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TMI Blog2022 (7) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... bove reproduced can be read into for the purpose of claiming exemption u/s. 10AA of the Act; so that assessee can avail the benefit envisaged u/s. 10AA of the Act. From the reading of the provisions it is clear that the provisions as specified under The Special Economic Zones Act, 2005 would have overriding effect on the Income Tax Act because Special Economic Zone Act, 2005 is a Special Act and a later Act of the Parliament. Be that as it may be, it has been brought to our notice by the Ld. AR that in the previous year (AY 2012-13), the AO had disallowed the deduction claimed by the assessee under section 10AA of the Act. (1st year) which was confirmed by the Ld. CIT(A). However, this Tribunal [ 2019 (11) TMI 513 - ITAT MUMBAI] was pleased to allow the same. In the light of the aforesaid decision of this Tribunal on the issue of deduction claimed under section 10AA of the Act, we respectfully following the same, allow the claim of assessee. Therefore, these grounds of appeal of assessee are allowed. Deduction under section 10AA of the Act in respect of Foreign Exchange Gains - HELD THAT:- We find that the Assessee which has set-up its registered unit at SEZ and which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, the Assessee claimed deduction u/s 10AA of the Act which was denied by AO on the plea that Assessee is neither manufacturing any goods nor producing any goods for export [which was the view of AO s predecessor which the present AO has followed]. On appeal, the Ld. CIT(A) confirmed the action of AO. Before us the Assessee challenges the denial of deduction u/s 10AA of the Act in respect of its trading activities (import export of diamonds) from its SEZ Unit. So we need to examine as to whether the activity of trading income from its SEZ Unit is eligible for deduction u/s 10AA of the Act. There is no dispute that the assessee is engaged in the import and export of the diamonds (after sorting grading) which is in the nature of trading activities. As per the Income-tax Act, the trading activity as such is not entitled for the exemption under section 10AA of the Act. However the claim of the Assessee is that its activity is an eligible activity [ services ] u/s 10AA of the Act. So we need to see whether on facts the Assessee s claim that its activity is Services for claiming deduction u/s 10AA of the Act. However, we note that the SEZ Rules have been framed by Central Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for exemption is income from manufacturing and production of article or thing. So what has to be seen is whether the service definition given in the SEZ Rules as above reproduced can be read into for the purpose of claiming exemption u/s. 10AA of the Act; so that assessee can avail the benefit envisaged u/s. 10AA of the Act. We note that sec. 51(1) of The Special Economic Zones Act, 2005 gives an overriding provision over other laws which read as under: 51.(1) The provisions of this Act shall have effect notwithstanding anything inconsistent, therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. 7. From the reading of the provisions it is clear that the provisions as specified under The Special Economic Zones Act, 2005 would have overriding effect on the Income Tax Act because Special Economic Zone Act, 2005 is a Special Act and a later Act of the Parliament. Be that as it may be, it has been brought to our notice by the Ld. AR that in the previous year (AY 2012-13), the AO had disallowed the deduction claimed by the assessee under section 10AA of the Act. (1st year) which was confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;, hence would qualify for deduction under Section 10AA of the Act. In the case of Goenka Diamonds Jewellers Ltd. (supra), the Tribunal, after examining the provisions of Section 10AA of the Act vis- -vis the SEZ Act and rules framed thereunder, had concluded that since the definition of 'services' under the SEZ Act also includes trading activity, the activity relating to import of diamonds for re-export would qualify for deduction under Section 10AA of the Act. The aforesaid decision of the Tribunal was upheld by the Hon'ble Rajasthan High Court while discussing a batch of appeals filed by the Revenue against the decision of the Tribunal. The judgment of the Hon'ble Rajasthan High Court was delivered on 24.08.2017 in Income Tax Appeal no. 222 of 2012 and others. It is relevant to observe, in the aforesaid case also, the assessee had its unit in Surat SEZ. Similar view was again expressed by the Mumbai Bench of the Tribunal in the case of the same assessee in ITA No. 153/JP/2014 and 216/JP/2014 dated 10.01.2018. The other decisions cited by the learned AR also express similar view. Therefore, consistent with the view taken by the different Benches of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties and perused the records. It is admitted fact that the assessee is a trader in Diamonds which imports Diamonds for re-export after sorting and grading. It is also an admitted position that the assessee has set up a registered unit in the Special Economic Zone, (SEZ) Surat which is governed by the SEZ Act. Section 10AA of the Act has been inserted by virtue the SEZ Act, 2005 which is a special provision for newly established units is SEZ Zones and it provides exemption for specified period to SEZ units in respect of profits and gains derived from export of articles or things manufactured or produced or from services. We have already held in respect of ground no. 4, 6 7 that the assessee is eligible to claim deduction under section 10AA of the Act on its activity of import of Diamonds for re-export ( after sorting and grading) from its SEZ unit comes within the nature of Services as provided under section 10AA of the Act. 12. This year the assessee has shown net profit of Rs. 1,20,08,272/- which was on account of Foreign Exchange Gains earned by the asssessee consequent to increase in the rate of USD against the Indian rupees during the FY 2012-13. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al difference between the requirement of s. 80HHC and s. 10A. The profit on account of foreign exchange gain is directly referable to the articles and things exported by the assessee. Such profits are therefore in the same nature as the sale proceeds and there is no reason while deduction, under s. 10A should not be allowed in respect of such exchange gain. Therefore, we vacate the order of the learned CIT(A) on this issue. 14. Further, the Ld. AR drew our attention to the Hon ble Madras High Court in the case of Pentasoft Technologies Ltd. [347 ITR 578]. In this case, question of law that was framed by the Hon ble High Court was as under: Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that gains on account of foreign exchange fluctuation held to have direct nexus with the export sales of the assessee and, hence, is eligible for deduction under section 10A of the Income-tax Act, 1961, is valid in law ? And the Hon ble High Court decided the case held in favour of the assessee by upholding the order of the Tribunal as under: In order to allow a claim under section 10A of the Act, what all is to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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