THE COMMISSIONER OF INCOME TAX, AHMEDABAD - II vs. HARSHA ENGINEERS LTD.

By   way   of   this   appeal,   the   department   has   challenged   the judgment and order of the Tribunal, whereby, the Tribunal has dismissed the appeal preferred by the department confirming the order of the CIT (Appeals).   While admitting the matters, this Court has framed following substantial question of law: “Whether Appellate Tribunal was right in cancelling the order passed by the Commissioner of Income Tax u/s.   263  of   the   Act   whereby   he   had   directed  the Assessing Officer to disallow the assessee's claim of deduction   u/s.   80HHC   of   the   Act   on   the   foreign exchange received on account of foreign exchange rate difference, after verification?”

The  question  of  law  raised  in  this  appeal   had  come  up  for consideration before this Court in the case of  Commissioner of Income Tax Vs. Priyanka Gems, reported in [2014] 367 ITR 575 (Guj.), in which, this Court has observed that gains derived from fluctuation in foreign exchange rate, realised in subsequent year, the assessee is entitled to deduction under Section 80HHC of the Income Tax Act, 1961. For ready perusal, the Head Note and the ratio of decision is extracted hereunder: O/TAXAP/1093/2007 JUDGMENT “Export – Special Deduction under Section 80HHC – Gains derived from change in foreign exchange rate – Gains   derived   from   export   –   Gains   realised   in subsequent year – Entitled to deduction under Section 80HHC – Income Tax Act, 1961, s. 80HHC – Income Tax Rules, 1962, r. 115.” “Held, that the source of the income of the assessee was the export.  On the basis of accrual, income was already reflected in the assessee's account on the date of   the   export   at   the   prevailing   rate   of   exchange. Further, the income was earned merely on account of foreign exchange fluctuation.  Such, income, therefore, was directly related to the assessee's export business and could not be said to have been removed beyond the first degree.  The assessee was entitled to deduction under Section 80HHC.”

There is no dispute amongst both the learned counsels that the aforesaid decision will apply in the facts of this case also, as the facts and the question of law raised, are identical and therefore, we are not giving elaborate reasons.

Accordingly, the question, “Whether Appellate Tribunal was right in cancelling the order passed by the Commissioner of Income Tax u/s. 263 of the Act whereby he had directed the Assessing Officer to disallow the assessee's claim of deduction u/s. 80HHC of the Act on O/TAXAP/1093/2007 JUDGMENT the foreign exchange received on account of foreign exchange rate difference,   after   verification?”  is   answered   in   favour   of   the assessee   and   against   the   department.     The   appeal   stands dismissed accordingly. [ K. S. Jhaveri, J. ] [ K. J. Thaker, J. ] hiren