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2023 (4) TMI 105 - AT - Income TaxAddition u/s 10AA - such deduction was not claimed by the assessee in original return of income - Whether the deduction can be claimed under the provisions of section 10AA of the Act in the revised return of income? - Whether filing of return within due dale is not a pre-requisite condition for claim of deduction u/s 10AA of the act? - HELD THAT - It is the admitted position that the assessee has claimed the exemption under the provisions of section 10AA of the Act wherein there is no mandate to file the return of income within the time specified under section 139(1) of the Act for claiming the deduction unlike the proviso under the provisions of section 10A(IA) requiring the assessee to file the return of income within the time specified under section 139(1) of the Act for claiming the deduction. Thus, in the absence of any specific provision under the provisions of section 10AA of the Act to file the return of income within the provisions of section 139(1) of the Act, the assessee cannot be deprived of the benefit granted under the statute for the deduction under the provisions of section 10AA of the Act in the given set facts and circumstances. The claim of the assessee was allowed in the case of CIT versus Mitesh Impex 2014 (4) TMI 484 - GUJARAT HIGH COURT even such claim was not made in the Income Tax Return and it was raised 1st time before the learned CIT-A whereas the facts of the case of the assessee are on better footing than the case of the Hon ble Gujarat High Court cited above. In the case on hand, the claim was made in the revised return of income and therefore, we hold that the assessee cannot be deprived of the benefit granted under the statute merely on the reasoning that it was claimed in the revised return of income. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on account of furnishing the audit report in form 56F during the assessment proceedings? - The assessee cannot be deprived of the benefit provided under section 10AA merely on the reasoning that the audit report in form 56F was filed during the assessment proceedings. We hold so on the reasons as applicable to the 1st question discussed above that the deduction was claimed in the revised return of income. Thus, the revenue fails on this reasoning also. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act upon the conversion of its status i.e. proprietorship conversion into partnership firm? - Admittedly, the conversion of proprietorship concern into partnership firm was duly approved by the SEZ authorities which is evident from the details placed - There is no prohibition under the provisions of section 10AA of the Act to deny the benefit of deduction upon the change of the status of the assessee i.e. conversion of proprietorship into the partnership firm. Thus assessee cannot be denied the benefit upon the conversion from the proprietorship concern to the partnership firm. Likewise, there was also no allegation of the AO that the present assessee came into existence after splitting up or the reconstruction of the existing business or undertaking. It is for the reason that there is no violation of the conditions applicable for claiming the deduction u/s 10AA Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on the reasoning that the machineries were acquired on lease? - At the time of formation of the undertaking, there was no violation of the provisions of section 10AA of the Act. In holding so, we rely on the order of order of ITAT in the case of the CIT versus M/s Choice Sanitaryware Industries 2010 (12) TMI 286 - ITAT, RAJKOT wherein the issue was in relation to claim of deduction under section 80IB of the Act but the principles of the same can also be imported to the case on the hand. Likewise, the order referred by the AO in the assessment is distinguishable from the facts of the case. In the case referred by the AO, the assessee has taken not only the premises but also the plant and machineries which were in excess of 20% of statutory limit. But there is no such allegation in the order of the AO in case on hand. Therefore, no credence to the finding of the order of the ITAT as referred by the AO can be given. Accordingly, we hold that the revenue on this allegation also fails. Whether the assessee can be denied the benefit of deduction u/s 10AA of the Act on account of non-remittance of convertible foreign exchange on account of the non-exports? - There is no dispute to the fact that the assessee has made the sale of ₹ 12,21,55000.00 to the parties who were the merchant exporters - the goods sold by the assessee to the parties were eventually exported by the merchant exporters and the foreign exchange was received by these merchant exporters and not by the assessee. As per SEZ rules 2006, the assessee cannot make local sales but allowed to make sales to the merchant exporters which will be treated as deemed export. Therefore, the assessee is eligible for deduction under section 10AA of the Act on such deemed exports even the assessee does not bring any foreign exchange on account of such sales. See case of Granite Mart Ltd 2020 (5) TMI 238 - KARNATAKA HIGH COURT There was no condition applicable for the year under consideration to bring foreign exchange in India on account of the exports of sales. We hold that the assessee cannot be deprived of the benefit of the deduction granted under section 10AA of the Act merely on the reasoning that the assessee did not receive the convertible foreign exchange on the deemed exports. - Decided against revenue.
Issues Involved:
1. Deduction under section 10AA of the Income Tax Act. 2. Filing of return within the due date. 3. Conversion of business ownership. 4. Usage of leased machinery. 5. Treatment of domestic sales as deemed export. Summary: Issue 1: Deduction under section 10AA of the Income Tax Act The Revenue argued that the assessee was not eligible for the deduction under section 10AA amounting to Rs. 1,49,72,275/- as it was claimed in the revised return of income. The Tribunal held that there is no prohibition for claiming the deduction under section 10AA in the revised return of income. The Tribunal cited the case of Dhampur Sugar Mills Ltd. v. CIT, 90 ITR 236, which established that the effective return for assessment is the revised return. Therefore, the assessee cannot be deprived of the benefit of deduction under section 10AA merely because it was claimed in the revised return. Issue 2: Filing of return within the due date The Revenue contended that the deduction under section 10AA should be claimed in the return filed within the due date specified under section 139(1). The Tribunal noted that unlike section 10A(IA), section 10AA does not mandate filing the return within the due date for claiming the deduction. The Tribunal also referenced the Finance Bill 2023, which proposes such a requirement effective from April 1, 2024, indicating that it was not applicable for the assessment year in question. Issue 3: Conversion of business ownership The Revenue argued that the conversion of the business from a proprietorship to a partnership constituted a reconstruction of business, violating the conditions for deduction under section 10AA. The Tribunal found that the conversion was duly approved by SEZ authorities and did not amount to splitting up or reconstruction of the business. The Tribunal cited the case of CIT vs. Heartland KG Information Ltd, 359 ITR 1, which held that such conversions do not disqualify the business from claiming deductions. Issue 4: Usage of leased machinery The Revenue claimed that the assessee did not set up a new infrastructure as it used leased machinery. The Tribunal observed that the assessee had sufficient plant and machinery at the time of formation of the unit and that the use of leased machinery does not violate section 10AA. The Tribunal referred to the case of CIT vs. Choice Sanitaryware Industries, which held that leasing machinery does not disqualify a business from claiming deductions. Issue 5: Treatment of domestic sales as deemed export The Revenue contended that the assessee did not bring foreign exchange into India, as required for deduction under section 10AA, because sales were made to domestic parties. The Tribunal found that the sales were made to merchant exporters who subsequently exported the goods, qualifying as deemed exports under SEZ rules. The Tribunal cited the case of Granite Mart Ltd. vs. ITO, 121 taxmann.com 168, which held that sales to merchant exporters are deemed exports. The Tribunal also noted that the requirement to bring foreign exchange into India was introduced by the Finance Bill 2023 and was not applicable for the assessment year in question. Conclusion: The Tribunal upheld the CIT(A)'s decision to allow the deduction under section 10AA, dismissing the Revenue's appeal. The Tribunal found no infirmity in the CIT(A)'s findings and ruled in favor of the assessee on all issues raised by the Revenue.
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