Back
2026 Supreme(Online)(ITAT) 2424
INCOME TAX APPELLATE TRIBUNAL (HYDERABAD BENCH)
RAVISH SOOD, Judicial Member, MADHUSUDAN SAWDIA, Accountant Member
Medtronics Engineering And Innovation Center Private Limited – Appellant
Versus
DCIT, Circle-5(1), Hyderabad – Respondent
I.T.A. No.740/Hyd/2025 | Assessment Year: 2020-21
For the Appellants/Petitioners:Shri Vishal Kalra, Advocate
For the Respondents: Dr. K. Haritha, CIT-DR
SEIS export incentives qualify as business profits eligible for section 10AA deduction via formulaic computation under sub-section (7), without direct nexus requirement.
Headnote:Section 10AA of the Income-tax Act, 1961 provides deduction for profits of SEZ units derived from export of services, with sub-section (7) defining such profits formulaically as proportion of business profits based on export turnover to total turnover. The assessee, operating SEZ units providing IT services, claimed deduction under section 10AA on export incentives received under Service Exports from India Scheme (SEIS) amounting to INR 22,43,19,252. The Assessing Officer accepted the claim after verification, but Pr. CIT invoked section 263 holding the order erroneous and prejudicial, remanding for re-verification. Tribunal held AO's order not erroneous, as SEIS incentives form part of business profits eligible under section 10AA(7). The court found Pr. CIT erred by applying restrictive 'derived from' test from Chapter VI-A provisions, ignoring formulaic computation under section 10AA(7). Main issue: Whether AO's acceptance of section 10AA deduction on SEIS incentives was erroneous and prejudicial warranting section 263 revision. Ratio: Section 10AA(7) statutorily includes all business profits of SEZ unit in deduction computation via export turnover ratio, without requiring direct nexus to exports; SEIS incentives, linked to export performance, qualify as business income. Tribunal relied on Karnataka HC in CIT v. Motorola (S.10B), Gujarat HC in Pr. CIT v. Dishman, full bench Karnataka HC in CIT v. Hewlett Packard (interest income included), Madras HC in Camiceria Apparels, and ITAT Special Bench in Maral Overseas confirming export incentives eligible under similar provisions. Appeal allowed; Pr. CIT's section 263 order quashed; AO's assessment order dated 01.09.2022 restored.
| Table of Content |
|---|
| 1. challenge to pr. cit's section 263 revision of ao's section 10aa deduction acceptance. (Para 4 , 5) |
| 2. issue of ao order being erroneous/prejudicial under section 263. (Para 6 , 7) |
| 3. section 10aa(7) formula includes all business profits proportionally. (Para 8 , 9 , 10) |
| 4. judicial precedents confirm export incentives as eligible business profits. (Para 11 , 12) |
| 5. ao order sustainable; section 263 order quashed, appeal allowed. (Para 13 , 14 , 15 , 16 , 17 , 18) |
ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the assessee company is directed against the order passed by the Principal Commissioner of Income-tax, Hyderabad-4 (for short, “Pr. CIT), under section 263 of the Income-tax Act, 1961 (for short, “Act”), dated 01.11.2024, which in turn arises from the assessment order passed by the Assessing Officer (for short, “AO”) under section 143(3) r.w section 144B of the Act, dated 01.09.2022, for the Assessment Year 2020-21. The assessee company has assailed the impugned order passed by the Pr. CIT under Section 263 of the Act on the following grounds of appeal before us:
“1. That on facts and circumstances of the case and in law, the PCIT erred assuming jurisdiction under section 263 of the Act and holding that the assessment order passed under section 143(3) of the Act is erroneous and prejudicial to the interest of revenue.
2. That on facts and circumstances of the case and in law, the PCIT erred in arbitrary holding that the assessment order passed under section 143(3) of the Act is erroneous and prejudicial to the interest of the revenue, without bringing on record as to how the twin conditions are getting satisfied in case of the Appellant
3. That on facts and circumstances of the case and in law, the PCIT erred in assuming jurisdiction under section 263 of the Act by merely setting aside the assessment order passed by the AO; (i) especially when the issue was verified by the AO during the assessment proceedings; (ii) by not bringing on record anything as to how the claim made by the Appellant was erroneous and prejudicial to the interest of the revenue.
4. That on facts and circumstances of the case and in law, the PCIT erred in not appreciating that export incentives amounting to INR 22,43,19,252 received by the Appellant under 'Service Export from India Scheme' is arising out of business of the SEZ Undertaking and therefore, eligible to be claimed as deduction under section 10AA of the Act.”
2. Succinctly stated, the assessee company which is engaged in providing design, engineering, software testing and IT-enabled services to its holding company operating in the healthcare and IT sectors, and operates through Special Economic Zone units, had filed its return of income for the year under consideration, i.e., AY 2020-21 on 25.12.2020, declaring an income of Rs. 19,90,32,810/-. Subsequently, the assessment was framed under Section 143(3) r.w Section 144B of the Act on 01.09.2022, wherein the income of the assessee company was accepted as such (including the deduction claimed under Section 10AA of the Act).
3. The Pr. CIT, after the culmination of the assessment proceedings, called for the assessment records of the assessee company. The Pr. CIT holding a conviction that the AO had not examined the eligibility of export incentives received by the assessee company under the “Service Exports from India Scheme” (SEIS) for deduction under section 10AA of the Act, observed that such receipts may not constitute income “derived from” export of services and thus, called upon it to explain as to why the assessment order on the said issue may not be revised.
4. Although the assessee company, both assailed the assumption of the revision jurisdiction by the Pr. CIT, as well as tried to impress upon him that the assessee had rightly claimed deduction of the export incentives under “Service Export from India Scheme” (SEIS) under Section 10AA of the Act, but the same did not favour with him. Accordingly, the Pr. CIT, vide his
