2010 (12) TMI 142 - HC - Income Tax

Deduction u/s 10A - The assessee had claimed deduction under Section 80HHE of the Act in the Assessment Year 1998-99 and thereafter in the assessment years 1999-2000, 2000-01 and 2001-02 Assessee can claim deduction Assessee submitted documentary evidence before the CIT (A) to prove that it had brought in India the foreign exchange within the extended time Allowance of deduction u/s 10A to the assessee in respect of profit of Japan branch AO had denied the exemption on the ground that the said branch is not covered under Section 10A(2) of the Act - It was clear from the facts that the assessee had sought permission from the Reserve Bank of India to open non-trading branch in Tokyo, Japan to facilitate communication between NEPZ unit and the company in Japan - The documents filed by the assessee including RBI permission in their favour, that is, on the basis of some documents the assessee claims that Explanation 3 of Section 10A of the Act is satisfied whereas the Revenue feels otherwise Appeal are disposed of and remit the case back to AO to decide the issue afresh

Summary

Issues:
1. Permissibility of allowing deduction to the assessee under Section 10A of the Act after claiming deduction under Section 80HHE in previous years.
2. Correctness of ITAT's finding on bringing sale proceeds in convertible foreign exchange within extended time.
3. Correctness of ITAT's decision in allowing exemption under Section 10A for profit of Japan Branch.

Issue 1:
The High Court decided in favor of the assessee regarding the permissibility of allowing deduction under Section 10A of the Act after claiming deduction under Section 80HHE in previous years. The assessee had claimed exemption under Section 10A, which was allowed, but the Assessing Officer disallowed it in the succeeding assessment years. The Court held that the assessee was entitled to the deduction under Section 10A based on the facts and circumstances presented.

Issue 2:
The Court noted that the issue of bringing sale proceeds in convertible foreign exchange within the extended time was factual. The assessee submitted documentary evidence to prove compliance with the requirement, which was considered by the CIT (A) in favor of the assessee.

Issue 3:
Regarding the exemption under Section 10A for the profit of Japan Branch, the Assessing Officer denied the exemption, stating that the branch was not covered under Section 10A(2) of the Act. The CIT (A) allowed the expenses and directed the Assessing Officer to consider the profit of Japan Branch as exempt under Section 10A. The ITAT affirmed this decision. The Revenue argued that the Japan Branch was an independent branch office, not eligible for deduction under Section 10A. However, the assessee contended that the Japan Branch was an onsite office facilitating various activities, making it eligible for exemption under Section 10A. The Court emphasized the need to interpret Section 10A in the context of the specific facts and documents presented. It observed that the authorities below did not properly analyze the issue and remitted the case back to the Assessing Officer for a fresh decision based on the evidence and legal principles outlined in the judgment.