TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 105
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....or claim of deduction u/s 10AA of the act. (iii) The Ld.ClT(A) has erred in law and on facts in not treating conversion of ownership of business from proprietorship to partnership as reconstruction of business and violative of claiming deduction u/s 10AA of the act. (iv) The Ld ClT(A) has erred in law and on facts in holding usage of pouch making machine by taking 'ease in conformity with the conditions to claim deduction u/s.10AA of the Act. (v) The Id CIT(A) has erred in law and on facts in treating sale of goods by the firm to domestic parties as deemed export and not violative of the conditions of claim deduction u/s 10AA of the act. (vi) The Ld CIT(A) has failed to appreciate the true material facts brought on record by the assessing officer while disallowing the claim of deduction u/s 10AA of the act. (vii] On fie facts and circumstances of the case, Ld.CIT(A) ought to have upheld the order of the Assessing Officer. (viii) It is, therefore, prayed that the order of Ld CIT(A) may be set aside and that of the Assessing Officer be restored. 3. The interconnected issue raised by the Revenue is that the Ld.CIT(A), erred in deleting the disallowance made by the AO ....
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....9;s case, the unit initially installed as proprietorship concern in F.Y. 2013-14 later on from the 01-09-2014 the proprietorship concern converted in partnership concern. All the setup of the concern belongs to proprietor ship concern initially and the firm take this business. Further, the assessee has taken Machine Rotary FFS Pouch Packing Machine of SANKO" on lease basis and the assessee has not set up your infrastructure * Income-tax Officer Ward-(1),Range-1, Trivandrum VS. Stabilix Solutions (P.) Ltd. [2010] 8 taxmann.com 45 (COCH) - Assessee-company set up a 100 per cent export oriented undertaking by taking on sub-lease 4000 sq.ft. Built up area from STPL which held leasehold rights in total area of 6000 sq.ft.- STPL also leased out plant and machinery to assessee-company in excess of statutory limit of 20 per cent - Both companies manufactured same product i.e., computer software and sold same to a particular company abroad - Even employees of both companies, who represented human capital were headed by same functional head -Whether, on facts, it could be concluded that assessee's undertaking stood formed almost wholly by transfer of resources, including plant and mach....
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...., enacted after the end of both the relevant assessment years can come to the rescue of the assessee, which is the finding of the Tribunal. [Para 3] On going through the provisions of section 10A and the provisions of the Special Economic Zones Act, the order of the Tribunal could not be upheld because the concept of deemed export under the Special Economic Zones Act is not incorporated in the scheme, of exemption under section IOA and it is the settled position that the Act is a self-contained code and the validity or correctness of the assessment has to be considered with reference to statutory provisions. It is not as if the Special Economic Zones Act or (he Foreign Exchange Regulation Act. 1973 or the Foreign Exchange Management Act, 1999 are not referred to in the Act. The Act refers to several statutes in different places and wherever required, provisions of such statutes are incorporated in the Act through reference 01- by incorporation. It is not as if the Parliament is Unaware of other statutes which have specific purposes, Inter-unit transfers in Economic Zones are treated as exports for the purpose of the Customs Act and the Central Excise Act. 1944. However, when sect....
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....214 (HYD.) -Whether in order to avail deduction under section 10B sale proceeds must be receivable in convertible foreign exchange - Held, yes - Whether sale proceed received in convertible foreign exchange means 'actual receipt' and not deemed receipt - Held, yes - Whether if that object is kept in mind, amount received by an assessee in form of investment in equity shares in foreign exchange cannot be considered to be received in form of convertible foreign exchange - Held, yes - Whether merely because an assessee takes permission from RBI to receive foreign exchange in form of equity investment it does not lead to conclusion that assessee has received export proceeds in foreign exchange, as RBI has no role to play to suggest whether any investment/income for capitalization of expenditure is genuine or otherwise in terms of section 10B - Held, yes - Whether, therefore, an assessee would not be eligible for benefit of section 10B on such investments - Held, yes IV. In the case of Wipro Ltd. v. Dy.CIT, 143 ITD 1 (Bang.)(Trib.) it was held that "The assessee software company carried out deemed exports by raising bills on local parties and received sale proceeds in converti....
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....s,12,21,55,000/- during the year and not exported goods directly outside India and nor earned foreign currency in reference of export and the whole amount of sales proceeds belong to local sales to domestic parties. In view of the facts, it is cleared that the assessee is not fulfilled basic required terms & conditions for claiming deduction u/s 10AA of the income tax Act and the assessee not eligible for claiming deduction u/s10AA of the Income Tax Act and claimed amount of deduction found totally wrong footing and accordingly the claimed amount of deduction u/s 10AA of Rs.1,49,72,275/- is hereby disallowed and added back to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal before the Ld.CIT(A) who allowed the appeal of the assessee by observing as under: 4. Decision: I have considered the facts mentioned in the assessment order and the submission of the appellant carefully together with the legal decisions relied upon. Since all the three grounds of appeal are inter connected / inter related, all of them are taken together. In the original return of income filed by the appellant on 30/09/2015, deduction u/s. 10AA of the Act was not claimed through ....
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....yes." In another judgment of [2012] 25 taxmann.com (Mumbai - Trib.), ITAT Mumbai Bench 'D1, in the case Of Rachana S. Talreja v. DCIT has held "The assesses, after filing the original return of income, subsequently filed the revised computation of income claiming deduction on account of interest income. The Assessing Officer ignored the revised computation of income and made the assessment as per the original return of income. The Commissioner (appeals) confirmed the action of the assessing officer. Held that the issue was restored to the file of the Assessing Officer with a direction to consider the revised computation of income filed by the assesses." In view of the ratio laid down in above case laws, the claim through revised return of income to get deduction u/s.10AAis bonafide and admissible. Further, the Audit report in Form No. 56F has been obtained by the appellant which has been filed with the AO during the course of assessment proceedings. Regarding the second reason given by the AO about conversion of the existing unit and thereby violation of the provisions of Sec. 10AA, it is seen that initially, M/s. Vishnu Export was established as 10 per cent export oriented....
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....dings used in clause (iii) of section 10AA(4) of the Act, it is seen that the condition of used plant and machineries applies at the time of formation of the eligible undertaking / unit and this view is supported by the ratio laid down by the Hon'ble ITAT, Rajkot Bench in the case of DCIT Vs. M/s. Choice Sanitaryware Industries (ITA No. 274/rjt/2008 - AY 2005-06 - Order dated 23/12/2010). As regards the legal decision in case of Income Tax Officer Vs. Stablix Solutions (P.) Ltd. (2010) 8 Taxmann.com 45 (Coch.) relied upon by the AO, it is seen from the said decision that it was rendered in the context of deduction u/s. 10B of the Act and further, in the said case the assessee has taken on lease not only the premises but also the plant and machinery which were in excess of 20% statutory limit Thus, on the facts of the said case, the instant case stand differentiated therefore, said decision relied upon by the AO is not applicable. So far as the third reason i.e. sales proceeds must be brought in India in foreign exchange, given by the AO, the AO has observed that the appellant has not ") brought in India the convertible foreign exchange since the appellant has sold the goods to ....
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....of export laid down in SEZ Rules 2006 are duly observed, verified and authenticated by KASEZ authorities which proves beyond doubt that KASEZ authorities have also accepted that the goods manufactured by the appellant firm as goods exported as per the permission granted to establish the Unit in KASEZ. In support of the contention that deemed export is eligible for the deduction u/s. 10AA of the Act, the appellant firm has relied upon the decisions of jurisdictional ITAT, Ahmedabad Bench in the case of Gokul Overseas Vs. AC!T (ITA No. 1028/Ahd/2013 - AY 2009-10 - Order dated 30/08/2016). I have gone through the said decision, and find that the ratio laid down in the said judgment is squarely applicable to the case of the appellant firm. In its entirety, the appellant firm has duly established that it has fulfilled all the conditions laid down u/s. 10AA of the Act and therefore, the disallowance of claim u/s. 10AA of the Act of Rs. 1,49,72,271/- made by the AO is not sustainable in law. Accordingly, the AO is directed to allow the claim of deduction u/s. 10AA the Act of Rs.1,49,72,271/-. The grounds No. 1 to 3 of appeal are decided accordingly. 6. Being aggrieved by the order of the....
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....ded that the Audit Report in form 56F was filed during the assessment proceedings which is the sufficient compliance for claiming deduction u/s 10AA of the Act. Similarly, there is no prohibition for claiming the deduction u/s 10AA of the Act, upon conversion of its status i.e. conversion of proprietorship firm into partnership firm. 8.2 Similarly, the Ld. AR also contended that at the time of formation of industrial undertaking, there were available sufficient plant and machineries with it. Therefore, the assessee cannot be denied the benefit of deduction u/s 10AA of the Act on acquiring certain asset on lease. The Ld. AR further submitted that SEZ Rules 2006 permits to make deemed export to the merchant exporter which is equivalent to export sales only. As per the Ld. AR, the assessee has made sales to the merchant exporter who in turn has exported goods to the foreign parties. The Ld. AR in support of his contention has filed details as under: "Name of the assessee" appears as "supplier/manufacturer" in the invoice raised by assessee and further, it has been mentioned as "on account of exporter" and the name of exporter has been mentioned. "Name of consignee" in invoice is ....
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....inclined to repeat the same for the sake of brevity and convenience. The following controversies arise for our adjudication: i. Whether the deduction can be claimed under the provisions of section 10AA of the Act in the revised return of income? ii. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on account of furnishing the audit report in form 56F during the assessment proceedings? iii. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act upon the conversion of its status i.e. proprietorship conversion into partnership firm? iv. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on the reasoning that the machineries were acquired on lease? v. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on account of non-remittance of convertible foreign exchange on account of the non-exports? 10.1 As regards the 1st controversy, we note that the provisions of subsection (5) of section 139 of the Act entitles the assessee to file the revise return of income if there is any omission or any wrong statement in the return filed u....
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....3 wherein it was proposed to file the return of income within the due date as specified under section 139(1) of the Act for claiming the benefit of the deduction under section 10AA of the Act which is effective from 1 April 2024 for the assessment year 2024-25. The relevant extract of the amendment is reproduced as under: 6. In section 10AA of the Income-tax Act, with effect from the 1st day of April, 2024,-- (a) in sub-section (1), after clause (ii) and before the Explanation, the following proviso shall be inserted, namely:-- "Provided that no such deduction shall be allowed to an assessee who does not furnish a return of income on or before the due date specified under sub-section (1) of section 139."; 10.5 It is important to note that the AO in his order has made reference to the order of the ITAT in the case of M/s Saffire Garments Vs. ITO 151 TTJ 114 wherein it was provided that the deduction cannot be claimed under section 10A of the Act if the return of income has not been filed within the time specified under section 139(1) of the Act. But undeniably the assessee has not claimed any deduction under section 10A of the Act. Therefore, we are of the view that no refere....
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....fit of deduction upon the change of the status of the assessee i.e. conversion of proprietorship into the partnership firm. The Hon'ble Madras High Court in the case of CIT vs. Heartland KG Information Ltd reported in 359 ITR 1 dealing with identical situation held as under: 7. Given the fact that the findings of the Tribunal is that the entire business of M/s.KGISL stood transferred to the assessee and that the assessee is also recognised to have had its industrial unit, in the Software Technology Park, we have no hesitation in confirming the order of the Tribunal in granting the relief to the assessee under Section 10B. Consequently, the first question of law is answered against the Revenue. 8. As far as the second question of law as to whether the Tribunal was right in sustaining the order of the Commissioner of Income Tax (Appeals), that the assessee had not satisfied the provisions under Section 10A(2)(iii) of the Act to claim the deduction under Section 10A, is concerned, the factual position has already been pointed out that the assessee had the entire medical transcription transferred to its favour, a fact which would not be controverted by the Revenue at any stage. Con....
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.... in the appeal. 10.11 From the above, there remains no ambiguity to the fact that the assessee cannot be denied the benefit upon the conversion from the proprietorship concern to the partnership firm. Likewise, there was also no allegation of the AO that the present assessee came into existence after splitting up or the reconstruction of the existing business or undertaking. It is for the reason that there is no violation of the conditions applicable for claiming the deduction under section 10AA of the Act. 10.12 The next controversy arises whether the assessee can be denied the benefit of the provisions of section 10AA of the Act if certain machineries were acquired by it on lease. First of all, it is seen that there were Plant and Machineries available with the assessee amounting to Rs. 1,49,36,541/- as evident from the audited financial statement placed on page 10 of the paper book. Furthermore, the use of the plant and machinery should be seen at the time of formation of the eligible undertaking. At the time of formation of the undertaking, there was no violation of the provisions of section 10AA of the Act. In holding so, we rely on the order of order of ITAT in the case of ....
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....Tempo Ltd cited supra, the Hon'ble Apex Court held that the restriction would come into picture to deny the deduction only if the second hand asset results in formation of the undertaking. In the instant case there is no formation of an undertaking. The facts and circumstances in the case of Laxmi Packers (14 SOT 303) dealt by the Mumbai Tribunal are pari material to the case on hand. The Hon'ble co-ordinate bench has held that the prohibition in clause (ii) to sub section (2) of section 80IB is only with regard to purchase and use of any second hand machinery at the time of formation of the industrial undertaking and not purchase and use of machinery after the formation of the industrial undertaking. In yet another decision in the case of Pembril Indl & Engg Co (P) Ltd vs DCIT cited supra, the "D" Bench of the Mumbai Tribunal held that though previously used plant and machinery has been used in the new unit, there being no transfer of plant and machinery, the deduction u/s 80-IA / 80-IB cannot be denied. 10.13 Likewise, the order referred by the AO in the assessment is distinguishable from the facts of the case. In the case referred by the AO, the assessee has taken not only the ....
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....n was proved by another division bench of this court in the case of Metal Closures Steel Ltd. (supra), which has been affirmed by the Supreme Court. In view of aforesaid enunciation of law, it is evident that the appellant is entitled to benefit of deduction under section 10B of the Act in respect of export made to third parties and inter unit transfers. 10.15 The above reasoning is further strengthened by the Finance Bill 2023 wherein it was proposed to specify the time limit for bringing consideration against exports proceeds into India for claiming the benefit of the deduction under section 10AA of the Act which is effective from 1 April 2024 for the assessment year 2024- 25. The relevant extract of the amendment is reproduced as under: 6. In section 10AA of the Income-tax Act, with effect from the 1st day of April, 2024,-- (a) ***** (b) after sub-section (4), the following shall be inserted, namely:-- ' (4A) This section applies to a Unit, if the proceeds from sale of goods or provision of services is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such furt....