INCOME TAX ACT, 1961

Section 10AA Section 10A Section 143(3)

Deduction under section 10AA - Allowability - Conversion of EPZ units in SEZ units - Deduction for additional 5 years after availing benefit of exemption under section 10A for 10 years

Assessee was in the business of manufacturing Pillows and Cushions. The issue concerns itself with disallowance of deduction under section 10AA by both the authorities below. Assessee during the course of assessment proceedings conducted by assessing officer under section 143(3) read with section 143(2), filed Form No. 56F before the AO, wherein it was stated that initial date of registration of business undertaking of the assessee in MEPZ was 30-8-2000 and date of commencement of manufacture of production was 9-12-2000. AO observed that assessee had claimed deduction under section 10A for ten consecutive assessment years from assessment year 2001-01 to assessment year 2010-11, while in this year under consideration, viz. 2011-12, the assessee had claimed deduction under section 10AA. The AO observed that as per provisions of section 10AA, the 'assessee was not eligible for deduction under section 10AA at all since, as per section 10AA(1), the unit was eligible for deduction, only if the unit begins to manufacture or produce articles or things or provide any services during the previous year relevant to assessment year 2006-07 onwards. In the present case the assessee had began manufacture in previous year relevant to assessment year 2001-02. Therefore, the assessee was not eligible to claim deduction under section 10AA. Assessee filed appeal before CIT(A), who was pleased to dismiss appeal of the assessee. Held: Provisions of section 10AA(1) is subject to provisions of other sub-sections of section 10AA. Three provisos inserted after section 10AA(3) read with sub-section 7B to section 10A inserted by SEZ Act, 2005 effective from 10-2-2006 are in-fact saving clauses which have made applicable provisions of newly inserted section 10AA to existing SEZ units under old regime which have not exhausted deduction for ten consecutive assessment years on the date of introduction of section 10AA, as was available to them under section 10A on commencement of SEZ Act, 2005 and thus these SEZ units shall be entitled for deduction for further period of 5 years beyond period of ten consecutive assessment years owing to newly inserted section 10AA of the 1961 Act keeping in view provisions of section 10AA(1)(ii). Assessee was entitled for deduction under section 10AA(1)(ii) for the impugned assessment year, subject to fulfilment of other conditions or grant of deduction under section 10AA.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 40(a)(i) Section 195 Section 9(1)(vii)

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