Section 10AA Deduction Can’t Be Denied Merely Not Receiving Convertible Foreign Exchange On The Deemed Exports: ITAT

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Section 10AA deduction cannot be denied merely on the reasoning that the assessee did not receive the convertible foreign exchange on the deemed exports.

The bench of Madhumita Roy (Judicial Member) and Waseem Ahmed (Accountant Member) has observed that there was no condition applicable for the Assessment Year 2015-16 to bring foreign exchange into India on account of the exports of sales.

The respondent/assessee is a partnership firm engaged in the manufacturing business of pan masala with and without gutka. The factory of the assessee is located at Kandla Special Economic Zone, Gandhidham Kachh. The assessee in the revised return of income, dated January 19, 2017, has claimed the deduction of Rs. 1,49,72,275 under the provisions of Section 10AA of the Income Tax Act.

The department opined that the assessee has not made any export sales, which implies that foreign convertible exchange was not brought into India, which was a prerequisite for claiming the deduction under Section 10AA of the Income Tax Act.

The assessee contended that there was no prohibition for claiming the deduction under Section 10AA of the Act in the revised return of income. As such, there was no provision in the statute at the relevant time to file the return of income within the due date for claiming a deduction under Section 10AA. It has been proposed by way of amendment in the Finance Bill, 2023, to file the return of income within the due date, but the amendment is not applicable to Assessment Year 2015-16.

The issue raised was whether the assessee could be denied the benefit of the deduction provided under Section 10AA of the Act in cases of domestic sales where no convertible foreign exchange was brought to India.

The ITAT held that 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 is allowed to make sales to merchant exporters, which will be treated as deemed exports. Therefore, the assessee is eligible for deduction under Section 10AA of the Act on such deemed exports even if the assessee does not bring any foreign exchange on account of such sales.

Case Title: A.C.I.T Versus M/s Vishnu Export

Case No.: ITA No. 1840/AHD/2018

Date: 31/03/2023

Counsel For Appellant: Ravindra

Counsel For Respondent: Tushar Hemani

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