2020 (9) TMI 1132 - HC - Income Tax

Entitlement to the benefit of Section 10AA - AO denied the benefit on the ground that the assessee has violated the terms and conditions in the Letter of Approval, which was granted by the Development Commissioner, for manufacture of bangles and pendants - Development Commissioner initiated proceedings under the provisions of the Foreign Trade (Development and Regulations) Act 1992, as the assessee had violated the conditions in the Letter of Approval, which culminated in issuing the order of penalty to them - HELD THAT - Writ Court has referred to the letter of the Customs Department dated 12.03.2014, addressed to the Assistant Development Commissioner of MEPZ, SEZ, wherein they have clarified that medallions are also pendants. This was also taken note of by the learned Writ Court and quashed the order of penalty imposed by the Development Commissioner under the provisions of the Foreign Trade (Development and Regulations) Act 1992. Thus, the basis or the substratum, based on which the assessment was completed denying the benefit to the assessee, did not no longer survive. What is required to be seen for extending the benefit under Section of the 10AA Act is, to see whether the assessee is an entrepreneur as referred to, defined under Section 2(j) of the Special Economic Zone Act. No doubt, the assessee falls within the said definition, as they had been granted a Letter of Approval by the Development Commissioner under Section 15(9) of the Special Economic Zones Act. That apart, the competent authority who intends to certify as to what would be the date of commencement of production, would be the Development Commissioner and not the Income Tax Officer. Relief granted by the Tribunal by interpreting as to what is the pendant and medallion, cannot be interfered in an appeal filed under Section 260-A of the Act. The argument of Mr.T.R.Senthil Kumar, learned Senior Counsel appearing for the Revenue, that the issue goes to the root of the matter is not acceptable because of the subsequent developments that had taken place in the writ petition filed by the assessee, being allowed by this Court and the order of penalty imposed by the Development Commissioner being set aside. The reason for setting aside the order of penalty imposed on the assessee, is that the assessee has not violated the terms and conditions of the Letter of Approval and that the medallion is also classifiable as a pendant. - Decided against revenue.

Summary

Issues:
1. Entitlement to deduction under Section 80 IA of the Income Tax Act.
2. Consideration of unabsorbed depreciation for deduction under Section 80 IA.
3. Eligibility for benefits under Section 10AA of the Income Tax Act.

Issue 1: Entitlement to deduction under Section 80 IA of the Income Tax Act:
The High Court considered whether the assessee was entitled to a deduction under Section 80 IA of the Income Tax Act. The Court analyzed the conditions for claiming this deduction, emphasizing that the assessee must fulfill the criteria as an entrepreneur under Section 2(j) of the Special Economic Zones Act, 2005. The Court noted that the assessee had been granted a Letter of Approval by the Development Commissioner, meeting the definition of an entrepreneur. The Assessing Officer had sought to deny the benefit based on alleged violations of the terms in the Letter of Approval. However, the Court observed that subsequent legal proceedings, including a writ petition and orders issued by the Development Commissioner, indicated that the violations were not substantial. Ultimately, the Court found that the assessee qualified as an entrepreneur and was entitled to the deduction under Section 80 IA.

Issue 2: Consideration of unabsorbed depreciation for deduction under Section 80 IA:
The Court examined whether unabsorbed depreciation from earlier years should be carried forward for computing the deduction under Section 80 IA. The Income Tax Appellate Tribunal had ruled that unabsorbed depreciation already absorbed should not be notionally carried forward. The Court reviewed the relevant provisions and held that the Tribunal's decision was correct, emphasizing that the deduction under Section 80 IA should be computed without considering unabsorbed depreciation from previous years.

Issue 3: Eligibility for benefits under Section 10AA of the Income Tax Act:
The Court addressed whether the assessee was eligible for benefits under Section 10AA, a special provision for newly established units in Special Economic Zones. The Court highlighted the importance of fulfilling the conditions outlined in Section 10AA, including being recognized as an entrepreneur under the Special Economic Zones Act. The Court noted that the Development Commissioner's certification of the date of commencement of production was crucial for determining eligibility. Despite initial challenges and penalties imposed on the assessee, subsequent legal proceedings and clarifications from relevant authorities supported the assessee's compliance with the terms of the Letter of Approval. Consequently, the Court upheld the Tribunal's decision to grant the assessee the benefits under Section 10AA.

In conclusion, the High Court dismissed the appeals filed by the Revenue, upholding the decisions of the Income Tax Appellate Tribunal. The Court affirmed the assessee's entitlement to deductions under Section 80 IA and benefits under Section 10AA, emphasizing compliance with legal provisions and clarifications provided during the legal proceedings.