2020 (3) TMI 1163 - AT - Income Tax

Deduction u/s.10AA - SEZ unit - Business of proprietary concern was taken over by the partnership firm - fresh approval from SEZ in respect of the partnership firm - CIT(A) noted that the deduction of section 10AA is unit specific and it is not dependent upon the ownership - HELD THAT - Assessment unit is the same. There is change in the ownership from sole proprietorship to partnership. Earlier unit was under the proprietorship of Mr. Albert Kallati and same was taken over by the partnership firm namely Lorey Jewel wherein the partners were Mr. Albert Kallati and his daughter. Nature of business carried out from the unit remains same. Unit remains approved by the SEZ authority. No case has been made out the SEZ authorities have revoked approval. Similar issue has been dealt with by Hon'ble Allahabad High Court in the case of in the case of CIT Vs. Bullet International 2012 (5) TMI 187 - ALLAHABAD HIGH COURT - On similar issue of deduction u/s. 10A for change in constitution from proprietorship to partnership firm, Hon'ble High Court relied upon Circular issued by CBDT and allowed the claim. Similar view was taken by the ITAT in the case of Samsung India Software Operations P. Ltd. 2012 (6) TMI 632 - ITAT, BANGALORE . Grounds for relief were that deduction is undertaking (unit) specific and the same could not be denied on the ground that undertaking has a new owner. In our considered opinion issue from these case laws are squarely applicable under the facts of the present case also. Decided against the Revenue

Summary

Issues Involved:
1. Eligibility of deduction under Section 10AA of the Income-tax Act.
2. Requirement of fresh approval from SEZ authorities for the partnership firm to claim deduction.
3. Realization of export proceeds in convertible foreign currency.

Detailed Analysis:

1. Eligibility of deduction under Section 10AA of the Income-tax Act:
The primary issue revolves around the eligibility of the assessee to claim deduction under Section 10AA. The Assessing Officer (AO) disallowed the deduction claimed by the assessee firm, M/s Lorey Jewel, on the grounds that the approval from SEZ was in the name of the proprietary concern of Mr. Albert Kallati and not the partnership firm. The AO held that the deduction claimed by the partnership firm was questionable as the approval was not transferred to the new entity. However, the learned CIT(A) noted that the deduction under Section 10AA is unit-specific and not dependent on the ownership. The CIT(A) emphasized that the legislature allows the deduction to the unit carrying out the manufacturing or production, irrespective of the change in the entity. The CIT(A) relied on several case laws, including the Hon'ble Allahabad High Court's decision in CIT v. Bullet International, which supported the view that organizational changes do not affect the eligibility for deduction under Section 10AA. The Tribunal upheld the CIT(A)'s order, stating that the issue is covered against the Revenue by the precedent set in similar cases.

2. Requirement of fresh approval from SEZ authorities for the partnership firm to claim deduction:
The AO contended that the partnership firm did not obtain fresh approval from SEZ authorities, which is mandatory for claiming deduction under Section 10AA. The CIT(A) countered this by stating that there is no provision in Section 10AA that mandates fresh approval from SEZ authorities upon a change in the constitution of the entity. The CIT(A) observed that the SEZ authorities recognize the unit and not the entity, and the appellant had duly intimated the SEZ authorities about the change in constitution. The Tribunal concurred with the CIT(A)'s view, noting that the unit remained approved by SEZ authorities and no case was made out that the SEZ authorities had revoked the approval. The Tribunal affirmed that the requirement of fresh approval is not a prerequisite under Section 10AA.

3. Realization of export proceeds in convertible foreign currency:
The AO initially disallowed the deduction on the grounds that the details of export proceeds received in convertible foreign currency were not submitted during the assessment proceedings. However, during the remand proceedings, the AO verified the details and accepted that the foreign exchange for export proceeds was realized. The CIT(A) noted that the appellant had clarified the mistake in Form 56F and had submitted the details of foreign exchange received. The Tribunal upheld the CIT(A)'s findings, stating that the AO's grievance regarding the non-submission of details during the assessment proceedings does not survive, as the details were verified and found to be in order during the remand proceedings.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s order, affirming that the assessee is eligible for the deduction under Section 10AA. The Tribunal emphasized that the deduction is unit-specific and not dependent on the ownership or the requirement of fresh SEZ approval. The Tribunal also confirmed that the realization of export proceeds in convertible foreign currency was duly verified and accepted by the AO.