Tribunal grants exemption for trading activities in SEZ under Section 10AA, dismisses natural justice violation claim.

The Tribunal allowed the appeal, granting the exemption claim under Section 10AA for the trading activities conducted by the assessee in the SEZ. The Tribunal held that the assessee's trading activities fell within the definition of services, making it eligible for the deduction. However, the Tribunal dismissed the ground related to the alleged violation of natural justice, finding that the lower authorities had provided sufficient opportunity for the assessee to present its case.

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Issues Involved:
1. Denial of exemption claim under Section 10AA of the Income Tax Act, 1961.
2. Alleged violation of the principles of natural justice by not granting adequate opportunity of being heard.

Issue-wise Detailed Analysis:

1. Denial of Exemption Claim under Section 10AA of the Income Tax Act, 1961:

The primary issue in this appeal was whether the assessee was entitled to claim exemption under Section 10AA of the Income Tax Act, 1961. The assessee had filed its return of income for the Assessment Year 2014-15, claiming a deduction of Rs. 4,74,14,726/- under Section 10AA. The Assessing Officer (AO) denied this claim based on two grounds:

- Non-filing of Form No. 56F: The AO initially objected to the assessee not filing Form No. 56F along with the return of income. However, the assessee later submitted the form electronically, and this objection was dropped by the AO upon direction from the Dispute Resolution Panel (DRP).

- Nature of Business Activity: The AO contended that the assessee was not entitled to the deduction as it did not specify the services rendered to qualify for the exemption. The AO further noted that the assessee was engaged in trading nickel and steel, which he argued did not qualify as a service under Section 10AA. The DRP upheld this view, stating that the trading activity did not fall within the definition of 'entrepreneur' under the SEZ Act.

The Tribunal, however, examined the relevant provisions of the SEZ Act and the Income Tax Act. It noted that the assessee had a unit in the SEZ, engaged in trading and storage activities, and had been granted approval for trading activities of nickel, copper, zinc, and other products. The Tribunal referred to Rule 76 of the SEZ Rules, which includes 'trading' within the definition of services, specifically mentioning "import for the purpose of re-export."

The Tribunal also cited judicial precedents, including the case of DCIT vs. Bommidala Enterprises Pvt. Ltd., where it was held that trading activities in SEZ units qualify as services under Section 10AA. The Tribunal concluded that the assessee's trading activities fell within the definition of services, making it eligible for the deduction under Section 10AA. Consequently, the Tribunal allowed the assessee's claim for exemption.

2. Alleged Violation of Principles of Natural Justice:

The second issue raised by the assessee was that the DRP and AO did not grant adequate opportunity for the assessee to be heard, thereby violating the principles of natural justice. The Tribunal reviewed the assessment order and the DRP's order, particularly focusing on paragraph 3.8 of the assessment order. It found no merit in the assessee's claim of not being granted adequate opportunity. The Tribunal dismissed this ground, concluding that the lower authorities had provided sufficient opportunity for the assessee to present its case.

Conclusion:

The Tribunal partly allowed the appeal, granting the exemption claim under Section 10AA for the trading activities conducted by the assessee in the SEZ, while dismissing the ground related to the alleged violation of natural justice. The order was pronounced in the open court on 16/09/2020.

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