DY.C.I.T. (ASST.) vs. SARABHAI ELECTRONICS LTD.

Facts

The assessee, Sarabhai Electronics Ltd., filed its return for AY 1994-95 showing an income of Rs. 6,36,980. The Assessing Officer (AO) processed it under Section 143(1)(a) and computed income at Rs. 12,54,393, making adjustments for unpaid statutory liability (Rs. 49,574) and Section 80-O relief (Rs. 5,67,842). The CIT(Appeals) deleted the disallowance under Section 43B to the extent of Rs. 14,567 and granted relief under Section 80-O. The Revenue appealed to the ITAT against the relief granted under Section 80-O. The ITAT, in its order dated September 30, 2002, dismissed the Revenue's appeals for AY 1994-95. The Revenue has filed the present appeal before the High Court against the ITAT's order.

Held

The High Court held that the Tribunal was right in deleting the disallowance under Section 80-O of the Act amounting to Rs. 5,67,842. The reasoning was based on the Supreme Court's decision in J.B. Boda and Co. Pvt. Ltd. V/s. Central Board of Direct Taxes, which clarified that receipt of income in convertible foreign exchange, even if retained as per RBI rules, is eligible for deduction under Section 80-O. The Court noted that the entire transaction was effected through the Reserve Bank of India and expressed in foreign exchange. The Court also considered the fact that the assessee had not challenged the CIT(Appeals) order before the Tribunal. Therefore, the appeal was dismissed, and the question of law was answered in favour of the assessee and against the department.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the disallowance under Section 80-O of the Act amounting to Rs. 5,67,842, which was 50% of Rs. 11,35,683, particularly when the assessee had not challenged the order of the CIT(Appeals) before the Tribunal? Assessee's Contention: The assessee argued that as per Reserve Bank of India rules, a portion of foreign exchange earnings could be retained in a foreign currency account for development and other expenses. This retained amount was wrongly assumed by the AO as foreign exchange remittances not received. The difference arose because RBI rules permit depositing 50% of the amount in an Expert Earner's Foreign Currency Account. Revenue's Contention: The Revenue contended that the CIT(Appeals) was not justified in deleting the disallowance and supported the order of the AO. The AO had disallowed the amount as it was not realized in foreign exchange.