ITAT Pune: Deduction under Section 10AA Cannot Be Denied for Late Realisation of Export Proceeds

Birlasoft Ltd., engaged in computer and software services, filed its return declaring Rs. 95.13 crore income for AY 2018-19. The CPC processed the return under section 143(1) and made additions, including treating exempt dividend income as taxable. During scrutiny, the Assessing Officer further disallowed Rs. 17.72 lakh of deduction under section 10AA on the ground that export proceeds were not realized within the permitted time and employees’ contribution to PF/ESI for delayed deposit.

The assessee contended that section 10AA, as applicable for AY 2018-19, did not require receipt of foreign exchange within any prescribed period and that the AO incorrectly treated the 143(1) intimation as the starting point of computation. The CIT(A)/NFAC upheld the disallowances and declined to correct the dividend income error, holding that an appeal against 143(1) was the proper remedy. The assessee appealed to the Tribunal.

Issue before the Tribunal: Whether the assessee was entitled to the disallowed portion of deduction under section 10AA for AY 2018-19 despite late realisation of export proceeds when no such statutory requirement existed in that year, and whether related issues regarding exempt dividend income and enhanced 10AA deduction required adjudication.

Tribunal Held: The Tribunal held that for AY 2018-19 there was no statutory condition in section 10AA requiring foreign exchange realisation within a prescribed period, and that such a condition was introduced only from AY 2024-25 via section 10AA(4A). Relying on Vishnu Export, which clarified that no such requirement applied for earlier years and that even deemed exports qualified for deduction, the Tribunal allowed the assessee’s claim for Rs. 17.72 lakh and directed the AO to grant the deduction in full.

The Tribunal observed that the CIT(A) had not examined the merits and that the assessee had already filed a delayed appeal against the 143(1) intimation. The matter was remanded to the CIT(A)/NFAC for fresh adjudication. Similarly, the CIT(A) had also failed to decide the assessee’s claim for enhanced 10AA deduction arising from the PF/ESI disallowance. This issue, too, was remanded for proper adjudication after granting due opportunity.

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