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TMI Blog2012 (7) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... ICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER For the Petitioner : Shri Salil Kapoor, Advocate For the Respondent : Shri Satpal Singh, Senior DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : Both, appeal being ITA No.4181/Del/2010 filed by the revenue and Cross Objection No.391/Del/2010 filed by the assessee, emanate from the order of the CIT (Appeals)-XIX, New Delhi dated 25.06.2010. 2. The assessee company incorporated on October 5, 1998 under the Companies Act, 1956. The assessee is engaged in the development and export of computer software. The business activities during the year under consideration were carried out from NOIDA and Bangalore. Both the units are set up in accordance with the Software Technology Park (STP) Scheme notified by Ministry of Commerce and Industry, Government of India. Both these units were eligible for deduction of profits and gain derived by them u/s 10A of the Income-tax Act, 1961. 3. The grounds of appeal taken by the revenue read as under :- 1. The Ld. CIT(A) has erred in facts and in law by directing the AO to include the gains of ₹ 72,96,422/- on account of fluctuation in foreign exchange rates in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser deduction u/s 10A. 13.1.4 The AR stated that gain on foreign exchange fluctuation is part of sales proceeds and is part of eligible profits. In case the said amount is taken as part of total turnover, the same should be included in the export turnover also on the principle of parity. 13.1.5 Exchange Fluctuation gain is in respect of sale proceeds on account of export. There is no adverse finding to this effect. The AO has not given any finding that the amount is assessable under income from other sources. After careful consideration of the facts brought on record, the gain on foreign exchange fluctuation is related to sales and is to be included in the turnover in view of the ratio laid down in the following cases: 1. ACIT, Circle 16(1), Mumbai VS. Prakash L. Shah 115 ITD 167 (MUM.) (SB) 2. CIT, Patiala VS. Roadmaster Industries of India 2 Dtlonline 48 (Punj. Har.) 13.1.6 In view of the above discussion, the AO is hereby directed to include the gain in the eligible profits, total turnover and also the export turnover. 6. We have heard both the sides on this issue in detail. We agree with CIT (A) that foreign exchange fluctuation gain when i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguish the same so as to render it notional or contingent. It was also held that any increase in such liability as a result of fluctuation in the value of foreign currency in relation to Indian currency thus was a fate accompli and such increase in liability as per the exchange rate prevailing on the last date of the financial year was allowable as deduction being not notional or contingent. Respectfully following the said judgment of Hon'ble Jurisdictional High Court, we uphold the impugned order of the learned CIT(A) on this issue and dismiss ground No.6 of the revenue's appeal. In the case of CIT vs. Rachna Udhyog 230 CTR 72, Hon'ble Bombay High Court held as under :- 5. Having heard the learned counsel appearing on behalf of the appellant and learned counsel appearing for the assessee, we are of the view that the difference on account of exchange rate fluctuation is liable to be allowed under Section 80IB. The exchange rate fluctuation arises out of and is directly related to the sale transaction involving the export of goods of the industrial undertaking. The exchange rate fluctuation between the rupee equivalent of the value of the goods exported an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange (sic-export) turnover and total turnover for the purpose of deduction under s. 80HHE of the Act. Similar view has been held by the Tribunal in the case of Encore Software Ltd. in ITA No. 794/Bang/2005, wherein it was held as under: We have considered the rival submissions. The foreign exchange gain arises because of the fluctuation in the foreign exchange rate. When the sales are effected, the sales are accounted in Indian rupees on the basis of exchange rate prevailing at the time of sale. Subsequently when the sale proceeds are received in convertible foreign exchange, the assessee realized higher sum. Instead of accounting the same as turnover or sales, the same is accounted as foreign exchange fluctuation gain. Though it is worded as foreign exchange currency fluctuation, it is nothing but part of export turnover and a sort of additional sale price. Thus, the same is profit of the eligible undertaking for claiming deduction under s. 10B. Similarly, it cannot be treated as other receipts for excluding 90 per cent of the same under s. 80HHE. We accordingly hold that such sum being foreign exchange gain is not to be excluded while computing profit eligible for deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llow a claim under Section 10A of the Act, what all is to be seen is whether such benefit earned by the assessee was derived by virtue of export made by the assessee. The exchange value based on upward or downward of the Rupee value is not in the hands of the assessee. In other words, the assessee does not determine the exchange value of the Indian Rupee. It has to be remembered but for the fact that the assessee is an export house, there was no question of earning any foreign exchange. Therefore, when the fluctuation in foreign exchange rate was solely relatable to the export business of the assessee and the higher Rupee value was earned by virtue of such exports carried out by the assessee, there is no reason whey the benefit of Section 10(A) should not be allowed to the assessee. In view of these facts, we are of the considered view that the order of the CIT (A) deserves to be sustained on this issue. In the result, the ground no.1 of revenue s appeal stands dismissed. 7. The ground in assessee s cross objection wherein liability written back of ₹ 85,328/- in respect of NOIDA unit and ₹ 7,56,482/- in respect of Bangalore unit have not been considered to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of CIT (A). 9. We have heard both the sides on this issue. In the case of ST Micro Electronics Pvt. Ltd., cited supra, on which the ld. AR relied, the issue involved was written back of the liability on account of communication charges claimed by the assessee as deemed profit gain of undertaking for the purposes of computation of deduction u/s 10B. The relevant para of the order is 3.2.1 which read as under :- 3.2.1 We have considered he rival submissions. The fact that the A.O. himself agreed that the write back of the amount more so the remission of the liability is the profit gains of the business of the undertaking in the year of such remission of the liability remains undisputed. A perusal of the provisions of Section 10B clearly shows that deduction as provided in Section 10B is the profit gains as derived by the 100% export oriented undertaking from the export of articles and things or software for the period of 10 consecutive Assessment Years as specified therein. A perusal of the provisions of Section 10B(3) of the Act shows that the provisions of section 10B available to the undertaking if the sales proceeds of the articles and things or compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h had no element of export turnover distort the figure of export profits. Hon'ble Supreme Court had held that processing charges which were part of gross total income was an independent income. In our considered view, when excess provision written back, the same cannot be said to be income derived from export turnover of article or thing or computer software. The misc. income which is consisting of recovery of notice period, writing off provision of internet expenses and refund for CST from STP1 requires further examination to determine whether these are derived from the exports of article or things or computer software by the undertaking. Such amount may be income in the conceptual sense under the Income-tax Act, 1961 but for working out the deduction u/s 10A it has to be the receipt derived from the exports of article or things or computer software by the undertaking in free trade zone. In view of these facts, we restore the issue to the file of Assessing Officer for fresh adjudication. The cross objection of the assessee is partly allowed for statistical purposes. 10. In the ground no.2 of the revenue s appeal, the issue involved is setting aside the issue regarding the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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