TaxTMI 
TaxTMI 
2023 (4) TMI 105
X X X X Extracts X X X X
X X X X Extracts X X X X
....law and on tacts in holding that filing of return within due dale is not a pre-requisite condition for 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 Off....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder section 139(1) is mandatory then other consequences cannot be held to be directory and the same is also mandatory. II. CONVERSION OF EXISTING UNIT In the assessee'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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are not satisfied because assessee's sales of components are to another industrial unit in India and the sale proceeds are received in Indian rupee. The question, therefore, is whether provisions of another statute, that too, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....] 336 ITR 189 (AP)- Assessment year 2007-08 - Delivery of goods to a foreign buyer in India does not amount to export. * Assistant Commissioner of Income-tax, Range 1, Hyderabad VS. Bodhtree Consulting Ltd. [2010] 41 SOT 230 (HYD.) / [2010] 134 TTj 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 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Rs.1,49,72,275/- in the Revised Return of Income filed on 19-01-2017 without filing online required reports, documents & Form, No. 56F along with e-return of income; Fourthly, the assessee has execute Sales transactions with three domestic parties for total sale proceeds of Rs,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 appel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see voluntarily files a revised return after 1- 4-1962, assessment must be completed by virtue of clause (b) of section 297(2) of 1961 Act in accordance with procedure specified in Act of 1961 - Held, yes - Whether therefore, assessment in question was validly made under section 143(3) - Held, 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 appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the manufacturing, which has not been disputed by the AO in the assessment order. Further, from the perusal of the provisions of section 10AA of the Act, it can be seen that by taking the packing machines on lease, there is no violation / contravention of any of the conditions of said section. Further, from the wordings 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in KASEZ. Further, since the appellant firm is a 100 per cent export oriented unit established in the SEZ (in the present case KASEZ), it cannot sell the manufactured goods in local market of India. Thus, the goods sold to merchant exporters have ultimately been exported as per the SEZ Rules 2006 and the procedure 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 there....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction u/s 10AA of the Act. It was also pointed out by the Ld. AR that it has been proposed to by way of amendment in the Finance Bill, 2023 to file the return of income within the due date specified u/s 139(1) of the Act, but such amendment is not applicable in the year under consideration. 8.1 The Ld. AR likewise, contended 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 good....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herefore the assessee cannot be denied for deduction on the reasoning that the foreign convertible currency was not brought to the Country. 9. Both the Ld. DR and the Ld. AR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute with respect to the facts of the case which have been elaborated in the preceding paragraph, therefore we are not 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 sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of income within the time specified under section 139(1) of the Act for claiming the deduction. Thus, in the absence of any specific provision under the provisions of section 10AA of the Act to file the return of income within the provisions of section 139(1) of the Act, the assessee cannot be deprived of the benefit granted under the statute for the deduction under the provisions of section 10AA of the Act in the given set facts and circumstances. 10.4 The above reasoning is further strengthened by the Finance Bill 2023 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laimed in the revised return of income. Thus, the revenue fails on this reasoning also. 10.9 The 3rd controversy arises whether the assessee is not eligible for deduction under section 10AA of the Act in the event it is converted from proprietorship concern into partnership firm. Admittedly, the conversion of proprietorship concern into partnership firm was duly approved by the SEZ authorities which is evident from the details placed on pages 90 to 92 of the paper book. There is no prohibition under the provisions of section 10AA of the Act to deny the benefit 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nted to the undertaking. In this view of the matter, the Tribunal was justified in holding that the assessee is entitled to get exemption under Section 10-A of the Act, 1961. The argument of the learned counsel for the department that since the proprietorship has been converted into partnership, therefore, this disentitles the assessee to claim benefits under Section 10-A of the Act,1961 does not borne out either from the plain language of sub-sections (9) and (9A) of Section 10-A of the Act, 1961 or in view of the Circular of the CBDT referred to above. No substantial question of law is involved 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 benef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r plant previously used for any purpose". In the case on hand, the assessee firm was already in existence since 1990 and was availing deduction u/s 80IB since then. Therefore, it cannot be said that "it is not formed by the transfer to a new business of machinery or plant previously used for any purpose". It can also not be said that by acquiring some of the assets on lease for a fixed period, which were used by the sister concerns, the assessee has taken over the business of the assessee's sister concern. As such, the question of maintaining two separate sets of books for production does not arise. In the case of Bajaj 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be complied with. It is pertinent to mention here that in International Stones India (P.) Ltd. case (supra), a division bench of this court has held that a narrow and pedantic approach cannot be applied in construing the words "by an undertaking" and restricting the benefit under section 10B of the Act only in respect of direct export of such goods manufactured by such units. The deemed export by the assessee undertaking even through third party who has exported such goods to foreign country and has fetched foreign currency for India still remains a deemed export in the hands of the assessee undertaking also. The aforesaid decision 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 ....