Decided on August 22,2008



R.S. Syal, A.M. - (1.) THE Hon'ble President of the Tribunal has constituted the Special Bench and referred the following question for our consideration and decision: On the facts and circumstances of the case and in law the learned CIT(A) erred in directing the AO to include the exchange rate gain difference of Rs. 8,15,744 pertaining to the exports of earlier years in the export turnover for arriving at the allowable deduction under Section 80HHC without appreciating the facts of the case including nature of receipt and treatment of the same in the books of account.
(2.) The factual matrix of the case is that the assessee carried on the business of export of diamond in the relevant year. While computing deduction under Section 80HHC, it included foreign 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 already been credited to the P&L a/c. By taking note of Rule 115 it was opined that the gain/loss if any arising on account of fluctuation in the rate of foreign exchange with reference to the exports made during the year had already been considered while computing the profits and gains for the year and hence there was no reason for considering the exchange rate difference for the earlier year's exports in the current year for the grant of deduction under this section. 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. 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 was an independent transaction and when that was so accounted for in the books of account of such year, the said transaction was concluded. The receipt of difference in foreign currency in the subsequent year as relatable to the earlier year's exports, was stated to be an entirely different transaction. It was, therefore, put forth that this portion of income relatable to difference in foreign currency of the last year's exports could not be regarded as "derived from the export of such goods or merchandise" and hence was ineligible for the purpose of deduction under this section. It was, therefore, submitted that such income fell under the head 'Income from other sources' and the question of allowing any deduction 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.
(3.) PER contra, Shri Deepak Tralsawala, the learned Counsel for the assessee heavily relied on the impugned order. His submissions were mainly the reiteration of reasons recorded by the learned CIT(A) for granting the relief. In particular it was submitted that the definition of the 'export turnover' as given in Expln. (b) below Section 80HHC(4B), prior to its substitution by the Finance Act, 1990 w.e.f 1st April, 1991, had employed the words 'the sale proceeds receivable by the assessee', which were later substituted 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 Tribunal for deciding the question of allowability of deduction under Section 80HHC in respect of the exchange rate difference pertaining to the export made in the earlier year. He relied on the order passed by the Mumbai Bench of the Tribunal in the case of ITO v. Neeral Prakash Shah in ITA No. 2868/Mum/2004 in which it has been held that exchange rate difference realized in the subsequent year pertaining to the export made in the earlier year, is eligible for deduction in the later year. He further contended that the AG had not disputed the nature of receipt being exchange rate difference as part of 'export turnover' and the contention of the learned Departmental Representative that it should be taxed under the head "Income from 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.;

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