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TMI Blog2004 (12) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... es". 4. Rival contentions have been heard and record perused. The brief facts of the case are that all the impugned assessees are engaged in export business during the relevant assessment year under consideration. The assessee accounted for exchange rate difference on account of export made during the year as well as earlier year. The assessee treated this exchange difference including the export realisation for the prior period as part of export/total turnover and also part of profits. Some of the assessees have directly accounted for such receipt under head exchange rate difference. In the course of 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 exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on would derive colour from the specific words preceding them. In view of this principle of interpretation, foreign exchange gain on the realisation of exports cannot be treated as 'any other receipt of a similar nature', since the preceding specific words used by the legislature are brokerage, commission, interest and rent. Exchange rate difference on account of exchange rate variation on outstanding sales would obviously not be of the character of brokerage, commission, interest, etc. Therefore, such gain would clearly be treated as profits of the business as defined under Expln. (baa). Such gain would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative drew our attention to the provisions of s. 80HHC(1) and submitted that the statutes have used the word a deduction of the profit 'derived' by the assessee from the export of such goods or merchandise for qualifying such profit for deduction under s. 80HHC. As per learned Departmental Representative the word 'derived' is a very narrow word and the exchange rate difference received by the assessee was not out of the direct source of export sales but was realisation from the debtors. He drew our attention to Expln. (baa) below s. 80HHC(4C) which provides for definition of profits of the business 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (baa) below s. 80HHC(4C). He further submitted that while making the export, the assessee had received only converted value of the foreign currency and nothing beyond it. In case of assessee making export of 100 dollars he will get only converted value of 100 dollars. The converted amount of such dollars in terms of Indian currency varies as per the rate of Indian currency prevailing at the particular point of time but by no stretch of imagination, the assessee will be getting more than the converted value of more than 100 dollars which is the actual amount of export. 11. As per the learned Authorised Representatives 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 Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, whether credited by the assessee in its books of account as export sales or as exchange rate fluctuation, but the fact remains that all these receipts are on account of export proceeds. We are aware of the fact that wherever the statute wants to give a restricted meaning, it has used the word "derived" and wherever the legislature wants to give benefit in a liberal and broader way, it has used the words "attributable to". For clearly distinguishing the meaning of "derived" and "attributable to", we have carefully gone through the cases referred to by the learned Departmental Representative. In the instant case, 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 therefore, do not find any reason to examine such receipts with reference to forward exchange contract. There is also no material on record to indicate that amount received on account of exchange rate difference was due to delayed receipt of payment. Even if there is any delay in realisation of export bill by the foreign buyer, the deduction enumerated under s. 80HHC cannot be denied if the convertible foreign exchange had been brought 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from its banker well in time and there is a delay in getting the document retired and remittance of payment, the assessee cannot be faulted. Such delay in payment and bringing of convertible foreign exchange to India, if duly approved by the competent authority, benefit of deduction under s. 80HHC cannot be denied. Any delay in remitting such payment will also not alter the character of the payment which is only the payment of export bill. It is also not the case of the Department that as per documentation executed for export sales, the assessee has received any amount under the head interest or penalty for delayed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying them. The expression "exchange fluctuation receipt" by no stretch of imagination can be treated at par with the receipts in the nature of brokerage, commission, interest, rent or any other receipts of similar nature. The receipt on account of such fluctuation is directly going to add the export turnover and is resulted due to the export sales only. We also see no reason as to how the exchange rate fluctuation income relating to the exports effected in the earlier years can be differentiated from the exchange rate difference in relation to the exports effected in the current year. Basically exchange rate difference 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 per cent of such income is to be reduced from profits of the business in terms of Expln. (baa). 16. With reference to the contention of learned Departmental Representative for taking the notional value of export sales bills, with reference to Expln. 2 to s. 80HHC(2), being the value declared in the shipping bill or bill of export as referred to in sub-s. (1) of s. 50 of the Customs Act, 1962, we are of the considered view that such bill value is deemed to be the sale proceeds only where any goods are transferred by assessee to a branch, office, warehouse or any other establishment of the assessee situated outside 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was in receipt of any compensation or any other benefit in the form of exchange rate difference, due to postponement of payment beyond the stipulated time as per terms of sale contract. Even assuming if there is any delay in retirement of export bill by the foreign buyer and consequential delay in payment, the benefit of deduction under s. 80HHC cannot be declined if such export proceeds are brought into India within the extended time allowed by the competent authority. We also fail to understand as to how such belated payment will not form part of export sales when payment is received only and only in respect of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance of interest and, therefore, no disallowance is to be made in respect of debit balance of interest expenses. On the other hand, learned Departmental Representative relied on the orders of lower authorities and submitted that no deduction can be allowed under s. 80HHC with reference to interest income. 21. We have considered the rival contentions and find from the record that the assessee is engaged in the export and for availing export credit facilities from the bank they were required to give deposits to the bank. On such deposits the assessee has earned interest income, whereas on the credit facilities enjoyed in respect 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed 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 billing in foreign exchange and subsequently such income or part thereof, has been or is received in or brought into India in the manner aforesaid, the AO shall amend the assessment 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requested to travel abroad for the purpose of buying the rough diamond. The AO did not accept the assessee's contentions on the plea that Shri G.M. Patel had travelled twice - one in the month of July and another in the month of September, 2000, whereas the assessee had only one purchase from Belgium during the whole year. 32. By the impugned order the CIT(A) confirmed the impugned disallowance by observing that there was no substantial benefit on account of the expenditure incurred by the appellant. The CIT(A) further stated that there is a possibility that Shri Patel travelled abroad for his own purpose. 33. We have considered the rival 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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