Therefore limitation of time in Section 10A is not applicable in the case of SEZ

[pawansingla]

2010-TIOL-634-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'G' MUMBAI

ITA No.5667/Mum/2009
Assessment Year: 2006-07

M/s GIA EXPORTS
70/70A, LAKSHMI PREMISES
1 ST FLOOR, SHEIKH M STREET
ZAVERI BAZAR, MUMBAI-400002
PAN NO: AAGFG3116R

Vs

THE ACIT
CENTRAL CIRCLE-33
AAYAKAR BHAVAN, MUMBAI-400020

Pramod Kumar, AM and Asha Vijayaraghavan, JM

Dated: July 30, 2010

Appellant Rep by: Shri M B Singhvi
Respondent Rep by: Shri A K Nayak

Income Tax - Sections 10A, 271(1)(c) - Whether limitation of time under Section 10A(3) also applies to an SEZ unit.

The assessee firm is a manufacturer and exporter of gold ornaments. In the course of scrutiny proceedings, the note below Form No.56F was brought to the notice of the A.R. The note stated that the assessee has not realized US$ 17,19,530 i.e. Rs.7,67,08,233/- before 30.09.2006. The AO held that the assessee has not compiled with provisions of Sec 10A (3) and Explanation 1 and 2 thereto below as regards realization of Rupees 7,67,08,233/-. Accordingly, the profits corresponding to this non-realized amount shall not be eligible for deduction u/s 10A, only an amount of Rs.3,88,05,956/-  would be eligible for deduction u/s.10A, and further held that the assessee has, therefore, claimed excess deduction u/s.10A and therefore, penalty proceedings u/s.271(1)(c) are initiated separately for furnishing inaccurate particulars of his income. Before the CIT(A) the AR submitted that the assessee has not realized the export proceeds of US$ 1790530 before 30.09.2006. The AR further submitted that assessee made application to its Banker for extension from RBI on 10.10.2006. The payments were realized on 17.10.2006 and 18.10.2006, but the assessee has not received any proper extension from the RBI since the bank failed to make application to RBI assuming that the aforesaid payments are received and no extension is required. He further stated that the assessee has not received any extension of RBI although he has made request to its Banker for extension and since the amount has been realized after the due date, therefore the deduction u/s.10(A) should be allowed to the assessee. CIT(A) held that the AO has rightly not allowed deduction u/s.10A in respect of amount of RS.1,03,34,604/- and confirmed the AO's order.

On further appeal, the Tribunal held that,

++ limitation of time in Section 10A is not applicable in the case of the assessee as the competent authority RBI has notified in the Circular No. 91 dt. 1.4.2003 that limitation of time in Sec. 10A(3) would not be applicable in the case of unit situated in special economic zone;

++ in other words as long as amounts are realized in convertible foreign exchange, the benefit of deduction will be available.

Asessee's Appeal allowed.

ORDER

Per: Asha Vijayaraghavan:

This appeal preferred by the assessee is directed against the order dated 26.8.2009 passed by the ld. CIT(A)- for the Assessment Year 2006-07.

2. The assessee firm is a manufacturer and exporter of gold ornaments. In the course of scrutiny proceedings, the note below Annexure 'A' of Form No.56F was brought to the notice of the A.R. The note stated that the assessee has not realized US$ 17,19,530 i.e. Rs.7,67,08,233/- before 30.09.2006. The AR was asked to show cause why the proportionate amount corresponding to RS.7,67,08,233/- should be allowed u/s.10A of the I.T. Act.

3. The AO held as follows:

"In this regard, the assessee through the AR stated that the export proceeds of US$1719530 had not received before 30.09.2006 and that an application had been made by them to the bankers on 10.10.2006 for seeking extension from the Reserve Bank of India for this late realization of funds. It was further stated that the assessee firm had not received any formal extension from the Reserve Bank of India (competent authority) as their bankers had failed to make an application to the RBI (competent authority) presuming that the aforesaid payments had been received and no extension was required. However, till date the assessee has not submitted any authorization from the competent authority granting extension of time to the assessee for late realization of export proceeds of US$ 1719530. The assessee's AR has also not submitted any evidence that the said sale proceeds have been credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of RBI.

4. The AO further held as follows:

"The assessee has not compiled provisions of Sec.10A(3) and Explanation 1 and 2 thereto below as regards realization of US$ 1719530 corresponding to Indian Rupees 7,67,08,233/-. Accordingly, the profits corresponding to this non-realized amount shall not be eligible for deduction u/s.10A of the I.T. Act. The total turnover of the assessee being Rs.36,47,44,050/- and total deduction u/s.10A being Rs.4,91,40,560/-, the corresponding amount of deduction u/s.10A pertaining to the non-realized amount of Rs.7,67,08,233/- comes to Rs.1,03,34,604/-. Meaning thereby that only an amount of Rs.3,88,05,956/- (Rs.4,91,40,560 – Rs.1,03,34,604) would be eligible for deduction u/s.10A of the Act. The assessee has, therefore, claimed excess deduction u/s.10A of the Act and therefore, penalty proceedings u/s.271(1)(c) of the Act are initiated separately for furnishing inaccurate particulars of his income."

5. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A) the AR submitted that the assessee has not realized the export proceeds of US$ 1790530 before 30.09.2006. The AR further submitted that assessee made application to its Banker for extension from Reserve Bank of India on 10.10.2006. The payments were realized on 17.10.2006 and 18.10.2006, but the assessee has not received any proper extension from the Reserve Bank of India (competent authority) since the bank failed to make application to RBI (competent authority) assuming that the aforesaid payments are received and no extension is required. He further stated that the assessee has not received any extension of RBI although he has made request to its Banker for extension and since the amount has been realized after the due date, therefore the deduction u/s.10(A) should be allowed to the assessee.

6. The Ld. CIT(A) held as follows:

I have carefully considered the reply given by the appellant and perused the assessment order. This is admitted fact that the appellant has realized US$ 1790530 corresponding Rs.7,67,08,233/- after due date i.e. 30.09.2006 and no extension from the competent authority i.e. Reserve Bank of India has been filed either before the Assessing Officer or in appellate proceedings, therefore this is clear that the appellant has not complied provisions of section 10A(3) and Explanation 1 and 2 of thereto. Therefore, the Assessing Officer has rightly not allowed deduction u/s.10(a) in respect of amount of RS.1,03,34,604/-. Therefore the action of the Assessing Officer is confirmed.

5. Aggrieved, assessee preferred an appeal before us.

We find that Section 10(3) reads as follows:

"This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf."

6. On reading of Section we find that the time limit specified is within a period of six months from the end of the previous year or within further such period as the competent authority may allow in this behalf. The word may clearly spells that it is for the competent authority to determine the time within which convertible foreign exchange is to be brought within India. Therefore limitation of time in Section 10A is not applicable in the case of the assessee as the competent authority i.e. Reserve Bank of India has notified in the Circular No. 91 dt. 1.4.2003 has that the units situated in special economic zone, would not be borne by the time realization of exports. In other words limitation of time in Sec. 10A(3) would not be applicable in the case of unit situated in special economic zone. In other words as long as amounts are realized in convertible foreign exchange, the benefit of deduction will be available. Therefore we allow the assessee's appeal.

7. In the result, the appeal filed by the assessee is allowed.

(Order pronounced on this 30.7.2010)