Section 10AA deduction claims require strict proof as mixed business activity and fixed-deposit interest were remitted for verification.

Deduction under section 10AA for mixed manufacturing and trading activity required fresh verification of the statutory conditions under the Special Economic Zones framework, because a concession claim must be strictly established on facts. The Tribunal remitted the matter to the Assessing Officer for reconsideration. Interest on fixed deposits was also claimed as eligible business income linked to buyers' credit facilities, but the supporting material was not produced and the factual nexus could not be confirmed. That claim too was remitted for fresh adjudication, leaving the deduction entitlement open after proper factual verification.

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Issues: (i) Whether the claim of deduction under section 10AA in respect of the assessee's business activities required fresh examination in light of the Special Economic Zones Act and the nature of the trading activity; (ii) Whether interest income earned on fixed deposits was eligible for deduction under section 10AA.

Issue (i): Whether the claim of deduction under section 10AA in respect of the assessee's business activities required fresh examination in light of the Special Economic Zones Act and the nature of the trading activity.

Analysis: The deduction claim involved mixed activities, including manufacturing and trading, and the first appellate authority had proceeded on the footing that the Special Economic Zones regime had an overriding effect. The Tribunal noted the Revenue's objection that the statutory conditions for deduction and the legal effect of the Special Economic Zones framework needed reconsideration. It also reiterated that a claim for exemption or concession must be strictly established and that the relevant statutory conditions require proper verification on facts.

Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication in accordance with law.

Issue (ii): Whether interest income earned on fixed deposits was eligible for deduction under section 10AA.

Analysis: The interest income claim depended on the assessee's assertion that the fixed deposits were linked to bank facilities for buyers' credit and therefore formed part of business income eligible for deduction. As the supporting material was not placed before the Tribunal, the factual basis of the claim could not be conclusively examined at that stage. A further opportunity was considered necessary for proper verification of the nexus between the interest income and the eligible business activity.

Conclusion: The issue was also remitted to the Assessing Officer for fresh adjudication in accordance with law.

Final Conclusion: The dispute was sent back for reconsideration on both issues, leaving the tax entitlement open for determination after factual verification.

Ratio Decidendi: A claim for deduction or exemption must be strictly proved, and where the factual foundation or statutory eligibility requires verification, the matter may be remitted for fresh decision rather than finally decided on appeal.

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