Mumbai ITAT confirms trading activities (import for the purpose of re-export) to be eligible u/s 10AA

Gitanjali Exports Corporation Ltd v DCIT ITA Nos.6947&6948/Mum/2011 dated 08-05-2013 (Mum ITAT)


Assessee had SEZ units which were engaged in the business of trading in jewellery and diamonds. Assessee claimed the profits therefrom as exempt u/s 10AA in the return of income. The AO disallowed the deduction under section 10AA by observing that the exemption claimed u/s. 10AA is applicable only for manufacturing unit as per the Act, whereas the assessee was involved in trading activities. AO observed that for the purpose of Section 10AA of the Act, manufacture is defined under clause (iii) in Explanation 1 that “(iii) ‘Manufacture’ shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act 2005”. However, there is no such definition for services.

AO held that by no stretch of imagination can trading in goods can be considered as supply of service by the assessee. In view of the above, assessee’s claim of exemption u/s. “10AA of the Act for trading in gold and studded jewellery is rejected and the entire sum is considered as the taxable income of the assessee.

The assessee made detailed submissions before the CIT(A) and the CIT(A) accepted the submissions and granted relief to the assessee.

Assessee’s contentions:

  • As per section 10AA, benefits are available to units providing services.
  • Under the SEZ Act section 2(z) defines “services’ to include tradable services as may be prescribed by the Central Government for the purpose of this Act and Central Government has included trading as one of the services.
  • Section 51 of the SEZ Act provides that the provisions of SEZ Act and the Rules shall have overriding effect over other laws
  • Section 10AA was inserted by the Special Economic Zones Act, 2005, with effect from 10th February, 2006.
  • Instruction No. 4/2006 clearly guides grant of deduction u/.s. 10AA to units carrying on trading in the nature of re-export of imported goods.
  • Reliance is placed on the decision of Jaipur ITAT in the case of Goenka Diamond and Jewellery Limited 146 TTJ 68

Tax Authority’s arguments:

  • The rules and provisions provided under SEZ Act will not override the income tax laws.
  • The assessee has done simple trading and, therefore, on trading activity deduction under Section 10AA is not allowable.


  • It is very clear from the SEZ Act that service includes trading also and appellant has done trading from SEZ Act of the imported goods which have been re-exported.
  • The Government of India has issued a circular No.17 of 29.5-2006, which was issued by Export Promotion Council For EOUs & SEZ Unit which specifically states that “no Income-tax benefit will be availed by the Unit for trading except in the nature of re-export of imported goods
  • By virtue of Section 51 of the SEZ Act, the provision of SEZ Act and rules will have overriding effect over the provision contained in any other Act.
  • On similar facts in case of Goenka Diamonds and Jewellery Limited (supra), the Jaipur ITAT has discussed the issue in detail.
  • In view of the Instruction No.1 of 2006, dated 24-3-2006 as modified by Instruction No.4 of 2006, dated 24-5-2006 issued by the Ministry of Commerce & Industry, Government of India, the definition of service given in the SEZ Act, 2005, which overrides the word ‘service’ accruing in Section 10AA by virtue of Section 51 of the SEZ Act.
  • Facts are similar before us, as the assessee is engaged in trading of re-export of imported goods and, therefore, the assessee is entitled for deduction under Section 10AA of the Act.

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