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2019 (11) TMI 513 - AT - Income TaxDisallowance of deduction claimed u/s 10AA - importing diamonds for re-export - whether activity of the assessee comes within the expression services ? - HELD THAT - In the absence of definition of services under Section 10AA of the Act, services as defined under the SEZ Act and rules framed thereunder would be relevant. As discussed earlier, the definition of services under the SEZ Act and rules framed thereunder encompasses trading activity also. Therefore, import of diamonds for re-export though, may be in the nature of a trading activity, but is certainly in the nature of services , hence would qualify for deduction under Section 10AA of the Act. In the case of Goenka Diamonds Jewellers Ltd. 2017 (8) TMI 1405 - RAJASTHAN HIGH COURT the Tribunal, after examining the provisions of Section 10AA of the Act vis- -vis the SEZ Act and rules framed thereunder, had concluded that since the definition of services under the SEZ Act also includes trading activity, the activity relating to import of diamonds for re-export would qualify for deduction under Section 10AA of the Act. The aforesaid decision of the Tribunal was upheld by the Hon ble Rajasthan High Court while discussing a batch of appeals filed by the Revenue against the decision of the Tribunal. It is relevant to observe, in the aforesaid case also, the assessee had its unit in Surat SEZ. The other decisions cited by the learned AR also express similar view. Therefore, consistent with the view taken by the different Benches of the Tribunal, we are of the view that assessee is eligible to claim deduction under Section 10AA of the Act, since, the activity of import of diamonds for re-exporting comes within the nature of services as provided under Section Section 10AA of the Act. We must observe that learned Commissioner (Appeals), while sustaining the disallowance of deduction claimed by the assessee under Section 10AA of the Act, has referred to the decision of the Hon ble Supreme Court in the case of M/s. Dilip Kumar and Company Ors. 2018 (7) TMI 1826 - SUPREME COURT . However, the ratio laid down in the said decision rather supports the claim of the assessee, since, the assessee has fulfilled the basic conditions of Section 10AA of the Act and comes within the framework of the provision. As discussed earlier, the activity of the assessee comes within the expression services as per Section 10AA of the Act, as per the definition of services under the SEZ Act and rules framed thereunder. Therefore, in our considered opinion, reference to the decision in the case of M/s. Dilip Kumar and Company Ors. (supra) would be of no help to the Revenue. In view of the aforesaid, we direct the Assessing Officer to allow assessee s claim of deduction under Section 10AA - Decided in favour of assessee.
Issues:
Disallowance of deduction claimed under Section 10AA of the Income Tax Act, 1961. Analysis: The appeal concerns the disallowance of a deduction claimed under Section 10AA of the Income Tax Act, 1961 for the assessment year 2012-13. The assessee, a partnership firm engaged in importing cut and polished diamonds for re-export after sorting and grading, filed for the deduction. However, the Assessing Officer and the learned Commission of Income Tax (Appeals) denied the claim, asserting that the assessee did not engage in manufacturing activities but rather trading activities. The Assessing Officer emphasized the necessity of manufacturing goods for export to qualify for the deduction under Section 10AA of the Act. The dispute revolved around whether the activity of importing diamonds for re-export qualified as a service eligible for the deduction. The learned Authorised Representative (AR) argued that the assessee's activity of importing diamonds for re-export constituted a service, making it eligible for the deduction under Section 10AA of the Act. The AR contended that the term 'services' should be interpreted based on the definition provided in the Special Economic Zones Act, 2005 (SEZ Act) and its rules, which encompass trading activities. The AR cited various judicial precedents and Tribunal decisions supporting the eligibility of similar activities for the deduction under Section 10AA of the Act. The learned Departmental Representative (DR) supported the Assessing Officer's decision, emphasizing that the purpose of Section 10AA was to promote manufacturing and export of goods, not trading activities. The DR argued that since the assessee did not engage in manufacturing or production activities for export, the denial of the deduction was justified. The Appellate Tribunal examined the definitions of 'services' under the SEZ Act and rules, concluding that trading activities were included within the ambit of services. The Tribunal referenced previous decisions where similar activities were deemed eligible for the deduction under Section 10AA of the Act. The Tribunal highlighted that the overriding effect of Section 51 of the SEZ Act meant that the SEZ Act's definitions would prevail in case of inconsistency with other laws. Consequently, the Tribunal ruled in favor of the assessee, directing the Assessing Officer to allow the deduction claimed under Section 10AA of the Act. The Tribunal found no ambiguity in the interpretation of the statutory provision and noted that the assessee met the basic conditions for the deduction. In conclusion, the Appellate Tribunal allowed the appeal of the assessee, emphasizing that the activity of importing diamonds for re-export qualified as a service eligible for deduction under Section 10AA of the Income Tax Act, 1961. The Tribunal's decision was based on the definitions provided in the SEZ Act and rules, consistent with previous judicial precedents supporting similar claims for the deduction.
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