2019 (12) TMI 309 - AT - Income Tax

Tribunal ruling: Sales to other SEZ units not eligible for deduction

Lotus Ornaments Pvt. Ltd. Versus Dy. Commissioner of Income Tax Circle–8 (2), Mumbai

The Tribunal dismissed the appeal for A.Y. 2008-09 and partly allowed the appeal for A.Y. 2010-11 for statistical purposes. It emphasized the ... Deduction u/s 10AA - SEZ unit - exemption in respect to sale of other SEZ Units, instead of direct export - HELD THAT:- Admittedly, the sales made to other SEZ units are not export sales of the assessee. As per the definition of “export turnover” under Explanation–1 to section 10AA would mean the consideration in respect of export made by the undertaking. Thus, to come within the ambit of export under section 10AA the assessee must directly export the goods out of India. Whereas, in the facts of the present case, the IUT sales are not directly exported by the assessee out of India, but were sold to other SEZ Units. Therefore, such sales cannot be included in export turnover as per the definition provided under section 10AA. The aforesaid view has been expressed by the Tribunal in case of Sarto Electro Equipment Pvt. Ltd. [2016 (7) TMI 1552 - ITAT MUMBAI]. In view of the aforesaid, the alternative / without prejudice working of deduction under section 10AA by including the sales to other SEZ units cannot be accepted. Resultantly, this ground is dismissed. Deduction u/s 10AA - excluding IUT sales - HELD THAT:- AO has observed that after excluding IUT sales, deduction under section 10AA has been shown at ₹ 5,74,56,852 and including IUT sales deduction under section 10AA of the Act has been computed at ₹ 5,98,75,170, however, in the statement of facts attached to the memorandum of appeal in form no.36, the assessee has produced both the working in Para–4. As per the said working, deduction u/s 10AA excluding IUT sales has been shown at ₹ 5,98,75,170, whereas, by including IUT sales deduction u/s 10AA has been shown at ₹ 5,74,56,852. This anomaly between the figures mentioned in the assessment order and in the statement of facts requires reconciliation. No circumstances, the assessee can be allowed deduction under section 10AA in respect of sales made to other SEZ units (IUT sales). In view, the AO is directed to verify the actual figure of exports made by the assessee directly and allow deduction under section 10AA. This ground is allowed for statistical purpose. Excluding the interest received on fixed deposit from the export turnover for computing deduction u/s 10AA - HELD THAT:- It is noticed that on the fixed deposit kept towards margin money, the assessee has earned interest of ₹ 1,10,700. No evidence has been furnished by the assessee to demonstrate that the aforesaid interest income has any direct nexus with the export of article or thing so as to include it in export turnover. That being the case, we are unable to accept assessee’s claim. Issues:1. Claim of deduction under section 10AA of the Income Tax Act, 1961 for assessment years 2008-09 and 2010-11.2. Levy of interest under sections 234B, 234C, and 234D of the Act.3. Exclusion of interest received on fixed deposit from export turnover for computing deduction under section 10AA.4. Initiation of penalty proceedings under section 271(1)(c) of the Act.Issue 1: Claim of deduction under section 10AA- The assessee claimed deduction under section 10AA for income from job work done in respect of other SEZ units.- The Assessing Officer disallowed part of indirect expenses allocated to export income, but allowed the deduction under section 10AA as per the audit report.- The Commissioner (Appeals) upheld the decision, stating no necessity for alternative computation of deduction.- The Tribunal held that sales to other SEZ units cannot be considered export turnover under section 10AA, dismissing the alternative working of deduction.Issue 2: Levy of interest under sections 234B, 234C, and 234D- The Tribunal dismissed the challenge against the levy of interest, stating it as mandatory and not requiring interference.Issue 3: Exclusion of interest received on fixed deposit from export turnover- The Assessing Officer and Commissioner (Appeals) excluded interest on fixed deposit from export turnover for deduction under section 10AA, as it lacked a direct nexus with export income.- The Tribunal upheld the decision, dismissing the claim to include the interest in export turnover.Issue 4: Initiation of penalty proceedings under section 271(1)(c)- The Tribunal noted the pre-mature stage of the penalty proceedings and did not adjudicate on this ground.In conclusion, the Tribunal dismissed the appeal for A.Y. 2008-09 and partly allowed the appeal for A.Y. 2010-11 for statistical purposes, emphasizing the ineligibility of sales to other SEZ units for deduction under section 10AA and the exclusion of unrelated interest income from export turnover.