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TMI Blog2023 (4) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 10AA of the Act in the given set facts and circumstances. The claim of the assessee was allowed in the case of CIT versus Mitesh Impex [ 2014 (4) TMI 484 - GUJARAT HIGH COURT] even such claim was not made in the Income Tax Return and it was raised 1st time before the learned CIT-A whereas the facts of the case of the assessee are on better footing than the case of the Hon ble Gujarat High Court cited above. In the case on hand, the claim was made in the revised return of income and therefore, we hold that the assessee cannot be deprived of the benefit granted under the statute merely on the reasoning that it was claimed in the revised return of income. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on account of furnishing the audit report in form 56F during the assessment proceedings? - The assessee cannot be deprived of the benefit provided under section 10AA merely on the reasoning that the audit report in form 56F was filed during the assessment proceedings. We hold so on the reasons as applicable to the 1st question discussed above that the deduction was claimed in the revised return of income. Thus, the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e merchant exporters - the goods sold by the assessee to the parties were eventually exported by the merchant exporters and the foreign exchange was received by these merchant exporters and not by the assessee. As per SEZ rules 2006, the assessee cannot make local sales but allowed to make sales to the merchant exporters which will be treated as deemed export. Therefore, the assessee is eligible for deduction under section 10AA of the Act on such deemed exports even the assessee does not bring any foreign exchange on account of such sales. See case of Granite Mart Ltd [ 2020 (5) TMI 238 - KARNATAKA HIGH COURT] There was no condition applicable for the year under consideration to bring foreign exchange in India on account of the exports of sales. We hold that the assessee cannot be deprived of the benefit of the deduction granted under section 10AA of the Act merely on the reasoning that the assessee did not receive the convertible foreign exchange on the deemed exports. - Decided against revenue. - ITA No. 1840/AHD/2018 - - - Dated:- 31-3-2023 - Shri Waseem Ahmed, Accountant Member And Ms. Madhumita Roy, Judicial Member For the Revenue : Shri Ravindra, Sr. D.R. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Masala with and without Ghutka. The factory of the assessee is located at Kandla Special Economic Zone, Gandhidham Kachh. The assessee in the revised return of income, dated 19/01/2017, has claimed the deduction of Rs. 1,49,72,275/- under the provisions of section 10AA of the Act. But the same was disallowed by the AO by observing as under: 4.(ii) After careful consideration of the assessee's submission, it is noticed that the facts and circumstances of cited judgements on which the assessee relied upon are differs from the facts and^ circumstances of the assessee's case. Further, the submission of the assessee is not found acceptable because the assessee has not fulfilled basic terms conditions as required for claiming deduction u/s 10AA of the Income tax Act, the discussion on each required terms conditions are as under: - I. CONDITION THAT RETURN SHOULD BE FILED WITHIN DUE DATE IS MANDATORY. The assessee has claimed deduction u/s 10AA of Rs.1,49,72,275/- in the Revised Return of Income filed on 19/01/2017 without filing online required report, documents Form No. 56F along with e-return of income. Rajkot ITAT in the case of Saffire Garment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has executed total Sales transactions with three local parties namely (i) sales Ra.1,235,00,000/- to M/s Amar Flavour Pvt Ltd, Delhi, PAN-AAHCA2253M (ii)sales Rs.6,95,25,000/- to M/s Ankita Overseas, Delhi, PAN-AEHPK3989D (iii)sales Rs.3,91,30,000/- to M/s Nimex Trading Corporation, Mumbai, PAN- AAGPK6484J and neither export goods outside India nor received converted foreign currency in reference to the sales proceeds, hence the assessee has not followed the basic required condition for eligibilities of deduction u/s 10AA. The definition of export for the purpose of eligibility for claiming deduction u/s 10AA - . export in relation to the Special Economic Zones means ..taking goods or providing services_out_of India from a Special Economic Zone by land, sea, air, or_by _any_other mode, whether_physical_or otherwise. In this reference, it is pertinent to mention here that the hon'able High Court of Kerala in the case of Commissioner of Income-tax, Cochin v. Electronic Controls Discharge Systems (P.) Ltd.* [2011] 13 taxmann.com 193 {Kerala) held that Section IDA of the Income-tax Act, 1961 - Free trade zone -Whether section IDA provides for exemption on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Economic Zone, whether as part of Domestic Tariff Area sales or inter-unit sales within the Zone or units in other Zones. In fact, all Special Economic Zones are allowed to make 25 per cent sales to Domestic Tariff Area and the profit derived from such sales is not entitled to exemption. Exemption under section 10A(3) is specifically geared to profits on actual exports, that too, made against receipt of convertible foreign exchange. If the provisions of the Special Economic Zones Act, are brought in to extend the exemption on profits derived on inter-unit sale made by industries within the Export Processing Zone, the Court will be re-writing the legislation which is exactly what the Tribunal has done. In fact, the unit, which purchased components from the assessee, must be manufacturing final products and being a unit in the Special Economic Zone will be exporting the final product, on which that unit will get exemption on the entire profits which include the value of the components supplied by the assessee. Probably, the Legislature did not want duplicity in exemption on export profit. That is why inter-unit sales in the Export Processing Zone are not treated as export within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10A is to be allowed only when foreign exchange is received on export of software and EXIM policy cannot overruns income- tax Act which is a separate code in itself. In view of same claim of assessee could not be allowed Further, Assessing Officer excluded foreign tax (VAT/GST) collected from customers from export turnover as well as from total turnover., thereby, granting lower deduction under section IDA to assessee a STP unit, on ground that tax collected was subsequently remitted to government the Tribunal held that once this sum is not included in export turnover then the same cannot be included in the total turnover. Mumbai ITAT in the case of Capital Foods Exports (P.) Ltd. v. ACIT held that Assessee, engaged in business of manufacturing and export of processed food products-claimed deduction under section 10A. It was held that In terms of provisions of section 10A, unless foreign remittances are credited in the account of the assessee or at least credited in account of bank, it cannot be said that export proceeds have been received in or brought into India. Since certificate issued by Bank did not state that foreign remittances had been credited in its acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income filed by the appellant firm is within the time limits prescribed under the Act. During the course of assessment proceedings, the AO issued the Show cause Notice dated 08/12/2017 asking the appellant to justify all the basic conditions which are required to be fulfilled to claim deduction u/s. 10AA of the Act. The appellant filed its detailed submission vide reply dated 14/12/2017, the relevant portion of which has been reproduced by the AO in the assessment order. The AO did not accept the submission and justification of the appellant and disallowed the claim of deduction u/s. 10AA of the Act observing that three conditions have not been fulfilled by the appellant nameiy (1) condition that return shoufd be filed within due date is mandatory, (2) conversion of existing unit and (3) Sales proceeds must be brought in India in foreign Exchange. So far as first condition namely the return should be filed within due date is mandatory, the appellant contends that there is no conditions prescribed u/s. 10AA of the Act that the claim of the deduction should be made in the original return of income to be filed u/s. 139 of the Act. The reliance placed by the AO on the decision of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as converted into a partnership firm having same name i.e. M/s. Vishnu Export. Such change in the constitution of the Unit was also informed to the KASEZ authorities and they have also issued the approval for said change. The relevant evidences in this regards have been placed on the record of the AO as well as in this office. As per facts on record there is no new unit out of split, has come into existence. There is a change in status of the appellant. There is a clarion call from the highest echelon of the government to create an environment friendly to doing of business in this country. In the DO letter of Chairman, No.FTS: 30311806/2016 dtd.01.11.2016, the field formation has been directed ........ it is equally important to take steps to prevent avoidable dispute..... As a sequel to this a compendium of 22 circulars was circulated vide letter No.CC 2/ABD/Circulars/RTC/48/2016-17 dated 20.12.2016 entitled, Clarificatory circulars issued by CBDT to reduce litigation Settted/view/Department view . In view of the above facts and supporting evidences, I am of the considered opinion that there is no violation of the condition of Sec. 10AA of the Act on conversion of propri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the FY 2014-15 and explained that the parties to whom the sales made by the appellant firm have, in turn exported the goods out of India which were manufactured by the appellant firm. The sale to approved merchat exporter cannot be treated as local sale. Thus, the sales made by the appellant firm is Deemed Export and not local sales within India as mistakenly observed by the AO. Before the AO, the appellant has submitted the statement showing invoice-wise details of sale and its deemed exports along with the specimen copy of all the relevant documents required to remove the goods from SEZ to Discharge Port of export of goods out of India. On perusal of the invoice raised by the appellant firm, it is seen that the name of the appellant firm is as Supplier/Manufacturer and further it has been mentioned as on a/c. of exporter and the name of .exporter, has been mentioned. Further, the name of Consignee in the said invoice is the name of the ultimate buyer of foreign country. Further, the invoice also gives the details of country of final destination, vessel's name / flight number, port of loading, Port of discharge, place of delivery, description of goods with number and kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 2 wherein it was contended that the assessee can claim the deduction only in the return filed u/s 139(1) of the Act and not in the revised return of income. As such, the assessee cannot be given benefit of deduction u/s 10AA of the Act in the revised return of income, in pursuance to the order of the Rajkot, ITAT in the case of Saffire Garments Vs. ITO, reported in 151 TTJ 114. As per the Ld. DR, the way the interest under the provisions of section 234A, B and C is mandatory, the same way, it is mandatory for claiming deduction u/s 10AA of the Act to file the return of income within the due date specified u/s 139(1) of the Act. 7.1 The Ld. DR further submitted that the factory was set up in Special Kandla Economic Zone by the proprietor but the deduction has been claimed by the firm. As such the proprietorship firm was converted into a partnership firm in the year under consideration, therefore it is discernible that the partnership firm was set up after restructuring the business of the proprietary concern which is prohibited under the provisions of section 10AA of the Act. 7.2 The Ld. DR also submitted that the assessee has taken certain plant and machineries on lease wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Details of country of final destination Name of vessel/flight number Port of lading Port of discharge Date of deliver}' Description of goods with number and kind of packages; Quantity in carton; Rate per carton; Total amount. Invoice has been raised by assessee in USD (i.e., foreign currency) and not in India rupees. The merchant exporter has exported goods as per Rule 46(lO)(Ii) of the SEZ Rules, 2006 which has been categorically mentioned in the invoice raised by assessee. Shipping bill for export of duty-free goods have also been verified and certified by KASEZ while authorizing and affixing their seal. Invoice packing list raised by the merchant exporter also mentioned name of manufacturer i.e. Vishnu Exports (assessee). Since assessee is 100% EOU established in SEZ, it cannot sale manufactured goods in local market of India. Thus, goods sold to merchant exporters have ultimately been exported as per SEZ Rules, 2006 and even the procedure of exports laid down in SEZ Rules, 2006 has been duly observed, verified and authenticated by KASEZ Authorities which proves beyond doubt that K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a return is revised then the original return has to be ignored and the revised return has to be considered by the Revenue. In this respect the Hon'ble Allahabad High Court in the case of Dhampur Sugar Mills Ltd. v. CIT, 90 ITR 236 held as under:- ''The effective return for purposes of assessment is thus the return which is ultimately filed by an assessee on the basis of which he wants his income to be assessed... But when an assessment has to be made the assessee is given a right to file a correct and complete return if he discovers an error or omission in the return filed earlier. The assessment can be completed only on the basis of the correct and complete return.... Once a revised return is filed, the original return must be taken to have been withdrawn and to have been substituted by a fresh return for the purpose of assessment.''' 10.2 It is not out of the place to mention that a return can be revised only in the situations where there is an omission or any wrong statement in the return filed under section 139(1) of the Act. But, there is no allegation in the order of the AO that there was no omission or any wrong statement in the return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the ITAT cited above. 10.6 Moving further, we note that the Hon ble Gujarat High Court in the case of CIT versus Mitesh Impex reported in 367 ITR 85 has observed as under: 39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer. 10.7 In the above case, the claim of the assessee was allowed by the Hon ble Gujarat High Court even such claim was not made in the Income Tax Return and it was raised 1st time before the learned CIT-A whereas the facts of the case of the assessee are on better footing than the case of the Hon ble Gujarat High Court cited above. In the case on hand, the claim was made in the revised return of income and therefore, respectfully following the judgement of the Hon ble Gujarat High Court cited above, we hold that the assessee cannot be deprived of the benefit granted under the statute merely on the reasoning that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage. Contrary to the assertion of the Revenue that what was transferred was only machinery, we find that the Officer himself had accepted that the balance sheet of the assessee reflected the transfer of the entire business and to that extent, it was removed in the vendor's balance sheet. ******* 10. A cursory reading of the above Section shows that where an undertaking is formed by splitting up or reconstruction of business already in existence then the said undertaking would not be entitled to claim deduction under Section 10A. The other conditions is that the industrial undertaking should not be formed by transfer of plant and machinery already used for any purpose. Thus, what is prohibited in Section 10(A)(2)(iii) is that the transfer of used machinery and plant to a new business undertaking and forming of an industrial undertaking by splitting or reconstruction of the existing industrial undertaking. The intention thus under Section 10A being clear and that there is no specific prohibition or even by inference to an industrial unit formed by transfer of entire business, we have no hesitation in rejecting the Revenue's plea that by transfer of machinery, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of order of ITAT in the case of the CIT versus M/s Choice Sanitaryware Industries in ITA 274/RJT/2008 order dated 23 December 2010 wherein the issue was in relation to claim of deduction under section 80IB of the Act but the principles of the same can also be imported to the case on the hand. The relevant finding of Tribunal in above cited case reads as under: In a nutshell, the assessee has acquired its sister concern s land, building, plant and machinery on lease without there being any further responsibility on the part of its sister concern. With these factual matrix, could the assessee be held under an obligation to maintain separate books of account, one for the production carried out with the machinery of the assessee and the other for the production carried out with the hired machinery for the purpose of claiming deduction u/s 80IB of the Act. It transpires to us from the reading of the orders of authorities below that the only objection of the assessing officer in withdrawing he deduction already available to the assessee is non maintenance of separate production records with the plant machinery of the assessee and those hired from the sister concern, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the AO, the assessee has taken not only the premises but also the plant and machineries which were in excess of 20% of statutory limit. But there is no such allegation in the order of the AO in case on hand. Therefore, no credence to the finding of the order of the ITAT as referred by the AO can be given. Accordingly, we hold that the revenue on this allegation also fails. 10.14 The next controversy arises that whether assessee can be denied the benefit of the deduction provided under section 10AA of the Act in case of domestic sales and no convertible foreign exchange was brought to India. There is no dispute to the fact that the assessee has made the sale of ₹ 12,21,55000.00 to the parties who were the merchant exporters. In other words, the goods sold by the assessee to the parties were eventually exported by the merchant exporters and the foreign exchange was received by these merchant exporters and not by the assessee. As per SEZ rules 2006, the assessee cannot make local sales but allowed to make sales to the merchant exporters which will be treated as deemed export. Therefore, the assessee is eligible for deduction under section 10AA of the Act on such deemed e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1. For the purposes of this sub-section, the expression competent authority means the Reserve Bank of India or the authority authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2. The sale of goods or provision of services shall be deemed to have been received in India where such export turnover is credited to a separate account maintained for that purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. ; (c) in Explanation 1, for clause (i), the following clause shall be substituted, namely: (i) convertible foreign exchange shall have the meaning assigned to it in clause (ii) of the Explanation 2 to section 10A; (ia) export turnover means the consideration in respect of export by the undertaking, being the Unit of articles or things or services received in, or brought into, India by the assessee in convertible foreign exchange in accordance with the provisions of sub-section (4A), but do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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