AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 867
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....essment years 2006-07, 2007-08, 2009-10 & 2010-11 u/s 139(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act'). The assessment for the assessment year 2006-07 was completed u/s 143(3) of the Act, on 24.12.2008. Subsequently, the case was reviewed by the CIT and passed order u/s 263 of the Act, on 18.3.2011 and set aside the order passed by the A.O. u/s 143(3) of the Act and directed the A.O. to reframe the assessment in accordance with law. The CIT reviewed the assessment order on 2 grounds i.e. disallowance of claim of exemption u/s 10AA of the Act, and examination of bad debts written off by the assessee in the case of debts received from out of exports sales. Consequent to directions of the CIT u/s 263 of the Act, the A.O. has passed assessment order u/s 143(3) r.w.s. 263 of the Act, on the directions of the CIT u/s 263 of the Act and disallowed exemption claimed u/s 10AA of the Act, towards export profit derived from the unit situated at Special Economic Zone (SEZ) and disallowed bad debts written off towards debts receivable out of export turnover. 3. The assessment for the assessment year 2007-08 has been originally completed u/s 143(1) of the Act, accept....
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....exemption u/s 10AA of the Act, towards export profit derived from SEZ unit. The fact which leads to disallowance of exemption u/s 10AA of the Act are that the assessee is having a unit at Cochin SEZ. The unit was approved from the Development Commissioner, Cochin SEZ, Cochin, vide letter no.9/05/2005/IL/CSEZ/1563 dated 14.3.2005. The unit situated at Cochin SEZ is engaged in the business of import of Cigars, Cigaretts, Alcoholic Beverages, re-export the same and to derive foreign exchange. The assessee has claimed exemption u/s 10AA of the Act, towards export profit derived from the unit situated at Cochin SEZ, Cochin. The A.O. disallowed exemption u/s 10AA of the Act, on the ground that import and export activity cannot be treated as "service" for the purpose of section 10AA of the Act, notwithstanding its status as per SEZ Act. The A.O. further held that assessee was only engaged in trading, but neither carried any manufacturing nor rendered any service so as to be eligible for exemption u/s 10AA of the Act. According to the A.O., the eligible units situated at SEZ, engaged in the business of manufacture or production of articles or things or provided any service only qualifies f....
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....e other hand, the Ld. A.R. strongly supported order of the CIT(A). The A.R. further submitted that as per the provisions of section 10AA of the Act, in computing total income of an assessee, being an entrepreneur who begins to manufacture or produce articles or provide any services, a deduction of 100% of profits & gains derived from export for a period of 5 years will be allowed beginning from the year in which the unit begins to manufacture or produce articles or provide any services. Though the meaning of the term "services" is not defined in the section, the definition provided under the relevant Act has to be considered for the purpose of section 10AA of the Act. The term "services" has been defined by the SEZ Act, 2005 and SEZ Rules, 2006 under which Rule 76 of SEZ Rules, 2006 defines the term "services", which includes trading. As per explanation given in SEZ Rules, 2006, the expression trading for the purpose of second schedule of the SEZ Act, shall mean import for the purpose of re-export and such trading is included in the list of services for the purpose of section 2 of SEZ Act. Since, the assessee is carrying on trading of goods and the said activity falls within the sc....
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....t. The term 'services' is not defined u/s 10AA of the Act. Since, the term 'services' has not been defined u/s 10AA of the Act, the definition provided under the relevant Act, has to be considered for the purpose of the term 'services' used in the section 10AA of the Act, for the purpose of determination whether the unit is eligible for exemption u/s 10AA of the Act. 10. The Ld. A.R. for the assessee at the time of hearing, submitted that the issue is covered by the decision of ITAT, Visakhapatnam in assessee's own case in ITA No.331/Vizag/2011, for the assessment year 2008-09. We find that the coordinate bench of this Tribunal, in assessee's own case has considered the issue and after considering the provisions of section 10AA of the Act, the definition of the term 'services' as defined u/s (2) of SEZ Act, 2005 and Rule 76 of SEZ Rules, 2006, held that the activity carried on by the assessee amounts to rendering of services in importing and re-exporting of goods as defined under SEZ Rules, 2006. The relevant portion of the order is extracted below: "5. None appeared on behalf of the assessee. We have heard the Ld. Departmental Representative in this regard and carefully perused....
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....the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The Hon'ble Apex Court held that there can be no manner of doubt that the provision of Special Court Act wherever they are applicable shall prevail over the provisionof the Income tax Act. The Hon'ble Delhi High Court in the case of CIT Vs. Vasisth Chay Vaapar Ltd., 330 ITR 440 held that when there is a provision in another enactment which contains a non obstente clause than that would override the provisions of the Income Tax. Thus one will have to consider the implication of Section 51 of the SEZ Act. It means that anything in-consistent to the provision of the SEZ Act will not be considered. Thus the word services as mentioned in Section 10AA cannot be construed in-consistently with the definition of services given in the SEZ Act. Under the SEZ act, the trading is included in the services provided the trading is export of imported goods. We therefore, feel that the assessee is entitled to deduction u/s 10AA of the Act and therefore, the Ld. CIT(A) was justified in allowing the exemption." 12. Considering the facts and circumstances of this case and a....
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....in the case of TRF Limited Vs. CIT (2010) 323 ITR 397. 14. Having heard both the parties and considered material on record, we find that the A.O. has disallowed bad debts written off in the books of accounts, on the ground that the bad debts are arised from the export turnover, which cannot be unilaterally written off in the books of accounts. According to the A.O., under the provisions of section 36(1)(vii) of the Act, only bad debt arised in the course of domestic business, written off in the books of accounts is eligible for deduction u/s 36(1)(vii) of the Act. Any debt arised in the course of export turnover cannot be written off unilaterally. The A.O. referred to the RBI guidelines and also the provisions of section 41(1) of the Act. In the case of domestic debts, where the domestic debt is unilaterally written off, the department had jurisdiction over other party to bring him under the provisions of Income Tax Act by way of section 41(1) of the Act. Whereas, in the case of debts arising out of non-realisation export proceeds written off unilaterally, the department cannot exercise jurisdiction over the other party, therefore, opined that the debts written off out of export p....
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....ransaction, which cannot be allowed as deduction against business income. According to the A.O., as per the provisions of section 43(5) of the Act, only eligible transactions which are not in the nature of speculative transaction as defined u/s 43(5) of the Act, only qualify for deduction. The A.O. referred to the CBDT circular and observed that any eligible transaction in respect of trading in derivatives referred to in clause (ac) of section (2) of the Securities Contracts (Regulation Act, 1965), that has been carried out in a recognised stock exchange shall not be treated as a speculative transaction. But, the transactions carried on by the assessee are not covered by the said exceptions, therefore, loss incurred by the assessee towards forward contracts is not eligible for deduction. It is claim of the assessee that it had entered into forward exchange contracts to hedge the possible loss in fluctuation in currency in the course of export turnover and the resultant loss on account of settlement of hedging transactions is treated as revenue expenditure. The assessee further contended that during the financial year relevant to assessment year 2009-10, its export turnover is more ....
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....s and the assessee are not in the nature of principal and agent and hence, the question of deduction of TDS on such payments does not arise. Alternatively, the assessee contended that expenditure incurred under the head export clearing charges has been fully paid on or before 31st March of the financial year and hence no disallowance can be made u/s 40(a)(ia) of the Act, for failure to deduct TDS, if the amounts has been paid within the same financial year. In support of its arguments, relied upon the decision of ITAT, Visakhapatnam special bench decision in the case of Merilyn Shipping & Transporters Vs. ACIT (2012) 136 ITD 23. 19. Having heard both the parties and considered material on record, we find that the A.O. has disallowed clearing and forwarding charges u/s 40(a)(ia) of the Act, for failure to deduct TDS u/s 194C of the Act. It is the contention of the assessee that expenditure incurred under the head 'clearing and forwarding charges' has been paid within the end of the financial year and hence no disallowance can be made u/s 40(a)(ia) of the Act, for failure to deduct TDS, if amount has been paid on or before 31st March of the financial year. We find force in the argum....