Date of transfer determines capital gains accrual, preventing substitution of subsequent higher transaction pricing.

ORDER

Kavitha Rajagopal, Judicial Member.- The captioned appeals and cross appeal are filed by the assessee and the Revenue challenging the orders passed by the Ld. Commissioner of Income Tax (Appeals) [‘the Ld. CIT(A)’, for short] under Section 250 of the Income Tax Act, 1961 (‘the Act’ for short) for Assessment Years (‘AYs’, for short) 2014-15, 2015-16 and 2016-17. As the facts are identical, we hereby pass a consolidated order by taking ITA No.4699/Del/2025 for AY 2014-15 as a lead case for the sake of convenience.

2. The assessee has raised the following grounds of appeal:-

“1. That order passed by Ld. CIT(A) dated May 31, 2025, u/s 250 of the Income-tax Act,1961 (“the Act”) is bad in law and is not in accordance with judicial precedence under the Act.

2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in determining taxable income of the Appellant at INR 21,94,873 as against declared taxable income of Nil in the order dated May 31, 2025, issued u/s 250 of the Act.

3. That on the facts and in the circumstances of the case, the Ld. CIT (A) erred in upholding the action of the Ld. A.O. in not appreciating that the directions of the Hon’ble ITAT was limited to examine only the application in Form 56F for the purpose of examining allowability of exemption u/s 10AA of the Act.

4. That in the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact that the Ld. Pr. CIT nowhere directed the Ld. AO to examine the allowability of exemption u/s 10AA of the Act, except observing that the Assessee had not filed application in Form 56F of the IT Rules, 1962 electronically.

5. That the Ld. AO completely disregarded the judicial precedence (including Appellant’s own case of AY 2014-15) that filing of form 56F with return of income is not an impediment for claim of deduction u/s 10AA.

6. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in treating business income of INR 3,66,252 being interest on short term deposits with banks as ‘income from other sources’ ineligible for section 10AA.

7. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in reducing the deduction u/s 10AA by a sum of INR 18,28,621 alleging that the Appellant did not bring foreign exchange equivalent to INR 1,13,24,293 in India.

7.1 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in considering net foreign exchange inflow as per Annual Progress Report (APR) filed with Noida SEZ authorities as the Export Turnover for the purposes of Section 10AA of the Act.

7.2 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that APR shows net foreign exchange inflow as difference between inflow of foreign exchange and outflow of foreign exchange. While the Export Turnover of the Appellant is much higher than net foreign exchange inflow.

8. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceeding u/s 271(1)(c) for concealment of income whereas the Appellant has given accurate particulars and did not act in a manner which would lead to concealment of income.

9. That the Ld. AO erred in charging interest u/s 234A, 234B, 234D and 244A of the Act.

10. That the Appellant craves and leave to add/alter/any/all ground of appeal before or at the time of hearing of the Appeal.”

3. The brief facts are that the assessee company was incorporated under the Companies Act, 1956 on February 13, 2012 and is engaged in production and distribution of software defined high frequency radios for commercial, institutional, government and amateur (ham) radio operators, printed circuit boards and transistors. The assessee filed its return of income dated 28.10.2014 for the year under consideration declaring total income at Rs.’nil’ after claiming deduction u/s 10AA of the Act. The assessee’s case was selected for limited scrutiny and notices u/s 143(2) and 142(1) were duly issued and served upon the assessee. The Ld. AO passed the assessment order dated 30.08.2016 u/s 143(3) of the Act accepting the returned income filed by the assessee. The Ld. PCIT invoked the revisionary jurisdiction u/s 263 of the Act and vide order dated 30.03.2018, held the order passed by the Ld. AO to be erroneous in so far as it is prejudicial to the interests of the Revenue for the reason that the Ld. AO has allowed the assessee’s claim of deduction u/s 10AA of the Act amounting to Rs.93,06,592/- despite the fact that the assessee has filed auditor’s report in Form 56F manually instead of filing the same electronically as per the requirement of the amended provisions of Rule 12 of the Income Tax Rules, 1962. The Ld. PCIT directed the Ld. AO to disallow the claim of deduction made by the assessee u/s 10AA of the Act. Aggrieved, the assessee was in appeal before the Tribunal challenging the order of the Ld. PCIT. The Tribunal, vide order dated 07.01.2019, directed the Ld. AO to re-examine the assessee’s claim u/s 10AA of the Act, after taking into account the auditor’s report filed manually in Form 56F and after giving proper opportunity to the assessee to substantiate its claim. Subsequently, the Ld. AO, vide order dated 20.12.2019 passed the assessment order u/s 254 r.w.s. 143(3) of the Act, determining total income at Rs.93,06,590/-, after disallowing the claim of the assessee u/s 10AA, on the ground that the assessee has failed to comply with the proceedings before the Ld. AO. Aggrieved, the assessee was in appeal before the Ld.CIT(A), who, vide order dated 31.05.2025, had partly allowed the appeal filed by the assessee. Aggrieved, the assessee is in appeal before us challenging the order of the Ld.CIT(A) on the above-mentioned grounds.

4. The Ld. AR for the assessee contended that the Ld. CIT(A) has erred in not allowing the assessee’s claim with regard to the business income of Rs.3,66,252/-being interest on short-term deposits with banks as ‘Income from other source’, to be ineligible claim u/s 10AA of the Act. The Ld. AR further contended that the Ld.CIT(A) has erred in reducing the deduction u/s 10AA of the Act to Rs.18,28,621/- stating that the assessee has not brought foreign exchange equivalent to Rs.1,13,24,293/- to India and by not considering the net foreign exchange inflow as per the Annual Progress Report (APR) filed with Noida SEZ Authorities as the export turnover for the purpose of claiming deduction u/s 10AA of the Act. The Ld. AR submitted that the Ld.CIT(A) has erred in upholding the order of the Ld. AO without adhering to the directions of the Tribunal which was limited only to examine the application in Form 56F for the purpose of allowing deduction u/s 10AA of the Act. The Ld. AR argued that the only issue in the revisionary proceedings was with regard to the manual filing of Form 56F, which was in the appellate proceedings, held to be valid by the Tribunal and not on the merits of the claim of Section 10AA of the Act and, since the Tribunal has held the manual form to be valid, the lower authorities ought not to have decided the issue on the merits of the claim u/s 10AA of the Act, which was already the subject matter of the limited scrutiny assessment during the original assessment done u/s 143(3) of the Act. The Ld. AR prayed that the claim of the assessee be allowed and the impugned order of the Ld.CIT(A) be set aside.

5. The Ld. DR, on the other hand, controverted the said fact and stated that during the revisionary proceedings the Tribunal has given a categorical finding to verify the claim of the assessee u/s 10AA of the Act against which the assessee has not preferred an appeal and, thereby, the assessee is prevented from disputing the examination of the claim u/s 10AA of the Act on the merits as per the direction of the Tribunal. The ld. DR further pointed out that the assessee has not complied with the proceedings before the Ld. AO and also the Ld.CIT(A) has not sought for a remand report from the Ld. AO while partly allowing the appeal filed by the assessee. The Ld. DR relied on the order of the Ld. AO.

6. We have heard the rival submissions and perused the material available on record. The issue pertaining to the admissibility of the Auditor’s Report filed in Form 56F manually has already been dealt with by the Coordinate Bench in its order dated 07.01.2019 where the Tribunal has directed the Ld. AO to duly take into account the Auditor’s Report in Form 56F filed manually. We, therefore, refrain from getting into that issue as the same has been settled. Before us, the limited issue is with regard to the merits of the claim u/s 10AA of the Act, though the Ld. AR argued that the limited issue during the revisionary proceeding was with regard to the consideration of Form 56F filed manually instead of e-filing, subsequent to the amended provisions of Rule 12 of the Income Tax Rules, 1962 and not to be extended for examining the merits of the claim u/s 10AA of the Act. This, in our opinion, is unacceptable for the reason that if either of the parties are aggrieved by the order of the Tribunal passed in the revisionary proceedings, then, the same ought to have been challenged before the higher forum and not before us as this issue is not the subject matter of appeal before us. The only moot issue that requires adjudication is with regard to the claim of deduction u/s 10AA of the Act on the merits, where it is observed that the Ld. AO has made the impugned disallowance on the ground that the assessee has been non-compliant during the assessment proceedings and has failed to furnish documentary evidences or proof to substantiate its claim. The Ld. CIT(A), on the other hand, held that the Tribunal has only exempted the assessee for late filing of Form 56F which was filed online and directed to take into consideration the Form 56F which was filed manually against which neither the Revenue nor the assessee preferred an appeal before the Hon’ble High Court. The Ld. CIT(A) allowed certain deductions claimed by the assessee, namely, the shipment charges collected from customers as being incidental to the business activity of export which was eligible for deduction u/s 10AA of the Act, the online support services rendered by the assessee to be directly linked to the business of the assessee and, further, allowed deduction of Rs.57.90 lakh by holding that the assessee’s activities are covered by the provisions of Section 10AA of the Act pertaining to manufacturing activities and disallowed the miscellaneous income, the interest income and the foreign exchange claimed by the assessee. The assessee preferred an appeal before us challenging the order of the Ld.CIT(A) to the extent of the disallowance made by the Ld.CIT(A). As the assessee has not complied with the proceedings before the Ld. AO, and the Ld.CIT(A) has also not sought for a remand report from the Ld. AO, we deem it fit to remand all these issues back to the file of the Ld. AO for de novo adjudication on this issue to the limited extent of verifying the claim of deduction u/s 10AA of the Act on the basis of the submissions made by the assessee along with all the documentary evidences filed by the assessee in support of its claim for deduction u/s 10AA of the Act. We have not given any finding on the merits of the claim u/s 10AA of the Act which has to be adjudicated afresh by the Ld. AO and the assessee is also directed to strictly comply with the proceedings without any undue delay from its side. Hence, the grounds of appeal raised by the assessee are hereby allowed for statistical purpose.

7. In the result, the appeal filed by the assessee is allowed for statistical purpose.

8. The captioned cross appeals have been filed by the assessee and the Revenue challenging the order of the Ld.CIT(A) on identical issues as those of AY 2014-15. The findings given in ITA No.4699/Del/2025 applies, mutatis mutandis, to these appeals also. Hence, we remand all the grounds raised by the assessee and the Revenue to the file of the Ld. AO for de novo adjudication on the merits of the claim of deduction u/s 10AA of the Act.

9. In the result, both the appeals filed by the assessee and the Revenue are hereby allowed for statistical purpose.

10. Since the facts of this case are identical to those of AY 2014-15, the findings given in ITA No.4699/Del/2025 applies, mutatis mutandis, to this appeal also. Hence, we remand all the grounds raised by the assessee to the file of the Ld. AO for de novo adjudication on the merits of the claim of deduction u/s 10AA of the Act.

11. In the result, the appeal filed by the assessee is hereby allowed for statistical purpose.

12. To sum up, all the appeals filed by the assessee and the appeal filed by the Revenue are allowed for statistical purpose.