The assessee, engaged in manufacturing & Export of Gold Jewellery, claimed exemption u/s 10A of the Act. A survey u/s 133A of the Act was carried out and physical stock of gold was taken. On verification from the books of accounts, a difference of 12kg of gold was found. Apart from this, some loose papers were also found which did not tally with the entries of books of accounts. The AO while recording the statement of the working partner asked certain questions for clarification relating to jewellery weighting about 12kg. The assessee surrendered a sum of Rs.1,31,00,000/- on account of various discrepancies. However, later on furnished a letter in which he claimed that the said surrender was made to buy peace subject to no penalty and prosecution and the surrender made was relating to the income earned during the course of regular business, therefore the assessee was entitled for exemption u/s 10A of the Act being 100% Export Oriented Unit established in Special Economic Zone. HELD by the Tribunal:
The decision of the Hon’ble Madras High Court in the case of CIT Vs S. Khader Khan Son (2008) 300 ITR 157 is of no help to the assessee because the assessee agreed during the course of survey for the addition only when discrepancies in the loose papers were found. The assessee surrendered Rs.11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The said surrender was related to the regular business of the assessee and it is not brought on record that the assessee earned the said income from any other source. Therefore, the deduction u/s 10A of the Act was allowable to the assessee being 100% Export Oriented Unit established in SEZ on this income also. In view of the above we uphold the addition made by the AO and sustained by the CIT(A), however, the AO is directed to allow the deduction u/s 10A of the Act.