2019 (2) TMI 370 - AT - Income Tax

Denial of deduction u/s 10AA - activities being carried out by the assessee, in the opinion of AO did not involve any export outside India - Held that - The assessee undertook to provide services of varied nature as specified therein. Against the same, it was entitled to receive certain monthly management fees in US Dollars. The invoices raised by the assessee during impugned AY has been placed on record, upon perusal of which, it appears that the nature of services being rendered by the assessee were not warehousing services simpliciter rather the assessee was providing comprehensive services in the nature of repair/maintenance services and incurred cost under various heads. Both the lower authorities, in our opinion, have missed out this vital factual aspect and examined the assessee s claim by treating these services as warehousing services. Therefore, after due consideration of facts and circumstances, the bench formed an opinion that, keeping all issues open, the matter was to be restored back to the file of AO to re-appreciate the factual matrix and re-adjudicate the issues after ascertaining the true nature of services being rendered by the assessee.

Summary

Issues:
- Denial of deduction u/s10AA of the Income Tax Act, 1961
- Interpretation of export of services under Section 10AA
- Applicability of SEZ Act provisions on deduction claims
- Assessment of nature of services provided by the assessee

Analysis:
1. The primary issue in this case revolves around the denial of deduction u/s10AA of the Income Tax Act, 1961. The assessee contested the order of the Ld. Commissioner of Income-Tax (Appeals) which confirmed the disallowance of a deduction claimed under Section 10AA amounting to ?1,20,07,900. The assessee, being an entrepreneur in a Special Economic Zone (SEZ), claimed the deduction for services provided from the SEZ. The denial was based on the opinion that the activities did not involve export outside India.

2. During the assessment proceedings, the assessee provided details of being a newly established unit in an SEZ providing warehousing services to a foreign client. The deduction was denied on the grounds that the services did not involve export outside India as per the provisions of Section 10AA(9). The Ld. AO held that the definition of service under the SEZ Act did not align with the definition of export under Section 10AA(9), leading to the denial of the deduction.

3. The assessee's appeal to the Ld. CIT(A) was unsuccessful, as it was held that there was no export of services within the meaning of Section 10AA. The CIT(A) maintained the stand of the Ld. AO, prompting the assessee to further appeal the decision. The argument focused on the interpretation of export and the overriding effect of SEZ Act provisions on deduction claims.

4. The Ld. Authorized Representative for Assessee argued that warehousing services were eligible under SEZ Rules and that the SEZ Act's definition of export should prevail. It was contended that since the SEZ is not considered part of India under the SEZ Act, services provided from there should be treated as exports. The Tribunal, after considering all submissions, directed the matter to be sent back to the Ld. AO for reevaluation of the nature of services provided by the assessee, emphasizing the need for a thorough assessment.

5. The Tribunal's decision to allow the appeal for statistical purposes signifies the importance of reexamining the factual matrix and the nature of services rendered by the assessee. The case highlights the complexity of interpreting provisions related to SEZs, exports, and deductions under the Income Tax Act, emphasizing the need for a detailed analysis before reaching a conclusive decision.

This comprehensive analysis of the judgment provides a detailed insight into the issues involved and the Tribunal's decision in this tax matter.