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Issues: (i) Whether deduction under section 10AA was allowable on profits from trading activity in imported diamonds and gold jewellery; (ii) Whether interest earned on fixed deposits kept as margin money for bank purposes was assessable as business income and eligible for deduction under section 10AA.
Issue (i): Whether deduction under section 10AA was allowable on profits from trading activity in imported diamonds and gold jewellery.
Analysis: The Tribunal followed its decision in the assessee's own case for the earlier year and held that trading and re-export activity in a SEZ unit falls within the protective scope of the SEZ regime. It accepted that the SEZ Act has overriding effect over inconsistent provisions of the Income-tax Act and that trading for re-export is covered within the relevant understanding of services for section 10AA purposes.
Conclusion: The issue was decided in favour of the assessee and the deduction under section 10AA on trading profits was upheld.
Issue (ii): Whether interest earned on fixed deposits kept as margin money for bank purposes was assessable as business income and eligible for deduction under section 10AA.
Analysis: The Tribunal noted that the issue had been decided in the assessee's favour in an earlier year where margin-money deposits linked to business operations were treated as business receipts. However, in the present year, the assessment record did not contain a clear finding whether the fixed deposits were made for business necessity as margin money or out of surplus funds to earn interest. In the absence of necessary factual verification, the matter required fresh examination.
Conclusion: The issue was restored to the Assessing Officer for fresh adjudication.
Final Conclusion: The assessee succeeded on the section 10AA claim for trading activity, while the interest-income issue was sent back for reconsideration on the factual question of its business nexus.
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