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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
This appeal at the instance of the assessee is directed against Commissioner of Income-tax’s order dated 28.12.2018, passed u/s 263 of the I.T.Act. The relevant assessment year is 2014-2015.
2. The grounds raised read as follows:-
“Ground 1: On facts and circumstances of the case, and in Law, the Hon'ble Principal Commissioner of Income Tax, Thrissur has grossly erred in assuming jurisdiction u/s 263 for directing the Assessing Officer (AO') to frame the assessment order de-novo. Ground 2: The assumption of jurisdiction u/s 263 by the Hon'ble Principal Commissioner of Income Tax, Thrissur is improper & unjustified as the AO framed the original order u/s 143(3) after conducting enquiries on the issues alleged in the impugned order u/s 263.
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Ground 3: On facts and circumstances of the case, and in Law, the Hon'ble Principal Commissioner of Income Tax, Thrissur has erred in deciding that the trading activity carried on by the SEZ Unit of the assessee cannot be considered as "Services" eligible for exemption u/s 10AA of the Income Tax Act, even though the definition of "Services" as per SEZ Rules includes trading activity. Reliance is placed on the Order of jurisdictional High Court in Girnar Industries Vs CIT (230 ITR 401) (Ker). Ground 4: On facts and circumstances of the case, and in Law, the Hon'ble Principal Commissioner of Income Tax, Thrissur has erred in deciding that the exemption u/s 10AA claimed by the assessee against the "deemed export" is not allowable. The appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal.”
3. Brief facts of the case are as follow:- The assessee is a partnership firm. For the assessment year 2014-2015, return of income was filed on 30.11.2014 declaring total taxable income of Rs.1,00,000 after claiming exemption u/s 10AA of the I.T.Act amounting to Rs.1,27,12,560. The case was selected for scrutiny under CASS. The assessment u/s 143(3) of the I.T.Act was completed on 20.11.2016 accepting the total income returned.
4. The CIT issued notice u/s 263 of the I.T.Act on 17.11.2017. The reason for issuance of notice u/s 263 of the I.T.Act, reads as follow:-
“Irregular deduction of Rs.1,27,12,516/- u/s 10AA claimed by the assessee. The assessee’s business is to import cigar and cigarettes and export it to various duty free shops by re-packing it and as there was no manufacturing or service carried out in Special
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Economic zone, Kochi, the deduction claimed and allowed u/s 10AA is incorrect.”
In response to notice issued u/s 263 of the I.T.Act, the assessee filed a objection to the proposed revision and the matter was heard from time to time. However, the objection raised by the assessee was rejected and the CIT passed the order u/s 263 of the I.T.Act (order dated 18.12.2018). The relevant finding the CIT reads as follow:-
“5. I have perused the submissions of the assessee's authorised representative and relevant materials on record. From the records, it could be noted that the assessee, a distributor of cigarettes & cigars, is engaged in repacking of cigars/cigarettes in Co chin SEZ, Kakkanad.
6. The trading activity carried on by the SEZ Unit of the assessee can not be, in my view, considered as "Services" eligible for exemption u/s.10AA by relying on the definition of "Services" as per SEZ rules in spite of an express provision m section 10AA by way of Explanation-l specifying the words / expressions which will derive their meaning as assigned under SEZ Act and Rules and the expression “Service” is not mentioned therein whereas there was no such express provision in section 10A which was the subject matter of interpretation in the case of Girnar Industries vs. CIT (230 ITR 401) (ker.).
7. Assessee’s total turnover comprises the following:
(a) Export to outside the country Rs.16,92,13,445 (b) Export to duty free Zones (“Deemed Export” Turnover) Rs. 6,75,16,273 ------------------------- Total Turnover Rs.23,67,29,718 ============= (i) The exemption u/s.10AA claimed by the assessee against the "deemed export" (the transaction of the goods within the country) is not an allowable deduction u/s.10AA of the Act. The jurisdictional Hon'ble High Court of Kerala In the case of CIT, Cochin Vs. M/s Electronic Controls & Discharge System (P) Ltd.(2011) 245 CTR 465 (Ker.) has held that the "concept of deemed export under the SEZ Act is not incorporated in the scheme of exemption u/s.10A of the Act and it is the settled . 4 M/s.Crossings International Distribution. position that the I.T.Act is a self contained code and the validity or correctness of the assessment has to be considered with reference to statutory provisions". (ii) Further, as per Explanation-1(ii) to Section 10AA of the, Act, "export in relation to the Special Economic Zones" means taking goods or providing services out of India from a Special Economic Zone by land, sea, air or by any other mode, whether physical or otherwise". Assessee's trading of goods to other duty free zones is not export as per provisions of the Income Tax Act and in the light of decision of Hon'ble Kerala High Court cited supra. Hence, total income computed under the normal provisions of the Act requires to be modified and tax credit for subsequent assessment years is to be restricted as per section 115JD of the Act.
8. Repacking of cigars & cigarettes is not a manufacturing activity. Thus, claim of deduction allowed u/s.10AA seems to be" not in order. Hence, I am of the considered view that the assessment order dated 21/11/2016 is erroneous in so far as it is prejudicial to the interests of the revenue. Consequently, the assessment order is set aside with a direction to the Assessing Officer to re-do it de novo after giving the assessee reasonable opportunity of being heard.”
Aggrieved by the order of the CIT, the assessee has filed appeal before the Tribunal. The learned AR, Sri K.P.Paulson, submitted that the Assessing Officer taken one of the possible views and hence the order of the CIT passed u/s 263 is bad in law. The learned AR has filed a paper book comprising of 137 pages enclosing copy of computation of deduction u/s 10AA in Form No.56F, copy of the correspondence made by the assessee with the Assessing Officer in the course of assessment proceedings, copy of the letter of approval / extension granted by the Development Commissioner, SEZ, and the case laws in support of the assessee’s contention. The learned AR has also placed on record various Acts, Circulars and Policies of the Special Economic Zone Act. The learned
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“1. The order passed by the Ld.AO cannot be considered as erroneous, if it is a possible view.
View adopted by the AO in holding that assessee was entitled for deduction U/s 10AA is a possible view on the basis of various judicial pronouncements.
Hence the order passed by the Ld.AO cannot be considered as erroneous within the ambit of section 263.
Reliance is placed on the decision of Zaveri & Co Pvt Ltd VIs CIT.IV (2014) 321TR (Trib) 250 (Ahmadabad) (vide page 3)
Considering "trading activity"(Exports) as "services", eligible for deduction u/s 10AA is a possible view as per rule 76 of SEZ Rules 2006.
Reliance is placed on the decisions of a. Girnar Industries v. CIT (2010) 230 ITR 401 (Kerala HC) (vi9de page 4) b. DCIT v. Bommidala Enterprises (P) Ltd. (2017) 164 ITD 306 (Vide page 6) c. DCIT v. Diamond R US (2015) ITA 2793/Mum/ 2012 (Vide page 5)
Considering "Deemed Exports" to duty free zones as eligible for deduction u/s 10AA is a possible view as per decision of Ahmadabad Tribunal in Gokul Overseas VIs ACIT(2016) ITA 1028/Ahd/2013 So, we submit that order of the Ld.AO is a possible view framed with the application of mind, after considering list and details of "export turnover" (vide page 18), list and details of "deemed export turnover" to duty free zones (vide page 19), computation of deduction u/s 10AA, Form 56F certified by CA (vide
. 6 M/s.Crossings International Distribution. page 13 to 15), explanation and reason for claiming deduction u/s 10AA on profit from deemed exports etc and our detailed letter dated 18-11-2016 (Page 16-19) and so cannot be considered as erroneous within the meaning of section 263. Hence the Ld.CIT is not justified in exercising powers u/s 263 and interfering with the order of the ld.AO
Ld.PCIT has relied on Sec.10A instead of Sec.10AA (vide para 6). High Court decision relied is also u/s 10A (vide para 7(i)) (vide paper book page 27).”
The learned Departmental Representative, on the other hand, strongly supported the order passed by the CIT u/s 263 of the I.T.Act.
We have heard the rival submissions and perused the material on record. In the assessment order dated 21.11.2016, the Assessing Officer has not discussed the eligibility of claim of deduction u/s 10AA of the I.T.Act. Explanation 2(a) to section 263 of the I.T.Act states that an order passed by the A.O. shall deemed to be erroneous and prejudicial to the interests of the revenue, if in the opinion of Commissioner, the order is passed without making inquiries or verification which should have been made. Since there is no discussion in the assessment order as regards the eligibility of claim of deduction u/s 10AA of the I.T.Act, the CIT is justified in invoking the revisionary jurisdiction u/s 263 of the I.T.Act. The assessee has taken the aid of definition of `Export’, `services’ etc. under the SEZ Act and Rules for claiming the benefit of deduction u/s 10AA of the I.T.Act. The concept of deemed export under the SEZ Act, 2005 is not . 7 M/s.Crossings International Distribution. incorporated in the scheme of exemption u/s 10AA of the I.T.Act. It is settled position of law that Income-tax Act is a self-contained code and validity and correctness of the assessment has to be considered with reference to the statutory provisions. The provision / definition of SEZ Act, 2005 and its Rules are referred to in the Income-tax Act, wherever the legislature intended to incorporate the same. The Income-tax Act refers to several statutes in different places and wherever required the provisions of such statutes are incorporated in the Act through reference or by incorporation. It is not as if the Parliament is unaware of the other statutes which have specific purposes. Inter-unit transfer in SEZ Act is treated as exports for the purpose of Customs Act and the Central Excise Act. However, Explanation 1(ii) to section 10AA of the I.T.Act specifically refers to the term `export’ to mean as follows:- “(ii) “export in relation to the Special Economic Zones” means taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise.”
8.1 The assessee in the instant case is seeking to adopt the definition of `export’ under SEZ Act, 2005, in order to obtain the benefit of deduction u/s 10AA of the I.T.Act. The definition of export under the SEZ Act, 2005 reads as follow:-
“(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 . 8 M/s.Crossings International Distribution. (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.”
8.2 When the term “export” has been explained for the purpose of section 10AA of the I.T.Act (vide Explanation 1(ii) to section 10AA of the I.T.Act), there is no necessity to refer to the definition of the term “export” under the SEZ Act, 2005. As mentioned earlier, the Parliament is aware of the statutes under the other Acts and wherever required, such statutes are incorporated under the Income-tax Act (either by reference or by incorporation). For example, the term “manufacturing” under section 10AA of the I.T.Act has been explained in Explanation 1(iii) to section 10AA of the I.T.Act to mean as the same meaning as it is assigned in clause (r) of section 2 of the SEZ Act, 2005. Therefore, wherever the Legislature thought for reference or incorporation under the Income-tax Act, the Parliament has taken aid of other statutes in doing so. The term “export” has been defined under section 10AA of the I.T.Act to mean only taking goods or providing services out of India through Special Economic Zone by land, sea, air or by any other modes. Therefore, no deemed export or trading activity are to be considered as an `export’. Hence, for the purpose of deduction u/s 10AA of the I.T.Act, we are of the view that the CIT is correctly exercised his revisionary jurisdiction u/s 263 of the I.T.Act and we uphold the same. It is ordered accordingly.
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