2020 (5) TMI 411 - HC - Income Tax

Deduction u/s 80HHC - export sale proceeds received in accordance with and in terms of the export contract and with approval of RBI inclusion - HELD THAT - Extra realization made in rupees for export sale proceeds in foreign exchange due to adverse exchange rate of rupee would be part of the export turnover in the year of receipt subject to the foreign exchange coming into the country within the statutorily prescribed time period. We are also of the view that export sale proceeds received in accordance with and in terms of the export contract and with approval of RBI could not be ignored for the purpose of relief under Section 80-HHC of the said Act. The questions of law on which the instant appeal was admitted are answered accordingly. Grounds on which the CIT and the learned Tribunal rejected the appellant s claim are not tenable in law. With regard to the appellant s alternative contention for treatment of the amount in question as export turnover for the assessment year 1993-94 and 1994-95, both the CIT and the learned Tribunal held that the receipt was brought into India long after the end of the previous year relevant to the assessment year 1994-95 and such belated receipt had not been authorized by the Commissioner/Chief Commissioner. The fact remains that the appellant s application before the Commissioner was never taken up for consideration and disposal. Ends of justice will be served if the matter is remanded to the learned Tribunal for fresh consideration taking into account the subsequent development including the order of the RBI stated to have been passed on June 11, 2005 and also in light of the observations made in this judgment. In the result, the appeal succeeds. The order under appeal is set aside. The matter is remanded to the learned Tribunal for fresh consideration

Issues Involved:
1. Whether extra realization made in rupees for export sale proceeds in foreign exchange due to adverse exchange rate of rupee would be part of the export turnover in the year of receipt.
2. Whether export sale proceeds received in accordance with and in terms of the contract and with the approval of Reserve Bank of India could be ignored for the purpose of relief under Section 80-HHC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Extra Realization Due to Exchange Rate Fluctuation:

The court examined whether the extra realization in rupees due to adverse exchange rate fluctuations should be considered part of the export turnover. It was noted that the appellant exported goods to an Indonesian company with payment terms approved by the Reserve Bank of India (RBI). The payments were received in installments, and due to exchange rate fluctuations, the appellant realized an excess amount in Indian rupees.

The court referenced the case of Raghunath Export (P) Ltd. v. Commissioner of Income-Tax, where it was held that surplus realization due to exchange rate fluctuation is relatable to the export and should be considered part of the export turnover. Similarly, the Gujarat High Court in Commissioner of Income-Tax v. Amba Impex held that exchange rate differences resulting in larger amounts received in subsequent years are still related to the original exports.

The court concluded that such excess realization is inextricably linked to the export and should be treated as part of the export turnover, provided the foreign exchange was brought into India within the statutorily prescribed time period.

2. Export Sale Proceeds and Section 80-HHC Relief:

The court analyzed whether the export sale proceeds received in accordance with the contract and RBI's approval could be ignored for Section 80-HHC relief. The appellant had received payments beyond the six-month period stipulated in Section 80-HHC but with RBI's permission.

The court noted that the Assessing Officer, CIT, and Tribunal had rejected the appellant's claim on the grounds that the export was not made during the relevant assessment year and that the foreign exchange was received beyond the stipulated period. However, the court disagreed, stating that the subsequent realization due to exchange rate fluctuation could not be unrelatable to the export. The object of Section 80-HHC is to incentivize exporters who earn valuable foreign exchange for the country.

The court emphasized that the law should be interpreted liberally in favor of the exporter/assessee. It was noted that the appellant's application for extension of time to bring in the foreign exchange was not disposed of by the Commissioner. The court also considered the subsequent development where the RBI held that no further extension was required as it had approved the original deferred payment terms and subsequent preponement.

Conclusion:

The court concluded that extra realization due to exchange rate fluctuation should be part of the export turnover, and export sale proceeds received in accordance with the contract and RBI's approval could not be ignored for Section 80-HHC relief. The matter was remanded to the Tribunal for fresh consideration, taking into account subsequent developments, including the RBI's order, and in light of the court's observations. The appeal succeeded, and the order under appeal was set aside.

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