9911796707
TMI Blog2004 (12) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... m. Furthermore, the definition of export turnover and total turnover as defined in Explns. (b) and (ba) of s. 80 HHC(4A), specifically excludes freight or insurance attributable to the transport of goods or merchandise beyond the custom station as defined in Customs Act, 1962. Thus the 'export turnover' and 'total turnover' have been defined in a negative manner not to include freight or insurance, at nowhere it excludes exchange rate difference to be received by the assessee. When the definition specifically excludes certain items, from the export and total turnover, it would automatically follow that the remaining items of sale proceeds received in or brought into India in convertible foreign exchange, shall form part of export and total turnover. Thus, the amount received by the assessee on account of exchange rate difference is nothing but realisation from the goods exported by it and hence such proceeds have to be included for computation of deduction u/s 80HHC. From the record we do not find that assessee had entered into any foreign exchange forward contract and that receipt on account of exchange rate fluctuation was due to any such forward contract. We ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith reference to the amount received by the assessee on account of exchange rate of fluctuation. Thus this ground in all the appeals filed by the assessee as well as by the Revenue is allowed in favour of assessee. In the result, all appeals of the assessee on this ground are allowed. Export receipt out of total export turnover on account of belated receipts of export sales - As per our considered view the deduction can be declined only if such foreign convertible exchange are not brought into India within the extended period beyond six months, only if the competent authority (RBI) did not grant approval. Furthermore as per the provisions of s. 155(13), where in the assessment of any year the deduction under s. 80HHC has not been allowed on the ground that such income has not been received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, has not been brought into India, for and on behalf of the assessee with the approval of the RBI or such other authority as is authorised in terms of law for the time being in force, for regulating the payment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceeding, the AO proposed to reduce the amount represented by exchange difference from the export and also reduced 90 per cent of the same from the profits and gains of the business. The assessee was asked to explain as to why the amount of exchange rate difference related to the debtors of the last year should not be deducted from the export turnover as also 90 per cent of the same should not be excluded from the business profits for the purpose of calculation of deduction under s. 80HHC. It was submitted by the assessee that the exchange rate difference cannot be excluded from the export turnover of the current year as the same have already been taken as export turnover for the purpose of calculation of deduction under s. 80HHC as per the FOB value as certified by the banker of the exporter during the year under consideration. The bank certified the figure of export which was taken for calculation of export turnover. The AO did not agree with the assessee's contentions and treated the amount realised account of exchange rate difference as income from other sources and declined assessee's claim under s. 80HHC by including the same in export turnover. The only grievanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also form part of the export turnover inasmuch as export turnover as defined under Expln. (b) means the sale proceeds received in cash brought in India by the assessee in convertible foreign exchange in accordance with cl. (viii) of sub-s. (2) of s. 80HHC. It appears to us that the view taken by Delhi Bench of the Tribunal in the case of Smt. Sujata Grover is fully in accordance with the provisions of s. 80HHC. Further, reliance is placed on the decision of Mumbai Bench of the Tribunal in the case of K. Uttamlal Exports Ltd. vs. Dy. CIT 36 BCAJ 518 (Mum) and S.S. Industries vs. ITO 34 BCAJ 596 (Mum) cited by the learned counsel. A similar view has been taken by the Madras Bench of the Tribunal in the case of Asstt. CIT vs. Ashwini Fisheries Ltd. (2001) 72 TTJ (Mad) 261 relied upon by the learned counsel. Respectfully following the aforesaid binding decision of the jurisdictional High Court in the case of Hindustan Trading Corporation vs. CIT (1986) 57 CTR (Guj) 114 : (1986) 160 ITR 15 (Guj) as well as the decisions of the Tribunal, we are inclined to reverse the finding of the learned CIT(A) and hold that gain on account of exchange rate difference of Rs. 13,18,068 on account of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean profits of the business as computed under the head "Profits and gains of business" as reduced by 90 per cent of any receipt, by way of brokerage, commission, interest, rent charges or any other receipt of similar nature included in such profits. As per the learned Departmental Representative, the exchange rate difference is in the nature of such receipts and therefore, 90 per cent of it is required to be reduced while computing "profits of the business" as provided by the statutes in Expln. (baa) of the Act. 8. As per the learned Departmental Representative deduction under s. 80HHC can be allowed in respect of income which is derived from export, what is immediate source of such income, is to be seen. If it is export, then same qualifies for deduction under s. 80HHC, whereas if the source is delayed receipts of exports proceeds or foreign exchange forward contract, the source is not direct from the export. As per the learned Departmental Representative the gain or loss in foreign exchange depends on the perception about the exchange rate movement, time period and several other factors effecting exchange rate movement. He therefore, submitted that considering such income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entatives even if the export proceeds are received in the subsequent years, s. 155(13) provided for allowing deduction to the assessee by modifying the assessment order and the provisions of s. 154 shall, so far as may be, applied thereto, and the period of four years shall be reckoned from the end of the previous year in which such income is to be received in or brought into, India. 12. We have considered the rival submissions, carefully gone through the orders of the lower authorities. We have minutely gone through and deliberated upon the cited judgment of Co-ordinate Bench in the case of Amba Impex as well as the judgment of the jurisdictional High Court in the case of Hindustan Trading Corporation, in the context of factual matrix of the cases under consideration. We have also carefully gone through the detailed paper book filed by the learned Departmental Representative and especially to the pages to which our attention was drawn by the learned Departmental Representative during the course of hearing. From the record, we find that the assessee is in receipt of exchange rate difference in respect of exports undertaken by it during the year under consideration as well as in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, there is no dispute to the fact that direct and proximate source of income on account of exchange fluctuation receipts was the 'export sales' only. Even when there is any delay on the part of the foreign buyer to get the bills realised and thereby Indian exporters getting payment at a later stage and eventually such exporter might be getting higher/lower amount in terms of Indian currency depending upon the exchange rate prevailing at the material point of time but the fact remains the same to the effect that such amount is derived from the export sales/bills. We are, therefore, not persuaded to agree with the contentions of learned Departmental Representative to the effect that amount of exchange fluctuation was not "derived" from the export sales but was on account of interest, brokerage, or any other receipts of similar nature as enumerated in Expln. (baa) below s. 80HHC(4A) of the IT Act. 13. With regard to learned Departmental Representative's contention regarding manner of entering of such transactions in the books of account, in the name of exchange fluctuation, there are plethora of judgments to the effect that manner of making entry in the books of account would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into India within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. We are, therefore, not inclined to agree with the contention of learned Departmental Representative that if there is any delay in receipt of export sales, source of such receipt does not remain directly from the export so as to qualify the receipt eligible for deduction under s. 80HHC. No material has been brought on record by the learned Departmental Representative to indicate that due to delay in payment, the assessee was paid interest. We are therefore not persuaded to agree with the contention of learned Departmental Representative that amount of export proceeds realised in excess of notional value of export bill was attributable to interest for delayed payment. There is no dispute to the proposition that interest income received on account of delayed payment of export bills, cannot be said to have derived from export of goods. From the record we find that there was not only direct and proximate nexus between the exchange fluctuation receipt and the export turnover, but the receipt on account of exchange fluctuation only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayed payment. If any extra amount is received as interest or penalty, as per terms of the export sales, the Department can very well bring the same under Expln. (baa). We also find from the record that actual amount of export sale proceeds received over and above the notional value of sale bill as entered by the assessee in his books of account, does not partake the character of payment other than the proceeds of export sale. We are, therefore, not persuaded to agree with the learned Departmental Representative that such actual receipts of export proceeds over the notional value should be treated in the nature of receipts enumerated in Expln. (baa). Rather we are inclined to agree with the learned Authorised Representatives that actual amount of Indian currency credited by the banker in assessee's account over and above the notional value of sale entered by the assessee in his books of account, constitute only and only the export receipts eligible for deduction under s. 80HHC. Statute nowhere provides nor it was the intention of the legislature to debar the assessee from deduction of 80HHC in respect of Indian currency received/credited to his account in respect of export bill prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence is nothing but part of the export sales. When the goods are exported to a country outside India, the invoice has to be raised in terms of foreign currency prevailing in that country at the time of making exports. When the export bills are realised by the foreign buyers, on receipt of advice, the assessee's bank converts that currency into Indian rupee at the exchange rate prevalent at that time and accordingly the assessee takes cognizance of that amount as its export figure in its books of account. Thus the notional value of the export sales, taken on the date of preparing the export bill is bound to differ from the amount actually realised on retirement of such export bills because of different rate of exchange prevailing on the date of preparation of the export bill vis-a-vis the rates prevailing on the date of realisation of export bills by the foreign buyer by making payment to his banker, which in turn comes to the bank account of the assessee exporter. If the exchange rate is positive meaning thereby value of foreign currency increases on the date of realisation by the foreign buyer, it results into income from the exchange rate fluctuation and in case of declining val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India and such goods are sold from such branch, office or warehouse. In any of the appeals which are under consideration, there is no transfer of goods by the assessee to any of its branch or office situated outside India. Thus the Expln. 2 to s. 80HHC(2) has no bearing to the instant appeals under consideration. 16.1. We are not oblivious of the proposition that interest received on delayed payment even though in connection with sales, cannot be said to be derived from export so as to entitle the same from the deduction under s. 80HHC. Immediate and direct source of such interest is attributable to delayed realisation from the debtor. However, in the instant appeals under our consideration, nothing has been brought on record by the Department to indicate that impugned receipt was on account of interest. Contention of learned Departmental Representative that because of the assessee either willingly or otherwise allowed the money to remain abroad, it has got pecuniary advantage in the form of extra money and it is, at best, "attributable to export" made in earlier years, is merely based on hypothesis and is not supported by any material on record. Any how while reaching to any jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of export bill. We are therefore inclined to agree with the contention of learned Authorised Representative that amount realised on retirement of export bill is to be treated as part of export sale irrespective of varying amount which the assessee exporter may receive due to different rate of exchange prevailing at different times in respect of same amount of export bill, part of which assessee credits in its books of account as exchange rate difference and major part of which has already been credited on the date of preparing the export bill on the basis of notional rate of exchange. 17. In view of above discussion, we are inclined to reverse the findings of the lower authorities to the effect that exchange rate difference partake the character of income enumerated in Expln. (baa), 90 per cent of which is required to be excluded from the "profits of the business", while computing deduction under s. 80HHC, and direct the AO to allow deduction under s. 80HHC with reference to the amount received by the assessee on account of exchange rate of fluctuation. Thus this ground in all the appeals filed by the assessee as well as by the Revenue in ITA No. 2468 is allowed in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of export, the assessee had paid huge interest to the bank itself. Thus there was a debit balance in the interest account after adjusting the interest received against the interest paid. We also find that receipt and payment of interest was inextricably related to the export business of the assessee. There is no dispute to the fact that fixed deposits were kept with the bank as a collateral security against loan facilities taken from the bank. There is also no dispute to the fact that loan facilities have been obtained for the purpose of export. It has also not been disputed that the assessee would not have been able to secure the loan facilities had such fixed deposits not been placed as collateral security. The Tribunal (Delhi) (SB) in the case of Lalsons Enterprises vs. Dy. CIT (2004) 82 TTJ (Del)(SB) 1048 : (2004) 89 ITD 25 (Del)(SB) has observed that for the purposes of applying Expln. (baa) below sub-s. (4B) of s. 80HHC while reducing 90 per cent of the receipts by way of interest from the profits of the business, it is only the 90 per cent of the net interest remaining after allowing a set off of interest paid, which has a nexus with the interest received, that can be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt so as to allow deduction under s. 80HHC, in respect of such income or part thereof as he so received in, or brought into, India. For this purpose the provisions of s. 154 shall so far as may be applied thereto and the period of four years shall be reckoned from the end of any previous year in which such income so received in or brought into India. 25. In view of above discussion, we direct the AO to allow the claim of deduction keeping in view the provisions of s. 80HHC(2)(a) r/w s. 155(13), after verifying that due ex post facto permission has been received by the concerned assessee from the competent authority in this regard. We direct accordingly. 26. In the case of M/s B.S.P. Exports in ITA No. 475/Ahd/2004, the ground regarding disallowance of 20 per cent of total telephone expenses, has been taken by the assessee. 27. We have heard the rival contentions and find from the record that while dealing with the expenses on account of telephone, the AO found that the assessee has incurred an expenditure of Rs. 1,36,635 as telephone expenses in current year whereas in the previous year it was Rs. 76,513. The AO observed that besides decrease in the turnover in comparison to the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions and find from the record that expenses have been incurred on account of travelling of Shri G.M. Patel in connection with purchase of rough diamond. The fact of incurring of expenditure has not been doubted nor the actual travelling done by Shri Patel was doubted. No cogent material has been brought on record by the AO to reach to the conclusion that expenditure was not incurred for the purposes of business. We find that Mr. Patel was an experienced person in this line of business and there is no bar on the assessee-firm from sending Mr. Patel to Belgium from where it used to buy rough diamond merely because Mr. Patel was father of the partners. If any disallowance on account of expenditure incurred with reference to s. 40A(2) is to be made, the same can be done by bringing on record that payment was made in absence of commercial consideration or the same was excessive or unreasonable having regard to the fair market value of the goods or services or the facilities for which the payment was made or the legitimate needs of the business of the assessee. In the instant case, the expenditure was incurred wholly and exclusively for the purposes of business and travelling wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
