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TMI Blog2016 (7) TMI 1552X X X X Extracts X X X X X X X X Extracts X X X X ..... 10AA which is restricted only to export sales. In other words, exemption u/s 10AA has to be computed on each assessment year independently on the quantum of export sales made by assessee. If we pose a question to ourselves, can an assessee be allowed exemption u/s 10AA without exporting any goods or services in a particular assessment year only because in past assessment years it has been allowed such exemption? The answer will be No ! Allowance of exemption in such a case would not only be against legislative intent but also defeat the purpose for which the provision was enacted. The decision of the Hon'ble Bombay High Court in in Western Outdoor Interactive Pvt. Ltd. [ 2012 (8) TMI 709 - BOMBAY HIGH COURT ] cannot be interpreted in a manner to suggest that even without fulfilling the basic conditions of statutory provision, it can claim deduction merely because such deduction was allowed in earlier assessment years. As far as the decisions of the Tribunal in Goenka Diamonds and Jewellery Ltd. [ 2012 (3) TMI 258 - ITAT JAIPUR ] and Gitanjali Exports Corp. Ltd. [ 2013 (11) TMI 563 - ITAT MUMBAI ] relied upon by the learned Authorised Representative, on a perusal of the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee also submitted a copy of the assessment order passed for the assessment year 2007 08. It was also submitted by the assessee that as per instruction no.4 of 2006, dated 24th May 2006, issued by the Department of Commerce, Ministry of Commerce and Industry, Government of India, all the activities relating to SEZ shall be guided by the provisions contained under the said Act and not under any provisions of any other Act. This is in view of the overriding effect of section 51 of the SEZ Act. The Assessing Officer, however, did not find merit in the submissions of the assessee. The Assessing Officer, though, accepted the fact that the assessee being recognised under the SEZ Act, fulfills the first condition under section 10AA, however, he was of the view that it has not fulfilled the other condition of export of goods. He observed, out of the total sales effected of ₹ 2,93,85,793 to 110 parties, only two parties are located abroad thereby demonstrating that 99% of the sales are local and not export as envisaged under the SEZ Act. He, therefore, held that as the assessee has not fulfilled the condition of section 10AA, claim of deduction under the said provision cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the submissions of the parties and perused the material available on record. Before delving to decide the issue arising for consideration before us, it is necessary to provide a brief factual back drop. The hearing of appeal was initially concluded on 15th February 2016. Subsequently, on the basis of a decision of the Hon ble Kerala High Court in CIT v/s Electronic Controls and Discharge Systems Pvt. Ltd., [2011] 245 CTR 465 (Ker.) on the issue of eligibility of exemption under section 10A in the event of sale of products to another SEZ unit, the matter was put up for clarification. Learned Counsels appearing for rival parties were heard at length vis a vis the observations made in the decision referred to above. 8. It is the case of the Department that during the relevant previous year, 99% of the sales effected by the assessee since are domestic sales and not export sales, it is not eligible to claim deduction under section 10AA. Per contra, the submissions advanced on behalf of the assessee broadly are as under: i) As per the definition of Export under section 2(m) of Special Economic Zone Act, 2005, supplying goods or providing services from one unit to another unit or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the said enactment was to provide for the establishment, development and management of SEZ for the promotion of export and for matters connected therewith or incidental thereto. In section 2(m) of the SEZ Act, Export has been defined as under: 2(m) Export means (i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or (ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or (iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone; 10. Section 7 of SEZ Act provides exemption from payment of taxes, duties, or cess on goods or services exported out of or imported into or procured from the domestic tariff area by the unit or developer, under all enactment specified in the first schedule. Section 26 of the SEZ Act provides certain exemptions, drawbacks and concessions to a developer and entrepreneur subject to conditions stipulated therein. However, section 27 of the SEZ Act, 2005, specifically deals with applicability of provisions of Income Tax Act, 1961 to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en while clause (i) of section 2(m) of SEZ Act, was incorporated under Explanation 1(ii) of section 10AA of the I.T. Act, however, clause (ii) and (iii) of section 2(m) of the SEZ Act, 2005, were left out. Thus, from the aforesaid fact, it is clear that the legislature took a conscious decision in leaving out certain portion of definition of export as provided under section 2(m) of SEZ Act, while defining export in relation to the SEZs under Explanation 1(ii) of section 10AA of the I.T. Act. Thus, it becomes clear that the intention of the legislature while enacting the provisions of section 10AA is to confine the exemption only in respect of direct export sales and not in respect of exports as provided under clause (ii) and (iii) of section 2(m) which also includes sale to another SEZ unit. As already stated earlier, section 27 of the SEZ Act, make it clear that provisions of the I.T. Act, 1961, would be applicable to the units and developers under the SEZ Act, subject to modification brought under second Schedule. The modification has been brought under second Schedule by enacting section 10AA of the I.T. Act. Therefore, the exemption to SEZ unit will strictly be in accordance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erving that I.T. Act, 1961, is a self contained code held as under: 6. After hearing both sides and after going through the above referred provisions of the Income-tax Act and the provisions of the Special Economic Zones Act, 2005, we are unable to uphold the order of the Tribunal because the concept of deemed export under the Special Economic Zones Act is not incorporated in the scheme of exemption under section 10A of the Income-tax Act and it is the settled position that the Income-tax Act is a self-contained code and the validity or correctness of the assessment has to be considered with reference to statutory provisions. It is not as if the Special Economic Zones Act, 2005 or the Foreign Exchange Regulation Act or the Foreign Exchange Management Act are not referred to in the Income-tax Act. The Income-tax Act refers to several statutes in different places and wherever required, provisions of such statutes are incorporated in the Act through reference or by incorporation. It is not as if the Parliament is unaware of other statutes which have specific purposes. Inter-unit transfers in Economic Zones are treated as exports for the purpose of Customs Act and the Central Excise Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein. Therefore, a unit / developer claiming exemption under section 10AA, has to come within the four corners of the said provision. Unless, the conditions prescribed therein are fulfilled the exemption cannot be granted. Attempt of learned Authorised Representative to draw a distinction between section 10A and 10AA by pointing out that there is no need to obtain sale proceeds in convertible foreign exchange under section 10AA, unlike section 10A(3) is of not much help to the assessee. Though, it is not expressly mentioned in section 10AA, for bringing the export proceeds in convertible foreign exchange but in our view that cannot be interpreted in a manner to mean that sales made to another SEZ unit would amount to export as provided under Explanation 1(ii) of section 10AA. If assessee s contention is accepted, then it may possibly lead to a situation where for the same turnover the assessee as well as the actual exporter would be claiming benefit under section 10AA, because, as per the provision, the person / unit actually exporting the goods out of India would qualify for exemption. Further, condition of bringing the sale proceeds in convertible foreign exchange is not spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0AA which is restricted only to export sales. In other words, exemption u/s 10AA has to be computed on each assessment year independently on the quantum of export sales made by assessee. If we pose a question to ourselves, can an assessee be allowed exemption u/s 10AA without exporting any goods or services in a particular assessment year only because in past assessment years it has been allowed such exemption? The answer will be No ! Allowance of exemption in such a case would not only be against legislative intent but also defeat the purpose for which the provision was enacted. The decision of the Hon'ble Bombay High Court cannot be interpreted in a manner to suggest that even without fulfilling the basic conditions of statutory provision, it can claim deduction merely because such deduction was allowed in earlier assessment years. As far as the decisions of the Tribunal in Goenka Diamonds and Jewellery Ltd. and Gitanjali Exports Corp. Ltd., relied upon by the learned Authorised Representative, on a perusal of the order of the Tribunal, we are of the view that they are of no help to the assessee as they were not directly on the issue whether sales to another SEZ unit will be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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