2017 (1) TMI 1055 - AT - Income Tax

Disallowance of deduction claimed u/s 10AA in respect of trading, warehousing and consultancy income - Whether the provisions of Income Tax Act 1961 will prevail over the provisions of The Special Economic Zones Act, 2005? - Held that - Service includes trading activity if it related to the import of the goods for the purpose of the export. The provisions as specified under The Special Economic Zones Act, 2005 would have overriding effect on the Income Tax Act. Denial of exemption in respect of warehousing and consultancy services - Held that - The assessee has raised the bill for the warehousing charges and the payment was also received for the same. The FIRC is also placed in support of the payment. Indeed the assessee has recorded the transaction as purchase and purchase return along with quantitative details of the goods in the books of accounts. Now the question arises whether the accounting entries can change the substance of the transaction. Indeed the assessee has raised the invoice for the warehousing and handling charges as evident from the invoice placed on page 29 of the paper book. The lower authorities have not brought any defect in the bill, payment of the bill and the FIRC in support of the payment. Hence in our considered view the accounting entries cannot form the basis for denying the exemptions on account of warehousing charges to the assessee under section 10AA of the Act. Similarly the exemption was denied on the consultancy charges due to non-production of the necessary details. However the assessee has produced the bills along with FIRC before the ld. CIT(A) on which remand report was also called for which are placed on the record and no defect has been reported by the learned DR regarding this. In view of above we re inclined to reverse the order of lower authorities. Hence this ground of appeal of the assessee is allowed.

Summary

Issues involved:
Appeal against CIT(A)'s order disallowing deduction claimed u/s 10AA of the Income Tax Act for trading, warehousing, and consultancy income.

Detailed Analysis:

Issue 1: Trading Income
The assessee, engaged in import and export, claimed exemption under section 10AA of the Act for trading income. The AO denied the exemption, stating trading activity is not entitled to it. However, SEZ Rules 2006 include trading activities under services for SEZs. The judgment cited the overriding effect of SEZ Act 2005 on the Income Tax Act. Previous ITAT decisions supported trading activity being eligible for exemption under section 10AA. The judgment allowed the exemption for trading income.

Issue 2: Warehousing Income
The AO disallowed exemption for warehousing charges, claiming the transaction did not qualify. The assessee provided evidence of raising invoices and receiving payments for warehousing services. The judgment found the accounting entries valid and reversed the lower authorities' decision, allowing the exemption for warehousing income under section 10AA.

Issue 3: Consultancy Income
Exemption for consultancy charges was denied due to lack of details. The assessee produced bills and FIRC, with no defects reported. The judgment reversed the lower authorities' decision, allowing the exemption for consultancy income under section 10AA.

In conclusion, the ITAT Kolkata allowed the assessee's appeal, granting exemptions for trading, warehousing, and consultancy income under section 10AA of the Income Tax Act. The judgment emphasized the SEZ Rules' inclusion of trading activities under services and the overriding effect of the SEZ Act 2005 on the Income Tax Act.