2018 (7) TMI 946 - AT - Income Tax

Disallowance of deduction claimed u/s 10AA in respect of interest income - Held that - Assessee s claim of deduction u/s 10AA of the Act in respect of interest income has to be considered keeping in view not only the provisions contained under section 10AA of the Act read with SEZ Act, 2005 but also in the light of the ratio laid down in the decisions relied upon by the assessee. None of the Departmental Authorities have done that exercise. That being the case, we are inclined to restore the issue to the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee - Decided in favour for statistical purposes. Disallowance of deduction under section 10AA of the Act in respect of unrealized export turnover - Held that - unlike sub section (3) of Section 10A and section 10B of the Act fixing certain time limit for bringing the export sale proceeds to India, there is no such restriction imposed under section 10AA of the Act. At the same time, section 155(11A) of the Act permits amendment of deduction claimed under section 10A, section 10B and section 10BA of the Act on realization of export sale proceeds. The said provision is totally silent insofar as it relates to realization of export sale proceeds under section 10AA of the Act. However, in case of M/s. Dania Oro Jewellery Pvt. Ltd. 2018 (1) TMI 240 - ITAT MUMBAI restored the issue to the Assessing Officer for fresh adjudication. Since, the aforesaid decision of the Co ordinate Bench is on identical issue of deduction claimed under section 10AA of the Act, respectfully following the same, we restore the issue to the file of the Assessing Officer for fresh adjudication. Disallowance under section 40(a)(ia) - Held that - the amount in dispute was paid during the relevant previous year. However, as held by the Hon ble Supreme Court in Palam Gas Service (2017 (5) TMI 242 - SUPREME COURT), the provisions of section 40(a)(ia) of the Act covers not only the amounts which remained payable at the end of the year but also the amount which were paid during the relevant previous year without deduction of tax at source. In view of the aforesaid, we do not find merit in the ground raised, hence, it is dismissed.

Summary

Issues Involved:
1. Disallowance of deduction under section 10AA of the Income Tax Act, 1961 in respect of interest income.
2. Disallowance of deduction under section 10AA of the Act in respect of unrealized export turnover.
3. Disallowance under section 40(a)(ia) of the Act for non-deduction of tax at source on certain payments.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 10AA for Interest Income:

The assessee challenged the disallowance of a deduction claimed under section 10AA of the Income Tax Act, 1961, regarding interest income of Rs. 80,16,276. The assessee, engaged in the manufacture and export of diamond-studded jewelry from a Special Economic Zone (SEZ), argued that the interest income was earned on fixed deposits placed with banks against credit facilities used for business purposes. The Assessing Officer (AO) rejected this claim, stating that the interest income was not derived from the export activities and should not be included in the profit for computing the deduction under section 10AA. The Commissioner (Appeals) directed the AO to reduce the net interest income from the profit of the business for computing the deduction. The Tribunal restored the issue to the AO for de novo adjudication, emphasizing that the AO must consider the provisions of section 10AA, the SEZ Act, 2005, and the relevant case laws.

2. Disallowance of Deduction under Section 10AA for Unrealized Export Turnover:

The assessee contested the disallowance of a deduction under section 10AA for an unrealized export turnover of Rs. 1,09,35,183. The AO found that this amount was not brought into India and, therefore, could not be considered for computing the deduction under section 10AA. The Commissioner (Appeals) upheld this view, noting that section 155(11A) allows amendments for deductions under sections 10A, 10B, and 10BA, but not 10AA. The Tribunal observed that there is no time limit for realizing export sales proceeds for SEZ units and restored the issue to the AO for fresh adjudication, following decisions in similar cases.

3. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source:

The assessee challenged the disallowance of Rs. 16,18,327 under section 40(a)(ia) for non-deduction of tax at source on certain payments. The AO disallowed the amount, and the Commissioner (Appeals) upheld the disallowance. The Tribunal noted that the Supreme Court in Palam Gas Service v/s CIT held that section 40(a)(ia) covers amounts paid during the year without tax deduction, as well as amounts payable at year-end. Consequently, the Tribunal dismissed the ground raised by the assessee.

Separate Judgment for Assessment Year 2012-13:

For the assessment year 2012-13, the only issue was a disallowance of Rs. 13,85,839 under section 40(a)(ia), identical to the issue in the previous year. Following the same reasoning, the Tribunal dismissed the appeal.

Conclusion:

The appeal for the assessment year 2011-12 was partly allowed for statistical purposes, while the appeal for the assessment year 2012-13 was dismissed.