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2011 (4) TMI 793 - AT - Income TaxDeduction - Provisions of Explanation (2) to section 10A(3) - The revenue is having objection regarding that the CIT(A) has granted deduction u/s 10A in respect of invoices which has not fallen due and according to the DR, the RBI letter of approval dated 31-7-2003 is applicable only for those invoices for which extension of time had been granted but not for which has not fallen due and it cannot be given exemption for future receivables and work in progress - Held that the work in progress/future receivables cannot be considered for deduction under section 10A - However, when these amounts on realisation were actually transferred to Wholly Owned Subsidiary as an investment within the extended time by RBI, it is to be considered for exemption u/s 10A if the other conditions are fulfilled by the assessee and similar is the position in case of work in progress - The Assessing Officer has to re-compute deduction u/s 10A considering the work in progress/future receivables as not entitled for exemption under section 10A - The assessee has to reconcile with reference to work in progress realised and transferred it into investment in WOS to avail deduction u/s10A and the Assessing Officer is to grant the deduction u/s 10A, if it is within the extended time - Hence, the revenue appeals are partly allowed.
Issues Involved:
- Appeal against common order of CIT(A) related to assessment years 2002-03 to 2006-07. - Interpretation of Rule 46A of the Income-tax Rules, 1962. - Applicability of Explanation (2) to section 10A(3) regarding remittances into India. - Validity of RBI's letter of approval for invoices and capitalization of work in progress. - Denial of deduction under section 10A by Assessing Officer. - Dispute over capitalization of export realizations and formation of Wholly Owned Subsidiary. - Compliance with RBI regulations for investment in Wholly Owned Subsidiary. - Consideration of work in progress for exemption under section 10A. Detailed Analysis: 1. The appeals were filed against the CIT(A)'s order for assessment years 2002-03 to 2006-07. The issues were common, so they were heard together. The revenue raised various grounds, including the failure to apply Rule 46A and the interpretation of section 10A(3) concerning remittances and capitalization of work in progress. 2. The Assessing Officer denied the deduction under section 10A for export sales proceedings not received within the stipulated time. The CIT(A) allowed the claim, leading to the revenue's appeal. The Assessing Officer also questioned the capitalization of export realizations and formation of a Wholly Owned Subsidiary, which the CIT(A) upheld. 3. The CIT(A) admitted additional evidence related to RBI's extension of time for remittances, leading to a remand report. The Assessing Officer's objections were procedural, allowing rectification at the appellate stage. The CIT(A) verified all remittances with FIRCs or RBI approvals, supporting the assessee's claims. 4. The CIT(A) correctly applied Explanation 2 to section 10A(3) for remittances credited to a separate account approved by RBI. The formation of the Wholly Owned Subsidiary in France complied with RBI conditions, enabling the deduction under section 10A. 5. The revenue disputed the deduction granted for invoices not yet due and work in progress. The Tribunal clarified that work in progress/future receivables are not eligible for exemption under section 10A until realized and transferred to the Wholly Owned Subsidiary within the extended time approved by RBI. 6. The Tribunal partially allowed the revenue's appeals, emphasizing the need for compliance with RBI regulations and the timely transfer of work in progress to qualify for the section 10A deduction.
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