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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 ..... s integral part and cannot be differentiated from the export proceeds simply on the ground that the rate has increased subsequent to sale but prior to realization. When goods are exported, the invoice is raised in the currency of the country from where the goods are sold. Subsequently, when the amount is realized in that foreign currency and then converted into Indian rupee, the entire amount is relatable to the exports made. In our opinion the ld. DR cannot go beyond the assessment order and bring an altogether different case, thereby undoing what has been done by the AO. The power to modify the assessment order to the advantage of the Revenue, apart from suo motu action by the AO under sections 147 or 154, lies only with CIT u/s 263, which cannot be usurped by the ld. DR while arguing the appeal. It is, therefore, held that the foreign exchange fluctuation gain is part of export turnover. B. Year in which deduction is admissible - determination of the year in which foreign exchange rate difference is liable to be included in the export turnover for the purpose of deduction under this section, that is, the year in which realization was made subsequently or in the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Accordingly we direct the Assessing Officer to consequently exclude the disputed amount of foreign exchange fluctuation difference from the income of the current year and include it in the income of the immediately preceding year in which the exports were made by the assessee and allow deduction accordingly in accordance with and subject to the provisions of this section in such earlier year. In result, the question posed before the Special Bench is replied in affirmative and the appeal of the Revenue is allowed for statistical purposes. - R.S. SYAL, A.M., N.V. VASUDEVAN AND SUSHMA CHOWLA, J.MS. For the Appellant : Ravi Kiran For the Respondent : Deepak Tralshawala ORDER R.S. SYAL, A.M. 1. The Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection. Resultantly the said receipt as relatable to earlier year's exports was excluded from the export turnover and the deduction was recomputed. However the claim of deduction on the foreign exchange difference of the current year was not disputed by the AO and accepted in toto. In the first appeal, the learned CIT(A), by mainly relying on the order passed by the Delhi Bench of the Tribunal in the case of Smt. Sujata Grover v. Dy. CIT (2002) 74 TTJ (Del) 347 , came to hold that the foreign exchange fluctuation gain relatable to the preceding year's exports was part of total turnover of the current year. He also held that the 'export turnover' as per Section 80HHC(4B)(b) has been defined to mean sale proceeds brought in India within the prescribed time and hence the exchange rate gain difference was rightly considered by the assessee in computing of deduction in the year in which it was actually received. The action of the AO on this count was, therefore, overruled. 3. Before us Shri Ravi Kiran, the learned senior Departmental Representative, made two fold submissions. Firstly it was contended that the act of the assessee in making exports in the preceding year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted with the 'sale proceeds received in or brought into India by the assessee'. It was emphasized that the underlining idea of bringing change in the language of the provision was to grant deduction in the year of receipt after the amendment, whereas the earlier provision entitled the assessee to deduction on the amount receivable in the year of export, irrespective of the fact that whether it was received in India in the year of export or later on. He submitted that the language of section, as applicable to the year in question, clearly demonstrated that the deduction was to be allowed in the year of receipt of convertible foreign exchange into India. Since the event of receiving the foreign exchange difference in India occurred in the instant year, it was contended that the same was rightly included by the assessee in the computation of deduction. He also drew strength from the order of Smt. Sujata Grover (supra). Further the judgment of the Hon'ble Gujarat High Court in the case of Amba Impex (supra) was distinguished by stating that no universal formula has been laid down in that case as was evident from the fact that the matter was eventually restored to the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable in the year of export, then the AO should be directed to consider the exchange rate gain in the assessment of that earlier year in which exports were made and exclude the same from the assessment of the succeeding year in which the assessee had shown. In the support of this submission he stated that the deduction can be allowed only if the eligible income is included in the gross total income. If the income is shifted to the year of export without allowing deduction on that amount in such earlier year, then a piquant situation would arise inasmuch as there would be duplication of income. For this proposition, he placed reliance on the order of the Mumbai Bench of the Tribunal in the case of Asstt. CIT v. C. Mahendra Exports, dt. 30th April, 2007. 6. We have considered the rival submissions at length in the light of material placed before us and the precedents relied upon. There is no dispute on the fact that the assessee is an exporter of trading goods and is entitled to deduction under Section 80HHC. The AO, in the Annexure to the assessment order, has computed the deduction under Section 80HHC by considering foreign exchange rate difference of this year as part of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds simply on the ground that the rate has increased subsequent to sale but prior to realization. When goods are exported, the invoice is raised in the currency of the country from where the goods are sold. Subsequently, when the amount is realized in that foreign currency and then converted into Indian rupee, the entire amount is relatable to the exports made. In fact it is only the translation of invoice value from the foreign currency to the Indian rupees. Irrespective of the fact that the Indian currency has assumed northward or southward sojourn vis-a-vis the other foreign currency, the amount realized in Indian rupees remains attributable to the exports made in foreign currency. There is total fallacy in the submission made on behalf of the Revenue that the exchange rate difference should be detached from the exports and be considered as an independent transaction. It is beyond out comprehension as to how the exchange rate gain or loss can have a different character than the transaction to which it relates. Adverting to the facts of the case, it is palpable that such exchange rate gain arose only from export invoice value and hence cannot be viewed in a different shade. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one reason. Firstly the AO has not disturbed the nature of foreign exchange gain as part of 'export turnover as claimed by the assessee. He has nowhere held that it be treated as 'income from other sources' or that 90 per cent of the same warrants deduction from the 'profits of the business' as per Expln. (baa) below Sub-section (4C) to Section 80HHC. His area of dispute is that since the amount has been realized in the subsequent year, hence the deduction cannot be allowed. In our opinion the learned Departmental Representative cannot go beyond the assessment order and bring an altogether different case, thereby undoing what has been done by the AO. The power to modify the assessment order to the advantage of the Revenue, apart from suo motu action by the AO under Section 147 or 154, lies only with CIT under Section 263, which cannot be usurped by the learned Departmental Representative while arguing the appeal. The scope of the arguments of the learned Departmental Representative is restricted to support the view taken by the AO. He can strengthen the view taken by the AO from any angle he likes, but cannot bring out an altogether different case de hors the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with Clause (b) of Sub-section (3) as the assessee has exported trading goods out of India. The AO has also recomputed deduction under Section 80HHC as per annexure in accordance with tins clause, which provides as under: (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export. 16. On a bare perusal of this clause, it emerges that the profits derived from export of trading goods is the difference between the export turnover in respect of such trading goods and the direct and Indirect costs attributable to such export. Thus, there are three components of this clause. There is no quarrel regarding the second and third, being the direct costs and Indirect costs attributable to the export of trading goods. Hence, 'the controversy before us relates to the calculation of export turnover in respect of such trading goods. The AO has opined that the export turnover shall include the foreign exchange difference recognized in the current year's books of account, but shall exclude the amount as is relatab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'export turnover' of the year in which exports are made shall mean the total amount realized by the assessee in convertible foreign exchange in India within the relevant year and also within a further period of six months from the end of the year or such further period as extended by the competent authority. So the amount qualifying for 'export turnover' shall be the amount realized during the financial year ending on 31st March, 2001 and part thereof as relates to exports made before 31st March, 2001, but realized in period upto 30th Sept.. 2001. There is no provision for splitting up of the amount so realized in two parts, viz., the part as recorded in the books of account on 31st March, 2001 and the other part and for allowing deduction on the former part and denying the benefit on the latter part. The export turnover refers to the entire amount as so realized in convertible foreign exchange in India within the prescribed period on six months from the close of the previous year. Both the components of the export turnover, i.e., the amount recorded in the books of account upto 31st March, and the subsequent portion coming to surface on the realization of the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larger amount is received than the amount as reflected in the shipping bill. Hence, merely because an amount is received in a year subsequent to the year of export by way of exchange rate difference, it does not necessarily always follow that the same is not relatable to the exports made. 19. The learned Authorised Representative Shri Deepak Tralshawala has referred to the definition of 'export turnover' in Explanation below Section 80HHC(4B) to submit that the legislature has substituted the word receivable by the Finance Act, 1990 w.e.f 1st April, 1991 with the expression received in or brought into India , which conveys the intention that as against the eligibility of deduction in the year of export notwithstanding the realisation in the subsequent year in the preamendment era, it is now available only on the amount actually received in the post-amendment era. The main thrust of his submission was that, if we go by the difference in the language deployed in defining export turnover , that would show that in the period prior to asst. yr. 1991-92, the deduction was required to be calculated only in the year of export on the amount of export realization received in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in Clause (a) of Sub-section (2) of Section 80HHC. So this argument advanced on behalf of the assessee does not bring his case any further. C. Effect of Section 155(13) 20. The learned Counsel for the assessee has invited our attention towards the insertion of Sub-section (13) to Section 155 by the Finance Act, 1999 w.e.f. 1st June, 1999. It was submitted that by virtue of this insertion, there was a need to bifurcate the year into two parts, viz., the first period from the beginning of the year and upto the date of insertion of this sub-section and the second period after that. In his opinion, the assessee would be entitled to deduction in the former period in the year in which foreign exchange gain is received and for the later period the benefit would be allowed in the year in which export is made. We are not convinced with this submission as we do not find any overlapping of Section 80HHC coming by the insertion of Sub-section (13) of Section 155. Before we proceed further, it would be relevant to note the provisions Sub-section (13) of under: (13) Where in the assessment for any year, the deduction under Section 80HHB or Section 80HHC or Section 80HHD or Section 80HHE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been empowered to amend the order of the assessment so as to allow deduction under Section 80HHC, etc., in respect of such income as is so received or brought into India subsequently. We observe that Sub-section (13) deals with the cases in which the deduction was earlier denied due to reason that the assessee could not bring the convertible foreign exchange into India with the approval of the RBI or such other authority as is authorized under the law for the time being in force for regulating payment of dealing for foreign exchange. If, however, the amount is realized within the statutory permissible period of six months from the end of the previous year for which there is no requirement of having any permission from competent authority or it is received in or brought into India beyond the statutory prescribed of six months but with in the time as allowed by the RBI or such other competent authority, then Sub-section (13) would not have any application. It shows that there would be two distinct situations, viz. firstly in which the amount is so received in or brought into India within the period of six months from the close of the previous year or within such period as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not relate to export turnover of this year and to that extent, the deduction is not permissible. In the foregoing paras, we have held that the foreign exchange fluctuation gain is part of export turnover of the year in which export is made and not the year of realization. The effect of our decision is that the assessee can claim deduction on the foreign exchange fluctuation gain in the year of export and not the subsequent year in which the income has been realized and recognized in the books of account. 25. Section 80AB provides that where any deduction is required to be made or allowed under any section included in this chapter under the heading C-Deduction in respect of certain Incomes in respect of any Income of the nature specified in that section which is Included in the gross total Income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of Act shall alone be deemed to be the amount of Income of that nature which is derived or received by the assessee and which is Included in his gross total Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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