2015 (10) TMI 2559 - AT - Income Tax

Revision u/s 263 - assessee is not entitled to claim deduction u/s 10AA of the Act on purely trading activity - Held that - On perusal of order of the AO as well as submission filed before the AO during the assessment proceedings, it is clear that the AO has raised a specific query in relation to deduction claimed by the assessee u/s 10AA of the Act. In response, the assessee has filed the reply alongwith report u/s 10AA in form No. 56F. Thereafter, the AO has raised further enquiries and the assessee filed the detailed reply which is mentioned hereinabove. Therefore, it is clear that specific query was raised by the AO and on perusal of the details and reply submitted by the assessee, the AO allowed deduction u/s 10AA of the Act to the assessee. In this regard, it is clearly not a case where there is lack of enquiry by the AO. On similar facts in the case of another assessee in the case of M/s. Goenka Diamond and Jewels Ltd. 2012 (3) TMI 258 - ITAT JAIPUR the Coordinate Bench of ITAT has taken a view that deduction u/s 10AA is available in respect of trading activity. - Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdiction and validity of invoking provisions of Section 263 of the Income Tax Act, 1961.
2. Eligibility and correctness of the deduction claimed under Section 10AA of the Income Tax Act, 1961 for trading activities.

Issue-Wise Detailed Analysis:

1. Jurisdiction and Validity of Invoking Provisions of Section 263 of the Income Tax Act, 1961:

The assessee contested the jurisdiction of the Commissioner of Income Tax (CIT) in invoking the provisions of Section 263 of the Income Tax Act, 1961. The CIT had passed orders u/s 263 for the assessment years 2007-08 and 2008-09, asserting that the assessments completed by the Assessing Officer (AO) were erroneous and prejudicial to the interest of revenue. The CIT argued that the AO had wrongly allowed deductions claimed by the assessee under Section 10AA, pertaining to profits derived from trading activities, which the CIT believed did not qualify for such deductions.

The Tribunal analyzed whether the CIT had valid grounds to invoke Section 263. It was noted that the AO had raised specific queries regarding the deduction claimed under Section 10AA and had received detailed responses from the assessee. The AO had allowed the deduction after thorough examination, indicating that there was no lack of inquiry. The Tribunal referenced the Supreme Court's decision in Malabar Industrial Ltd. vs. CIT, which clarified that an order could not be deemed erroneous if the AO had taken a plausible view.

The Tribunal concluded that the AO's view was in line with the decision of the Coordinate Bench in a similar case (Goenka Diamond and Jewels Ltd.), which allowed deductions under Section 10AA for trading activities. Thus, the AO's order was neither erroneous nor prejudicial to the interest of revenue, making the CIT's invocation of Section 263 invalid.

2. Eligibility and Correctness of the Deduction Claimed Under Section 10AA of the Income Tax Act, 1961 for Trading Activities:

The core issue was whether the assessee's trading activities qualified for deductions under Section 10AA. The assessee argued that its activities, including trading of imported goods for re-export, fell within the definition of "services" as per the SEZ Act, 2005, and hence qualified for deductions under Section 10AA. The CIT, however, contended that the definition of "services" from the SEZ Act could not be imported into the Income Tax Act, and trading activities did not qualify as services eligible for deduction under Section 10AA.

The Tribunal examined the legislative intent and the specific provisions of Section 10AA. It noted that the SEZ Act's definition of "services" included trading activities and that the Ministry of Commerce had clarified that trading for the purpose of re-export qualified for benefits under Section 10AA. The Tribunal referenced multiple decisions, including those of the Coordinate Bench and other judicial precedents, which supported the view that trading activities could qualify for deductions under Section 10AA.

The Tribunal emphasized that the AO had taken a plausible view supported by judicial precedents and legislative clarifications. Therefore, the AO's decision to allow the deduction was justified and could not be deemed erroneous or prejudicial to the interest of revenue.

Conclusion:

The Tribunal allowed the appeals of the assessee for both assessment years, 2007-08 and 2008-09, holding that the CIT's orders under Section 263 were invalid. The AO's orders allowing deductions under Section 10AA for trading activities were upheld as they were based on a plausible view supported by judicial precedents and legislative clarifications. The Tribunal's decision emphasized the importance of considering legislative intent and existing judicial interpretations when determining the eligibility for tax deductions.