10A/10B deductions for exports via third parties and inter unit transfers upheld where statutory conditions and Form 56G are satisfied

Legislative intent to incentivise export oriented units permits deduction for exports effected through third parties and inter unit transfers, subject to complying with statutory conditions; the assessee's Form 56G report was furnished and thus the exemption claim stands where those conditions are met. A prior decision supporting a broad construction of 'undertaking' to treat such transactions as deemed exports underpins this position, and the suggestion of duplication was rejected since each supplier may claim only its own value addition, preserving proper computation of income.

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Issues Involved:
1. Entitlement for deduction under Section 10B of the Income Tax Act for exports made to third parties and inter-unit transfers.
2. Treatment of sales made to third parties and other export-oriented units as deemed exports under EXIM policy.
3. Charging of interest under Sections 234B and 234C of the Act.

Issue-wise Detailed Analysis:

1. Entitlement for deduction under Section 10B of the Income Tax Act for exports made to third parties and inter-unit transfers:
The appellant, a 100% export-oriented unit, claimed deductions under Section 10B for exports made to third parties and inter-unit transfers. The Assessing Officer allowed deductions only for direct exports, disallowing claims for third-party and inter-unit transfers. The Tribunal upheld this decision by relying on the case of Tata Elxi Ltd. However, this decision was reversed by the High Court in Tata Elxi Ltd. vs. CIT, which held that deemed exports through third parties should also be eligible for deductions. The court emphasized that the legislature's intent was to encourage export-oriented industries and that a narrow interpretation should not be applied. The court concluded that the appellant is entitled to deductions under Section 10B for exports made to third parties and inter-unit transfers.

2. Treatment of sales made to third parties and other export-oriented units as deemed exports under EXIM policy:
The appellant argued that sales to third parties and other export-oriented units should be treated as deemed exports under the EXIM policy and thus qualify for deductions under Section 10B. The Tribunal initially denied this claim, but the High Court referred to previous judgments, including International Stones India P. Ltd. and Metal Closures Steel Ltd., which supported the appellant's position. The court held that deemed exports through third parties, which bring foreign currency into India, should be considered as exports by the assessee undertaking, thus qualifying for deductions under Section 10B.

3. Charging of interest under Sections 234B and 234C of the Act:
The issue of charging interest under Sections 234B and 234C was also raised. However, the court's primary focus was on the eligibility for deductions under Section 10B. The court did not provide a detailed analysis of this issue, as the main contention revolved around the deductions for deemed exports.

Conclusion:
The High Court quashed the orders of the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) that disallowed the appellant's claims for deductions under Section 10B for third-party and inter-unit transfers. The court held that the appellant is entitled to these deductions, aligning with the legislative intent to promote export-oriented units. The appeals were allowed in favor of the assessee.

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