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2022 (4) TMI 233 - AT - Income TaxDisallowing exemptions claimed u/s.10A in regard to export proceeds brought into India after a period of six months from the end of the previous year - CIT(A) confirmed the action of the AO stating that one of the primary condition which needs to be satisfied to avail the exemption u/s.10A includes bringing into India the proceeds of export sales in convertible foreign exchange within six months from the end of previous year or within such further period allowed - HELD THAT - for the relevant assessment year no timeline has been referred for realization of export proceeds as per RBI guidelines for SEZ units but the RBI Circular Nos.28 91 are applicable and hence, the benefit u/s.10A of the Act should not be denied to the assessee on the ground that there is no realization of export proceeds within six months from the end of previous year. We are of the view that the assessee is entitled for exemption for an amount which was pending realized as at the end of six months from the year end, subject to verification by the AO whether the export proceeds pending realization has been realized within one year from the year end. This can be verified by the AO at the time of giving appeal effect to the order of the Tribunal. This issue of assessee s appeal is allowed as indicated above and the appeal of the assessee is allowed for statistical purpose. Disallowance made in regard to violation of provisions of section 40A(7) and sections 43A 43B - HELD THAT - We noted that the AO while framing assessment has not reduced the telecommunication expenses from the total turnover of the assessee while reducing the same from the export turnover for the purpose of computation of deduction u/s.10A - CIT(A) excluded telecommunication expenses from export turnover as well as total turnover while computing eligible deduction u/s.10A of the Act. We noted that this issue is squarely covered by the decision in the case of CIT vs. GEM Plus Jewellery India Ltd.. 2010 (6) TMI 65 - BOMBAY HIGH COURT and Sak Soft Ltd 2009 (3) TMI 243 - ITAT MADRAS-D - Both the decisions categorically state that in case any item is reduced from the export turnover, the same has to be reduced from total turnover. Hence, we confirm the order of CIT(A) and dismiss this ground of Revenue s appeal. Deduction u/s 10A - CIT(A) allowing 100% of deduction u/s.10A and according to Revenue, the assessee is eligible for claim of deduction to the extent of 50% as the actual date of commencement of production was after 01.04.2003 - HELD THAT - As decided in own case X 2015 (1) TMI 52 - ITAT CHENNAI provisions of s.10A(1A) restricting the deduction to 50% of the profit applies to such undertakings where commercial production was commenced on or after 1.4.2003 in any SEZ in terms of s.10A/1A) - In the case of the appellant the assertions made with regard to commencement of production /manufacture is verifiable from the records as listed in para 6.2. Accordingly the assumption made by the AO is erroneous and not supported by facts. Therefore the plea of the appellant that it is eligible for such deduction for a period of 10 years from the commencement of commercial production in the year 1999-2000 relevant to A.Y.2000-2001 is upheld. The AO is directed to amend the order allowing the claim u/s 10A accordingly. This issue is allowed. Deduction u/s 10AA - exclusion from export turnover on account of sales to other SEZ/EOU units - HELD THAT - it is an undisputed fact that the sale consideration is released in convertible foreign exchange and assessee also claimed exemption u/s.10AA of the Act as the ultimate objective of this provision is promotion of exports from India and accordingly, such sales are considered as export sales for the purpose of claiming exemption under this section. As this issue is squarely covered by the decision of Hon ble Jurisdictional High Court in the case of Preludesys India Ltd., 2020 (10) TMI 564 - MADRAS HIGH COURT , were are of the view that the assessee is entitled for claim of deduction. Disallowance of provision for marked to market losses. - HELD THAT - We noted that the assessee has given some details in chart for the provisions made for market to market losses adjustment made for assessment years 2009-10 2010-11, which are illustrative only. We noted that this issue has been dealt with by Hon ble Supreme Court in the case of Rotork Controls India P. Ltd., vs. CIT 2009 (5) TMI 16 - SUPREME COURT wherein the Hon ble Supreme Court explained that a provision is a liability which can be measured only by using a substantial degree of estimation. We noted that the assessee even now could not produce before us how the provision is made based on historical trend and a reliable estimate as held - Hence, we find that the claim made by the assessee is without any basis and the CIT(A) has rightly upheld the action of the AO. We dismiss this issue of assessee s appeal.
Issues Involved:
1. Disallowance of exemptions claimed under Section 10A of the Income Tax Act. 2. Deletion of disallowance under Section 40A(7), Sections 43A, and 43B. 3. Exclusion of telecommunication expenses from export turnover and total turnover. 4. Eligibility for 100% deduction under Section 10A. 5. Exclusion from export turnover on account of sales to other SEZ/EOU units. 6. Disallowance of provision for marked to market losses. Issue-wise Detailed Analysis: 1. Disallowance of Exemptions Claimed Under Section 10A: The primary issue in the assessee's appeal was the disallowance of exemptions claimed under Section 10A due to export proceeds not being realized within six months from the end of the previous year. The assessee argued that the amount pending realization was ?22,51,13,218, not ?41,63,08,042 as considered by the AO. The CIT(A) upheld the AO's decision, stating that the proceeds must be brought into India within six months or an extended period allowed by the competent authority, which is the RBI. The Tribunal noted that as per RBI Circulars No.28 and No.91, the period for realizing export proceeds for SEZ units was extended, and thus, the assessee should be entitled to the exemption. The Tribunal allowed the appeal for statistical purposes, directing the AO to verify if the export proceeds were realized within one year. 2. Deletion of Disallowance Under Section 40A(7), Sections 43A, and 43B: The Revenue's appeal contested the CIT(A)'s deletion of disallowances made under Sections 40A(7), 43A, and 43B. The CIT(A) had allowed these claims, stating that disallowances under these sections should be considered part of the profits and gains of the business while computing deductions under Section 10A. The Tribunal upheld the CIT(A)'s decision, referencing CBDT Circular No.37/2016, which accepted that such disallowances enhance the profits of the eligible business and thus qualify for Chapter VI-A deductions. 3. Exclusion of Telecommunication Expenses from Export Turnover and Total Turnover: The Revenue's appeal also challenged the CIT(A)'s decision to exclude telecommunication expenses from both export turnover and total turnover while computing the deduction under Section 10A. The Tribunal confirmed the CIT(A)'s decision, citing the Special Bench of ITAT, Chennai in the case of Sak Soft Ltd., and the Bombay High Court in the case of GEM Plus Jewellery India Ltd., which held that any item reduced from export turnover must also be reduced from total turnover. 4. Eligibility for 100% Deduction Under Section 10A: The Revenue argued that the assessee was only eligible for a 50% deduction as the commercial production commenced after 01.04.2003. The CIT(A) found that the commercial production actually started in 1999-2000, thus qualifying for a 100% deduction. The Tribunal upheld this finding, confirming that the assessee was entitled to the deduction as the commercial production commenced before the cut-off date. 5. Exclusion from Export Turnover on Account of Sales to Other SEZ/EOU Units: The assessee's appeal contested the exclusion of sales to other SEZ/EOU units from the export turnover for claiming exemption under Section 10AA. The CIT(A) had upheld the AO's decision, stating that such sales did not qualify as export sales. The Tribunal, referencing the SEZ Act and the Madras High Court decision in Preludesys India Ltd., held that sales to SEZ units should be considered as export sales for the purpose of claiming exemption under Section 10AA, thus allowing the assessee's claim. 6. Disallowance of Provision for Marked to Market Losses: The assessee's appeal also challenged the disallowance of provision for marked to market losses. The CIT(A) upheld the AO's decision, stating that such provisions do not form part of the profits of the eligible undertaking for deduction under Section 10A. The Tribunal agreed with the CIT(A), noting that the assessee failed to provide a reliable estimate as required by the Supreme Court in Rotork Controls India P. Ltd., thus dismissing the assessee's claim. Conclusion: The Tribunal allowed the assessee's appeal for statistical purposes regarding the Section 10A exemption and partly allowed the appeal concerning sales to SEZ units. The Revenue's appeal was dismissed on all counts, upholding the CIT(A)'s decisions on disallowances and telecommunication expenses. The Tribunal confirmed the CIT(A)'s decision on the provision for marked to market losses, dismissing the assessee's claim.
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