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TMI Blog2022 (6) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... course of carrying out its business activities as not being eligible to deduction as not being derived by the undertaking of the assessee but being earned on account of policy of the government. In the present case, since these export incentives have admittedly not been earned by the assessee, the decision of the Hon ble Apex Court in the case of Liberty India Ltd. does not apply to the facts of the present case. In fact we agree with the assessee that this excise duty refund earned by the vendor of the assessee company and passed on to the assessee merely resulted in reduction in purchase cost of the assessee and higher profits on account of the same were therefore eligible to deduction u/s. 10AA of the Act. The order of the Ld. CIT denying the assessee deduction u/s. 10AA on the export incentive is therefore set aside. Claim of deduction u/s. 10AA on domestic sales undertaken within SEZ - contention of the assessee before us was that these export had been undertaken through a third party i.e. M/s. Glonet Marketing Pvt. Ltd., Mumbai and this export was permissible under the SEZ policy - HELD THAT:- The assessee had claimed deduction of profits earned from sales made to one M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accepting the revised calculation furnished by the assessee to it. The Ld. CIT further noted that from the records that on account of the same the assessee was erroneously granted deduction u/s. 10AA on account of: (a) export incentive of Rs. 34,50,931/- which as per the decision of the Hon ble Apex Court in Liberty India Ltd. 317 ITR 218 (SC) did not constitute income derived from export so as to be eligible to deduction u/s. 10AA of the Act. (b) on domestic sales made by the assessee within SEZ of Rs. 396.22 lakhs which was not eligible to deduction since as per law, the assessee was eligible to deduction only on profit earned from export sales. 3. Accordingly show cause notice was issued to the assessee who filed detailed submissions contending that its claim was in accordance with law with respect to both the issues, since the export incentive was not an incentive given to the assessee but was incentive by way of Excise Duty Refund to the party from whom goods had been purchased by the assessee who in turn had passed on the incentive to the assessee. That therefore it merely tantamounted to reduction in purchase price of goods and therefore there was no reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by us. 7. Ground no. 2 3 are legal grounds challenging the proceedings initiated u/s. 263 of the Act. The said grounds were not pressed before us and hence are dismissed as not pressed. 8. Ground no. 4 to 8 have been raised on the merits of the case and arguments with respect to the same were made during the course of hearing before us. 9. Taking up the first aspect considered by the Ld. PCIT in his order, i.e relating to the deduction claimed by the assessee on export incentives. The contention of the ld.counsel for the assessee before us was that it had been explained to the Ld. PCIT that the export incentive was not of the assessee but related to a vendor of the assessee who had passed on the benefit to the assessee. That the export incentive related to Excise Duty Refund granted and received by one of the vendors of the assessee, M/s. Gangaram R.K. Industries Pvt. Ltd. on account of sale of goods to a unit in SEZ (the assessee), which refund had been passed by the vendor to the assessee. That the same merely tantamounted to reduction in purchase price of the goods purchased by the assessee from the said vendor and by no stretch of logic was export incentive of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. The refund of Excise duty received by the assessee is purely on account of export promotion policy similar to a case of Duty Drawback., The case laws relied upon by the assessee do not help him and the auditors have correctly classified the refund of excise duty as incentive. This action of the auditors is also supported by the decision of Supreme Court in the caseof Liberty India Ltd. 317 ITR 218(SC). 11. Ld. Counsel for the assessee pointed out that the ld. CIT despite acknowledging the fact that the excise duty refund was not of the assessee still went on to hold that the same was export incentive earned by the assessee and applying the decision of the Hon ble Apex Court in the case of Liberty India Ltd. 317 ITR 218 held that the assessee was not entitled to deduction u/s. 10AA of the Act. Ld. Counsel for the assessee pointed out that the said decision was not applicable to the facts of the present case since the export incentive was not of the assessee. 12. Ld. D.R. however supported the order of the Ld. CIT and contended that the decision of the Hon ble Apex Court in the case of Liberty India Ltd. (supra) squarely applied to the present case and the Ld. CIT had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t except for the fact that the assesse had not directly exported the goods, all other conditions prescribed u/s. 10AA were fulfilled, with the goods having been exported outside India and convertible Foreign Exchange also having been received. Ld. Counsel for the assessee contended that the Ld. CIT had denied deduction on these export which amounted to Rs. 396.22 lakhs solely for the reason that as per him the indirect exports were not eligible for deduction u/s. 10AA of the Act. Our attention was drawn to the findings of the ld. PCIT in this regard at para 4.2 to 4.2.5 of the order. 4.2 Export-Sales : The assessee has explained that the goods of the value of Rs.396.22 lakhs had been physically exported outside India and convertible foreign exchange was also duly received in respect of the aforesaid sale. He has attached a copy of invoice shipping bills in support of the said export. However it is again reiterated that the goods were exported through Glonet Marketing Pvt. Ltd., which the assessee admitted that was permitted under the SEZ Policy. The assessee states that the requirements under section 10AA are only for the manufacturing of goods in SEZ and the export there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10AA of the IT Act. 4.2.4 in this respect 1 would like to clarify that the IT Act is not governed by the SEZ policy. Under the SEZ policy, any sales made to a Unit in SEZ is also considered as an export. However, recently, the Rajkot ITAT in the case of Monarch Overseas vide 1TA No. 253/Rjt/2011 and in the case of M/s. Sameer Industries vide ITA No.397/Rjt/2006 have held that inspite of the fact that the sales in SEZ are treated as deemed export yet they are not considered as export for the purposes of section 10A. Recently the Hon'ble Kerala High Court also had an occasion to consider the application of SEZ Rules to the Income Tax Act in the case of C1T vs. Electronic Controls Discharge Systems Pvt.Ltd. 245 CTR 465(Ker) by holding as under: 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 Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), there is no iota of doubt that the finding of the ld. CIT on this aspect is not in accordance with law. The Hon ble Apex Court having clearly and categorically held that deemed export made through third parties also qualified as export for the purposes of deduction u/s. 10B of the Act, the assessee in the present case being placed in identical set of facts was entitled to and had rightly claimed deduction on the indirect exports made by it amounting to Rs. 396.22 lakhs. The order of the Ld. CIT denying the assessee deduction on the same u/s. 10AA of the Act is therefore held to be not in accordance with law and set aside. 21. In view of the above, we hold that the assessee s claim of deduction u/s. 10AA on both the export incentives of Rs.34,50,931/- and profits earned from indirect exports of Rs. 396.22 lakhs was in accordance with law. The order of the ld. CIT passed u/s. 263 holding that the assessment order allowing deduction on these two counts to be erroneous and thereafter denying the assessee deduction on the same is directed to be set aside. 22. The appeal filed by the assessee is allowed in above terms. Order pronounced in the open court on 01-06-2022 - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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