2013 (7) TMI 282 - AT - Income Tax

Exemption u/s 10A - STPI unit - Adjustment of payable in foreign exchange with sale proceeds - Held that - Considering the situation involved as the assessee exported some material and against which the amount was receivable the assessee has also purchased certain goods from foreign parties and the payments were made to them in convertible foreign exchange. The assessee adjusted payable amount against receivable amount with the permission of Reserve Bank of India. Therefore, the payment receivable by the assessee has to be treated as received. The Hon ble Supreme Court in J. B. Boda And Company Private Limited case 1996 (10) TMI 70 - SUPREME Court has rightly observed that, a two-way traffic is unnecessary i.e. first receive the amount and thereafter pay the amount. If the assessee has adjusted the receivable amount against payable amount, then the two-way traffic is avoided and the assessee has done this exercise, which is correct. Thus the assessee is entitled for deduction under Section 10A on the amount which was adjusted against the payable amount by the assessee. In favour of assessee. Disallowance debited to profit and loss account on account of donation - Held that - No infirmity in the finding of the CIT(A) as nothing has been brought on record then how these expenses/deduction are allowable. Against assessee. Allowance of expenditure on stamp duty - Held that - No infirmity in the finding of the CIT(A), who allowed the issue in favour of the assessee by ascertaining the factual matrix of the case and considered various case laws relied upon by the AR before him. In favour of assessee

Summary

Issues Involved:

1. Disallowance of deduction under Section 10A for STPI unit.
2. Allowance of deduction under Section 10A for SEZ unit.
3. Disallowance of donation expenses.
4. Allowance of stamp duty expenses for documentation.
5. Realization of export proceeds within the prescribed period.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 10A for STPI Unit:

The assessee claimed a deduction of Rs. 9,61,32,037/- under Section 10A for two units: STPI unit in Mumbai and SEZ unit in Kandla. The Assessing Officer (AO) disallowed the deduction for the STPI unit amounting to Rs. 6,13,18,000/- as the sale proceeds were not received in convertible foreign exchange within the prescribed period of six months. The CIT(A) partially allowed the appeal, directing the AO to allow deduction for Rs. 3,48,14,034/-. However, the CIT(A) confirmed the disallowance of Rs. 5,12,90,000/- as the RBI did not extend the period for bringing in foreign exchange and the conditions under Section 10A(3) were not met. The Tribunal found that the issue was covered by the Supreme Court's decision in J.B. Boda and Co. Pvt. Ltd., holding that the adjustment of receivable amounts against payable amounts with RBI's permission constituted receipt of convertible foreign exchange, thus reversing the CIT(A)'s disallowance of Rs. 5,12,90,000/-.

2. Allowance of Deduction under Section 10A for SEZ Unit:

The department contested the CIT(A)'s decision to allow a deduction of Rs. 3,48,14,034/- and Rs. 1,00,28,000/-. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not specifically disallow the claim and that the assessee brought in convertible foreign exchange within the extended period allowed by the competent authority, fulfilling the conditions of Section 10A(3).

3. Disallowance of Donation Expenses:

The AO disallowed Rs. 3,25,186/- debited to the profit and loss account for donations, as the assessee could not justify the claim. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, finding no evidence that the expenses were for business purposes or necessary for business expediency.

4. Allowance of Stamp Duty Expenses for Documentation:

The AO disallowed the expenditure on stamp duty of Rs. 25,90,662/-, considering it a capital expenditure. The CIT(A) allowed the expenditure, noting that it was incurred for documentation in the assessee's trading business and not doubted by the AO. The Tribunal confirmed the CIT(A)'s decision, finding no infirmity in the findings.

5. Realization of Export Proceeds within the Prescribed Period:

For assessment year 2006-07, the department objected to the allowance of Rs. 7,99,06,877/- as the amount was not brought into India within six months. The CIT(A) allowed the deduction, noting that the RBI circular clarified that the stipulation of twelve months for realization of export proceeds was not applicable for SEZ units. The Tribunal confirmed this finding, noting that the assessee received the amount within the extended period allowed by the competent authority.

Conclusion:

The appeals of the assessee for assessment year 2005-06 and the department for assessment year 2007-08 were allowed in part, while the appeals of the department for assessment years 2005-06 and 2006-07 were dismissed. The Tribunal upheld the CIT(A)'s decisions where the assessee fulfilled the conditions of Section 10A and found no infirmity in the findings regarding the allowance of stamp duty expenses and disallowance of donation expenses.