27,64,85,644/- in respect of Mumbai DTA Unit engaged in
              trading of Diamonds.Considering the submission of the assessee and as the
              assessee is engaged in trading of diamonds, therefore, in view of
              CBDT Instruction No 02/2008 dated 22.2.2008, an NP rate of 6%
              is applied on its turnover.6ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.The assessee has shown turnover of Rs.12,24,61,860/- and
                 application of 6% NP result would give Net profit of
                 Rs.73,47,711/- which is added to the total income of the
                 assessee.3.    Being aggrieved by the order of the ld Assessing Officer, the

assessee carried the matter before the ld CIT(A), who had opined the

reopening of the assessment proceedings U/s 147 and 148. However, in

respect of ground No. 3 of the appeal, which is as under:-"3.   That the Ld. Assessing Officer is also wrong and has erred in
                law in holding that inter unit transfers in DTA Mumbai
                aggregating to Rs. 12,24,61,860/- is turnover of appellant
                company and applying 6% N.P. thereon by wrongly applying
                CBDT instruction No. 2/2008 dated 22/2/2008 and thereby
                making an addition of Rs. 73,47,711/- in the total income of
                assessee."The ld CIT(A) has determined the profit and gains of EOU unit at Jaipur

U/s 10B by calculating the market value of the goods i.e. at 1.026% of

Rs. 12,24,61,860/-. The relevant paragraph of the ld CIT(A)'s order is as

under:-"5.3.2      In this case too, goods (diamonds) held for the purposes of
                   business, have been transferred by the DTA, Mumbai7ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.(conducting domestic business) to the EOU unit which is
                eligible for exemptionu/s 10B. In this case, the consideration
                for the inter unit transfer as recorded in the books of the EOU
                unit is the purchase price of the DTA unit. This purchase price
                of the DTA Mumbai does not correspond to the market value of
                goods (diamonds) for the EOU unit, on the date of transfer. The
                market value of such goods would be the consideration at
                which the DTA unit sells the goods to other customers, which
                would include the Gross Profit element of DTA Mumbai, as
                well. The gross profit rate for the DTA unit has already been
                upheld by the ITAT to be 2.6%. Therefore, for the purposes of
                deductionu/s 10B, the profits and gains of the EOU unit at
                Jaipur shall be computed as if the transfer has been made at
                the market value of goods i.e. at 1.026% of Rs. 12,24,61,860/-.
                (= Rs. 12,24,61,860/- + 2.6% of Rs. 12,24,61,860/-).
                Consequently, the (exempted) profit of the EOU unit would
                decrease and the profit of the DTA unit in Mumbai would
                increase by 2.6% of Rs. 12,24,61,860/- = Rs. 31,84,008/- . This
                increase in profit of Rs. 31,84,008/- of DTA Mumbai is taxable
                in the hands of the appellant. Therefore, addition to the extent
                of Rs. 31,84,008/- is sustained and the balance amount is
                deleted. This ground is partly allowed."4.    Now the revenue is in appeal before us. The ld Sr.DR has submitted

that the assessee has proposed NP rate on turnover of Rs. 27,64,85,664/-

and the ld Assessing Officer has applied the same NP rate to the inter unit8ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.sale of Rs. 12,24,61,860/-. It was further contended that the market

value U/s 10B is required to be arrived in terms of the principle laid down

U/s 10B of the Act.Section 10Bof the Act provides as under:"SPECIAL PROVISIONS IN RESPECT OF NEWLY
         ESTABLISHED HUNDRED PERCENT- EXPORT-ORIENTED
         UNDERTAKINGS.10B (1) Subject to the provisions of this section, a deduction
         of such profits and gains as are derived by a hundred percent
         export-oriented undertaking from the export of articles or
         things or computer software for a period of ten consecutive
         assessment years beginning with the assessment year
         relevant to the previous year in which the undertaking begins
         to manufacture or produce articles or things or computer
         software, as the case may be, shall be allowed from the total
         income of the assessee:Provided that where in computing the total income of the
         undertaking for any assessment year, its profits and gains
         had not been included by application of the provisions of this
         section as it stood immediately before its substitution by theFinance Act, 2000, the undertaking shall be entitled to the
         deduction referred to in this sub-section only for the
         unexpired period of aforesaid ten consecutive assessment
         years:Provided further that for the assessment year beginning on
         the 1st day of April, 2003, the deduction under this sub-
         section shall be ninety per cent. of the profits and gains
         derived by an undertaking from the export of such articles or
         things or computer software:Provided also that no deduction under this section shall be
         allowed to any undertaking for the assessment year9ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.beginning on the 1st day of April, 2012 and subsequent
         years.Provided also that no deduction under this section shall be
         allowed to an assessee who does not furnish a return of his
         income on or before the due date specified under sub-section
         (1) ofsection 139."It was submitted that the applicability of 2.6% G.P. in respect of DTA unit

of Mumbai on the basis of the earlier order of the Tribunal was not correct

and the Tribunal in its order has mentioned "all purchases and sales are

vouched, there is no material on record that the assessee has suppressed

its sale or has received money back from its customer on account of

purchasers." In view of the above findings recorded by the Tribunal, the

benefit of the earlier order of applicability of GP @ 2.6%, in our view

cannot be extended.5.    On the other hand, the ld AR of the assessee has submitted that

the case of the assessee is covered by the order passed by the Hon'ble

Tribunal dated 25/2/2011 and therefore, the ld CIT(A) was correct in

partly allowing the appeal of the assessee.6.    We have heard the rival contentions of both the parties and

perused the material available on the record. As perSection 10B(8)of the

Act, if any goods or services are transferred as recorded in the accounts10ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.of the eligible business, does not correspond to the market value of the

goods or services then the profit and gain of such eligible business shall

be computed at the market value of such goods or services as on that

date. In our view, the ld CIT(A) should have endeavoured to find out the

market value of the goods (diamond) transferred from DTA Mumbai to

DTA Jaipur and thereafter he should have computed profit and gains of

EOU unit to Jaipur. The same has not been done and the GP rate of 2.6%

has been applied by the ld CIT(A) on the basis of the earlier order passed

by the Tribunal dated 25/2/2011. In our view, the earlier order will not

come for rescue to the assessee as the assessee was found to have

suppressed the sale/transfer of the diamond to the DTA at Jaipur. Further

the assessee itself had proposed the application of NP rate of 6% on the

turnover of Rs. 27,64,85,644/- (sale made to the other units) and has not

shown any NP/GP in respect of the inter unit sale of Rs. 12,24,61,860/-

(compared to the earlier ITAT order). In our view, the same NP rate as

proposed by the assessee for other units is required to be applied to the

inter unit sale also in terms ofSection 10B(8)of the Act, however, at this

stage, since the market value of the goods/services required to be

determined, we deem it appropriate to remand the matter back to the file

of ld CIT(A) with direction to calculate the market value of the goods for11ITA No. 805/JP/2014ACIT Vs M/s Vaibhav Global Ltd.the purposes of computing the profit and sale of the assessee in respect

of enter sale unit of goods/services. In view thereof, the appeal of the

revenue is allowed for statistical purposes only.7.      In the result, revenue's appeal is allowed for statistical purposes

only.Order pronounced in the open court on 02/08/2016.Sd/-                                        Sd/-
          ¼Hkkxpan½                                  ¼yfyr dqekj½
         (BHAGCHAND)                                 (Laliet Kumar)
ys[kk   lnL;@Accountant Member            U;kf;d    lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 02nd August, 2016
Ranjan*vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:1      vihykFkhZ@The Appellant- The A.C.I.T., Circle-5, Jaipur..2.     izR;FkhZ@ The Respondent- M/s Vaibhav Global Ltd., Jaipur.3.     vk;dj vk;qDr@ CIT4.     vk;dj vk;qDr¼vihy½@The CIT(A)5.     foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur6.     xkMZ QkbZy@ Guard File (ITA No. 805/JP/2014)
                                                vkns'kkuqlkj@ By order,

                                           lgk;d iathdkj@Asst. Registrar