Import of Diamonds for Re – Export would be in Nature of Services for Claiming Section 10AA Deduction

FACTS

1. Assessee is a partnership firm is engaged in the business of importing diamonds for the purpose of re-export after sorting and grading from Special Economic Zone (SEZ) unit
2. Assessee filed his return of income by declaring total income to be Nil after claiming deduction u/s 10AA of The Income Tax Act, 1961 (The Act).
3. Assessing Officer (AO) disallowed the said deduction on the grounds that no manufacturing activity was being undertaken by Assessee as per the provisions of Section 10AA of The Act. Further, reason of disallowance was given that the basic mindset for introduction of this Section was to encourage export which was not fulfilled by the Assessee.

CLARIFICATION

1. Authorised representative submitted that Assessee is a SEZ unit and engaged in re-export of imported diamonds which is in the nature of services and word “services” is not defined u/s 10AA of The Act and per SEZ Act services means tradeable services as covered under General agreement of trade in services. Further, as per Rule 76 of the SEZ Rules, 2006, services include trading and hence eligible to claim deduction u/s 10AA of The Act.
2. Further, it was submitted that as per Section 51 of The SEZ Act, provisions of SEZ Act will have overriding impact in case of any inconsistency with any other Act and word services is not defined in Section 10AA of The Act hence meaning of word has been taken from The SEZ Act which provides the activity undertaken by Assessee has been covered under services and eligible for deduction.
3. ITAT clarified that, since the provision of SEZ Act have overriding provisions in case of inconsistency with any other act and the definition of the word “services” has been defined under the SEZ Act which inter-alia includes trading activity, hence Assesee’s claiming deduction u/s 10AA of The Act has been correctly justified. Further the same decision has been taken in case of Goenka Diamonds & Jewellers Ltd.
4. Further, it was clarified that Commissioner Appeals while sustaining deduction relied on the decision in case of Dilip Kumar & Co. however the decision rather supports the claim of Assessee as basic condition for claiming deduction are fulfilled.

CONCLUSION

Based on the above facts and clarifications, all the requirements for claiming deduction u/s 10AA of The Act are fulfilled and therefore assesee’s claim being purely a legal ground hence appeal of Assessee is allowed.

Source: [2020] 114 taxmann.com 176 (Mumbai – Trib.)