CIT vs. RAMSONS ORGANICS LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 72/2012 . . . CIT ..... Appellant . Through Mr. Abhishek Maratha, sr. standing counsel . versus . . . RAMSONS ORGANICS LTD ..... Respondent . Through . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 07.02.2012 . . . Ld. counsel for the Revenue in this appeal, which pertains to assessment year 2007-08, submits that the exchange rate fluctuation had resulted in enhanced income and the Assessing Officer was right in holding that the income arising from the aforesaid fluctuation is assessable under the head ?income from other sources? and not as income from manufacturing or processing activity. . 2. To understand the controversy we may reproduce the stand of the assessee before the Assessing Officer and the findings recorded by the Assessing Officer : . ? The assessee company has shown income from Foreign Exchange Fluctuation of Rs.49,86,549/- and Misc. Income of Rs.10,060/-. Vide order sheet entry dated 10/09/2009, the AR of the assessee was asked as . to why income from Foreign Exchange Fluctuation and Misc. Income should not be treated as income not from manufacturing activity claimed as exempt u/s 10B. The AR vide letter dated 20/10/2009 replied as under : . . . ?Assessee is a 100% Export oriented unit. Export sales are credited in books on date of sending the consignment to Buyers on the basis of exchange rate prevailing at that time. How ever export realization is received in foreign exchange after some time. Difference of Actual proceeds realized and credited in books has been declared as foreign exchange fluctuation as declared as income if proceeds are more, and loss if proceeds are lower. In both cases, actual foreign exchange proceeds realization gets reflected. There is no issue that this foreign exchange fluctuation declared in profit and loss account is income from other sources, other than as part of Export proceeds realized out of export sales and eligible for deduction u/s 10 B of Income Tax Act. Foreign Exchange fluctuation is part and parcel of Export proceeds received by Assessee out of export sales made during the year.? . . . The explanation of the assessee is not acceptable since income from foreign exchange fluctuation is income of the assessee from other sources and not from manufacturing of processing activity as claimed by it. The assessee is not entitled to adjust business expenses from this income i.e. foreign exchange fluctuation particularly considering the fact that there are no expenses which appears to have been incurred for earning this income. According the amounts of Rs.49,86,549/- and Rs.10,060/- are treated as income of the assessee from other sources and added to the total income of the assessee.? . . . . . 3. CIT(Appeals) examined the said contention in detail and has recorded the finding that the respondent-assessee was a 100% export oriented unit. The export sales were recorded in the books of accounts on the date of sending of consignment. As the amount though payable in foreign currency was to be written in Indian Rupees, the exchange rate at that time was taken. The export proceeds in foreign currency were received after some time. The difference between the actual proceeds received on conversion into Indian rupees was debited/credited in the books of accounts and shown as foreign exchange fluctuation. This is added to the business income if proceeds were more or alternatively reduced/subtracted if the proceeds were lower. . 4. We fail to understand as to why the aforesaid amount either as addition or subtraction cannot be assessed as business income/loss as it directly arises from the business transaction. We do not agree with the contention of the Revenue that the aforesaid income/loss is not income/loss derived from exports. The assessee was required and has made . book entries. The book entries have to be in Indian Rupees. For this purpose the foreign currency was converted into Indian Rupees. The export transaction was complete and fruitified when the remittance of sale proceeds in foreign exchange was received and then converted into Indian Rupees. Accordingly necessary entries at that time were made to regularize and show the actual and true income. The aforesaid book entries cannot be compared to deposit of money in banks/FDRs and earning of interests. Examining the said aspect Bombay High Court in Commissioner of Income Tax Vs. Gem Plus Jewellery India Ltd. (2010) 194 Taxman 192 (Bom.) has held that the aforesaid amount is entitled to exemption/ deduction under Section 10A of the Act and is a part of profits derived from exports. It is an amount received in course of export transaction. . 5. Ld. counsel for the appellant Revenue submitted that export transaction was complete when the invoice was raised and the goods were dispatched to the exporter and the entry was made to the books of account. The submission has to be rejected. The transaction is complete when the sale proceeds in foreign exchange were received by the Indian assessee. In fact, the section requires actual receipt of money. . 6. Accordingly, we do not find any merit in the present appeal and the same is dismissed. . . . SANJIV KHANNA, J . . . . . . . R.V.EASWAR, J . FEBRUARY 07, 2012 . vld . . . $ 25 . . .