THE DY.CIT, CIRCLE 3(1)(1) AHMEDABAD, AHMEDABAD vs. VISHNU EXPORT, AHMEDABAD

Per Sanjay Garg, Judicial Member:

The present appeal has been filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), dated 03.10.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter

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referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18.

“(a) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 32,04,84,915/- made by the Assessing Officer for disallowance of deduction claimed u/s 10AA of the Income Tax Act, 1961, assessee has not fulfilled basic required terms & conditions for claiming deduction u/s 10AA of the I.T Act as below: i. The unit of assessee initially installed as proprietorship concern in F.Y. 2013-14 later on from 01st SEP 2014 later on converted in partnership concern and the business setup of the unit belongs to proprietorship concern, taken over by partnership concern. ii. The assessee had started by taking Machineries on lease basis. iii. The assessee executed Sales transactions and shown deemed exports of Rs. 125 crore during the year. The direct export component was only negligible. iv. During the year under consideration, there was change in the constitution of the firm, involving inclusion of new partners into the firm. (b) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.”

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in ITA No.1840/Ahd/2018 vide order dated 31.03.2023. The relevant part of the order of the Tribunal is reproduced as under:

“10. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute with respect to the facts of the case which have been elaborated in the preceding paragraph, therefore we are not inclined to repeat the same for the sake of brevity and convenience. The following controversies arise for our adjudication: i. Whether the deduction can be claimed under the provisions of section 10AA of the Act in the revised return of income? ii. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on account of furnishing the audit report in form 56F during the assessment proceedings? iii. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act upon the conversion of its status i.e. proprietorship conversion into partnership firm? iv. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on the reasoning that the machineries were acquired on lease? v. Whether the assessee can be denied the benefit of deduction under section 10AA of the Act on account of non-remittance of convertible foreign exchange on account of the non-exports? As regards the 1st controversy, we note that the provisions of subsection (5) 10.1 of section 139 of the Act entitles the assessee to file the revise return of income if there is any omission or any wrong statement in the return filed under section 139(1) of the Act. Once, a return is revised then the original return has to be ignored and the revised return has to be considered by the Revenue. In this respect the Hon'ble Allahabad High Court in the case of Dhampur Sugar Mills Ltd. v. CIT, 90 ITR 236 held as under:- ''The effective return for purposes of assessment is thus the return which is ultimately filed by an assessee on the basis of which he wants his income to be assessed... But when an assessment has to be made the assessee is given a right to file a correct and complete return if he discovers an error or omission in the return filed earlier. The assessment can be completed only on the basis of the correct and complete return.... Once a revised return is filed, the original return must be taken to have been withdrawn and to have been substituted by a fresh return for the purpose of assessment.''' 10.2 It is not out of the place to mention that a return can be revised only in the situations where there is an omission or any wrong statement in the return filed under section 139(1) of the Act. But, there is no allegation in the order of the AO that there was no omission or any wrong statement in the return of income. Thus, without going into the question whether there was any omission or any wrong statement in the return

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filed under section 139(1) of the Act, we hold that the AO was duty-bound to take a note of the revised return of income while framing the assessment. 10.3 It is the admitted position that the assessee has claimed the exemption under the provisions of section 10AA of the Act wherein there is no mandate to file the return of income within the time specified under section 139(1) of the Act for claiming the deduction unlike the proviso under the provisions of section 10A(IA) of the Act requiring the assessee to file the return of income within the time specified under section 139(1) of the Act for claiming the deduction. Thus, in the absence of any specific provision under the provisions of section 10AA of the Act to file the return of income within the provisions of section 139(1) of the Act, the assessee cannot be deprived of the benefit granted under the statute for the deduction under the provisions of section 10AA of the Act in the given set facts and circumstances. 10.4 The above reasoning is further strengthened by the Finance Bill 2023 wherein it was proposed to file the return of income within the due date as specified under section 139(1) of the Act for claiming the benefit of the deduction under section 10AA of the Act which is effective from 1 April 2024 for the assessment year 2024-25. The relevant extract of the amendment is reproduced as under: 6. In section 10AA of the Income-tax Act, with effect from the 1st day of April, 2024,–– (a) in sub-section (1), after clause (ii) and before the Explanation, the following proviso shall be inserted, namely:–– “Provided that no such deduction shall be allowed to an assessee who does not furnish a return of income on or before the due date specified under sub-section (1) of section 139.”; 10.5 It is important to note that the AO in his order has made reference to the order of the ITAT in the case of M/s Saffire Garments Vs. ITO 151 TTJ 114 wherein it was provided that the deduction cannot be claimed under section 10A of the Act if the return of income has not been filed within the time specified under section 139(1) of the Act. But undeniably the assessee has not claimed any deduction under section 10A of the Act. Therefore, we are of the view that no reference can be made to the order of the ITAT cited above. 10.6 Moving further, we note that the Hon’ble Gujarat High Court in the case of CIT versus Mitesh Impex reported in 367 ITR 85 has observed as under: “39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer.” 10.7 In the above case, the claim of the assessee was allowed by the Hon’ble Gujarat High Court even such claim was not made in the Income Tax Return and it was

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raised 1st time before the learned CIT-A whereas the facts of the case of the assessee are on better footing than the case of the Hon’ble Gujarat High Court cited above. In the case on hand, the claim was made in the revised return of income and therefore, respectfully following the judgement of the Hon’ble Gujarat High Court cited above, we hold that the assessee cannot be deprived of the benefit granted under the statute merely on the reasoning that it was claimed in the revised return of income. The 2nd controversy arises whether the assessee can be deprived of the 10.8 benefit available to it under the provisions of section 10AA of the Act merely on the reasoning that the audit report in form 56F was filed during the assessment proceedings and not with the return of income. In our considered view, the assessee cannot be deprived of the benefit provided under section 10AA merely on the reasoning that the audit report in form 56F was filed during the assessment proceedings. We hold so on the reasons as applicable to the 1st question discussed above that the deduction was claimed in the revised return of income. Thus, the revenue fails on this reasoning also. The 3rd controversy arises whether the assessee is not eligible for deduction 10.9 under section 10AA of the Act in the event it is converted from proprietorship concern into partnership firm. Admittedly, the conversion of proprietorship concern into partnership firm was duly approved by the SEZ authorities which is evident from the details placed on pages 90 to 92 of the paper book. There is no prohibition under the provisions of section 10AA of the Act to deny the benefit of deduction upon the change of the status of the assessee i.e. conversion of proprietorship into the partnership firm. The Hon’ble Madras High Court in the case of CIT vs. Heartland KG Information Ltd reported in 359 ITR 1 dealing with identical situation held as under: 7. Given the fact that the findings of the Tribunal is that the entire business of M/s.KGISL stood transferred to the assessee and that the assessee is also recognised to have had its industrial unit, in the Software Technology Park, we have no hesitation in confirming the order of the Tribunal in granting the relief to the assessee under Section 10B. Consequently, the first question of law is answered against the Revenue. 8. As far as the second question of law as to whether the Tribunal was right in sustaining the order of the Commissioner of Income Tax (Appeals), that the assessee had not satisfied the provisions under Section 10A(2)(iii) of the Act to claim the deduction under Section 10A, is concerned, the factual position has already been pointed out that the assessee had the entire medical transcription transferred to its favour, a fact which would not be controverted by the Revenue at any stage. Contrary to the assertion of the Revenue that what was transferred was only machinery, we find that the Officer himself had accepted that the balance sheet of the assessee reflected the transfer of the entire business and to that extent, it was removed in the vendor's balance sheet. ******* 10. A cursory reading of the above Section shows that where an undertaking is formed by splitting up or reconstruction of business already in existence then

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the said undertaking would not be entitled to claim deduction under Section 10A. The other conditions is that the industrial undertaking should not be formed by transfer of plant and machinery already used for any purpose. Thus, what is prohibited in Section 10(A)(2)(iii) is that the transfer of used machinery and plant to a new business undertaking and forming of an industrial undertaking by splitting or reconstruction of the existing industrial undertaking. The intention thus under Section 10A being clear and that there is no specific prohibition or even by inference to an industrial unit formed by transfer of entire business, we have no hesitation in rejecting the Revenue's plea that by transfer of machinery, the assessee would be disentitled to the relief under Section 10A. As already pointed out, the fact herein is that the transfer was not that of plant and machinery alone but of sale of whole business unit to the transferor company which was primarily only of export of articles or things. In the circumstances, going by clear provisions of Act, we reject the Revenue's plea. 10.10 Similarly, the Hon’ble Allahabad High Court in the case of CIT vs. Bullet International reported in 349 ITR 267 has observed as under 10. It is not disputed before us that for the earlier assessment years exemptions have been granted to the undertaking. In this view of the matter, the Tribunal was justified in holding that the assessee is entitled to get exemption under Section 10-A of the Act, 1961. The argument of the learned counsel for the department that since the proprietorship has been converted into partnership, therefore, this disentitles the assessee to claim benefits under Section 10-A of the Act,1961 does not borne out either from the plain language of sub-sections (9) and (9A) of Section 10-A of the Act, 1961 or in view of the Circular of the CBDT referred to above. No substantial question of law is involved in the appeal. 10.11 From the above, there remains no ambiguity to the fact that the assessee cannot be denied the benefit upon the conversion from the proprietorship concern to the partnership firm. Likewise, there was also no allegation of the AO that the present assessee came into existence after splitting up or the reconstruction of the existing business or undertaking. It is for the reason that there is no violation of the conditions applicable for claiming the deduction under section 10AA of the Act. 10.12 The next controversy arises whether the assessee can be denied the benefit of the provisions of section 10AA of the Act if certain machineries were acquired by it on lease. First of all, it is seen that there were Plant and Machineries available with the assessee amounting to ₹ 1,49,36,541/- as evident from the audited financial statement placed on page 10 of the paper book. Furthermore, the use of the plant and machinery should be seen at the time of formation of the eligible undertaking. At the time of formation of the undertaking, there was no violation of the provisions of section 10AA of the Act. In holding so, we rely on the order of order of ITAT in the case of the CIT versus M/s Choice Sanitaryware Industries in ITA 274/RJT/2008 order dated 23

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December 2010 wherein the issue was in relation to claim of deduction under section 80IB of the Act but the principles of the same can also be imported to the case on the hand. The relevant finding of Tribunal in above cited case reads as under: In a nutshell, the assessee has acquired its sister concern’s land, building, plant and machinery on lease without there being any further responsibility on the part of its sister concern. With these factual matrix, could the assessee be held under an obligation to maintain separate books of account, one for the production carried out with the machinery of the assessee and the other for the production carried out with the hired machinery for the purpose of claiming deduction u/s 80IB of the Act. It transpires to us from the reading of the orders of authorities below that the only objection of the assessing officer in withdrawing he deduction already available to the assessee is non maintenance of separate production records with the plant & machinery of the assessee and those hired from the sister concern, which was not eligible unit for claiming deduction u/s 80-IB of he Act. Thus, it is clearly understood that but for the production achieved through hired plant & machinery, even as per the assessing officer, the assessee is entitled for deduction u/s 80IB of the Act. The conditions ascribed for claiming deduction u/s 80IB are prescribed in sub section (2) of section 80IB of the Act, which are as follows: ***************** Clause (ii) to sub section (2) of section 80IB is very much relevant to decide the issue under consideration. It states that “it is not formed by the transfer to a new business of machinery or plant previously used for any purpose”. In the case on hand, the assessee firm was already in existence since 1990 and was availing deduction u/s 80IB since then. Therefore, it cannot be said that “it is not formed by the transfer to a new business of machinery or plant previously used for any purpose”. It can also not be said that by acquiring some of the assets on lease for a fixed period, which were used by the sister concerns, the assessee has taken over the business of the assessee’s sister concern. As such, the question of maintaining two separate sets of books for production does not arise. In the case of Bajaj Tempo Ltd cited supra, the Hon’ble Apex Court held that the restriction would come into picture to deny the deduction only if the second hand asset results in formation of the undertaking. In the instant case there is no formation of an undertaking. The facts and circumstances in the case of Laxmi Packers (14 SOT 303) dealt by the Mumbai Tribunal are pari material to the case on hand. The Hon’ble co-ordinate bench has held that the prohibition in clause (ii) to sub section (2) of section 80IB is only with regard to purchase and use of any second hand machinery at the time of formation of the industrial undertaking and not purchase and use of machinery after the formation of the industrial undertaking. In yet another decision in the case of Pembril Indl & Engg Co (P) Ltd vs DCIT cited supra, the “D” Bench of the Mumbai Tribunal held that though previously used plant and machinery has been used in the new unit, there being no transfer of plant and machinery, the deduction u/s 80-IA / 80-IB cannot be denied.

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10.13 Likewise, the order referred by the AO in the assessment is distinguishable from the facts of the case. In the case referred by the AO, the assessee has taken not only the premises but also the plant and machineries which were in excess of 20% of statutory limit. But there is no such allegation in the order of the AO in case on hand. Therefore, no credence to the finding of the order of the ITAT as referred by the AO can be given. Accordingly, we hold that the revenue on this allegation also fails. 10.14 The next controversy arises that whether assessee can be denied the benefit of the deduction provided under section 10AA of the Act in case of domestic sales and no convertible foreign exchange was brought to India. There is no dispute to the fact that the assessee has made the sale of ₹ 12,21,55000.00 to the parties who were the merchant exporters. In other words, the goods sold by the assessee to the parties were eventually exported by the merchant exporters and the foreign exchange was received by these merchant exporters and not by the assessee. As per SEZ rules 2006, the assessee cannot make local sales but allowed to make sales to the merchant exporters which will be treated as deemed export. Therefore, the assessee is eligible for deduction under section 10AA of the Act on such deemed exports even the assessee does not bring any foreign exchange on account of such sales. In holding so we draw support and guidance from the orders of Hon’ble Karnataka High Court in case of Granite Mart Ltd. vs. ITO reported in [2020] 121 taxmann.com 168 where it was held as under: 12. Thus, from perusal of section 10A of the Act, it is evident that the intention of the legislature is to encourage establishment of export oriented industries with the object of receiving convertible foreign exchange. In order to claim deduction under section 10A of the Act, the conditions laid down under section 10A(2) have to be complied with. It is pertinent to mention here that in International Stones India (P.) Ltd. case (supra), a division bench of this court has held that a narrow and pedantic approach cannot be applied in construing the words "by an undertaking" and restricting the benefit under section 10B of the Act only in respect of direct export of such goods manufactured by such units. The deemed export by the assessee undertaking even through third party who has exported such goods to foreign country and has fetched foreign currency for India still remains a deemed export in the hands of the assessee undertaking also. The aforesaid decision was proved by another division bench of this court in the case of Metal Closures Steel Ltd. (supra), which has been affirmed by the Supreme Court. In view of aforesaid enunciation of law, it is evident that the appellant is entitled to benefit of deduction under section 10B of the Act in respect of export made to third parties and inter unit transfers. 10.15 The above reasoning is further strengthened by the Finance Bill 2023 wherein it was proposed to specify the time limit for bringing consideration against exports proceeds into India for claiming the benefit of the deduction under section 10AA of the Act which is effective from 1 April 2024 for the assessment year 2024-25. The relevant extract of the amendment is reproduced as under:

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to that as have been adjudicated by the Co-ordinate Bench of the Tribunal in the own case of the assessee for A.Y. 2015-16 (supra). The identical issue has also been decided by the Tribunal in the own case of the assessee for A.Y. 2016-17 in ITA No.1491/Ahd/2019 vide order dated 16.06.2023. Therefore, respectfully relying upon the decisions of the Co-ordinate Bench of the Tribunal in the own case of the assessee, as discussed above, the appeal of the Revenue is, hereby, dismissed.

This Order pronounced on 12/08/2026 under Rule 34(4) of the ITAT Rules, 1963

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 12/08/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad