TaxTMI 
TaxTMI 
2022 (6) TMI 797
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.... did not have adequate and sufficient fixed assets, manpower and power/ fuel to carry out any manufacturing or processing activity to the extent shown by the assessee. [2] On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in holding that provisions of the SEZ Act have overriding effect over provision of section 10AA of the Income-tax Act. [3] On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer as the assessee has done trading activity to the extent of assessed as such. [4] It is, therefore, prayed that the order of the CIT (A) may be set aside and that of Assessing Officer may be restored." 3. The Grounds of appeal raised by Assessee in CO No.91/AHD/2016 are as follows: "1. In law and in the facts and circumstances of the case, the Ld CIT(A) has erred in not allowing deduction u/s 10AA on interest income of Rs.8,94,992/- when such income has been earned on FD made out of business compulsion and forms part of business income eligible for deduction u/s 10AA. The Assessing Officer shall be directed to allow deduction u/s 10AA on such interes....
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.... to this activity. The assessee vide his letter dated 08.1.2015 submitted the working of the profit from the merchandise selling of embroidery design as following: Income Amount Export sales of Textile Embroidery Design 109549440 Total 109549440 Direct Expenses Import purchase of Textile Embroidery Design 99564288 Export Exchange Loss (on Textile Embroidery Design) 5683867 Import exchange Gain (On Textile Embroidery Design) 4346865 Bank Charges 82364 Total 100983654 Profit without considering indirect expenses 8565786 Less: Indirect Expenses in proportionate to Turnover (As per Annexure:1) 391905 Net Profit relating to Merchant Trading of Embroidery Design 8173881 6.2.4. The Assessing Officer was issued a letter dated 22.04.2015 asking him to submit a report on the following issue:- "In this case the assessee had claimed exemption u/s 10AA of the Act. The Assessing Officer has disallowed the entire deduction u/s 10AA of the Act amounting to Rs.3,62,92,500/-. The assessee had claimed profit from Merchant Exports of Textile Embroidery Design and the total export sales from Texti....
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....which have been claimed during the year but will not be allowed in view of the above facts. The assessee has provided a calculation of the expenses related to Merchant Exports of Textile Embroidery Design. The income from merchandise selling of embroidery design business has been shown at Rs. 10,09,83,654/- on which direct expenses of Rs.81,73,811/- and indirect expenses in proportion to the turnover of Rs.39,11,905/- has been claimed. The income from merchandise selling of embroidery design business has been shown at Rs.10,95,49,440/- which is not allowable u/s 10AA of the Act. In addition, the direct expenses / proportionate expenses on the above activity also does not qualify for deductions u/s 10AA of the Act. 6.2.7. Now coming to the other issue of claim u/s 10AA of the Act, it is observed that the Assessing Officer held that the assessee was not involved in manufacturing taking into consideration the various facts such as low electricity consumption, less number of labours, etc. and was in trading which does not constitute exports as per the clause (ii) of Explanation 1 to section 10AA of the Act. The assessee contention that provisions of SEZ Act will have an overri....
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....m SEZ Act of the imported goods which have been re-exported after processing. 6.2.9. Under section 51(1) of the SEZ Act, lays down that the provision of this Act has overriding effect in case of contradiction between the SEZ Act and other Act. In the SEZ Act under Section 51, it has been clearly provided that the provision of SEZ Act will override the provision of any other Act, meaning thereby the provisions provided under the SEZ Act has to override on the provision of section 10AA of the Income Tax Act. Hence, by virtue of section 51 of the SEZ Act, the provision of SEZ Act and Rules, the Circular issued by Government of India and the provision of Section 51 of the SEZ Act it is evident that trading done by the assessee is a service and, therefore, deduction under section 10AA is allowable. 6.2.10. In view of the above facts and discussions, it is evident that section 51 of SEZ Act have clearly provided that the provisions of SEZ Act will override the provisions of any other Act meaning thereby that the provisions provided under the SEZ Act overrides the provisions of Sec. 10AA of the Act and the SEZ Rules includes trading to be services. However, keeping in vi....
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....ning thereby that the provisions provided under the SEZ Act overrides the provisions of Sec. 10AA of the Act and the SEZ Rules includes trading to be services. However, keeping in view the facts as discussed above, regarding the profit from merchandise selling of embroidery design is not eligible for the deduction u/s 10AA of the Act, the Assessing Officer is directed to recalculate the disallowance keeping in view the turnover of Rs.10,95,49,440/-, profit of Rs.81,73,881/- and direct/indirect expense of Rs.10,13,75,559/-. Hence, the assessee is entitled to claim the deduction u/s 10AA of the Act for the activity other than merchandise selling of embroidery design and the grounds of appeal are partly allowed." 11. From the above findings of ld CIT(A) it is vivid that provisions provided under the SEZ Act overrides the provisions of section 10AA of the Act and the SEZ Rules includes trading to be services. Thus, ld DR pointed out that SEZ Rules can not override the provisions of section 10AA of the Income Tax Act, as these SEZ Rules do not have mandatory force as that of main provisions of the Act. He further pointed out that Rules can not override the main provisions of the Act.....