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Issues Involved:
1. Deduction under section 80HHC on foreign exchange gains. 2. Disallowance of Rs. 57,049 being the contribution to EPF. Detailed Analysis: 1. Deduction under Section 80HHC on Foreign Exchange Gains: The primary issue revolves around whether the assessee is entitled to a deduction under section 80HHC for foreign exchange gains received in the relevant assessment year 2003-04 for exports made in earlier years. - Facts of the Case: The assessee, engaged in the business of manufacturing and exporting fabrics, did not make any exports during the year under consideration but received foreign exchange gains related to exports made in the previous year. The assessee claimed a deduction under section 80HHC, which was rejected by the Assessing Officer (AO) and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)]. - Assessing Officer's Decision: The AO rejected the claim based on the fact that there was no export turnover during the year, referencing the ITAT Delhi Bench decision in Sanjeev Malhotra v. Dy. CIT [2004] 270 ITR (AT) 148, which held that deduction under section 80HHC is not permissible without actual exports during the year. - CIT(A)'s Decision: The CIT(A) upheld the AO's decision, citing the ITAT decision in Sanjeev Malhotra and the Gujarat High Court decision in CIT v. Amba Impex [2006] 282 ITR 144, which stated that exchange difference should relate to the year of exports, not the year when the difference is accounted for. - Assessee's Argument: The assessee argued that the foreign exchange gains were part of the export sale proceeds realized in convertible foreign exchange during the year under consideration and should qualify for deduction under section 80HHC. The assessee also distinguished their case from Sanjeev Malhotra, where the export sales were not genuine. - Tribunal's Analysis: The Tribunal analyzed section 80HHC(3) and concluded that the computation of export profits requires actual export turnover during the relevant assessment year. With zero export turnover, the export profits computation results in either zero or negative profits, making the assessee ineligible for the deduction. The Tribunal also noted that the sale proceeds realized in convertible foreign exchange in the succeeding year cannot be treated as export turnover for that year, aligning with the Gujarat High Court's decision in Amba Impex. - Final Decision: The Tribunal held that the assessee is not entitled to the deduction under section 80HHC(1) for foreign exchange fluctuation gains, affirming the decisions of the lower authorities. 2. Disallowance of Rs. 57,049 Being the Contribution to EPF: The second issue concerns the disallowance of Rs. 57,049 related to the employer's contribution to the Employees' Provident Fund (EPF). - Assessing Officer's Decision: The AO disallowed the claim on the grounds that the employees' contribution received by the assessee was not paid within the due time, adding the amount under section 43B of the Act. - CIT(A)'s Decision: On appeal, the CIT(A) upheld the disallowance, referencing the decision of the Madras High Court in CIT v. Synergy Financial Exchange Ltd. [2007] 288 ITR 366, which held that the amendment to section 43B was prospective. - Assessee's Argument: The assessee argued that the disallowance pertained to employees' contributions and that post-amendment, all payments made before the due date of filing the return should be allowed as deductions. The assessee cited the Delhi High Court decision in CIT v. Dharmender Sharma [2008] 297 ITR 320. - Tribunal's Analysis: The Tribunal noted the discrepancy between the AO's and CIT(A)'s treatments of the disallowance and emphasized that section 43B does not apply to employees' contributions. The Tribunal decided to set aside this issue to the AO for re-examination under section 36(1)(va) of the Act. - Final Decision: The Tribunal set aside the issue to the AO to examine the matter in light of section 36(1)(va) and decide on the merits. Conclusion: The appeal was partly allowed for statistical purposes, with the Tribunal denying the section 80HHC deduction on foreign exchange gains and remanding the EPF contribution disallowance issue back to the AO for further examination.
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