TMI Blog2022 (4) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... e export proceeds pending realization has been realized within one year from the year end. This can be verified by the AO at the time of giving appeal effect to the order of the Tribunal. This issue of assessee s appeal is allowed as indicated above and the appeal of the assessee is allowed for statistical purpose. Disallowance made in regard to violation of provisions of section 40A(7) and sections 43A 43B - HELD THAT:- We noted that the AO while framing assessment has not reduced the telecommunication expenses from the total turnover of the assessee while reducing the same from the export turnover for the purpose of computation of deduction u/s.10A - CIT(A) excluded telecommunication expenses from export turnover as well as total turnover while computing eligible deduction u/s.10A of the Act. We noted that this issue is squarely covered by the decision in the case of CIT vs. GEM Plus Jewellery India Ltd.. [ 2010 (6) TMI 65 - BOMBAY HIGH COURT] and Sak Soft Ltd[ 2009 (3) TMI 243 - ITAT MADRAS-D] - Both the decisions categorically state that in case any item is reduced from the export turnover, the same has to be reduced from total turnover. Hence, we confirm the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee even now could not produce before us how the provision is made based on historical trend and a reliable estimate as held - Hence, we find that the claim made by the assessee is without any basis and the CIT(A) has rightly upheld the action of the AO. We dismiss this issue of assessee s appeal. - ITA Nos.: 1775 And 445/CHNY/2016 And ITA No.: 214/CHNY/2017 - - - Dated:- 31-3-2022 - Shri Mahavir Singh, Vice President And Dr. M.L. Meena, Accountant Member For the Assessees : Shri D. Anand, Advocate For the Revenue : Shri Guru Bashyam, CIT ORDER PER BENCH: These cross appeals in ITA Nos.1775/Chny/2016 214/Chny/2017 are arising out of the order of learned Commissioner of Income Tax (Appeals)-1, Chennai in ITA No.332/13-14/A-1 dated 20.10.2015 for the assessment year 2009- 10. The assessment was framed by the DCIT, Company Circle I(1), Chennai u/s. 143(3) of the Income Tax Act, 1961 (hereinafter the Act ) for the assessment year 2009-10 vide order dated 28.03.2013. 2. First, we will take up assessee s appeal in ITA No.1775/Chny/2016. The only issue in this appeal is as regards to the order of CIT(A) confirming the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 31.10.2014 against the assessee. The CIT(A) has negated the argument advanced by the assessee that the relevant circulars of RBI have removed this stipulation of 12 months period or extended period and that there is no time prescription of any time limit for realization of export proceeds by eligible units will not be of any benefit to the assessee. He noted that the deduction u/s.10A of the Act can only be allowed in accordance with the provisions of the Act and the Circular of RBI cannot override such provisions. For this, he placed reliance on the decision of ITAT, Cochin in the case of DCIT vs. IBS Software Services P Ltd., 129 ITD 21. Aggrieved, against the action of CIT(A) confirming the action of AO, assessee preferred second appeal before the Tribunal. 5. Before us ld.counsel for the assessee stated that exemption claim of assessee is in regard to the export proceeds pending realization amounting to ₹ 22,51,13,218/- which was not received as inward remittance during the stipulated time of six months from the end of the year. The ld.counsel for the assessee took us through the RBI Circular No.28 dated 30.03.2001 and he particularly referred to para 11, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regating to ₹ 22,51,13,218/- was pending realization as at the end of six months from the year end and in the cojoint reading of Circular No.28 dated 30.03.2001 and Circular No.91 dated 01.04.2003, it would reveal that the assessee would be entitled to exemption u/s.10A of the Act from six months to one year as the RBI, as competent authority, has relaxed the aforementioned time period of six months vide Circular No.28 and thereafter vide Circular No.91, time limit for realization and repatriation of export proceeds, for the exports made by the units in SEZs was extended. The ld.counsel also read out the provisions of section 10A(3) of the Act and read out further Explanation 1 and Explanation 2 for considering the decision of competent authority and deemed export proceeds and stated that CIT(A) has erred in not considering the provisions of section 10A(3) and Explanation 1 for the purpose that RBI is actually the competent authority for issuing directions in regard to realization of export proceeds. Accordingly, he asked the Bench to allow the claim of the assessee. 6. On the other hand, the ld.CIT-DR, Shri Guru Bashyam, relied on the Tribunals order in assessee s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod as the competent authority may allow. b) The Competent authority for the said purpose is referred to as Reserve Bank of India. c) The Reserve Bank of India, as competent authority, vide Circular No.28 dated March 30th 2001 has relaxed the aforementioned time period for bringing in the export proceeds from 6 months to 1 year and thereafter vide Circular No.91 dated 1st April 2003 time limit for realization and repatriation of export proceeds, for the exports made by units in Special Economic Zones (SEZs), was done away d) The Reserve Bank of India Vide Circular No. 108 dated 11.06.2013 imposed condition that the units located in SEZs shall realize and repatriate, full value of goods/software/services, to India within a period of twelve months from the date of export. Any extension of time beyond the above stipulated period may be granted by Reserve Bank of India, on case to case basis. 7.2 We noted that for the relevant assessment year no timeline has been referred for realization of export proceeds as per RBI guidelines for SEZ units but the RBI Circular Nos.28 91 are applicable and hence, the benefit u/s.10A of the Act should not be denied to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed above. 7.3 As pointed out by the ld.counsel for the assessee that in assessee s own case for assessment years 2005-06 to 2008-09 in ITA Nos.2200, 2201, 2267 to 2270/Mds/2013 supra, the Explanation 1 of section 10A(3) was never brought to the notice of Tribunal and even the RBI s Circulars were not placed before the Tribunal and hence, the Tribunal reached to a particular conclusion. In view of the above, we are of the view that the assessee is entitled for exemption for an amount of ₹ 22,51,13,218/- which was pending realized as at the end of six months from the year end, subject to verification by the AO whether the export proceeds pending realization has been realized within one year from the year end. This can be verified by the AO at the time of giving appeal effect to the order of the Tribunal. This issue of assessee s appeal is allowed as indicated above and the appeal of the assessee is allowed for statistical purpose. 8. Coming to Revenue s appeal in ITA No.214/Chny/2017. The first issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance made in regard to violation of provisions of section 40A(7) and sections 43A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly considered the facts in issue, the view taken by the AO, the arguments advanced by the appellant and material on record and find that the plea made by the appellant has to be upheld. The provisions u/s 10A provides for a deduction of such profits and gains as are derived by an undertaking from export of articles or things or computer software.......... The incomes which cannot be said to be derived from i.e., which do not have a direct nexus with the activity of the industrial undertaking do not qualify to be reckoned with while computing the deduction. In this case the appellant has correctly pointed that the disallowances preferred by the AO cannot be kept away from the profits and gains of business as the disallowances are under deeming fictions of the Income-tax Act. As per s.29, income and profits and gains of business or profession shall be computed in accordance with the provisions contained in s.30 to 43D. This view is also supported by the decision in Rajkumar Exports (supra) wherein it is held that the section 80IA is part of Chapter VI-A of the Act and the deduction is available from the 'profits and gains of business derived by an undertaking specified therein. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduct ion of TDS under law, such disallowance would ultimately increase assessee s profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: Income-tax Officer Ward 5(1) Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court. (NJRS-2012-LL-1210-45) Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambhamath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.(NJRS-2015-LL-0911-22) (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the This view was taken by the court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that in case any item is reduced from the export turnover, the same has to be reduced from total turnover. Hence, respectfully following the decision of Hon ble Bombay High Court in the case of GEM Plus Jewellery India Ltd., supra and Special Bench of ITAT, Chennai in the case of Sak Soft Ltd., supra we confirm the order of CIT(A) and dismiss this ground of Revenue s appeal. 14. The next issue in this appeal of Revenue is as regards to the order of CIT(A) allowing 100% of deduction u/s.10A of the Act and according to Revenue, the assessee is eligible for claim of deduction to the extent of 50% as the actual date of commencement of production was after 01.04.2003. For this, Revenue has raised Ground Nos.4.1 to 4.3, which need not to be reproduced. 15. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the AO was of the view that assessee has commenced commercial production on or after 01.04.2003 and thereby he restricted the claim of deduction u/s.10A of the Act at 50% of the profit. The assessee before CIT(A) filed complete details of commencement and stated that commercial production commenced in the year 1999-2000. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction in the year 1999-2000 relevant to A.Y.2000-2001 is upheld. The AO is directed to amend the order allowing the claim u/s 10A accordingly. This issue is allowed. 16. We noted that these facts are uncontroverted and actual commercial production started in assessee s case in the year 1999- 2000, which fact is uncontroverted. Hence, we confirm the order of CIT(A) on this issue and this issue of Revenue s appeal is dismissed. Appeal of Revenue is dismissed. ITA 445/Chny/2016 17. This appeal by assessee is arising out of order of the learned Commissioner of Income Tax (Appeals)-1, Chennai in ITA No.332/13-14/A-I dated 20.10.2015. The assessment was framed by DCIT, Company Circle I(1), Chennai for the assessment year 2010-11 u/s. 143(3) r.w.s 92CA of the Act, vide order dated 27.03.2014. 18. The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in the matter of exclusion from export turnover on account of sales to other SEZ/EOU units. 19. Brief facts are that the AO during the course of assessment proceedings noted that the assessee has made sales to other SEZ/EOU units located within India amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise; He further stated As per Section 2(m) The Special Economic Zones Act, 2005, ( the SEZ Act , export means (i).. (ii).. (iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone. 21.1 The ld.counsel for the assessee also explained that as per section 53 of SEZ Act, a Special Economic Zone shall be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations. Hence, according to him, the definition of domestic tariff are as per section 2(i) of the SEZ Act also specifically excludes the areas of the Special Economic Zones . The ld.counsel for the assessee for this relied on the decision of Hon ble Madras High Court in the case of Preludesys India Ltd., vs. ACIT, (2021) 318 CTR 287, wherein exactly on identical facts, Hon ble Madras High Court considered all the cases and held as under:- 28. From the above, it is seen that in Section 10A of the Act, Sub-Section (7B) was inserted and it says that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires to be strictly interpreted in favour of the Revenue. 33. However, the law has been settled by the Constitution Bench of the Hon ble Supreme Court in the case of Dilip Kumar, which has been referred to in the decision of the Hon ble Supreme Court in the case of Ramnath Co. 34. Further, the question before us is as to whether a transaction is an export or a deemed exportand not on the quantum of deduction, which the assessee is entitled to. The Income Tax Act being silent with regard to the concept of deemed export and since, even under Sections 10A and 10B of the Act, the provisions of the SEZ Act are required to be read, the decision of the Hon ble Supreme Court in the case of Ramnath Co., will not be applicable to the facts and circumstances of this case. 35. In the light of the above discussion, we hold that the Tribunal committed an error in not even rendering a finding as to whether the order passed by the CIT(A) was right in law and as to whether the decision in the case of Electronic Controls and Discharge Systems (P) Limited would be applicable to the facts and circumstances of this case. The decision in the case of Electronic Controls and Discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings noticed that the assessee has made provision for marked to market losses on the basis of earlier years but the AO disallowed the claim on account of reversal of the provision on the ground that this provision would have been included or reversed during the current year, and will be part of foreign exchange difference in the profit loss account. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) confirmed the action of AO by observing in para 8 9 as under:- 8. I have carefully considered the facts in issue, the view taken by the AO, the arguments advanced by the appellant and material on record. The computation of deduction u/s 10A is to be made from such profit and gains as are derived by an eligible undertaking. Therefore, the profits of the undertaking must have a direct nexus to the activity of the undertaking. Profits derived from forward foreign exchange contracts are therefore not eligible for deduction u/s 10A as the contract is in respect of foreign exchange which is not goods manufactured by the assessee or merchandise sold by it. On the contrary, it is merely speculation business and hence not business of the eligible undertaking. Such ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for MTM Loss for PY Written 213.81 f Profit ( After Provision ) as per Books of A/c 36.19 713.81 Taxable income as per income Tax Act 1961 Taxable income as per Income Tax Act 1961 g Profit ( After Provision ) as per Books of A/c 36.19 713.81 h Disallow MTM Provision passed During the Year 213.81 - i Allow MTM Provision Reversed During the Year - 213.81 j Taxable Profit as per Income Tax Act [ g+h-i] 250.00 500.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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