2003 (7) TMI 638 - AT - Income Tax

Computation of deduction u/s 80HHC - Exporter Business - Gains on exchange rate fluctuation eligible for deduction u/s 80HHC? - HELD THAT - It is not the case that the right to receive the amount of Rs. 84.06 lakh accrued only after the end of financial year. What the assessee received is the sale consideration in terms of foreign exchange. Though the sum was received after the end of the financial year, the assessee, while finalizing the accounts has correctly included the amount and has claimed deduction under section 80HHC. The amount receivable was finally quantified on the date when the bills were settled by the customers. Therefore, the amount has to be treated as the amount receivable on export made by the appellant company during the previous year. The right to receive sale proceeds has already crystallized as it has accrued in the year of sale only. The assessee has correctly placed reliance on the decision of the Hon ble Kerala High Court in the case of CAIT v. Raja Rajeswari Narikelly Estate 1992 (2) TMI 33 - KERALA HIGH COURT , before the lower authorities. In the said case, proceeds of the coffee estate had been sold to the Coffee Board as was the practice. The price of such coffee was to be determined by the Board in terms of Coffee Point. The assessee, while filing the return of income had estimated the sale proceeds of Coffee at a particular value. Subsequently, long after the accounting period, when the assessment was being made it became known that the Coffee Board had determined the proceeds of the Coffee sold by the assessee company at a much higher figure. The Court directed that the figure determined subsequently by the Board should be taken as the sale proceeds of the year and the fact that the award made by the Coffee Board was now known by the close of the accounting period was of no relevance. While deciding the issue, the Hon ble Kerala High Court has taken into consideration the decision of the Hon ble Supreme Court in the case of A. Gajapathy Naidu 1964 (4) TMI 6 - SUPREME COURT on which the ld. CIT(A) has placed heavy reliance and had distinguished on the facts. In view of the above and in view of various other submissions made by the appellant before the lower authorities and submissions made by the ld. counsel before us, we are of the view that the amount of Rs. 84.06 lakh is to be assessed in the assessment year 1991-92. Accordingly, the Assessing Officer is directed to amend his order for the assessment year 1991-92 and re-compute the deduction under section 80HHC including the amount of Rs. 84.06 lakh. Consequently, the addition made in the assessment year 1992-93 is also deleted. In the result, both the appeals filed by the assessee are allowed.

Issues Involved:
1. Gains on exchange rate fluctuation of Rs. 84,06,069 for assessment years 1991-92 and 1992-93.
2. Deduction under section 80HHC for assessment years 1991-92 and 1992-93.

Issue 1: Gains on Exchange Rate Fluctuation of Rs. 84,06,069 for Assessment Year 1991-92

The appellant company, engaged in the business of export of goods, credited Rs. 104.81 crore in the profit and loss account for the assessment year 1991-92, which included Rs. 84.06 lakh received after the end of the financial year due to exchange rate fluctuation. The Assessing Officer refused to assess Rs. 84.06 lakh in the assessment year 1991-92, arguing that it accrued after the end of the financial year, as per rule 115C of the Income-tax Act. The amount was instead assessed in the assessment year 1992-93.

The appellant contended that the right to receive proceeds accrued when the goods were exported, not as a result of devaluation. They argued that the sale proceeds were realized before the accounts were finalized, thus should be included in the income of the year 1991-92. The CIT(A) upheld the Assessing Officer's decision, stating the gain accrued in the subsequent year due to devaluation.

Issue 2: Deduction Under Section 80HHC for Assessment Year 1991-92

The appellant claimed a deduction under section 80HHC, including the exchange rate fluctuation gain. The Assessing Officer disallowed this, stating the gain accrued after the end of the financial year. The appellant argued that the turnover should be based on actual receipts, including the exchange rate fluctuation gain, and thus the deduction under section 80HHC should be allowed as claimed.

Issue 3: Gains on Exchange Rate Fluctuation of Rs. 84,06,069 for Assessment Year 1992-93

The appellant argued that the sale proceeds in respect of exports made during the assessment year 1991-92 were accounted for in the accounts for the year ended 31-3-1991. They contended that the proceeds realized in the subsequent year should not be treated as income of the year under consideration. The CIT(A) confirmed the addition of Rs. 84.06 lakh in the income of the year under consideration.

Issue 4: Deduction Under Section 80HHC for Assessment Year 1992-93

Similar to the previous year, the appellant claimed a deduction under section 80HHC, including the exchange rate fluctuation gain. The Assessing Officer disallowed this, stating the gain accrued after the end of the financial year. The appellant argued that the turnover should be based on actual receipts, including the exchange rate fluctuation gain, and thus the deduction under section 80HHC should be allowed as claimed.

Detailed Analysis:

1. Gains on Exchange Rate Fluctuation of Rs. 84,06,069 for Assessment Year 1991-92:

The appellant contended that the right to receive proceeds accrued when the goods were exported. They argued that the sale proceeds were realized before the accounts were finalized, thus should be included in the income of the year 1991-92. The CIT(A) upheld the Assessing Officer's decision, stating the gain accrued in the subsequent year due to devaluation. The Tribunal observed that the right to receive the sale proceeds had accrued when the goods were exported, and the devaluation did not affect the time of accrual of income. The Tribunal concluded that the amount of Rs. 84.06 lakh should be assessed in the assessment year 1991-92.

2. Deduction Under Section 80HHC for Assessment Year 1991-92:

The appellant argued that the turnover should be based on actual receipts, including the exchange rate fluctuation gain, and thus the deduction under section 80HHC should be allowed as claimed. The Tribunal observed that the term 'export turnover' means the sale proceeds actually received by the assessee in convertible foreign exchange within six months of the end of the previous year. The Tribunal concluded that the deduction under section 80HHC should be allowed, including the exchange rate fluctuation gain.

3. Gains on Exchange Rate Fluctuation of Rs. 84,06,069 for Assessment Year 1992-93:

The appellant argued that the sale proceeds in respect of exports made during the assessment year 1991-92 were accounted for in the accounts for the year ended 31-3-1991. They contended that the proceeds realized in the subsequent year should not be treated as income of the year under consideration. The Tribunal concluded that the amount of Rs. 84.06 lakh should be assessed in the assessment year 1991-92, thus the addition made in the assessment year 1992-93 should be deleted.

4. Deduction Under Section 80HHC for Assessment Year 1992-93:

The appellant argued that the turnover should be based on actual receipts, including the exchange rate fluctuation gain, and thus the deduction under section 80HHC should be allowed as claimed. The Tribunal concluded that the deduction under section 80HHC should be allowed, including the exchange rate fluctuation gain for the assessment year 1991-92, and thus the addition made in the assessment year 1992-93 should be deleted.

Conclusion:

The Tribunal directed the Assessing Officer to amend the order for the assessment year 1991-92 and re-compute the deduction under section 80HHC, including the amount of Rs. 84.06 lakh. Consequently, the addition made in the assessment year 1992-93 was deleted. Both appeals filed by the assessee were allowed.

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