ITO, JAIPUR vs. VALENTINE SILVER INTERNATIONAL, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh HkkxpUn] ys[kk lnL; ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No.931 & 927/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2012-13 cuke The ITO M/s. Valentine Silver International Vs. Ward- 7(2) Jaipur B-1-12, SEZ-1, Sitapura, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFFV 7716 D vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by: Smt. Poonam Rai, DCIT- DR fu/kZkfjrh dh vksj ls@Assessee by: Shri S.R. Sharma & Shri Rajni Kant Bhatra lquokbZ dh rkjh[k@ Date of Hearing : 15/02/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 21/02/2017 vkns'k@ ORDER PER BHAGCHAND, AM Both these appeals have been filed by the Revenue against separate orders of the ld. CIT(A)-III , Jaipur dated 19-08-2016 and 22-08-2016 for the assessment year 2012-13 raising following ground of appeal. ITA No. 931/JP/2016 –Revenue ‘’On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting disallowance of Rs. 47,43,079/- out of deduction claimed u/s 10AA of the I.T. Act holding that exchange rate fluctuation are directly profits derived from exports of goods as part of export turnover .

2 ITA No.931/JP/2016 ITO, Ward- 7(2), Jaipur vs. M/s. Valentine Silver International ITA No. 927/JP/2016 ‘’On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting penalty of Rs. 14,65610/- imposed u/s 271(1)(c) on excess deduction claimed u/s 10AA holding that quantum addition made by the AO has been deleted but the Department did not accept the decision of the ld. CIT(A) and further appeal is being filed against the quantum order.

2.1 Apropos solitary ground of the Revenue in ITA No. 931/JP/2016,

the facts as emerges from the order of the ld. CIT(A) is as under:-

‘’4.3 I have carefully considered the facts of the case, finding of the AO and submissions of appellant. On perusal of the assessment order, it is seen that the AO is of the view that exchange rate fluctuation of Rs. 47,43,079/-cannot be treated as derived from the export of goods article and things and thus does not quality as eligible profits for deduction u/s 10AA while the assessee submits that exchange rate fluctuation is resulted form realization of export sale proceeds as per invoice of export sale and also referred to the definition of export turnover means the consideration received in convertible foreign exchange with respect to export i.e. total amount realized for sale invoice and thus formed part of export turnover , total turnover in denominator would also include effect of foreign exchange fluctuation difference and will result in its inclusion in eligible profits for deduction u/s 10AA. I have also gone through the judgements of various High Courts and ITAT referred to by assessee as above which fully supports the contention of the assessee. I therefore, hold that exchange rate fluctuation are directly profits derived from export of goods as part of export of turnover and cannot be held as profits attributable to export. As the total turnover of assessee is total export turnover and exchange rate fluctuation profits are derived form export of goods article or

3 ITA No.931/JP/2016 ITO, Ward- 7(2), Jaipur vs. M/s. Valentine Silver International things and so the assessee rightly in law is entitled to deduction u/s 10AA of I.T. Act, 1961..

The disallowance of deduction u/s 10AA in respect of exchange rate fluctuation difference made by the AO is thus deleted.’’

2.2 During the course of hearing, the ld. DR relied on the order of the

AO with the prayer that the ld. CIT(A) has erred in deleting the

disallowance of Rs. 47,43,079/- out of deduction claimed u/s 10AA o the

I.T. Act holding that exchange rate fluctuation are directly profits derived

from export of goods as part of export turnover.

2.3 On the other hand, the ld. AR of the assessee supported the order of

the ld. CIT(A) on the issue in question.

2.4 I have heard the rival contentions and perused the materials

available on record. Brief facts of the case are that assessee firm is

engaged in manufacturing an export of silver jewellery and precious &

semi precious stones. During the year under consideration, the assessee

had shown export of Rs. 1,86,64,261 and net profit of Rs. 3,42,20,297/-.

In the computation of income, the assessee had claimed deduction of Rs.

3,42,20,297/- u/s 10AA of the I.T. Act. It is further noted that the AO

during the course of assessment proceedings observed that in the profit

and loss account the assessee had shown income from exchange

4 ITA No.931/JP/2016 ITO, Ward- 7(2), Jaipur vs. M/s. Valentine Silver International difference of Rs. 47,43,079/-. The profit earned form exchange difference

was also claimed by the assessee as eligible profit for the calculation of

deduction u/s 10AA of the I.T. Act. The AO vide query letter dated 12-

03-2015 required the assessee to explain as to why exchange difference

may not be separated from the eligible profit for the calculation of

deduction u/s 10AA of the I.T. Act. In response to query, the assessee

vide its reply dated 17-03-2015 submitted that the foreign exchange

difference is a part of sale as such the deduction is fully allowable as said

receipts. The AO considered the reply of the assessee and took into

consideration the provisions of Section 10AA of the Act on the issue in

question. It is noted that the AO conclusively accepted the claim of the

assessee that assessee firm is eligible for deduction u/s 10AA of the Act.

However, the AO held that exchange rate difference credited in trading

and profit and loss account of firms are not profits derived from export of

article and things. Therefore, assessee firm does not qualify as eligible

export for claim u/s 10AA and accordingly a sum of Rs. 47,43,079.37

being net amount of exchange rate difference was disallowed from

claimed deduction u/s 10AA and subjected the same to tax. In first

5 ITA No.931/JP/2016 ITO, Ward- 7(2), Jaipur vs. M/s. Valentine Silver International appeal, the ld. CIT(A) has allowed the claim of deduction u/s 10AA of

the Act to the assessee with following observations.

‘’I have also gone through the judgements of various High Courts and ITAT referred to by assessee as above which fully supports the contention of the assessee. I therefore, hold that exchange rate fluctuation are directly profits derived from export of goods as part of export of turnover and cannot be held as profits attributable to export. As the total turnover of assessee is total export turnover and exchange rate fluctuation profits are derived form export of goods article or things and so the assessee rightly in law is entitled to deduction u/s 10AA of I.T. Act, 1961..

The disallowance of deduction u/s 10AA in respect of exchange rate fluctuation difference made by the AO is thus deleted.’’

During the course of hearing, the ld. AR of the assessee relied on the

decision of Hon'ble Delhi High Court in the case of Pr. CIT vs. Universal

Precision Screws (2015) 94 CCH 046 Delhi wherein the Hon'ble Court

observed as under:-

‘’it was held that foreign exchange fluctuation realized withn the stipulated period forms part of the sale proceeds and was directly related to the export activities and thus it should be treated as income derived from export activities.’’

In view of the above deliberations and decision of Hon'ble Delhi High

Court in the case of Pr. CIT vs. Universal Precision Screws (supra), I

6 ITA No.931/JP/2016 ITO, Ward- 7(2), Jaipur vs. M/s. Valentine Silver International concur with the findings of the ld. CIT(A) on this issue. Thus the appeal

of the Revenue is dismissed.

3.1 Apropos solitary ground of the Revenue in ITA No. 927/JP/2016,

the facts as emerges from the order of the ld. CIT(A) is as under:-

‘’4.3 I have carefully considered the facts of the case, findings of the AO and submission of appellant. AO levied the penalty by stating that the appeal was filed late on 01-06- 2016 against the order dispatched on 31-03-2015. In this regard A/R stated that the company had changed its address and also changed address in PAN data prior to completion of assessment. However, assessment order was dispatched on old address. Therefore, since there was no fault of appellant, the appeal filed against assessment order was admitted by me. In this case, the AO has levied penalty on the addition of Rs. 47,43,079/- being the exchange rate difference stood credited in profit loss account on which was deduction was wrongly claimed u/s 10AA. Since the quantum addition made by the AO in the order passed u/s 143(3) has been deleted by the undersigned on merits in appeal No 330/15-16 vide order dated 19-08-2016, the penalty imposed u/s 271(1)© on the same addition cannot stand. The penalty imposed by the AO is deleted.’’

3.2 After hearing both the parties and perusing the material available

on record, it is observed that when the quantum addition has been deleted

by the ld. CIT(A) on merits vide her order dated 19-08-2016 in Appeal

No. 330/15-16 then there is no reason to impose the penalty on the

assessee u/s 271(1)(c) of the Act. It may be noted that the quantum appeal

7 ITA No.931/JP/2016 ITO, Ward- 7(2), Jaipur vs. M/s. Valentine Silver International of the Revenue in ITA No. 931/JP/2016 has been dismissed by this Bench (supra) then the appeal of the Revenue in ITA No. 927/JP/2016 relating to imposition of penalty u/s 271(1)(c) of the Act is infructuous. Thus the appeal of the Revenue relating to imposition of penalty u/s 271(1)(c) on the assessee is dismissed. 4.0 In the result, the appeals of the Revenue are dismissed. Order pronounced in the open court on 21/02/2017.

Sd/- ¼HkkxpUn½ (Bhagchand) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 21/02/ 2017 *Mishra आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The ITO, Ward- 7(2), Jaipur 1. 2. izR;FkhZ@ The Respondent- M/s. Valentine Silver International, Jaipur vk;dj vk;qDr¼vihy½@ CIT(A). 3. vk;dj vk;qDr@ CIT, 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 931/JP/2016) 6. vkns'kkuqlkj@ By order, सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत