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The Tax Publishers Denial of deduction under Section 10AA (SEZ benefits) due to -- (i) Deduction claimed via revised return of income (ii) Furnishing the audit report in form 56F during the assessment proceedings (iii) Conversion of its status i.e. proprietorship conversion into partnership firm (iv) Machineries were acquired on lease (v) Non-remittance of convertible foreign exchange on account of the non-exports *Facts :* Assessee a SEZ unit was a proprietorship concern which was subsequently converted into a partnership firm. They rendered sales (deemed exports) to merchant exporters in India who in turn exported goods to end customers and claimed Section 10AA deduction, thus no direct Forex was brought in by the assessee.The deduction under Section 10AA was claimed by filing a revised return. The audit report entailing the deduction was filed only during assessment. Further it was alleged that certain machinery were taken on lease thus the SEZ entity was one borne of reconstruction and not with original fresh investments. Based on the above points AO denied the benefit of Section 10AA deduction. On appeal CIT(A) allowed the same. Aggrieved revenue went in higher appeal to ITAT - Held in favour of the assessee that they were entitled to the deduction under Section 10AA. 1. Section 10AA unlike provisions of Section 10A does not compulsorily warrant the claim of deduction only by filing a return within the due date. Amendment in Finance bill 2023 to correct this is to be noted. Revised return is filed to correct an omission/wrong filing after all and replaces the original return. *Applied :*Dhampur Sugar Mills Ltd. v. CIT, (1973) 90 ITR 236 (All HC) : 1973 TaxPub(DT) 0200 (All-HC). 2. Filing audit report belatedly is a venial breach and cannot deny assessee of the inherent benefit of Section 10AA. 3. Entity conversion does not disentitle the assessee to claim the Section 10AA deduction. No such conditions are prescribed in Section 10AA. *Applied :* CIT v. Heartland KG Information Ltd. (2014) 359 ITR 1 (Mad HC) : 2014 TaxPub(DT) 0193 (Mad-HC) CIT v. Bullet International (2022) 349 ITR 267 (All HC) : 2012 TaxPub(DT) 3184 (All-HC) 4. Leasehold machinery being put to use, reconstructed entity - the point of investment being fresh to be seen at set up stage and not subsequently. *Applied :* CIT v. M/s Choice Sanitaryware Industries in [ITA 274/RJT/2008, dt. 23-12-2010] : 2011 TaxPub(DT) 1566 (Rkt Trib) 5. Deemed export sale - denial - does not deny benefits of Section 10AA. Amendment made by Finance bill, 2023 to restrict this only to convertible Forex being brought into the country is to be noted and is only prospective. *Applied :* Granite Mart Ltd. v. ITO 2020 TaxPub(DT) 2134 (Karn-HC) *Case:* ACIT v. Vishnu Export 2023 TaxPub(DT) 2175 (Ahd-Trib)

The Tax Publishers

Denial of deduction under Section 10AA (SEZ benefits) due to --

(i) Deduction claimed via revised return of income

(ii) Furnishing the audit report in form 56F during the assessment proceedings

(iii) Conversion of its status i.e. proprietorship conversion into partnership firm

(iv) Machineries were acquired on lease

(v) Non-remittance of convertible foreign exchange on account of the non-exports

Facts :

Assessee a SEZ unit was a proprietorship concern which was subsequently converted into a partnership firm. They rendered sales (deemed exports) to merchant exporters in India who in turn exported goods to end customers and claimed Section 10AA deduction, thus no direct Forex was brought in by the assessee.The deduction under Section 10AA was claimed by filing a revised return. The audit report entailing the deduction was filed only during assessment. Further it was alleged that certain machinery were taken on lease thus the SEZ entity was one borne of reconstruction and not with original fresh investments. Based on the above points AO denied the benefit of Section 10AA deduction. On appeal CIT(A) allowed the same. Aggrieved revenue went in higher appeal to ITAT -

Held in favour of the assessee that they were entitled to the deduction under Section 10AA.

1. Section 10AA unlike provisions of Section 10A does not compulsorily warrant the claim of deduction only by filing a return within the due date. Amendment in Finance bill 2023 to correct this is to be noted. Revised return is filed to correct an omission/wrong filing after all and replaces the original return.

Applied :Dhampur Sugar Mills Ltd. v. CIT, (1973) 90 ITR 236 (All HC) : 1973 TaxPub(DT) 0200 (All-HC).

2. Filing audit report belatedly is a venial breach and cannot deny assessee of the inherent benefit of Section 10AA.

3. Entity conversion does not disentitle the assessee to claim the Section 10AA deduction. No such conditions are prescribed in Section 10AA.

Applied :

CIT v. Heartland KG Information Ltd. (2014) 359 ITR 1 (Mad HC) : 2014 TaxPub(DT) 0193 (Mad-HC)

CIT v. Bullet International (2022) 349 ITR 267 (All HC) : 2012 TaxPub(DT) 3184 (All-HC)

4. Leasehold machinery being put to use, reconstructed entity - the point of investment being fresh to be seen at set up stage and not subsequently.

Applied :

CIT v. M/s Choice Sanitaryware Industries in [ITA 274/RJT/2008, dt. 23-12-2010] : 2011 TaxPub(DT) 1566 (Rkt Trib)

5. Deemed export sale - denial - does not deny benefits of Section 10AA. Amendment made by Finance bill, 2023 to restrict this only to convertible Forex being brought into the country is to be noted and is only prospective.

Applied :

Granite Mart Ltd. v. ITO 2020 TaxPub(DT) 2134 (Karn-HC)

Case: ACIT v. Vishnu Export 2023 TaxPub(DT) 2175 (Ahd-Trib)