The DCIT, Circle-3(2), Ahmedabad V. M/s. Vishnu Export, Ahmedabad

ITA 1491/AHD/2019

AI Insights

The case involves the Department of Income Tax appealing against the decision of the CIT(Appeals) which allowed the deduction under section 10AA of the Income-tax Act, 1961 to M/s. Vishnu Export for the assessment year 2016-17. The main contention by the Department was that the assessee did not meet the conditions for the deduction as the business was initially a proprietorship and later converted into a partnership, and that the sales were made to domestic parties rather than direct exports. However, the CIT(Appeals) and the Tribunal found that the assessee's sales to merchant exporters constituted deemed exports, and the conversion from proprietorship to partnership was duly approved by SEZ authorities.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131420 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-06-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 30-09-2019
• Other Referred Cases: Gokul Overseas Vs. ACIT, Choice Sanitaryware Industries vs. CIT, Granite Mart Ltd. vs. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed export
• Section: 10AA; 80IB; 13

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Th e DCIT, Circle-3 (2 ), Ah medabad (Appellant) Vs M/s. Vish nu Export, Shop No. 4, Shivdhara Co mplex, Mah a Gujarat Estate, Sarkh ej Bavla Hig hway, San and, Ah med abad-3822 13 PAN: AALFV9288N (Resp ondent) Asses see b y : Shri Su res h Ga ndhi, A.R. Revenue by : Shri S udhendu Das, CIT-D. R. Date of hearing : 14-06 -2 023 Date of pronouncement : 16-06 -2 023 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-3, Ahmedabad, in proceeding u/s. 250 vide order dated 29/07/2019 passed for the assessment year 2016-17. ITA No. 1491/Ahd/2019 Assessment Year 2016-17 I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 2 2. The Department has raised the following grounds of appeal:- "Whether the Ld.CIT(A) was correct in deleting the disallowance of Rs. 10,52,21,158/- made by AO u/s 10AA of 'the Income-tax Act, 1961." 3. On the facts and circumstances of the case, Ld CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of Ld CIT(A) may be set aside and that of the Assessing Officer be restored.” 3. The brief facts of the case are that during the impugned year under consideration, the assessee claimed deduction under section 10AA of the Act, which was denied by the AO on the ground that firstly, the unit of the assessee initially established as proprietary concern in financial year 2013- 14 was later on converted into partnership concern on 1 st September 2014 and the business set up of the Unit belongs to the proprietorship concern, taken over by the partnership form; secondly, the assessee has taken machineries on lease basis and the assessee has no machinery set up in its new infrastructure and thirdly the assessee has executed sales transactions with domestic parties for total sale proceeds of 59,64,32,500/- during the year and not exported goods directly outside India and not earned any foreign currency in reference of export and the whole amount of sale proceeds belongs to the local sales to domestic parties. 4. The assessee filed appeal before Ld. CIT(Appeals), who dealt with all the aforesaid issues and decided the appeal in favour of the assessee both on I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 3 merits of the case and also on the ground that his predecessor Ld. CIT(Appeals) on identical facts and issues for consideration had allowed the appeal of the assessee. Accordingly, following the decision of the predecessor CIT(A) for assessment year 2015-16, Ld. CIT(Appeals) allowed the appeal of the assessee, with the following observations: “Thus, in my considered opinion, the appellant has duly fulfilled the condition of Sec. 10AA with regard to export of goods out of India. Further this issue was also there in the earlier assessment year i.e. 2075-76, wherein, the CIT (A)-3, Ahmedabad in order No. CIT(A)- 3//368/3(2)/2017-18 dated 20-06-2018 has given the following findings: "So far as the third reason i.e. sales proceeds must be brought in India in foreign exchange, given by the AO, the AO has observed that the appellant has not brought in India the convertible foreign exchange since the appellant has sold the goods to local parties. In this regards, the AR of the appellant submitted complete details of total sales of Rs. 1 2, 2 1, 55,0007- made during the FY 2014-15 and explained that the parties to whom the sales made by the appellant firm have, in turn exported the goods out of India which were manufactured by the appellant firm. The sale to approved merchant exporter cannot be treated as local sales. Thus, the sales made by the appellant firm is Deemed Export and not local sales within India as mistakenly observed by the AO. Before the AO, the appellant has submitted the statement showing invoice-wise details of sale and its deemed exports along with the specimen copy of all the relevant documents required to remove the goods from SEZ to Discharge Port of export of goods out of India. On perusal of the invoice raised by the appellant firm, it is seen that the name of the appellant firm is as "Supplier/Manufacturer" and further it has been mentioned as "on a/c. of exporter" and the name of exporter has been mentioned. Further, the name of "Consignee" in the said invoice is the name of the ultimate buyer of foreign country. I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 4 Further, the invoice also gives the details of country of final destination, vessel's name/flight number, port of loading, Port of discharge, place of delivery, description of goods with number and kind of packages, quantity in cartons, rate per carton and the total amount. Further, it is also seen from the invoice that it has been raised by the appellant firm in USD i.e. foreign currency and not in Indian Rupees. It is also seen that the Merchant Exporter has exported the goods as per Rule 46(1 )(11) of the SEZ Rules 2006, which has been categorically mentioned in the invoice raised by the appellant firm. Further, shipping bill for export of duty free goods has also been verified and certified by the KASEZ authorizes while affixing their seal on it. Further, the invoice and packing list raised by the merchant exporter (e.g. M/s Ankita Overseas) also mention the name of manufacturer i.e. Vishnu Export (the appellant firm) having its address in KASEZ. Further, since the appellant firm is a 100 per cent export oriented unit established in the SEZ (in the present case KASEZ), it cannot sale the manufactured goods in local market of India. Thus, the goods sold to merchant exporters have been ultimately exported as per the SEZ Rules 2006 and the procedure of export laid down in SEZ Rules 2006 are observed, verified and authenticated by KASEZ authorities which proves beyond doubt that KASEZ authorities have also accepted that the goods manufactured by the appellant firm have been exported as per the permission granted to establish the Unit in KASEZ. In support of the contention that deemed export is eligible for the deduction u/s. 10AA of the Act, the appellant firm has relied upon the decisions of jurisdictional ITAT, Ahmedabad Bench in the case of Gokul Overseas Vs. ACIT (ITA No. 1028/Ahd/2013 -AY 2009-10 - Order dated 30/08/2016). I have gone through the said decision, and found that the ratio laid down in the said judgment is squarely applicable to the case of the appellant firm. In its entirety, the appellant firm has duly established that it has fulfilled all the conditions laid down u/s. 10AA of the Act." In view of the fact that there is no change in the facts of the preceding year and the year under dispute i.e. AY 2016-17, I do not find any I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 5 reason to deviate from the observations and findings of my learned predecessor CIT(A) on this issue reproduced hereinabove. 2. 11. In view of all the above facts of the case, I am of the considered opinion that in its entirety, the appellant firm has duly established that it has fulfilled all the conditions laid down u/s. 10AA of the Act. Further, in the very preceding assessment year 2005-16 in appellant's own case, similar issue has been decided in favour of the appellant as stated hereinabove. There is no change in the facts and circumstances of the case for the AY 2015-16 and AY 2016-17. Accordingly, the disallowance of claim u/s. 10AA of the Act of Rs. 10,52,21, 158/- made by the AO is unjustified and not sustainable in law and therefore the AO is directed to allow the claim of deduction u/s. 10AA of the Act of Rs. 10,52,21,158/-. The grounds of appeal no. 1 to 4 of are decided accordingly. 3. In the result, the appeal of the appellant is allowed.” 5. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) allowing the appeal of the assessee on the issue of allowance of deduction under section 10AA of the Act. Before us, the Ld. DR primary relied upon the observations made by the assessing officer in the assessment order. In response, the counsel for the assessee submitted that the case of the assessee is fully covered in favour of the assessee, in view of the decision of Ahmedabad ITAT in assessee’s own case for assessment year 2015-16 in ITA number 1840/Ahd/2018 vide order dated 31-03-2023, wherein on similar set of facts and issues for consideration, the ITAT held that the assessee is eligible for claim of deduction under section 10AA of the Act. A copy of the order passed by ITAT has been produced before us for our perusal. I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 6 6. We have heard the rival contentions and perused the material on record. On going to the contents of the order passed by ITAT in assessee’s own case for assessment year 2015-16, we observe that on identical set of facts and issues for consideration, the appeal of the assessee was allowed wherein the ITAT held that the assessee is eligible to claim deduction u/s 10AA of the Act. Accordingly, respectfully following the order passed by ITAT in assessee’s own case for assessment year 2015-16, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in holding that the assessee is eligible for claiming deduction under section 10AA of the Act. It would be useful to reproduce the relevant extracts of the order passed by ITAT for assessment year 2015-16 for ready reference: “10.8 The 2 nd controversy arises whether the assessee can be deprived of the 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 1 st question discussed above that the deduction was claimed in the revised return of income. Thus, the revenue fails on this reasoning also. 10.9 The 3 rd controversy arises whether the assessee is not eligible for deduction 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. I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 7 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 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 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. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 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 I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 8 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: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 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. 11. In the result, the appeal filed by the Revenue is dismissed. “ 6.1 In view of the aforesaid order reproduced above, appeal of the Department is dismissed. I.T.A No. 1491/Ahd/2019 A.Y. 2016-17 Page No. DCIT vs. M/s. Vishnu Export 9 7. In the result, appeal of the Department is dismissed. Order pronounced in the open court on 16-06-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 16/06/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद