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2020 (9) TMI 614 - AT - Income TaxExemption u/s 10AA - assessee company having business dealing in fuel old and High Speed Diesel, also setting up and operating facilities in connection with planting, storage, delivery and other logistic operations for bunkering business, registered as a Special Economic Zone (in short SEZ ) Unit with Adani Port and Special Economic Zone Ltd. - HELD THAT - No infirmity in the order passed by the Ld. CIT(A) in allowing the appeal preferred by the assessee by deleting the addition holding it entitled to the claim of deduction /exemption under Section 10AA of the Act and to the tune so as to warrant interference. Hence, in absence of any merit found in the appeal preferred by the Revenue, we dismiss the appeal.
Issues Involved:
1. Disallowance of deduction under Section 10AA of the Income Tax Act, 1961. 2. Definition and scope of "manufacturing" and "services" under the Special Economic Zones Act, 2005. 3. Eligibility of trading activities for deduction under Section 10AA. 4. Applicability of income from currency fluctuation and interest income for deduction under Section 10AA. 5. Correct calculation of deduction under Section 10AA. Issue-wise Detailed Analysis: 1. Disallowance of deduction under Section 10AA of the Income Tax Act, 1961: The Revenue appealed against the order of the CIT(A) which allowed the assessee's claim of deduction under Section 10AA amounting to ?42,41,29,196/-. The Assessing Officer (AO) had disallowed this claim on the grounds that the assessee did not manufacture or produce articles or things or provide any services during the relevant assessment year from its SEZ Unit. 2. Definition and scope of "manufacturing" and "services" under the Special Economic Zones Act, 2005: The Tribunal referred to the definition of "manufacturing" under Section 2(r) of the SEZ Act, 2005, which includes activities such as blending. The assessee's activity of blending various fuel oils in tanks at Mundra Port was considered as manufacturing. The Tribunal noted that the blending activity involved specific equipment and processes, and thus qualified as manufacturing under the SEZ Act. 3. Eligibility of trading activities for deduction under Section 10AA: The Tribunal emphasized that trading activities, particularly those involving re-export of imported goods, are eligible for deduction under Section 10AA. This interpretation is supported by Rule 76 of the SEZ Rules, 2006, and various judicial precedents, including decisions from the Kolkata ITAT and Jaipur ITAT. The Tribunal highlighted that the SEZ Act has an overriding effect over the Income Tax Act, as per Section 51 of the SEZ Act. 4. Applicability of income from currency fluctuation and interest income for deduction under Section 10AA: The Tribunal held that income arising from currency fluctuation and interest income, which are intrinsically linked to the business operations of the SEZ Unit, are eligible for deduction under Section 10AA. These incomes are considered part of the business profits derived from the SEZ Unit's activities. 5. Correct calculation of deduction under Section 10AA: The Tribunal found that the assessee correctly calculated the deduction by proportioning the export sales to the total sales of the SEZ Unit. The AO's reduction of domestic turnover from the total turnover was deemed erroneous and resulted in an incorrect calculation that adversely affected the assessee. Conclusion: The Tribunal upheld the CIT(A)'s order, finding no merit in the Revenue's appeal. The assessee was held entitled to the deduction under Section 10AA amounting to ?42,41,29,196/-. The appeal by the Revenue was dismissed, affirming the CIT(A)'s decision to allow the deduction. Result: Revenue’s appeal is dismissed. Pronouncement: This Order was pronounced in Open Court on 09/09/2020.
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