KEPEL FELS OFFSHORE & ENGINEERING SERVICES MUMBAI P.LTD,MUMBAI vs. ITO WD 9(2)(2), MUMBAI

Briefly stated facts are that the assessee company is engaged in the business of IT enabled services and having unit at STPI zone. The assessee claimed profit from the STPI

In view of the above details, the AO noted that the fluctuation gain realized by the assessee on the brought forward data is to the tune of Rs. 54,92,631/-, which is claimed as deduction u/s 10A of the Act. The AO relying on the decision of Hon’ble Bombay High Court in the case of Gem Plus Jewellery India Ltd Vs. CIT [2010] 194 Taxman 192 (Bom), disallowed the claim. Aggrieved assessee preferred the appeal before CIT(A), who also confirmed the action of the AO on the same reasoning. Aggrieved, assessee is in second appeal before Tribunal.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the above facts that the assessee has realized the outstanding debtors pertaining to earlier year and also realized sum aggregating to Rs. 54,92,631/- by way of gain on foreign exchange fluctuation upon the subsequent realization on outstanding debtors as on 31-03-2008. It is also fact that foreign exchange fluctuations were on account of debtors realized after 31-03-2008 but before 30-09-2008. The assessee has claimed this amount realized on account of gain on foreign exchange fluctuations as deduction u/s 10A of the Act. It means that the undisputed facts are that this foreign exchange fluctuation gain earned in this year relates to outstanding debts pertaining to Page 2 of 6

The learned Counsel for the assessee argued that the decision of the Hon’ble Bombay High Court favour the assessee and he read out at para 14 and 15 of the judgment, which reads as under: - “14. The Tribunal has followed a decision of its Special Bench in coming to the conclusion that foreign exchange earned on the realization of export receipts in a year other than the year in which the goods were exported would have to be considered in the year of export for the purpose of exemption under section 80HHC. The Tribunal has, however, directed the Assessing Officer, while granting a deduction to the assessee under section 10A in the year of export to exclude the amount from the profits of the year under consideration simultaneously. This is to ensure that the assessee does not obtain a deduction twice over.

For the purposes of the appeal it has not been disputed on behalf of the revenue that the foreign exchange was realized by the assessee within the period stipulated in law. The assessee realized a larger amount because of a foreign exchange fluctuation. The fact that this forms part of the sale proceeds would have to be accepted in view of the judgment of the Division Bench of this Court in CIT Vs. Amber Export (India) [IT Appeal No. 1249 of 2007, dated 18.2.2009). The judgment of this Court in turn followed the decision of the Gujarat High Court in CIT Vs. Amba Impex (2006) 282 ITR 1441 . The sole ground which was been urged on behalf of the revenue in support of the appeal on this issue is based on the judgment of a Division Bench of this Court in CIT Vs. Shah Originals (2010) 191 Taxman 81 . The decision in Shah Originals' case (supra) is, however, distinguishable for the reason that the foreign fluctuation in that case arose after the export transaction had been completed and after the export profits were deposited by the assessee in an EEFC Account. This is evident from the following observations: - "The assessee admittedly in the present case received the entire proceeds of the export transaction. The Reserve Bank of India, has granted a facility to certain Page 3 of 6

We have gone through the judgement of Hon’ble Bombay High Court in the case of Gem Plus Jewellery India Ltd (supra), wherein it is clearly allowed the gain of foreign exchange earned on realization of export rates in the year other than the year in which the goods were exported and the same would have to be considered in the year of export for the purpose of exemption u/s 80HHC of the Act. We find that the issue is covered in the favour of assessee by the decision of Hon’ble Bombay High Court and respectfully following the same we direct the AO to allow the claim of deduction for an amount of Rs.54,92,631/- i.e. gain on account of foreign exchange on unrealized debtors. Accordingly, this issue of the assessee’s appeal is allowed.

The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance for non-deduction of TDS i.e. the payment made to its principal of Keppel FELS Offshore Singapore consultancy fee, travelling expenses, other expenses, staff

At the outset the learned Counsel for the assessee stated that the assessee is in the business of profiting IT enable services and is a 100% export unit in the Software Technology Park and eligible for deduction u/s 10A of the Act. The learned Counsel for the assessee stated that the above expenses are nothing but reimbursement by the assessee to its associate enterprises and in any eventuality disallowance made u/s 40(i)(a) of the Act will enhance the profits of the assessee and consequently enhance the deduction u/s 10A of the Act and the same will be allowed to the assessee. Accordingly, we are of the view that the addition of expenses resulted into increase in the eligible profit of the assessee and will be eligible for deduction u/s 10A of the Act and it will not have any impact on taxing the same. In view of the above facts and circumstances we find that the assessee is an eligible unit u/s 10A of the Act and any disallowance u/s 40(i)(a) of the Act will enhance the profit and deduction will be allowed on the same profit. Consequently, no addition can be made to the income of the assessee. Accordingly, this issue of the assessee is also allowed but on alternative ground. Accordingly, appeal of the assesse is allowed.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 20-12-2016.