2014 (1) TMI 1828 - AT - Income Tax

Validity of the disallowance of the deduction u/s.10A - assessee relying on Master Circular No. 10/2011-12 (dated 01.07.2011/PB pgs.19-23), which clarifies that no specific time limit has been prescribed in respect of units in SEZs for realization and repartition of the export proceeds - Held that - Law does not provide an inflexible condition in the matter; leaving it to the competent authority, the RBI, whose decision, besides being binding on the Revenue, would presumably only be with regard to and on an assessment of the facts and circumstances of the case, apart from being consistent with any policy guideline it may have framed in the matter, also having regard to any other law, if any, that may have a bearing or which impinges thereon. Once, therefore, the RBI has clarified that it has not stipulated any time period for the realization of the sale proceeds for the SEZ units, as the assessee, it can only be considered as having allowed an indefinite time period for the same. Consequently, it cannot be said that the condition of section 10A(3) is not satisfied. The objection of the Revenue is, in our view, not valid. The non-stipulation of any time frame by the RBI for the realization and repatriation of the export proceeds for the units located in SEZs does not per se lead to any conflict or inconsistency between the same and the provisions of the Act. Tax implication may though arise where the sale proceeds are either received otherwise than in convertible foreign exchange or, though received as so, is not brought into India inasmuch as sec. 10A(3) gets attracted. These aspects, however, do not arise for consideration in the facts of the present case. - Decided against revenue

Summary

Issues:
Validity of disallowance of deduction u/s.10A of the Income Tax Act due to non-realization of export proceeds within the specified time frame.

Analysis:
The judgment pertains to an appeal by the Revenue against the Commissioner of Income Tax (Appeals) order allowing the assessee's appeal contesting its assessment for the assessment year 2003-04. The main issue in this appeal is the disallowance of the deduction u/s.10A of the Act amounting to Rs. 37,82,201 due to a part of the export proceeds not being realized within the stipulated time frame. The Revenue contended that the condition of section 10A(3) was breached as a significant portion of the export proceeds had not been received within six months from the end of the relevant previous year. However, the assessee produced a letter from the Reserve Bank of India (RBI) stating that no time limit was prescribed for realization of export proceeds for units in Special Economic Zones (SEZs), which was accepted by the CIT(A).

The judgment highlights that the law does not provide an inflexible condition regarding the realization of export proceeds, leaving it to the competent authority, the RBI, to decide based on the facts and circumstances of the case. The RBI clarified that no specific time limit was set for SEZ units, implying an indefinite time period for realization. The judgment emphasizes that the objection raised by the Revenue regarding the applicability of the RBI Circular to the current year was not valid, as the circular extended the time period indefinitely from the date of export. It was clarified that the non-stipulation of a time frame by the RBI for realization and repatriation of export proceeds for SEZ units did not conflict with the provisions of the Act.

Ultimately, the Tribunal held that the Revenue's case lacked merit, and the impugned order was upheld, leading to the dismissal of the Revenue's appeal. The judgment concluded that tax implications might arise if the sale proceeds were not received in convertible foreign exchange or not brought into India, invoking section 10A(3). However, these aspects were deemed irrelevant in the present case.