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2019 (10) TMI 714 - AT - Income TaxDeduction u/s 10B - Denial of deduction as assessee has not followed rules and regulations for 100% export oriented unit (EOU) - also rejected the claim of deduction of duty drawback amounting to ₹ 42,80,369/- on the ground that such duty drawback are not eligible for deduction u/s. 10B - HELD THAT - Order of the Development Commissioner, SEZ Noida raising certain serious objections were not before the AO or the CIT(A) or the Tribunal and, therefore, submission of the Ld. Counsel for the assessee that it is a covered matter in favour of the assessee cannot be accepted at this stage. However, considering the fact that the assessee has challenged the order of the Development Commissioner SEZ which is sub-judice and has not attained finality, therefore, we deem it proper to restore the issue to the file of the AO with a direction to give an opportunity to the assessee to substantiate as to what has happened to the outcome of the issues raised by the Development Commissioner, Noida SEZ and decide both the issues as per fact and law. While deciding the issues he shall also keep in mind the decision of the Tribunal and the Hon ble High Court in assessee s own case.- Appeal filed by the assessee is allowed for statistical purpose.
Issues Involved:
1. Disallowance of deduction claimed under Section 10B of the Income Tax Act. 2. Addition on account of duty drawback. Issue-wise Detailed Analysis: 1. Disallowance of Deduction Claimed Under Section 10B: The primary issue revolves around the disallowance of ?46,22,783/- claimed by the assessee under Section 10B of the Income Tax Act. The assessee, a manufacturer and exporter of readymade garments, was penalized ?40 lakhs by the Development Commissioner, Noida Special Economic Zone, for misuse of the Letter of Permission (LOP) and other violations under the FTDR Act, 1992. The Assessing Officer (AO) disallowed the deduction, citing non-compliance with EOU (Export Oriented Unit) regulations, including: - Concealing EOU status to Customs Authorities. - Simultaneously claiming duty drawback and 100% exemption under Section 10B. - Failing to maintain proper accounts and submit required reports. - Not achieving positive Net Foreign Exchange (NFE). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's disallowance, emphasizing that the EOU status is contingent on adherence to inter-linked rules and regulations under the Foreign Trade Policy. The Development Commissioner’s findings indicated non-compliance, leading to the cancellation of the LOP. The CIT(A) found the assessee’s reliance on past favorable decisions by the Delhi High Court inapplicable due to the new findings by the Development Commissioner. 2. Addition on Account of Duty Drawback: The AO also added ?46,82,369/- on account of duty drawback, arguing that: - Only profits derived directly from 100% export-oriented undertakings are eligible for deduction under Section 10B. - Duty drawback is "attributable to" but not "derived from" the export of articles or things. - It is an ancillary profit not directly related to export business. - No foreign exchange is brought into India through duty drawback. The CIT(A) upheld this addition, reiterating that the primary requirement for exemption under Section 10B is the EOU status, which was in dispute due to the Development Commissioner’s findings. Tribunal’s Decision: The Tribunal noted that the AO's disallowance was based on the Development Commissioner’s order, which was under challenge and had not attained finality. The Tribunal also acknowledged past decisions by the Delhi High Court and the Tribunal in favor of the assessee for previous assessment years, which were not considered by the AO or CIT(A) due to the new findings. Given the ongoing challenge to the Development Commissioner’s order, the Tribunal deemed it appropriate to remand the issue back to the AO. The AO was directed to reconsider the matter, taking into account the outcome of the appeal against the Development Commissioner’s order and the past decisions favoring the assessee. The AO was instructed to provide the assessee with an opportunity to present the current status of the Development Commissioner’s findings and decide the issues based on facts and law, considering the Tribunal and High Court’s previous rulings. Conclusion: The Tribunal allowed the appeal for statistical purposes, remanding the issues back to the AO for a fresh decision in light of the ongoing challenge to the Development Commissioner’s order and past favorable rulings for the assessee. The Tribunal emphasized the need for a thorough re-examination of the facts and adherence to legal principles while deciding the matter.
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