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This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -4, Kolkata for the AY2014-15 dated11.10.2018

2. The main grievance of the assessee is against the action of Ld. CIT(A)upholding the AO's order of denying the benefit of deduction claimed u/s 10AA of the Act. Briefly stated facts of the case are that the appellant is a private limited company, engaged in the business of manufacture of specialty inks and allied products. The only manufacturing unit of the appellant is located at Dahej SEZ in Gujarat. Being located in notified SEZ, profits of the manufacturing unitis legally eligible for deduction u/s 10AA of the Act. For the AY 2014- 15 the appellant filed its return of income declaring a loss of Rs.7,96,40,878/- and therefore in the computation of income and the return of income, deduction u/s 10AA was reported to be NIL. Such loss was arrived at after Rs.24,50,70,020/-was charged to the P&L Account as revenue expenditure, on account of exchange fluctuation loss. In the course of assessment the appellant was called upon to furnish details of the exchange loss/gain. Vide letter dated 20.12.2017 the appellant however brought to the notice of the AO that exchange fluctuation loss to the extent of Rs.24,50,70,020/- pertained to FCCBs utilized for acquisition of capital M/s. DIC Fine Chemicals Pvt. Ltd. AY- 2014-15 assets which may not be allowable as expenditure in arriving at current year's business income. The appellant accordingly furnished a revised computation of income disallowing the loss of Rs.24,50,70,020/- and claimed consequential depreciation on the enhanced cost of the capital assets. As a result, the original returned loss of Rs.7,96,40,878/- got revised to a positive business income of Rs.12,55,84,483/- against which deduction u/s 10AA of Rs.12,32,93,654/- was claimed by the appellant. Along with the revised computation of income, a report of the Chartered Accountant in Form 56F was furnished before the AO. Although the AO disallowed the exchange fluctuation loss of Rs.24,50,70,020/- while assessing the appellant's business income but relying on the decision of the Hon'ble Supreme Court in the case of CIT vs Goetze India Ltd (284 ITR 323) the AO denied the benefit of corresponding deduction claimed u/s 10AA observing that such claim was not made in the return of income or in the revised return. The AO also denied the benefit of the capitalization of exchange fluctuation loss and consequent higher claim of depreciation on the same ground. Aggrieved the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) noted that although the decision of the Hon'ble Supreme Court in the case of CIT vs Goetze India Ltd (284 ITR 323) prevented the AO from entertaining fresh claim in the assessment proceedings without revised return but relying on the decision of the Hon'ble Bombay High Court in the case of CIT Vs Pruthvi Brokers & Shareholders Pvt Ltd (252 CTR 151) the Ld. CIT(A) held that fresh claim can be raised before the appellate authority. The Ld. CIT(A) although entertained the appellant's claim for adjudication but denied the same on two limbs viz., (a) the appellant did not file the audit report in Form 56F along with the return of income and therefore in terms of Section 10A(5) read with Section 10AA(8), the claim was not tenable, and (b) the claim for deduction was not made in the return of income filed u/s 139(1) and therefore in terms of Section 80A(5), the claim was inadmissible. The Ld. CIT(A) further observed that the forex loss of Rs.24,50,70,020/- was not eligible for deduction u/s 10AA as it did not represent 'profits & gains derived from export of article or thing' and therefore even on merits the claim of deduction u/s 10AA was not tenable. Aggrieved by this order of the Ld. CIT(A), the assessee is now in appeal before us.

10. From co-joint and harmonious reading of the provisions of Section 80A(5) and CBDT Circular, we find that the amended provisions sought to deny profit-linked deductions prescribed in the Act where an assessee "fails" to make a claim for such deduction in the return of income. The Ld. AR brought to our attention that the word legislatively used in Section 80A(5) is 'fails' and not 'omits' to make a claim in the return M/s. DIC Fine Chemicals Pvt. Ltd. AY- 2014-15 of income. Inviting our attention to the return of income filed in prescribed form ITR-6, the Ld. AR submitted that the appellant could not have claimed the deduction u/s 10AA since the income returned was loss. We note that under the electronic system of filing returns of income as notified by the CBDT, the assessee could have made a claim for deduction u/s 10AA only in Form ITR-6 at Schedule 10AA in Sl No.(a). It was brought to our notice that the relevant field in the ITR for claiming profit-linked deduction would not have accepted any figure or amount of permissible deduction if the figure reported under the head 'Profits & Gains of Business' was a loss. It was also brought to our notice that there was no field elsewhere in the ITR-6 wherein the assessee could report that it operated an SEZ unit eligible for deduction u/s 10AA at Dahej, Gujarat. In this factual background the Ld. AR submitted that it was not a case where the assessee had "failed" to make a claim of deduction u/s 10AA while filing the return of income within the time prescribed in S 139(1). He submitted that since the returned income was a loss, there was no possibility for the assessee to legally raise or make claim of deduction u/s 10AA in the return filed u/s 139(1) and therefore no "failure" as contemplated in law could be attributed to the assessee so as to invoke the rigors of Section 80A(5) of the Act.

14. We also find that Circular No. 37/2016 dated 02.11.2016 was issued by the CBDT subsequent to enactment of Section 80A(5) of the Act wherein the Board clarified that profit-based deductions permissible under the Act have to be granted with reference to business income, finally assessed. The CBDT clarified that if in arriving at the business income any disallowances are made by the AO relating to the eligible business, then the deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowances. In the present case the appellant had incurred forex loss in respect of FCCB which was incurred and used for the purposes of business. The loss was debited to P&L A/c of the eligible undertaking in conformity with AS-11 and therefore the same constituted an expenditure incurred or laid out for the purposes of assessee's eligible business. However since such forex loss pertained to transactions in capital field, it was capital in nature and therefore in terms of Section 37(1) the deduction therefor was not admissible. We therefore find that the disallowance, made in the appellant's case, was in terms of Section 37(1) of the Act and therefore as per the Circular No. 37/2016, the amount disallowed was required to be taken into consideration for determining the profits qualifying for deduction u/s 10AA. For the reasons set out in the foregoing therefore, we are of the considered view that there was no contravention of Section 80A(5) because there was no "failure" on the assessee's part to claim deduction permissible under Section 10AA of the Act while filing it's return. On the contrary we are of the view that having regard to the peculiar facts of the appellant's case, the assessee could not have legally claimed any deduction u/s 10AA in the return of income filed electronically. It is only account of disallowance of the forex loss under Section 37(1) that the returned loss stood converted into positive business income for the relevant year and as a consequence, the assessee became eligible to claim deduction. We also note that the AO per se did not dispute or object to the assessee's claim on merits but it was rejected only on technical grounds. We are of the considered view that there is no estoppel in law and an M/s. DIC Fine Chemicals Pvt. Ltd. AY- 2014-15 assessee cannot be denied a rightful deduction to which it is eligible unless there is specific bar in law from claiming such deduction. On the peculiar facts of the present case we find that statutory bar provided in Section 80A(5) did not operate as there was no "failure" on the assessee's part to claim deduction u/s 10AA of the Act but it was a case where the deduction became claimable only as a result of disallowance proposed in the assessment. Accordingly the second objection raised by the Ld. CIT(A) in support of rejection of claim u/s 10AA also fails.

15. Apart from the above two objections, even on merits the Ld. CIT(A) held that the deduction u/s 10AA was not admissible because profit assessed by the AO was consequent to the disallowance of forex loss and therefore did not tantamount to "profit"derived from export of article or thing. In Ld. CIT(A)'s opinion the conditions prescribed for claiming deduction in Section 10AA did not stand fulfilled. We however find merit in the Ld. AR's submission that this finding of the Ld. CIT(A) is fundamentally flawed. As pointed out by the Ld AR, in the assessment order the AO per se never questioned eligibility of the appellant to claim deduction u/s 10AA on merits and he never questioned the fact that the appellant's only source of business income was it's manufacturing undertaking located in SEZ at Dahej, Gujarat. Admittedly the forex loss which the lower authorities disallowed did not pertain to the trading transactions but pertained to transactions in "capital" field. The business income assessed by the AO in the impugned order was therefore derived from the appellant's business of manufacture of goods at it's SEZ undertaking. We note that the Section 10AA grants deduction @ 100% of the profits derived from export of articles or goods' manufactured at SEZ undertaking. By AO's own admission in working out the operating profits of the eligible unit, he had excluded the forex loss incurred being capital in nature. After excluding loss of capital nature, the AO computed the appellant's business profit derived from the eligible unit on stand alone basis. We are therefore of the considered view that the current year's operating business income assessed by the AO had nothing to do with the forex loss incurred in the capital transactions and the profits assessed by the AO in the impugned assessment solely represented profits derived from 'export of articles or goods' manufactured at SEZ undertaking. In view of this factual position, merely because in the original return, deduction for forex loss was claimed, did not lead to conclusion that the consequent to the disallowance of forex loss, basic character or nature of the resultant profit M/s. DIC Fine Chemicals Pvt. Ltd. AY- 2014-15 was any thing other than profit of the eligible business. We therefore do not find any merit in the Ld. CIT(A)'s finding denying the benefit of deduction u/s 10AA on merits.