The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has recently, in an appeal filed before it, held that section S10AA deduction benefit cannot be denied merely on non-receipt of convertible foreign exchange on deemed exports.
The aforesaid observation was made by the Ahmedabad ITAT, when an appeal was preferred before it by the Revenue as against the order of the Commissioner of Income Tax (Appeals), Ahmedabad, dated 20/06/2018, arising in the matter of assessment order passed under section 143(3) of the Income Tax Act 1961, pertaining to the Assessment Year 2015-16.
The ground of the Revenue’s appeal being that the CIT(A) has erred in law and on facts, in deleting the addition of Rs 1,49,72,275/- made by AO u/s 10AA of the Income Tax, when such deduction was not claimed by the assessee in original return of income, and further that the CIT(A) has erred in law and on facts in holding that filing of the return within due date is not a pre-requisite condition for claim of deduction u/s 10AA of the Income Tax Act, the facts in brief of the case were that the assessee in the present case was a partnership firm, engaged in the manufacturing business of Pan Masala ,with and without Ghutka. And, the factory of the assessee was located at Kandla Special Economic Zone, Gandhidham Kachh.
The assessee had in the revised return of income, dated 19/01/2017, claimed the deduction of Rs. 1,49,72,275/- under the provisions of section 10AA of the Income Tax Act. But the same was disallowed by the AO.
Aggrieved by this, the assessee preferred an appeal before the CIT(A), who allowed the appeal of the assessee by recording his observation in this regard. And, it is being aggrieved by this order of the CIT(A), that the Revenue is presently in appeal before the Ahmedabad ITAT.
It was submitted by Shri Ravindra, the Sr. D.R, on behalf of the Revenue that the factory was set up in Special Kandla Economic Zone by the proprietor but the deduction has been claimed by the firm. He added that as such the proprietorship firm was converted into a partnership firm in the year under consideration, and therefore that it is discernible that the partnership firm was set up after restructuring the business of the proprietary concern which is prohibited under the provisions of section 10AA of the Income Tax Act.
On the other hand, it was submitted by Shri Tushar Hemani, the Sr. Advocate, with Shri Parimalsinh B. Parmar, the A.R., on behalf of the assessee 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 Income Tax Act. The AR for the assessee further added that there is no prohibition for claiming the deduction under Section 10AA of the Income Tax Act, upon conversion of its status i.e., conversion of proprietorship firm into partnership firm.
Hearing the opposing contentions of either side as well as perusing the materials available on record, the ITAT observed:
“From the above, it becomes clear that there was no condition applicable for the year under consideration to bring foreign exchange in India on account of the exports of sales. In view of the above, we hold that the assessee cannot be deprived of the benefit of the deduction granted under section 10AA of the Act merely on the reasoning that the assessee did not receive the convertible foreign exchange on the deemed exports.”
“In view of the above and after considering the facts in totality, we are of the view that there is no infirmity in the finding of the learned CIT-A. Even at the time of hearing, the learned DR has not brought anything on record contrary to the finding of the learned CIT-A. Hence, the appeal filed by the revenue is hereby dismissed”, the coram of Madhumita Roy, the Judicial Member and Waseem Ahmed, the Accountant Member, thus held.
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