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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-20, Mumbai, in appeal No. CIT(A)-20/9(2)(2)/IT-13/2013-14, Mumbai dated 15-07-2014. The Assessment was framed by ITO-9(2)(2), Mumbai for the A.Y. 2009-10 vide order dated 04-03-2013 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the deduction u/s 10A of the Ac on the amount received on account of exchange rate fluctuation on the outstanding balances as on 31-03-2008. For this assessee has raised following ground: -
“Benefit of deduction under section 10A of the Income Tax Act, 1961 54,92,631/- (‘the Act’) not granted on the amounts received on account of exchange rate fluctuations on the outstanding balances as at 31st March 2008 and received druring the subsequent year i.e. during the previous year relevant to the A.Y. 2009-10.
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
Assessment Year:2009-10 unit and claimed deduction u/s 10A of the Act amounting to Rs.1,96,74,135/-. The AO during the course of assessment proceedings noticed that the assessee has also claimed the deduction u/s 10A on the fluctuation gain on account of the unrealized debtors of earlier years. The AO noticed from the details of gain on exchange rate fluctuation that majority of the gains are on account of realization of the opening debtors. According to him, such gain partakes character of prior period income and do not relate to current sales or exports and hence not eligible for deduction. The AO noticed that out of the total exchange gain of Rs.1,80,22,071/- the following fluctuation gain pertains to earlier year and hence not allowable as deduction u/s 10A of the Act.
No. Dr. Date Value in Conve Value in Rs. Date of Amt Conver Amt Bank Exchange No USD rsion realization realized in sion realized in charge gain/loss te rate used used s No. 1. 126 31.12.07 400000 39.52 15808000 28.04.08 400000 40.09 16039000 231000 2. 126 31.01.07 251000 29.52 9940070 07.06.08 251520 42.69 10737388 797318 3. 127 31.01.08 243160 39.52 9609683 14.07.08 243160 42.75 1039693 787230 4. 127 31.01.08 200000 39.52 7904000 11.08.08 200000 42.03 8407000 503000 5. 130 18.02.08 443160 39.52 17513683 16.09.08 443160 46.29 20517206 3003516 6. 135 28.03.08 67820 39.52 2680246 11.08.08 67820 42.03 2850813 170567
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
Assessment Year:2009-10 earlier F.Y. 2007-08. It is also admitted the fact that the deduction u/s 10A on the price of export by claiming export turnover, has been claimed and allowed in that year but these were debtors outstanding and fluctuation in rate of foreign exchange. There is a gain relatable to the outstanding debtors during the F.Y 2008-09 up to 30-09-2008. Therefore, according to us this gain pertains to the relevant assessment 2009-10 (the year under consideration). Before us, the decision of the Hon’ble Bombay High Court in the case of Gem Plus Jewellery India Ltd (supra) was cited and specifically drew our attention to question which reads as under.
(e) Whether the facts and in the circumstances of the case, the Tribunal was justified in directing the AO to grant exemption u/s 10A on foreign exchange gain earned on realization or export receipts in the year of export and to exclude the gains on sales of earlier years from the profits of the year under consideration and allow in those years.
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
Assessment Year:2009-10 categories of exporters to maintain a certain proportion of the export proceeds in an EEFC Account. The proceeds of the account are to be utilized for bona fide payments by the account holder subject to the limits and the conditions prescribed. An assessee who is an exporter is not under an obligation of law to maintain the export proceeds in the EEFC Account but, this is a facility which is made available by the Reserve Bank. The transaction of export is complete in all respects upon the repatriation of the proceeds. It lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in the entirety or whether a portion should be maintained in convertible foreign exchange in the EEFC Account. The exchange fluctuation that arises, it must be emphasized, is after the export transaction is complete and payment has been received by the exporter. Upon the completion of the export transaction, what the seller does with the proceeds, upon repatriation, is a matter of his option. The exchange fluctuation in the EEFC Account arises after the completion of the export activity and does not bear a proximate and direct nexus with the export transaction so as to fall within the expression "derived" by the assessee in sub-section (1) of section 80HHC. " [Emphasis Supplied] In the present case, the assessee has realized a larger amount in terms of Indian rupees as a result of a foreign exchange fluctuation that took place in the course of the export transaction.” The learned Counsel for the assessee stated that the authorities below while referring to the decision of Gem Plus Jewellery India Ltd (supra) has misunderstood the judgment, whereas, the Hon’ble Bombay High Court has considered the fact that the assessee realized a larger amount because of foreign exchange fluctuation and this forms part of sale proceeds and eligible for deduction u/s 10A of the Act.
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
Assessment Year:2009-10 expenses and interest charges totaling to Rs.87,78,186/- by invoking the provisions of Section 40(a)(i) of the Act. For this assessee has raised following ground no.2: -
Invoking provisions of section 40(a)(i)of the Act on the amounts 87,78,186/- reimbursed to associated enterprise and thereby denying the benefit of deduction available under section 10A to the appellant on the enhanced amount determined as profit derived from the understanding
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.