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TMI Blog2008 (8) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange rate difference of Rs. 14,06,355 in the export turnover of this year and deduction was claimed accordingly. On being show caused as to why the foreign exchange difference of the earlier year's export be not excluded from the export turnover and benefit of deduction be accordingly lowered, the assessee stated that the difference between the year end rate and the rate of actual realization would appear in the following assessment year. It was further explained that due to the accounting policies followed by it, all the current assets relating to debtors on account of export were translated at the relevant rate of exchange prevalent at the year end. This accounting policy was stated to be consistently followed from year-to-year. As this amount was actually received and accounted for in the year following the exports, it was stated that the claim of deduction was as per law. Not convinced, the AO observed that the said receipt cannot be considered as derived from the export activity of the assessee for the current year but was merely an Income on account of exchange rate fluctuation on delayed payment received on the export of earlier year and the said export has alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on this amount was out of place. The second and alternative leg of his submission was that such difference was concerned with the exports made in the preceding year and hence cannot be considered for deduction in the subsequent year. He relied on the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Amba Impex (2006) 201 CTR (Guj) 409 : (2006) 282 ITR 144 (Guj) to contend that the amount received in a year subsequent to the year of export by way of exchange rate difference was relatable to the exports of the earlier year. He also relied on the order passed by the Mumbai Bench of the Tribunal in the case of Asstt. CIT v. Kiran Exports in ITA No. 2604/Mum/2005, in which similar view has been canvassed. He further argued that the contrary view expressed by some other Benches of the Tribunal was not in accordance with the mandate of the provision and hence not acceptable. The sum and substance of his submissions was that the assessee cannot be allowed deduction under Section 80HHC on the amount of foreign exchange difference in the year of receipt, if it is received in the succeeding year. 4. Per contra, Shri Deepak Tralsawala, the learned Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other sources" was beyond the purview of the assessment order. However, he relied on the cases of Smt. Sujata Grower (supra) and Priyanka Gems v. Asstt. GIT (2005) 94 TTJ (Ahd) 557 : (2005) 3 SOT 817 (Ahd) for submitting that this amount was a part of export turnover. Distinguishing the case of Kiran Exports (supra) relied on behalf of the Revenue, the learned Authorised Representative submitted that the conclusion drawn by the Bench was nothing but the mandate of Section 155(13) which was inserted by the Finance Act, 1999 w.e.f. 1st June, 1999. On a specific query from the Bench, the learned Authorised Representative stated that the entire amount in controversy relates to the exports made in the preceding year and the convertible foreign exchange received within a period of six months from the end of the previous year. It was, therefore, stated that the assessee had rightly claimed deduction on the foreign exchange rate difference in the year of receipt and the learned CIT(A) had correctly adjudicated the matter. 5. Shri Rajan Vora, the learned Counsel appearing for Intervener, M/s. Classic Diamonds India Ltd., pleaded that the exchange rate difference in his case also relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1,000 US $. (ii) Rate of US $ for Indian rupee on different dates is as under: (Date of sale) (Year ending date) (Date of actual realization) 31-1-2001 31-3-2001 30-6-2001 Rs. 40 Rs. 41 Rs. 43 (iii) The assessee would record export at Rs. 40,000 on 31st Jan., 2001, i.e., @ Rs. 40 per dollar. (iv) On 31st March, 2001, exchange rate gain would be accounted for at Rs. 1,000 as per the mandate of Rule 115 i.e. @ Re. 1 (Rs. 41 - Rs. 40 per dollar). (v) On 30th June, 2001, exchange rate gain would be further increased by Rs. 2,000 i.e. @ Rs. 2 (Rs. 43 - Rs. 41 per dollar). 8. The AO has accepted the export turnover at Rs. 41,000 and the remaining amount of Rs. 2,000 has been left out from the figure of export turnover for the purpose of computing deduction under Section 80HHC. ' 9. We will now deal with various issues raised before us one by one. A. Whether the exchange rate gain is part of export turnover or income from other sources 10. The learned Departmental Representative has contended that the exchange rate difference pertaining to the exports made in the earlier year is to be categorized under the head "Income from other sources" and hence no deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 11. The question raised before the Delhi Bench of the Tribunal in the case of Smt. Sujata Grover (supra) and the Ahmedabad Bench in the case of Priyanka Gems (supra) was about the nature of foreign exchange difference. Whereas the assessee included it in the 'export turnover' for the purpose of claiming documents under Section 80HHC, the Revenue authorities opined that 90 per cent of this amount was liable to be deducted from the 'profits of the business' in terms of Expln. (baa) below Section 80HHC(4B), as it was in the nature of 'income from other sources'. The Tribunal in these cases did not accept the view point of the Department and held that the foreign exchange difference is part of 'export turnover'. As is evident from the grounds of appeal in the case of Smt. Sujata Grover (supra), the dispute was only qua the nature of income and not the year in which the assessee was entitled to deduction. On the other hand in the instant case there is no controversy about the nature of income, but is only about the year in which the deduction is permissible. In our considered opinion the view taken by the Tribunal in these cases, insofar as the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 936/Mum/2005 has taken the view that the exchange rate gain pertaining to export made in the earlier year is eligible for deduction under Section 80HHC in the year of receipt the Mumbai Bench in the case of Kiran Exports (supra) has taken a contrary view by holding that this would relate to the earlier year when the exports were made. Apart from these cases, there are good number of decisions supporting the either view. However the common fabric running through all such cases, is that the exchange rate difference definitely merits inclusion in the export turnover, the center of dispute is only about the year. 15. Section 80HHC(1) provides that where an assessee is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall be allowed deduction to the extent of profits derived from the export of such goods or merchandise in accordance with and subject to the provisions of this section. Sub-section (3) prescribes the method for computing the profits derived from export of eligible goods. This sub-section has been, chiefly, divided into three segments, dealing with three different situations, viz. where the export out of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this Explanation, we observe that it has been defined to mean the sale proceeds received in or brought into India by the assessee in convertible foreign exchange as per Clause (a) of Sub-section (2) of this section. It is, therefore, Imperative to go through Clause (a) of Sub-section (2), which reads as under: (2)(a) This section applies to all goods or merchandise other than those specified in Clause (b) if the sale proceeds of such goods or merchandise exported out of India are (received in or brought into, India) by the assessee (other than the supporting manufacturer) in convertible foreign exchange within a period of six months from the end of the previous year or within, such, other period as the competent authority may allow in this behalf. 18. On a conjoint reading of the above extracted relevant provisions it clearly transpires that the export turnover refers to the sale proceeds of the eligible goods or merchandise exported out of India and received in or brought into India by the assessee in convertible foreign exchange 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. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, sale proceeds of goods or merchandise exported out of India and received in convertible foreign exchange become entitled to the deduction subject to fulfilment of other requisite conditions. Clause (a) of Sub-section (2) of Section 80HHC provides that such sale proceeds have to be received in convertible foreign exchange within a period of six months from the end of previous year or, within such further period as the competent authority may allow in this behalf. Thus, a plain reading of the provision makes it clear that once the competent authority has extended the time, in a case where it is necessary, or, where the sale proceeds have been received within a period of six months from the end of the previous year, such sale proceeds are directly relatable to the ports made and no further inquiry is necessary. Once legislature has provided for treating of receipt within a period of six months after the end of the previous year, or within further extended period, as sale proceeds relatable to exports, it would not be open to Revenue to raise such a controversy. The legislature in its wisdom has taken into consideration the fact that in case of exports made, sale proceeds are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion "received in or brought into India by the assessee in convertible foreign exchange" with "in accordance with Clause (a) of Sub-section (2)". When we go back to Clause (a) of Sub-section (2), it is observed that the expression "received in or brought into India" has to be read along with "within the 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. The words "received in" do not refer only to the receipt in convertible foreign exchange within the year of export only but also the amount as is so received within the period of six months from the end of the previous year or within such further period as the competent authority may allow. In our considered opinion there is no effect on the computation of deduction in the year of export, whether the difference in export realisation due to fluctuation in the foreign currency rate is received in the same year or within six months from the end of the previous year or within such further period as may be allowed by the competent authority. Once the amount is found to be so received, it would relate to export turnover of the year in which the export w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is so received in, or brought into, India, and the provisions of Section 154 shall, so far as may be apply thereto, and the period of four years shall be reckoned from the end of the previous year in which such income is so received in, or brought into, India. 21. On its dissection, we note the following elements of this sub-section: (i) Deduction has not been allowed in the assessment under these sections including Section 80HHC. (ii) Reason for not allowing deduction is that such income was not received in convertible foreign exchange in India etc., with the approval of RBI or any competent authority. (iii) And subsequently such income or its part is received in India. (iv) Then the AO shall amend the original order of assessment allowing deduction in respect of such income. (v) Period for rectification is 4 years from the end of the financial year in which the such income is so received in or brought into India. 22. Thus it refers to carrying out rectification where deduction under Section 80HHC etc., was not allowed to the assessee in the assessment on the ground that such income was not received in convertible foreign exchange in or brought into India by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change in India within the time allowed under Section 80HHC(2)(a) and get deduction, the legislature thought it prudent to insert Section 155(13) for giving similar treatment to the other category of the assessees who were deprived of the benefit of deduction because of late realization of export proceeds in India. But for this, Section 155(13) has no other purpose to serve. The facts with which we are confronted in the present appeal are already governed by the definition of 'export turnover' read with Sub-section (2)(a) because the exchange rate difference was realized within the stipulated statutory permissible period of six months from the end of the previous year. We therefore, hold that this contention raised on behalf of the assessee, is bereft of any force. 23. We, therefore, hold that the view of the learned CIT(A) in directing the inclusion of the gain due to exchange rate difference in the year of receipt and allowing deduction under Section 80HHC in such later year, is not sustainable. The impugned order is, therefore overturned pro tanto. D. Computation of deduction 24. There is another Interesting aspect of the present issue. The assessee included the forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason or the other, there will not be any benefit of deduction under this chapter. Conversely, if deduction is to be allowed under Section 80HHC in any year, then the qualifying income must form part of the gross total income of that year. If the income is included in a later year and deduction is allowed in a former year, that would not be in accordance with the principles of taxation but would frustrate the spirit of the Act. Adverting to the facts of the instant case we observe that the assessee included the amount of foreign exchange difference in the current year's income and claimed deduction accordingly. Now we have set aside impugned order upholding the assessee's action and held in the earlier part of this order that the deduction is permissible in the preceding year when export was made and not in the current year. In that view of the matter, the impugned order granting deduction in the current year would stand reversed and the earlier year's order would require modification. 26. Accordingly we direct the AO to consequently exclude the disputed amount or foreign exchange fluctuation difference from the income of the current year the include it in the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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