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Facts
The assessee, Birlasoft Limited, filed its return of income. The case was selected for scrutiny assessment. A key issue involved a deduction claimed under Section 10AA of the Income Tax Act related to unrealized export proceeds.
Held
The Tribunal held that for the assessment year 2018-19, there was no condition requiring foreign exchange to be brought into India for claiming deduction under Section 10AA on deemed exports. The Tribunal also restored the issue regarding enhanced deduction u/s 10AA on account of disallowance of employee contributions to PF/ESI to the CIT(A) for adjudication.
Key Issues
Whether the assessee is eligible for deduction under Section 10AA on unrealized export proceeds. Whether the deduction u/s 10AA needs to be enhanced due to disallowance of employee contributions to PF/ESI.
Sections Cited
10AA, 143(1), 143(2), 142(1), 36(1)(va), 2(24)(x), 10(35), 51, 27, 154
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
O R D E R PER R.K. PANDA, V.P: This appeal filed by the assessee is directed against the order dated 23.08.2023 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2018-19.
Facts of the case, in brief, are that the assesse is a public limited company and is engaged in the business of computer and software services. It filed its return of income on 29.11.2018 declaring total income of Rs.95,13,15,400/-. The return was processed by the CPC and an intimation u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was passed on 25.01.2021 determining the total income at Rs.1,00,23,03,750/-. The case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the following issues:
2 S. No. Issues i. Claim of Any Other Amount Allowable as Deduction in Schedule BP ii. Double Taxation Relief u/s 90/91 iii. Exemption for Undertakings in FTZ/SEZ (Section 10A, 10AA) iv. Refund Claim v. Ind-AS Compliance and Adjustment vi. Deduction Claimed for Industrial Undertaking u/s 80IA/80IAB/80IAC/IB/IC/IBA/80ID/80IE/10A/10AA vii. Expenses Incurred for Earning Exempt Income 3. Accordingly, statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the assessee filed the requisite details.
During the course of assessment proceedings the Assessing Officer noted that the assessee has claimed deduction of Rs.117,97,18,768/- u/s 10AA of the Act. In support of the said claim u/s 10AA the assessee filed Form 56F and the income computation statement in respect of each SEZ undertaking. The assessee also furnished the breakup of income eligible from various SEZ undertakings. However, the Assessing Officer noted that the amount eligible for deduction u/s 10AA of the Act as per Form 56F filed by the assessee is only Rs.114,00,51,308/-. He, therefore, asked the assessee to reconcile the deduction u/s 10AA of the Act. The assessee submitted that the additional claim of deduction is on account of unrealized exports as on the date of filing of Form 56F. The assessee further stated that it has received the permission from the RBI i.e. the competent authority to extend the period of realization of export proceeds beyond the stipulated period. It was further submitted that as on date the assessee has received an amount of 3 Rs.117,79,46,537/-. The assessee furnished updated Form 56F duly signed by the Chartered Accountant. The assessee further submitted the mail confirmation from the Banker extending the stipulated period of realization.
However, the Assessing Officer was not satisfied with the submissions made by the assessee. He noted from the updated Form 56F that the assessee is yet to realize a sum of Rs.17,72,231/- on account of export proceeds. Further, as per the updated Form 56F dated 22.04.2021 the approval of extension is granted only till March, 2021. He, therefore, concluded that the assessee did not receive further extension to receive the unrealized proceeds of Rs.17,72,231/-. According to him as per section 10A(3), the assessee can claim the deduction of unrealized exports only on authorization of competent authority. Therefore, the assessee is not eligible to claim deduction u/s 10AA of the Act on the sum of Rs.17,72,231/-.
The assessee argued that section 51 of the SEZ Act provides an override over all the other enactments unless such is provided in the SEZ Act 2005 itself. However, the Assessing Officer noted that the same SEZ Act, vide section 27 provides that the provisions of the Income-tax Act, 1961, as in force for the time being, shall apply to, or in relation to, the Developer or entrepreneur for carrying on the authorized operations in a Special Economic Zone or Unit. Hence he noted that the assessee's argument cannot be accepted. The Assessing Officer noted in the body of assessment order that the assessee, during the course of assessment proceedings, in response to the show cause notice accepted for restricting the 4 deduction u/s 10AA of the Act to Rs.117,79,46,537/- and consented that sum of Rs.17,72,231/- be disallowed. In view of the above, the Assessing Officer disallowed an amount of Rs.17,72,231/-.
Similarly due to delay in deposit of employees’ contribution to PF and ESI, the Assessing Officer made addition of Rs.2,18,89,134/- u/s 36(1)(va) r.w.s. 2(24)(x) of the Act.
Before the Ld. CIT(A) / NFAC, the assessee apart from challenging other things, challenged the order of the Assessing Officer in considering the starting point of the tax computation from the income determined u/s 143(1) instead of the returned income. The assessee also challenged the order of the Assessing Officer in not considering the submission in respect of deduction u/s 10AA of the Act to the extent of Rs.17,72,231/-. Further it was argued that the disallowance, if any, made u/s 36(1)(va) of the Act to the extent of Rs.2,18,89,134/- should be eligible for deduction u/s 10AA of the Act.
However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee. So far as the disallowance of deduction u/s 10AA of the Act to the extent of Rs.17,72,231/- is concerned, he upheld the same by observing as under:
5 6 10. He confirmed the addition on account of delayed deposit of employees’ contribution to PF/ESI. However, he did not decide the issue of deduction u/s 10AA of the Act on account of such enhanced profit. 11. Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal by raising the following grounds:
General
1. The learned AO NFAC and CIT(A) NFAC erred in law and on facts in assessing the Total Income of the Appellant at Rs.102,59,65,115/- instead of the Returned Income of Rs.95,13,15,400/-. Incorrect taxation of exempt dividend income
2. The learned AO NFAC and learned CIT(A) NFAC erred in considering the Starting Point of the Tax Computation as "Total Income" determined vide intimation u/s 143(1)(a), instead of "Returned Income" as per 139(1) return. Learned I-T authorities ought to have considered that due to erroneous assumption of starting point of computation of Total income, exempt dividend income of Rs.4,99,02,049 has been taxed, which is contrary to express provisions of ITA, 1961.
3. On the facts and in the circumstances of this case the learned AO NFAC and learned CIT(A) NFAC erred in treating the Exempt Dividend Income u/s 10(35) of ITA 1961 amounting to Rs.4,99,02,049 as a taxable income Deduction u/s 10AA
4. Appellant contends that, Appellant is entitled to claim deduction u/s 10AA of ITA 1961 to the extent of Rs.17,72,231/- on analogy of non-receipt of FOREX proceeds Disallowance of PF/ESI contribution
5. Appellant contends that, Appellant is eligible for claiming deduction of delayed Contribution of Employees' Provident Fund & ESI contribution amounting to Rs.2,29,75,441/-.
6. The learned AO erred and learned CIT(A) in law and in facts in making disallowance of Rs.1,28,606/- u/s 36(1)(va) without appreciating that there is no delay in payment of employees contribution to ESI. The learned AO ought to have appreciated that the due date of payment was falling on Sunday being public holiday (i.e. 15/04/2018) and hence due date was to be considered as next working day.
7 Non-consideration of issue of enhanced deduction u/s 10AA 7. The learned AO NFAC and learned CIT(A) NFAC erred in not enhancing the deduction u/s 10AA pro-rata and in an appropriate manner, since, disallowance of Employees Provident Fund & ESI contribution amounting to Rs.2,29,75,441/- goes to increase the eligible deduction u/s 10AA of ITA, 1961.
8. Learned CIT(A) erred in not deliberating and addressing the above referred issue in above Ground No.7, despite the fact that, the said issue was specifically raised as a separate Ground of Appeal
before the learned CIT(A) NFAC. General
9. The appellant craves leaves to add, modify, alter, amend, or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents, and papers as may be considered necessary cither at or before the appeal hearing.
12. Grounds of appeal No.1 and 9 by the assessee being general in nature are dismissed. The Ld. Counsel for the assessee did not press the grounds of appeal No.5 and 6 for which the Ld. DR has no objection. Accordingly the same are dismissed as ‘not pressed’.
13. In grounds of appeal No.2 and 3 the assessee has challenged the order of the Ld. CIT(A) / NFAC in not allowing the deduction of Rs.4,99,02,049/- as exempt dividend income.
14. Facts of the case, in brief, are that during the previous year ended 31.03.2018 the assessee had earned an amount of Rs.4,99,02,049/- as dividend income on its mutual fund investments. Considering the payment of dividend distribution tax, the assessee claimed dividend of Rs.4,99,02,049/- as exempt u/s 8 10(35) of the Act. The assessee disclosed the dividend income in the Profit and Loss Account and in the computation of income. However, in the tax return the same remained to be disclosed as exempt income. The CPC made addition of the same in the intimation issued u/s 143(1) of the Act. The assessee filed objections before the CPC against the proposed addition which was dismissed by the CPC.
15. Before the Ld. CIT(A) / NFAC the assessee made detailed submissions stating that the exempt dividend ought not to be taxed. However, the Ld. CIT(A) / NFAC dismissed the ground by observing that a separate remedy of appeal is provided against addition u/s 143(1). He further observed that 143(1) intimation merges into 143(3) order. Aggrieved with such order, the assessee is in appeal before the Tribunal.
16. The Ld. Counsel for the assessee submitted that once such merger has taken place, the issue of error in reporting of exempt dividend in the return of income leading to incorrect taxation of exempt dividend ought to have been appreciated by the Ld. CIT(A) / NFAC. Further it is also his submission that the Ld. CIT(A) / NFAC should have decided the issue on merit.
17. Referring to the decision of Hon’ble Supreme Court in the case of CIT vs. Gujarat Electricity Board reported in (2003) 260 ITR 84 (SC), he submitted that the Hon’ble Supreme Court in the said decision has held that it is not open to the 9 Revenue to issue the intimation u/s 143(1)(a) of the Act after notice for regular assessment has been issued u/s 143(2) of the Act. He submitted that in the instant case notice u/s 143(2) of the Act was issued on 22.09.2019 whereas the return was processed u/s 143(1) of the Act on 21.01.2021 i.e. beyond 16 months after the notice u/s 143(2) of the Act was issued. He accordingly submitted that the addition made in the intimation u/s 143(1) is erroneous.
18. In his alternate contention he submitted that the assessee has filed a separate appeal against 143(1) intimation before the Ld. CIT(A) / NFAC belatedly which is pending for adjudication. He submitted that he has no objection if the matter is restored to the file of the Ld. CIT(A) / NFAC with a direction to decide the issue either in appeal against u/s 143(1) or appeal against u/s 143(3) order.
19. The Ld. DR on the other hand submitted that when the addition was made by the CPC in the intimation u/s 143(1) of the Act the assessee should have filed the appeal against such intimation u/s 143(1). He, however, submitted that he has no objection if the matter is restored to the file of the Ld. CIT(A) / NFAC since the assessee has already filed an appeal against the intimation u/s 143(1) of the Act.
20. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the CPC in the intimation issued u/s 143(1) of 10 the Act has made addition of Rs.4,99,02,049/- which was claimed by the assessee as exempt income u/s 10(35). We find the Ld. CIT(A) / NFAC in appeal dismissed the grounds raised by the assessee holding that a separate remedy of appeal is provided against the intimation u/s 143(1) of the Act. He has also given a finding that 143(1) intimation merges into 143(3) order. It is the submission of the Ld. Counsel for the assessee that in the meantime the assessee has filed an appeal against the intimation before the Ld. CIT(A) / NFAC with a delay and he has no objection if the issue is restored to the file of the Ld. CIT(A) / NFAC for adjudication of the issue afresh along with the appeal against the intimation u/s 143(1) issued by the CPC. Since the issue has not been verified by the Ld. CIT(A)/NFAC, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to grant one final opportunity to the assessee to substantiate its case and decide the issue as per fact and law. Needless to say the Ld. CIT(A) / NFAC shall give due opportunity of being heard to the assessee. The grounds of appeal No.2 and 3 raised by the assessee are accordingly allowed for statistical purposes.
21. Ground of appeal No.4 relates to the claim of deduction of Rs.17,72,231/- u/s 10AA of the Act.
22. Facts of the case, in brief, are that the Assessing Officer, on the basis of submissions made by the assessee, disallowed a part of the deduction claimed u/s 11 10AA of the Act on the ground that Forex proceeds were not received into India within the prescribed time period. The said disallowance was based on Form 56F issued by the assessee’s CA. In the said Form 56F the assessee is required to state total exports vis-à-vis total foreign exchange earnings. The disallowance worked out by the Assessing Officer was objected before the Ld. CIT(A) / NFAC. However, the Ld. CIT(A) / NFAC dismissed the same on the ground that the approval of RBI was extended only till March, 2021 whereas forex proceeds were received thereafter.
23. The Ld. Counsel for the assessee submitted that within the provisions of section 10AA there is no stipulation for getting the foreign exchange in India in assessment year 2018-19. Referring to the provisions of section 10AA(4A) of the Act, he submitted that the condition of getting related forex in India within prescribed date was introduced for the first time only in assessment year 2024-25 i.e. w.e.f. 01.04.2023. As such, applying the test of getting Forex in India was an imaginary condition tested by the Assessing Officer.
24. Referring to the decision of the Ahmedabad Bench of the Tribunal in the case of ACIT vs. Vishnu Export reported in 149 taxmann.com 65 (Ahm), he submitted that the Tribunal in the said decision has held that the assessee is eligible for deduction u/s 10AA of the Act on deemed exports even though the assessee does not bring any foreign exchange on account of such sales. In the said decision the proposals in the Finance Bill, 2023 have been incorporated, according to 12 which, the time limit for bringing consideration against export proceeds into India for claiming the benefit of deduction u/s 10AA of the Act is effective from 01.04.2024. He accordingly submitted that there was no condition applicable for the year under consideration to bring foreign exchange in India on account of the exports of sales. Therefore, the assessee cannot be deprived of the benefit of deduction u/s 10AA of the Act.
25. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.
26. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case disallowed deduction u/s 10AA of the Act to the extent of Rs.17,72,231/- on account of non receipt of such foreign export proceeds to this extent. While doing so he stated in the body of the assessment order that the assessee has accepted for restricting the deduction u/s 10AA of the Act to the extent of Rs.17,72,231/-. We find in appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that there is no condition applicable for assessment year 2018-19 to bring foreign exchange into India on account of exports proceeds and therefore, the assessee cannot be deprived of the benefit of 13 deduction granted u/s 10AA of the Act merely on the reasoning that the assessee did not receive convertible foreign exchange on deemed exports.
27. We find some force in the above arguments of the Ld. Counsel for the assessee. We find the Ahmedabad Bench of the Tribunal in the case of ACIT vs. Vishnu Export (supra) while dealing with an identical issue has held that the Finance Bill 2023 proposes to specify the time limit for brining consideration against exports proceeds into India for claiming the benefit of the deduction u/s 10AA of the Act which is effective from 01.04.2024. Accordingly it was held that there was no condition applicable for the year under consideration to bring foreign exchange in India on account of export of sales. Accordingly section 10AA benefit was allowed to the assessee although such sale proceeds in foreign exchange were not brought to India. The relevant observations of the Tribunal from para 10.14 onwards read as under: “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 14 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:
6. In section 10AA of the Income-tax Act, with effect from the 1st day of April, 2024,–– (a) ***** (b) after sub-section (4), the following shall be inserted, namely:–– ‘(4A) This section applies to a Unit, if the proceeds from sale of goods or provision of services is 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. Explanation 1.––For the purposes of this sub-section, the expression “competent authority” means the Reserve Bank of India or the authority authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2.––The sale of goods or provision of services shall be deemed to have been received in India where such export turnover is credited to a separate account maintained for that purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.’; (c) in Explanation 1, for clause (i), the following clause shall be substituted, namely:–– ‘(i) “convertible foreign exchange” shall have the meaning assigned to it in clause (ii) of the Explanation 2 to section 10A; (ia) “export turnover” means the consideration in respect of export by the undertaking, being the Unit of articles or things or services received in, or 15 brought into, India by the assessee in convertible foreign exchange in accordance with the provisions of sub-section (4A), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India;’ 10.16 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. 10.17 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.”
28. Respectfully following the decision cited (supra), we hold that the Ld. CIT(A) / NFAC was not justified in upholding the action of the Assessing Officer in not allowing the deduction u/s 10AA of the Act to the extent of Rs.17,72,231/-. We, therefore, set aside the order of the Ld. CIT(A) / NFAC on this issue and direct the Assessing Officer to allow the deduction u/s 10AA of the Act. The grounds of appeal raised by the assessee on this issue are accordingly allowed.
29. Grounds of appeal No.7 and 8 relate to the order of the Ld. CIT(A) / NFAC in not enhancing the deduction u/s 10AA pro-rata on account of disallowance made on account of employees’ contribution to PF and ESI.
30. After hearing both sides, we find the Assessing Officer in the body of the order disallowed an amount of Rs.2,29,75,441/- being the delayed payment of 16 employees’ contribution to PF and ESI. We find the assessee took a ground before the Ld. CIT(A) / NFAC that in case the disallowance of employees’ contribution to PF and ESI is sustained then the assessee should be allowed to get enhanced deduction u/s 10AA of the Act. However, a perusal of the order of the Ld. CIT(A) / NFAC shows that he has not adjudicated this issue.
31. The Ld. Counsel for the assessee submitted that the issue stands decided in favour of the assessee by the decision of the Hon’ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. Reported in (2011) 330 ITR 175 (Bom) wherein it has been held that where the the Assessing Officer had enhanced income by disallowing the employer’s as well as employees’ contribution to PF and ESI, exemption u/s 10AA of the Act had to be granted on such enhanced income. Since the Ld. CIT(A) / NFAC in the instant case has not adjudicated this issue although a specific ground was taken before him, therefore, he submitted that he has no objection if the issue is restored to the file of the Ld. CIT(A) / NFAC.
32. The Ld. DR has no objection for restoring the issue to the file of the Ld. CIT(A) / NFAC for adjduciation.
33. After hearing both sides we find the assessee before the Ld. CIT(A) / NFAC has raised the following ground: “7. Without prejudice to the above claim, the Ld. Assessing Officer has erred in not enhancing the deduction U/s 10AA when the Income under the Head Profits 17 and Gains has been enhanced by the disallowance of the Employee Contribution delayed payment to the tune of Rs.2,18,89,134/-. The deduction U/s 10AA being based on the Profits and gains from the Business of the respective SEZ Units it was incumbent upon the AO to Compute the corrected enhanced deduction that is based on the consequence of the AO enhanced Profits and Gains from Business. The appellant prays that the consequent enhanced deduction U/s 10AA be allowed to the assessee.”
We find the Ld. CIT(A) / NFAC has not adjudicated the above ground taken by the assessee before him. Under these circumstances, we deem it proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to adjudicate the issue as per fact and law after providing due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds of appeal
No.7 and 8 are accordingly allowed for statistical purposes.