TaxTMI 
TaxTMI 
2026 (4) TMI 1700
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....ke of convenience both the matters were heard together and are being disposed of vide this consolidated order. We shall first take up the appeal in ITA No.840/Ahd/2023 for Asst. Year 2017-18. 2. Brief facts of the case is that the assessee is a company and filed its return of income for the Asst. year 2017-18 on 30.11.2017 and declared loss at Rs. (-) 5,17,22,470/-. The case was selected for scrutiny under CASS and assessment order u/s. 143(3) of the Act was passed on 20.12.2019 determining the income of the assessee at Rs.6,82,26,068/- by making following disallowances: a. Deduction u/s.10A/10AA of the Act Rs.6,20,88,783 b. Late payment of ESI & PF Rs. 3,32,755 c. Sundry balance written off u/s.36[2] Rs. 24,40,000 d. Bad Dets written off u/s.36[2] Rs. 1,52,89,000 e. Remission liability u/s.41[1] Rs. 3,84,10,000 f. Fixed assets written off amounting to Rs. 13,88,000/= 3. Aggrieved against the assessment order the assessee filed an appeal before CIT[A] who partly allowed the appeal and partly confirmed the additions by observing as follows: a. Claim of Deduction u/s.10AA of the Act Rs.6,20,88,783/= "... 6.5. I have gone through t....
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.... 6.8 The appellant further stated that the AO didn't consider the sales within India in form of EPCG sales, EOU sales and Zone to Zone sales within the definition of export under section 10AA of the Act. The appellant company relied upon the decision of Hon'ble Tribunal in ITA No. 3342/Ahd/2010 dated 22.03.2016 and Hon'ble Gujarat High Court in Tax Appeal No. 1025 of 2017 in its own case. The decision rendered by Hon'ble Courts is related to deduction claimed under section 10A of the Act in respect of plant situated at SEZ in Surat. The facts of present case are different and AO has dealt the claim of assessee under section 10A as well as under 10AA of the Act. Therefore, reliance of appellant w.r.t. order of Hon'ble High Court in its case pertaining to claim u/s10A cannot be applied in instant facts. 6.9 I have gone through the facts brought out by AO in assessment order, details submitted by the appellant during appeal proceedings and case laws relied upon. The question in dispute is whether the appellant company exported the goods out of India within the definition of 'export' as envisaged under section 10AA of the Act and therefore had....
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....n'ble Courts (supra) the AO rightly treated the exports made in India as deemed export and rejected the claim of deduction of the appellant under section 10AA of the Act. The appellant failed to substantiate that exports were made otherwise rather than EPCG sales, EOU sales and Zone to Zone Sales, which are not actual exports, out of India and therefore didn't receive foreign convertible exchange during the year under consideration. The rejection of claim of deduction under section 10AA of the Act made by the AO is upheld. This ground of appeal is dismissed." b. Late payment of ESI & PF Rs. 3,32,755 "... 7.3. I have gone through the facts of the case and the details submitted by the appellant during appellate proceedings. The assessee argued that the contributions were paid before filing of return of income. The assessee also emphasized that PF site was not working properly due to certain changed introduced, additional five days grace period was given to the employers and were allowed to deposit the contribution upto 20th January 2017. The assessee submitted the copy of circular issued by Employment Provident Fund Organisation dated 12.01.2017. The AO i....
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....uced any averments in this regard. Further, as per provisions of section 36(1)(vii) the bad debt shall be allowed if it is written off as irrecoverable in the accounts of the assessee in the previous year. Moreover, the decision in the case of TRF Ltd by the Hon'ble Supreme court had settled the issue forever. There is no scope for dispute about the claim of the appellant that the same is written off in the books of accounts. There is no necessity to take efforts to recover the amount. All the conditions for allowability for bad debts are fulfilled. Therefore, this ground of appeal is allowed." e. Remission liability u/s.41[1] Rs. 3,84,10,000 11.1 ....the addition of Rs.3,84,10,000/- under section 41(1) of the Act. Brief facts of this ground is that the appellant had a German subsidiary namely Sahajanand Laser Technology GmbH. The appellant company invested Rs.364.47 lakhs in the said subsidiary. The appellant company acquired patents right from its German subsidiary for an amount of Rs.384.10 lakhs. The said amount was set off against the investment made in German subsidiary and profit of Rs.19.43 lakhs were shown in Exceptional Items. The AO concluded that the app....
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....nst the appellate order, the assessee is in appeal before us in ITA No.840/Ahd/2023 for A.Y. 2017-18 raising the following Grounds of Appeal: 1. The Learned C.I.T.(A) has erred in law and on facts of the case by disallowing the claim of Rs 6,20,88,783 claimed as deduction under section 10AA of the Act. 2. The Learned C.I.T.(A) has erred in law and on facts of the case by not allowing the deduction of employees' provident fund and ESI under section 43B of the Act and disallowed an amount of Rs.3,32,755/-. 3. The Learned C.LT.(A) has erred in law and on facts of the case by disallowing sundry balance written off amounting to Rs.24,40,000/- under section 36(1)(vii) r.w.s. 36(2) of the Act. 4. The Learned C.I.T.(A) has erred in law and on facts of the case by disallowing the fixed assets written off amounting to Rs. 13,88,000/- treating the same as capital expenditure instead of revenue expenditure. 5. Your Appellant reserves the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal. 5. Ld Counsel Ms. Arti N Shah appearing for the assessee submitted before us two Paper Books one with documents and material evid....
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....ssessee company has not earned convertible foreign exchange during the year nor it received any extension for time limit. Auditor has in his 'remarks' in column 18 of the report submitted as follows: "Receivable is not made available to us during the course of Audit and hence not reported here sales from SEZ against EPCG License is considered as export and sales proceeds received against EPCG License is in INR is also considered here." 7.1. The assessee could not place on record any new or additional evidence distinguishing the above report of the Statutory Auditor as incorrect. Thus, the judgement of the Gujarat High Court relied upon in its own case in Tax Appeal No. 1025 of 2017 and Tribunal's decision in ITA No.3342/Ahd/2010 dated 22.03.2016 are clearly not applicable to the facts of the present case, since the decision rendered by Hon'ble High Court is related to deduction claimed under section 10A of the Act in respect of plant situated at SEZ in Surat. Whereas the facts of present case are different and Ld AO has dealt the claim of assessee both u/s.10A as well as u/s. 10AA of the Act. Therefore, reliance made by the assessee cannot be applied in the instant ....
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....or Developer, in the same or different Special Economic Zone; 4.13. The contention of the assessee is that this definition has an overriding effect over the definition of "export" as given in the Income Tax Act. The provision of Section 51 of the SEZ Act stipulates the overriding effect as under: 51. (1) The provisions of this 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. 4.14. The provision of Section 27 of the SEZ Act stipulates that the provision of Income Tax Act shall apply with certain modifications in relation to developers and entrepreneurs. The said Section is reproduced below: 27. The provisions of the Income-tax Act, 1961, as in force for the time being, shall apply to, or in relation to, the Developer or entrepreneur for carrying on the authorised operations in a Special Economic Zone or Unit subject to the modifications specified in the Second Schedule. 4.15. The modifications to the Income Tax Act were specified in Second Schedule of SEZ Act, whereby the provision of Sec....
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....it of deduction u/s.10AA of the Act. Whereas in the present case, the assessee could not prove any foreign exchange received by it on the EPCG Sales, EOU Sales and Zone to Zone sales therefore not entitled for deduction u/s.10AA of the Act. Similarly the Karnataka High Court judgement in the case of Granite Mart Ltd [cited supra] is claim of deduction u/s.10B on the deemed export made through third party export houses and interunit transfers, who has furnished Form 56G per Rule 16E was granted the benefit of deduction u/s.10B of the Act. Similarly in the case of Preludesys India Ltd, Madras High Court considered that the assessee therein exported the goods outside India and realized the foreign exchange with the Software Technology Park [STP] unit and thereby granted deduction u/s.10A of the Act. Whereas in the assessee case it is crystal clear from Audit Report that assessee company has not earned convertible foreign exchange during the year nor it received any extension for time limit as reported in Form 56F by the Auditor, thus the assessee is not eligible for deduction u/s.10AA of the Act. Therefore, the Ground No.1 raised by the assessee is devoid of merits and liable to be di....
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.... 30% from MNRE as subsidy receivable. The amount of Rs.17,40,083/= is the amount remaining unpaid by the MNRE which is not recoverable and therefore written off. The assessee company also failed to submit the details of scheme of Ministry of New and Renewable Energy under which the assessee was supposed to receive subsidy and the reason for not receiving the remaining subsidy amount of Rs.17,40,083/-. Thus the assessee company failed to submit that the subsidy was actually transferred to consumers which were receivable from Ministry of New and Renewable Energy. 9.3. Regarding the sundry balance written off of Rs.5,39,983/-, the assessee submitted this amount consists of material payments written off in respect of which bills were raised earlier and shown as outstanding creditors and the copy of ledger account of sundry balance written off for the FY 2016-17. However, the appellant failed to provide the party wise ledger account and relevant supporting documents to substantiate the genuineness of the claim. Therefore, the Ld AO rightly disallowed the sundry balance written off aggregating to Rs 24,40,000/- under section 36(1)(ii) r.w.s. 36(2) of the Act and added back to the tota....
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.... disallowing of bad debts are stated by the AO that the assessee company is written off loans and advances and not debtors of goods. The AO referred the case of Dhall Enterprises and Engineers (P) Ltd of Gujarat High court. The AO has further referred various decisions of ITAT Delhi, Hon'ble Supreme Court, Madras High Court and ITAT Mumbai. The AO further referred to the provisions of section 36(2) of the Act and concluded that the conditions for section 36(2) does not get fulfilled u/s.36(1)(vii) of the Act and therefore, the amounts cannot be considered as an allowable bad debt. Whereas the Ld CIT[A] held that as per provisions of section 36(1)(vii) of the Act bad debt shall be allowed if it is written off as irrecoverable in the accounts of the assessee in the previous year as held by the Hon'ble Supreme Court in the case of TRF Ltd which is settled the issue forever and deleted the addition. We do not find any infirmity in the order passed by Ld CIT[A] who has followed Apex Court judgement and there is no merits in the ground raised by the Revenue and Ground No.2 is hereby dismissed. 15. Regarding Ground No.3 namely deleting the addition of Rs.3,84,10,000/- made on accou....
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....xport turnover realized in foreign currency as 'Zero'. Hence a show cause notice dated 09-03-2021 and draft assessment order issued as to why not disallow the claim of deduction u/s.10AA of the Act. In reply the assessee filed a Revised Form 56F on 15-03-2021 and submitted that the delay in getting details of foreign exchange was due Covid-19 pendamic situation and claimed except the payment of Rs.13,70,000/= was not realized within six months of the export of goods. The above explanation was not accepted by the Ld AO and denied the claim of deduction u/s.10AA of the Act of Rs.4,83,31,169/= and added as the income and also initiated penalty proceedings under section 270A of the Act for under reporting of income. 18. Aggrieved against the assessment order the assessee filed an appeal before CIT[A] who confirmed the addition made by the AO by observing as follows: "... 6.3. I have gone through the facts of the case and submission filed by the appellant. During appellate proceedings, the appellant company submitted that it is engaged in the business of manufacturing of laser system for material processing and others. The dispute arose from the Form 56F wherein Export proce....
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.... to note that the provisions of section 10A(5) are very clearly and unambiguously worded so as to provide that the deduction shall not be admissible unless the assessee furnishes the report of the accountant in the prescribed form along with the return of income, before the specified date referred to in section 44AB, certifying that the deduction has been correctly claimed in accordance with the provision of the section. The language so employed in section 10A(5) of the Act does not leave any doubt that the requirement to furnish the audit report along with the return of income is a mandatory conditions for the admissibility of deduction. 6.7 In a recent decision dated 11.07.2022 in the case of Pr.CIT Vs. Wipro Ltd [2022] 140 com 223 (SC), the, Hon'ble Supreme Court held that while interpreting the provisions of section 10B(8) requiring a declaration to be filed before the due date for furnishing the return of income, that the twin conditions of furnishing the declaration to the AO and furnishing of the same before the due date for filing the return of income u/s.139(1) are mandatory and they cannot be treated as directory. The relevant portion of the said decision of ....
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....fied by construing the purely procedural time requirement regarding the filing of the declaration under section 10B(8) as being mandatory has no substance and that the exemption provisions are to be strictly and literally complied with and the same cannot be construed as procedural requirement. The relevant portion of the said decision of the Hon'ble Supreme Court is extracted as under: 10. Even the submission on behalf of the assessee that it was not necessary to exercise the option under section 10B(8) of the IT Act and even without filing the revised return of income, the assessee could have submitted the declaration in writing to the assessing officer during the assessment proceedings has no substance and the same cannot be accepted. Even the submission made on behalf of the assessee that filing of the declaration subsequently and may be during the assessment proceedings would have made no difference also has no substance. The significance of filing a declaration under section 10B (8) can be said to be co-terminus with filing of a return under section 139(1), as a check has been put in place by virtue of section 10B (5) to verify the correctness of claim of deducti....
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....me is erroneous and contrary to the unambiguous language contained in Section 108 (8) of the IT Act. We hold that for claiming the benefit under Section 108 (8) of the IT Act, the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under section 139(1) are to be satisfied and both are mandatorily to be complied with Accordingly, the question of law is answered in favour of the Revenue and against the assessee. The orders passed by the High Court as well as ITAT taking a contrary view are hereby set aside and it is held that the assessee shall not be entitled to the benefit under Section 108 (8) of the IT Act on noncompliance of the twin conditions as provided under Section 108 (8) of the IT Act, as observed hereinabove. The present Appeal is accordingly Allowed. However, in the facts and circumstances of the case, there shall be no order as to costs." 6.9 As per sub-section (5) of section 10A in relation to the deduction specified in section 10AA(1) of the Act, the assessee is required to furnish the report of the accountant in the prescribed form along with the return of income, ....
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....e no doubt that to avail deduction u/s 10AA of the Act that the convertible foreign exchange must be remitted within six months from the end of the previous year. ... ... ... 6.13 Hence, by respectfully following the decision of Hon'ble Apex Court (supra) and considering the facts and circumstances of this case it is held that the requirement to furnish the audit report in Form 56F along with the return of income is a mandatory requirement and not a directory requirement. The appellant furnished the audit report in Form 56F along with the return of income, which is an undisputed fact. The information sought in Form 56F was available with the appellant while preparing report under section 10AA of the Act under Rule 16D of Income Tax Rules, 1962. Thus, the plea of the appellant that due to time constraint for filing Form 56F and Return of income the details of foreign exchange could not be verified is not acceptable. As held in the decision of Hon'ble Apex Court (supra) the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under section 139(1) are to be satisfied ....
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....cted the claim of the assessee on various other technical grounds. Further the Auditor certified except the payment of Rs13,70,000/= all other payments were received in foreign exchange mode within six months period. This submission of the assessee was not verified by the Lower Authorities, which in our considered view is against the Principle of Natural Justice, specially, immediate after the Covid-19 Pandemic period. Therefore, the orders passed by the lower Authorities are hereby setaside with a direction to the Jurisdictional Assessing Officer to give one more opportunity of hearing to the assessee company, to explain its claim of deduction u/s.10AA of the Act and receipt of payments through foreign exchange mode within six months period as claimed in revised Form 56F. Needless to say that the assessee company should make use of this final opportunity and produce all necessary details before the JAO to pass fresh assessment order on merits of the case. Thus the Ground Nos.1 to 3 are hereby allowed for statistical purpose and Ground No.4 is consequential and does not require separate adjudication. 21. In the result the appeal filed by the assessee in ITA No.841/Ahd/2023 is Al....