AO to exclude exempt. allowable u/s.10A (of Income Tax Act, 1961) from Book Profit taxable u/s.115JB (of Income Tax Act, 1961), ITAT

Facts in brief:

1. Assessee, company engaged in the business of manufacturing and export of diamond studded jewelry filed its return disclosing total income.

2. The case was subsequently taken up for scrutiny.

3. The assessment was completed under section 143(3) (of Income Tax Act, 1961).

4. In assessment, income of the assessee under the normal provisions was determined at `4,20,000/-, which, inter alia, included additions/disallowances of `57,563/- on account of internet on FD's and `13,39,825/- on account of EEFC income being excluded from computation of deduction under section 10A (of Income Tax Act, 1961).

5. While computing the book profits under section 115JAB (of Income Tax Act, 1961), Assessing officer (AO) disallowed the assessee's claim for deduction under section 10A (of Income Tax Act, 1961).

6. On appeal CIT(A) upheld the AO's order with respect to the addition made;

(i) On account of interest earned on FDs amounting to `57,563/-,

(ii) `13,39,825/- on account of interest received on EEFC,

(iii) Allowed the assessee's claim for deduction under section 10A (of Income Tax Act, 1961) to the extent of `1,63,48,175/- from 'Book Profit' under section 115JB (of Income Tax Act, 1961).

On appeal ITAT held,

7. It is evident from above that an existing SEZ unit will also be governed by Special Economic Zones Act, 2005. Therefore, we are of the considered view that the benefits which are to be provided to the newly established unit in SEZ as per section 10AA (of Income Tax Act, 1961) will also be available to the existing units in SEZ. Moreover, section 4(1) (of Income Tax Act, 1961) of SEZ Act provides that an existing SEZ unit shall be deemed to have been notified and established in accordance with provisions of SEZ Act and the provisions of Special Economic Zones Act shall apply to such existing SEZ units.

8. It is also observed that by the SEZ Act, sub-section (6) to section 115JB (of Income Tax Act, 1961) was also inserted providing that provisions of section 115JB (of Income Tax Act, 1961) shall not apply to the income accrued or arisen on or after 1.4.2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.

9. Hence, income of units located SEZ will not be included while computing book profit for the purpose of MAT as per section 115JB(6) (of Income Tax Act, 1961).

10. In view of above, we are of the considered view that there is merit in the contention of Id A.R. that irrespective of the fact that amendment has been made in clause (f) of Explanation (1) to section 115JB(2) (of Income Tax Act, 1961) to apply the provisions of MAT in respect of units which are entitled to deduction u/s.10A (of Income Tax Act, 1961) or 108 but the units which are in SEZ will continue to get benefits from the applicability of provisions of MAT in view of sub-section(6) of the Act.

11. We also observe that benefit given to SEZ unit from the applicability of provisions of section 115JB (of Income Tax Act, 1961) has been withdrawn by the Finance Act, 2011 by inserting a proviso to section 115JB(6) (of Income Tax Act, 1961)."

12. Respectfully following the decision of the Co ordinate Bench, we direct the AO to exclude the exemption allowable u/s.10A (of Income Tax Act, 1961) from the Book Profit taxable u/s. 115JB (of Income Tax Act, 1961). Ground No. 4 is accordingly allowed." 10.3.1 Following the aforesaid decision of the Coordinate Bench in assessee's own case for A.Y. 2009-10 (supra), we direct the AO to exclude the deduction allowable under section 10A (of Income Tax Act, 1961) from the 'Book Profits' computed under section 115JB (of Income Tax Act, 1961). Consequently, Revenue's grounds at S.Nos. 1 and 2 are dismissed.

13. In the result, the Revenue's appeal for A.Y. 2010-11 dismissed. 

Case Reference- Finestar Jewellery And Diamonds ... vs Assessee