Section 10AA

Section 10AA — the law in short

What the courts have decided on section 10AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Genesys International Corporation Ltd v ACIT High CourtHelps taxpayerNo later treatment found
  We claimed s.10AA on our SEZ unit without first setting off the losses of our other units, and the officer now wants to reopen the assessment to undo it. Is that a good reason to reopen?
  No. The Bombay High Court held that the very premise of the reopening - that the s.10AA deduction should have been given only after setting off the losses of the ineligible units - is in the teeth of the Supreme Court's decision in CIT v Yokogawa India Ltd, so it could not found a reason to believe income had escaped. The other two grounds also failed: the six month repatriation condition was introduced only by the Finance Act 2024 and did not apply to assessment year 2017-18, and the fact that the claim was made in the return under 'any other amount allowable as deduction' rather than in the s.10AA schedule was explained by the return utility itself. The notice was quashed as a change of opinion.
• PCIT-2 v EYGBS (India) Pvt Ltd High CourtHelps taxpayer
  Your client offered a transfer pricing adjustment itself because its APA required it. The officer says s.92C(4) bars the s.10AA exemption on that extra income. Is he right?
  No. Where the assessee computes the arm's length price itself pursuant to an APA entered into with the CBDT, none of the conditions in s.92C(3) is attracted, and s.92C(4) therefore never comes into operation at all. The bar in s.92C(4) is aimed at income by which the Assessing Officer enhances the declared total income, not at figures the assessee has itself declared in conformity with its APA. The Revenue's appeals were dismissed.
• Pr. CIT-7 v Om Nanotech Pvt Ltd High CourtHelps taxpayerNo later treatment found
  Our SEZ unit imports goods and re-exports them without manufacturing. The officer says s.10AA is only for manufacture or services and has denied the whole claim. Is trading within s.10AA?
  Yes, where the trading is import for the purpose of re-export. The Delhi High Court held that s.10AA was inserted by the SEZ Act 2005 and must be read with that Act, in which 'services' is defined; rule 76 of the SEZ Rules 2006 lists trading among the prescribed services and its Explanation says trading, for the purposes of the Second Schedule to the SEZ Act, means import for the purposes of re-export. So the profits of an SEZ trading unit that imports and re-exports qualify for deduction under s.10AA.
• PCIT v Macquarie Global Services Pvt Ltd — s.10AA(4) is unit specific, and the splitting-up objection belongs to the first year High CourtHelps taxpayer
  The Assessing Officer says my client's SEZ unit is a reconstruction of its existing EOU business, and he is raising it in year three after allowing the claim twice. Can he?
  The Delhi High Court held that the conditions in s.10AA(4) are unit specific and not assessee specific, so an assessee who already runs an export business — even one that enjoyed s.10A relief — is not disqualified from claiming s.10AA on a genuinely new SEZ unit. It also held, following its own earlier decisions, that the objection under clause (ii) that the undertaking was formed by splitting up or reconstruction relates to the date of formation and must be taken in the first year in which the exemption is claimed, not in a later year. The Revenue's appeal was dismissed with no substantial question of law arising.
• 360 One Distribution Services Ltd v DCIT — s.80A(5) kills a s.80JJAA claim first made before the Commissioner (Appeals) ITATHelps departmentNo later treatment found
  We missed the s.80JJAA claim in the return and raised it for the first time in appeal, with the Form 10DA report in hand. Can the Commissioner (Appeals) or the Tribunal still allow it?
  No. The Mumbai Tribunal held that s.80A(5) disentitles an assessee from claiming a deduction under s.80JJAA where the claim was not made in the return of income, and that this disposes of the matter without going into any other aspect. It was no answer that the chartered accountant's Form 10DA had been issued, because the Tribunal found nothing on record that prevented the assessee from raising the claim and filing Form 10DA before the Assessing Officer during the scrutiny proceedings, which ran on until the assessment order was passed. The appeal was dismissed.
• ACIT v Lahari Holiday Homes (P) Ltd — the s.115BAA option can be exercised in a revised return, and the MAT credit then goes ITATHelps taxpayer
  We filed the original return under MAT claiming MAT credit, then filed a revised return within the due date opting for s.115BAA. The Assessing Officer says that is a prohibited withdrawal of the option. Is it, and what happens to the MAT credit and our brought-forward losses?
  It is not a withdrawal. A revised return under s.139(5) substitutes the original return and assumes the character of a return under s.139(1), so an option exercised for the first time in a revised return filed within the due date is a valid first exercise — there was no earlier exercise capable of being withdrawn. But once the concessional regime is allowed, no MAT credit can be claimed for that year; and s.115BAA(2) bars set-off only of losses attributable to the deductions it specifies, not of ordinary brought-forward business and capital losses.
• Dell International Services India Pvt Ltd v DCIT ITATHelps taxpayerNo later treatment found
  You offered extra income to give effect to a MAP resolution. The officer says the proviso denying a Chapter III deduction on enhanced income applies. Does it?
  No, on this Bench's view. The proviso applies only to a transfer pricing adjustment made by the Assessing Officer. It does not reach income enhanced under a mutual agreement procedure resolution, which is one of several distinct modes by which an arm's length price can come to be determined, and where the assessee actually invoices its associated enterprise and brings the foreign exchange in.
• M/s Divya Creation v Pr. CIT — AMT under s.115JC is not attracted where the deduction claimed is under s.10A ITATHelps taxpayerNo later treatment found
  The Commissioner has revised my assessment under s.263 saying the Assessing Officer never examined AMT. My only deduction is under s.10A. Does s.115JC even apply to me?
  It does not. Section 115JC(2) is a closed list: adjusted total income is the total income increased only by deductions under Chapter VI-A heading C other than s.80P, by a deduction under s.10AA, and by a deduction under s.35AD net of the notional depreciation. A deduction under s.10A is not in that list, so where that is the only claim the provisions of s.115JC are clearly not applicable and the Assessing Officer was under no duty to enquire into them.
• Statutory position — s.10AA: what "export turnover" excludes, and the six-month realisation condition in s.10AA(4A) CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has reduced my client's s.10AA export turnover by freight and insurance. What exactly does the definition exclude, and is there a time limit for bringing the money in?
  Both the current definition of "export turnover" and the six-month realisation condition date from the Finance Act 2023 and apply from AY 2024-25. "Export turnover" in Explanation 1 to s.10AA is the consideration for export by the Unit of articles or things or services received in, or brought into, India in convertible foreign exchange in accordance with s.10AA(4A), and it excludes four things: freight, telecommunication charges and insurance attributable to the delivery of the articles or things outside India, and expenses incurred in foreign exchange in rendering services (including computer software) outside India. Separately and independently, from AY 2024-25 s.10AA(4A) makes the section apply to a Unit only if the sale or service proceeds are received in, or brought into, India in convertible foreign exchange within six months from the end of the previous year or such further period as the Reserve Bank of India (or the authority regulating foreign exchange) may allow.
• Statutory position — the Explanation to s.10AA(1): the SEZ deduction is capped at total income, and a late return kills it CBDT Circulars & InstructionsCuts both ways
  My client has an SEZ unit in profit and other units in loss. Does the s.10AA deduction come off the unit's own profit before the other units' losses, or only after? And does a late return matter?
  The Explanation to s.10AA(1) now settles the arithmetic against the taxpayer at the outer limit: the deduction "shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee". So whatever the unit-wise computation produces, the allowance cannot exceed the assessee's total income computed after every other provision of the Act — including the set-off provisions — has been applied. Separately, the proviso to s.10AA(1) denies the deduction outright to an assessee who does not furnish a return of income on or before the due date under s.139(1).
• Statutory position — section 80AC and section 115JC: a late return destroys the section 80LA claim, and AMT still bites at nine per cent CBDT Circulars & InstructionsCuts both ways
  We missed the section 139(1) due date by a week and the IFSC unit's whole income is covered by section 80LA. Is the deduction still available, and does alternate minimum tax apply on top?
  On the first question, no. Section 80AC provides that for an assessment year commencing on or after 1 April 2018, where any deduction is admissible under any provision of Chapter VI-A under the heading 'C.—Deductions in respect of certain incomes', no such deduction shall be allowed unless the assessee furnishes a return of his income for that assessment year on or before the due date specified under section 139(1). Section 80LA sits in that Part of Chapter VI-A, so a return filed even a day late costs the whole deduction. On the second, alternate minimum tax under section 115JC does apply to a person other than a company, and section 115JC(2)(i) adds back deductions claimed under any section in that same Part C — but section 115JC(4)(i) substitutes nine per cent for eighteen and one-half per cent where the person is a unit located in an International Financial Services Centre deriving its income solely in convertible foreign exchange.
• Statutory position — s.10AA: the SEZ deduction, its fifteen-year run, and the commencement sunset CBDT Circulars & InstructionsCuts both ways
  A client wants to set up a new SEZ unit. Can it still claim s.10AA, and what exactly does an existing unit get in years eleven to fifteen?
  No new unit can get into s.10AA. The section applies only where the Unit begins to manufacture or produce articles or things or provide services "during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021", so the gate is shut on anyone commencing now. The last previous year in which a Unit could commence and qualify is FY 2019-20, that is, commencement by 31 March 2020. For a Unit that got in before the cut-off the deduction runs for fifteen assessment years: hundred per cent of the profits derived from export for the first five, fifty per cent for the next five, and for the last five so much of the profit, not exceeding fifty per cent, as is debited to the profit and loss account and credited to a Special Economic Zone Re-investment Reserve Account.
• Statutory position — s.92BA: clause (i) was OMITTED with effect from 1 April 2017, so a s.40A(2)(b) payment is no longer a specified domestic transaction — what survives, the twenty crore threshold, and clause (va) added for s.115BAB companies CBDT Circulars & InstructionsCuts both ways
  The TPO has been asked to benchmark our payments to related parties under s.40A(2)(b). Is that still a specified domestic transaction at all?
  No. Clause (i) of s.92BA — "any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A" — was OMITTED by Act No. 7 of 2017 with effect from 1 April 2017, and the omitted words are set out in an amendment footnote, so there is no doubt what went. What survives is: clause (ii), any transaction referred to in s.80A; clause (iii), any transfer of goods or services referred to in s.80-IA(8); clause (iv), any business transacted between the assessee and another person as referred to in s.80-IA(10); clause (v), any transaction referred to in any other section under Chapter VI-A or s.10AA to which s.80-IA(8) or (10) applies; clause (va), any business transacted between the persons referred to in s.115BAB(6), inserted by Act No. 46 of 2019 with effect from 1 April 2020; and clause (vi), any other transaction as may be prescribed. The whole definition applies only "where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of twenty crore rupees" — the word "twenty" having been substituted for "five" by the Finance Act, 2015 with effect from 1 April 2016.
• Statutory position — s.35AD(3) and (4): claim s.35AD and you lose s.10AA and every Chapter VI-A 'C' deduction for that business, for that year and every other year CBDT Circulars & InstructionsCuts both ways
  We claimed section 35AD on a hotel and also want a Chapter VI-A deduction on the profits of the same hotel in a later year. The Assessing Officer says we cannot have both. Is that right, and does it affect only the year of the section 35AD claim?
  The Assessing Officer is right, and the bar is wider than most people expect. Section 35AD(3) provides that where a deduction under section 35AD is claimed AND ALLOWED in respect of a specified business for any assessment year, no deduction shall be allowed under section 10AA or under Chapter VI-A under the heading "C.—Deductions in respect of certain incomes" in relation to that specified business "for the same or any other assessment year". So one year's section 35AD claim closes off the profit-linked deductions for that business permanently, not merely for that year. Section 35AD(4) is the companion rule and works on the expenditure rather than the profits: no deduction of the expenditure referred to in sub-section (1) is allowed under any other section in any previous year, or under section 35AD itself in any other previous year, if the deduction has been claimed or opted by the assessee and allowed under section 35AD. Section 35AD(3) did not always include section 10AA — those words were added by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, so for AY 2014-15 and earlier the bar reached only Chapter VI-A heading C; and the words "or opted" in sub-section (4) came in with the Finance Act, 2020 (Act 12 of 2020) with effect from 1 April 2020, when the deduction itself became optional.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.