TaxTMI 
TaxTMI 
2026 (1) TMI 245
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....ppeal: "1. The Learned Commissioner of Income Tax (Appeals)-8, Ahmedabad has erred in law and on facts of the case in confirming the disallowance of the claim of Appellant company amounting to Rs. 5,75,75,376/-under the head of deduction u/s. 10AA. 2. The Learned Commissioner of Income Tax (Appeals)-8, Ahmedabad has erred in law and on facts of the case in confirming the disallowance of the claim of Appellant company amounting to Rs. 3,23,18,236/-under the head of deduction u/s. 35(2AB). 3. The Learned Commissioner of Income Tax (Appeals)-8, Ahmedabad has erred in law and on facts of the case in confirming the disallowance of the claim of Appellant company amounting to Rs. 24,77,999/-under the head of disallowance u/s. 14A. 4. The Learned Commissioner of Income Tax (Appeals)-8, Ahmedabad has erred in law and on facts of the case in confirming the disallowance of the claim of Appellant company amounting to Rs. 17.43.239 under the head of disallowance out of interest expenses. 5. The Learned Commissioner of Income Tax (Appeals)8,Ahmedabad has erred in law and on facts of the case in confirming the disallowance of the claim of Appellant com....
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....hich debarred allowing of any deduction under the Section for the assessment year beginning 1st April, 2012 and subsequent years. The Ld. AR submitted that as per provision of Section 10A of the Act, the assessee was entitled to claim deduction in respect of its export profit for a period of ten consecutive assessment years beginning with the assessment year in which the manufacturing had commenced. She contended that the legislature's intent cannot be to restrict the deduction for the unexpired period to the assessee. In this regard, she had drawn our attention to provision of Section 10A(7B) of the Act and Proviso to Section 10AA of the Act, as per which the assessee was entitled to claim deduction u/s. 10AA of the Act for the unexpired period. She explained that both the provisions were introduced by the SEZ Act 2005, which had an overriding effect of all other laws. She also relied upon the decision of Co-ordinate Bench of Chennai Tribunal in the case of Classic Linens International (P.) Ltd. vs. DCIT, [2020] 113 taxmann.com 590 (Chennai-Trib.) in this regard. 4.2 Ld. AR has drawn our attention to the findings given by the AO in the assessment order, wherein he had considere....
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....viso to Section 10A of the Act categorically debars deduction u/s. 10A of the Act w.e.f. A.Y. 2012-13 onwards. The said Proviso reads as under: Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years. 4.5 The fact that the assessee had set up a unit in SEZ, Surat and had commenced manufacturing from A.Y. 2004-05 is not under dispute. Accordingly, the assessee was allowed deduction u/s. 10A of the Act for A.Ys. 2004-05 to 2011-12 for eight years. As per provisions of Section 10A of the Act, the assessee was entitled for deduction for ten consecutive assessment years. Accordingly, the assessee had claimed alternative deduction u/s. 10AA of the Act in respect of the two unexpired years i.e. for A.Ys. 2012-13 & 2013-14. The assessee has relied upon the provisions of Section 10A(7B) of the Act and Section 10AA of the Act for the alternative deduction u/s. 10AA of the Act. These provisions are reproduced below: (7B) The provisions of this section shall not apply to any undertaking, being a Unit referred to in clause (zc) of section 2 of the Special Econ....
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.... shall be allowed only if the following conditions are fulfilled, namely :- (a) the amount credited to the Special Economic Zone Re-investment Reserve Account is to be utilised- (i) for the purposes of acquiring machinery or plant which is first put to use before the expiry of a period of three years following the previous year in which the reserve was created; and (ii) until the acquisition of the machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India; (b) the particulars, as may be specified by the Central Board of Direct Taxes in this behalf, under clause (b) of sub-section (1B) of section 10A have been furnished by the assessee in respect of machinery or plant along with the return of income for the assessment year relevant to the previous year in which such plant or machinery was first put to use. (3) Where any amount credited to the Special Economic Zone Re-investment Reserve Account under clause (ii) of sub-section (1),- (a) has been utilised for....
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....ction from income as provided in clause (ii) of sub-section (1) with effect from the 1st day of April, 2006. ....... 4.6 Both Section 10A(7B) as well as Section 10AA of the Act was introduced by the SEZ Act, 2005 w.e.f. 10.02.2026. Section 10A(7B) mandates that provision of Section 10A shall not apply to any undertaking being a unit referred to in Section 2(zc) of the SEZ Act, 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after 01.04.2006, in any Special Economic Zone. The unit referred in Clause (zc) of Section 2 of SEZ Act, 2005 is defined as under: (zc) "Unit" means a Unit set up by an entrepreneur in a Special Economic Zone and includes an existing Unit, an Offshore Banking Unit and a Unit in an International Financial Services Centre, whether established before or established after commencement of this Act; [Emphasis supplied.] 4.7 As per this definition, any unit located in SEZ whether established before or established after the commencement of the SEZ Act is covered as an eligible unit. Thus, the assessee's unit located in SEZ ....
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..... Thus this Act of 2005 brought within its fold not only newly set up SEZ's or units in SEZ which are set up post commencement of this Act of 2005 but also bring within its fold existing SEZ's or Units in SEZ which were in existence at the time when this new Act of 2005 came into force. Section 51 of the Act of 2005 stipulates that the provisions of the 2005 Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. Section 44 of the 2005 Act stipulates that all the provisions of this Act (except section 3 and 4) shall, as far as may be apply, to every existing Special Economic Zones. Section 27 of the 2005 Act stipulates that the provisions of the 1961 Act, as in force for the time being, shall apply to, or in relation to, the Developer or entrepreneur for carrying on the authorized operations in a Special Economic Zone or Units subject to the modification specified in the Second Schedule. Section 10AA was incorporated in Second Schedule to the 2005 Act and through it got included in the 1961 Act effective from 10.02.2006 and simult....
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....ertaking being unit shall be entitled to deduction referred to in this subsection only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in clause (ii) of Sub-section (1) of section 10AA of the 1961 Act. We have already seen that provisions of section 10AA(1) of the 1961 Act is subject to provisions of other sub-sections of section 10AA of the 1961 Act. The section 10AA(1) provides for deduction for a total period of 15 years, first 5 years deduction is provided @100% of profits derived from exports, while for rest ten years deduction is provided @50% of profits derived from exports subject to fulfilment of conditions as are stipulated u/s 10AA of the 1961 Act. As we have observed that by insertion of sub-section 7B to section 10A, the entire units in SEZ which were existing on or before commencement of SEZ Act were taken out from applicability of section 10A and new regime of section 10AA was made applicable even to existing units in SEZ. The first proviso clearly stipulates that the existing SEZ units which begun to produce or manufacture articles or things in old regime will be entitled for dedu....
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....deduction for ten consecutive assessment years on the date of introduction of section 10AA, as was available to them u/s 10A of the 1961 Act on commencement of SEZ Act, 2005 and thus these SEZ units shall be entitled for deduction for further period of 5 years beyond period of ten consecutive assessment years owing to newly inserted section 10AA of the 1961 Act keeping in view provisions of section 10AA(1)(ii) of the 1961 Act. Thus, vide our detailed discussions above, we hold that the assessee is entitled for deduction u/s 10AA(1)(ii) of the 1961 Act for the impugned assessment year, subject to fulfilment of other conditions for grant of deduction u/s 10AA of the 1961 Act. We order accordingly. 4.9 The facts of the present case is found to be slightly different than the facts as adjudicated by the Tribunal in the case of Classic Linens International (P.) Ltd. (supra). In that case the assessee had already claimed deduction u/s 10A for ten consecutive years whereas in the present case the issue is regarding deduction u/s 10A/10AA for the last two years of the ten consecutive years. As already discussed earlier the assessee was prohibited from claiming deduction u/s 10A of the Ac....
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....ted that as per definition of export given in Section 2(m) of SEZ Act, export means not only taking goods or providing services outside of India but also includes providing it to domestic tariff area or to another unit in SEZ. The Ld. AR contended that considering the inclusive definition of export under SEZ Act, the assessee was eligible for deduction u/s. 10AA of the Act in respect of EPCG sales, Zone-to-Zone sales and EOU sales as well. 4.11 On the contrary, the Ld. CIT-DR has relied upon the definition of export as given in Section 10AA of the Act and supported the order of the AO. 4.12 We have considered the rival contentions. As per Section 2(m) of SEZ Act, the export is defined as under: (m) "export" means - (i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or (ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or (iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone; 4.13 The contention of the as....
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.... of this position of law, the contention of the assessee that the goods supplied or services rendered to domestic tariffs area or to another unit in SEZ is also covered in the definition of "export" for the purposes of working out the deduction u/s. 10AA of the Act, is not found correct and is, therefore, rejected. At the same time, we deem it proper to set aside the matter to the file of Jurisdictional AO with a direction to allow the deduction for the A.Y. 2012-13 in accordance with the "export" as defined u/s. 10AA of the Act, after allowing an opportunity of being heard to the assessee. 4.18 The ground no.1 taken by the assessee is partly allowed for statistical purpose. 5. Ground No.2 : Disallowance u/s. 35(2AB) of the Act 5.1 The assessee had claimed deduction of Rs. 3,23,18,236/- u/s. 35(2AB) of the Act. In the course of assessment, the assessee had produced evidence in Form No.3CL that the research work was approved by DSIR. However, no certificate in Form No.3CL from DSIR was produced, which was a mandatory requirement for allowing the claim for deduction. Therefore, the AO had disallowed the claim of the assessee, which was upheld by the Ld. CIT(A). The Ld. AR of....
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....of the Act should be allowed. The contention of the assessee regarding alternative deduction u/s. 37(1) of the Act, was rightly rejected by the AO as the assessee did not forgo its claim of deduction u/s. 35(2AB) of the Act while making this alternate claim. 5.4 Ground No.2 taken by the assessee is allowed for statistical purposes. 6. Ground No.3: Disallowance u/s. 14A of the Act 6.1 In the course of assessment, the AO noticed that the assessee had made investment of Rs. 7,06,92,857/- is shares of foreign subsidiaries and Rs. 86,39,984/- in the shares of Indian subsidiaries. However, no disallowance u/s. 14A of the Act was made by the assessee. It was also noticed that the assessee had paid interest of Rs. 3,13,51,142/- during the year. The AO, therefore, made disallowance in respect of interest on funds deployed towards investment in shares of subsidiaries and also worked out half percent of average investment as per Rule 8D of IT Rules towards administrative expense. Accordingly, addition of Rs. 24,77,999/- was made u/s. 14A r.w. Rule 8D of the IT Rules. 6.2 The Ld. AR submitted that no fresh investment in the shares of subsidiaries was made during the year. Further, ....
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....the addition as made by the AO is deleted. 6.5 The ground taken by the assessee is allowed. 7. Ground No.4 : Disallowance of interest 7.1 In the course of assessment, the AO noticed that the assessee had given interest free loans and advances to the tune of Rs. 1,45,27,001/- to Sahajanand Laser Technology Ltd., USA and SLT Energy Ltd. It was also found that the assessee had paid interest of Rs. 3,49,07,372/- to the banking institutions and others for the loans obtained from them. According to the AO, the assessee could not prove the nexus between the interest free funds available and the interest free loans and advances. Therefore, the interest of Rs. 17,43,239/- @ 12% in respect of interest free loans and advances made by the assessee was disallowed u/s. 36(1)(iii) of the Act. 7.2 The Ld.AR submitted that the fact that the assessee had own funds far in excess of the interest free loans and advances was not considered by the AO. She further submitted that this issue was covered by the decision of the Hon'ble Gujarat High Court in assessee's own case, a copy of which was placed before us. On the other hand, the Ld. CIT-DR supported the order of the lower authorities. ....
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....ii) of the Act was called for. Accordingly, the addition of Rs. 17,43,239/- made u/s. 36(1)(iii) of the Act is deleted. 7.5 The ground No.4 of the assessee is allowed. 8. Ground No.5 : Employees Contribution to PF & ESIC 8.1 The AO had made addition of Rs. 4,35,032/- on account of belated payment of employee's contribution to PF & ESIC. The Ld. AR submitted that for the month of July 2011, the due date of payment was 15.08.2011, which was a closed holiday. The assessee had made payment on next working day i.e. on 16.08.2011. Therefore, the payment of Rs. 96,236/- made on 16.08.2011 cannot be held as belated payment. Regarding the balance amount, the Ld. AR fairly conceded that the issue is covered against the assessee by the decision of Hon'ble Supreme Court in the case of Checkmate Services Private Limited vs CIT (143 taxmann.com 178). 8.2 We have considered the submissions of the assessee. As rightly pointed out, the payment for the month of July 2011 made on 16th August cannot be held as belated payment, as the due date of 15th August was a closed holiday. Accordingly, the assessee is allowed relief to the extent of Rs. 96,236/- and the balance addition stands confir....
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....he details of bad debt to the extent of Rs. 1,86,38,014/- only and the details of balance amount Rs. 7,94,933/- was not furnished. In the absence of any detail, the AO had disallowed the bad debt claim to the extent of Rs. 7,94,933/-. 10.2 The Ld. AR submitted that the matter being old the assessee could not furnish the details in respect of bad debts of Rs. 7,94,933/- before the AO. She submitted that the details of this amount have since been retrieved and the same was furnished in the paper book filed before us. In view of the fresh evidences as filed by the assessee, the Ld. AR requested that the matter may be set aside to the AO for verification thereof and, thereafter, allowing the claim of the assessee. The Ld. CIR-DR had no objection to the proposal of the assessee. 10.3 We have considered the request of the assessee. The AO had disallowed this claim only for the reason that the details of bad debts of Rs. 7,94,933/- was not furnished. The assessee has now filed fresh evidence in this regard. We, therefore, deem it proper to set aside this matter to the file of the AO with the direction to verify the fresh evidence brought on record in respect of bad debt claim of Rs.....