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2019 (6) TMI 780 - AT - Income TaxDeduction u/s 10AA - AO disallowed the exchange fluctuation loss while assessing the appellant s business income but relying on the decision of Goetze India Ltd 2006 (3) TMI 75 - SUPREME COURT denied the benefit of corresponding deduction claimed u/s 10AA observing that such claim was not made in the return of income or in the revised return - AO also denied the benefit of the capitalization of exchange fluctuation loss and consequent higher claim of depreciation on the same ground - HELD THAT - In the light of the identically worded provisions of Section 32AB(5) and Section 10A(5) we are of the considered view that the ratio laid down in the judgment of the Hon ble Calcutta High Court in BERGER PAINTS (INDIA) LTD. (NO. 2). 2002 (2) TMI 97 - CALCUTTA HIGH COURT is applicable with equal force in considering allowability of claim u/s 10A(5) read with Section 10AA(8). In the present case it is an admitted position that in the course of assessment the appellant had filed audit report in Form 56F when the revised computation of total income was furnished before the AO. Once this fact is not in dispute then following the ratio laid down in the foregoing judicial precedents it is to be held that the deduction u/s 10AA could not be denied for non-filing of the audit report in Form 56F along with the return of income.The first material objection of the lower authorities denying the claim of deduction u/s 10AA therefore fails. Applicability of provisions of Section 80A(5) - We find that the disallowance made in the appellant s case was in terms of Section 37(1) and therefore as per the Circular No. 37/2016 the amount disallowed was required to be taken into consideration for determining the profits qualifying for deduction u/s 10AA. For the reasons set out in the foregoing therefore we are of the considered view that there was no contravention of Section 80A(5) because there was no failure on the assessee s part to claim deduction permissible u/s 10AA while filing it s return. On the contrary we are of the view that having regard to the peculiar facts of the appellant s case the assessee could not have legally claimed any deduction u/s 10AA in the return of income filed electronically. It is only account of disallowance of the forex loss under Section 37(1) that the returned loss stood converted into positive business income for the relevant year and as a consequence the assessee became eligible to claim deduction. We also note that the AO per se did not dispute or object to the assessee s claim on merits but it was rejected only on technical grounds. We are of the considered view that there is no estoppel in law and an assessee cannot be denied a rightful deduction to which it is eligible unless there is specific bar in law from claiming such deduction. Statutory bar provided in Section 80A(5) did not operate as there was no failure on the assessee s part to claim deduction u/s 10AA but it was a case where the deduction became claimable only as a result of disallowance proposed in the assessment. Deduction u/s 10AA was not admissible because profit assessed by the AO was consequent to the disallowance of forex loss and therefore did not tantamount to profit derived from export of article or thing - the current year s operating business income assessed by the AO had nothing to do with the forex loss incurred in the capital transactions and the profits assessed by the AO in the impugned assessment solely represented profits derived from export of articles or goods manufactured at SEZ undertaking. In view of this factual position merely because in the original return deduction for forex loss was claimed did not lead to conclusion that the consequent to the disallowance of forex loss basic character or nature of the resultant profit was any thing other than profit of the eligible business. We therefore do not find any merit in the CIT(A) s finding denying the benefit of deduction u/s 10AA on merits. We direct the AO to grant deduction u/s 10AA with reference to the business income assessed by him in respect of the profits derived by the appellant from its undertaking located at SEZ in Dahej Gujarat. - Decided in favour of assessee.
Issues Involved:
1. Denial of deduction under Section 10AA of the Income Tax Act. 2. Non-filing of the audit report in Form 56F along with the return of income. 3. Applicability of Section 80A(5) for not claiming the deduction in the return of income. 4. Eligibility of forex loss for deduction under Section 10AA. Issue-wise Detailed Analysis: 1. Denial of Deduction under Section 10AA: The primary grievance of the assessee was the denial of deduction under Section 10AA by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee, a private limited company engaged in manufacturing specialty inks, had its unit in Dahej SEZ, Gujarat, making it eligible for Section 10AA deduction. Initially, the assessee filed a return declaring a loss, which was revised to a positive income after disallowing exchange fluctuation loss. The AO and CIT(A) denied the deduction, citing procedural grounds and substantive issues. 2. Non-filing of Audit Report in Form 56F: The AO and CIT(A) disallowed the deduction on the grounds that the audit report in Form 56F was not filed along with the return of income, as mandated by Section 10A(5) read with Section 10AA(8). However, judicial precedents, including decisions from the Hon’ble Calcutta High Court and Delhi High Court, established that while filing the audit report is mandatory, its submission along with the return is directory. The Tribunal concluded that filing the audit report during the assessment suffices for compliance, thus overturning the lower authorities' objection. 3. Applicability of Section 80A(5): The CIT(A) upheld the AO’s decision based on Section 80A(5), which disallows deductions not claimed in the return of income. The Tribunal examined the legislative intent behind Section 80A(5), noting it aims to prevent misuse of multiple deductions for the same profits. The Tribunal found that the term "fails" in Section 80A(5) implies a deliberate omission, which was not the case here. The assessee could not claim the deduction in the original return due to a reported loss, and the claim arose only after the AO's disallowance of the forex loss. The Tribunal held that there was no failure on the assessee's part to claim the deduction, thus Section 80A(5) did not bar the claim. 4. Eligibility of Forex Loss for Deduction under Section 10AA: The CIT(A) also denied the deduction on merits, arguing that the forex loss did not represent profits derived from export activities. However, the Tribunal found this reasoning flawed. It noted that the AO had disallowed the forex loss as it pertained to capital transactions, not trading activities. The resultant profit, after excluding the forex loss, was derived from the manufacturing unit in the SEZ, making it eligible for Section 10AA deduction. The Tribunal directed the AO to grant the deduction based on the assessed business income from the SEZ unit. Conclusion: The Tribunal allowed the appeal, directing the AO to grant the deduction under Section 10AA, emphasizing that procedural lapses in filing the audit report and the initial inability to claim the deduction due to reported losses should not bar the rightful claim. The Tribunal's decision underscored the importance of substantive compliance over procedural technicalities and clarified the interpretation of Section 80A(5) in the context of profit-linked deductions.
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