DCIT, MADURAI vs. PENGUIN APPARELS P LTD., MADURAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

These two appeals filed by Department are directed against

different orders of Commissioner of Income Tax (Appeals), Madurai for

the above assessment years passed u/s.143(3) and 250 of the Income

Tax Act, 1961 (herein after referred to as ‘the Act’). Since the

assessee is common for both assessment years, hence these appeals

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are combined, heard together, and disposed of by a common order for

the sake of convenience.

First we take up ITA No.2230/Mds/2013, of assessment year 2.

2010-11 for adjudication.

2.1 The CIT(A) erred in holding that both the companies are not holding each other's share and hence the business advances received from Penguin Garments Pvt. Ltd., was treated as commercial transaction which do not attract the provision of deemed dividend. 2.2 The CIT(A) failed to note that the deeming provision under Section.2(22)(e) will extend to any payment by a company, to any concern in which such shareholder is a member or a partner and in which he has a substantial interest.

2.3 The CIT(A) also failed to note that the deeming provision under Section.2(22)(e) does not laid down any condition that borrower must hold shares in lending companies. 2.4 The CIT(A) ought to have followed the decision in the cases of CIT v. Bharti Overseas Trading Co. [2012] 207 Taxman 135 (Mag.) and CIT v. National Travel Services [2012] 249 CTR 540 (Delhi), wherein it was held that the borrower need not be a share holder to invoke the deeming provision under section.2(22)(e).

3.1 The CIT(A) failed to note that the commission paid by the assessee company to the foreign agents is only for procuring order abroad for the business of the assessee company in India and thus the commission income of the foreign agents does accrue and arise in India and accordingly Section.195 would attract. 3.2 The CIT(A) failed to note the impact of CBDT's withdrawal of Circular Nos.23 dated 23.07.09, 163 dated 29.05.1975 and 786 dated 07.02.2000 by its Circular No.7 of 2009 is that in respect of entities who engage non-resident agents for canvassing overseas contract, for export of their products and such agents who render service overseas are paid commission would become taxable in India;

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3.3 The CIT(A) ought to have followed the recent rulings by the Authority for Advance ruling in the case of M/s. SKF Boilers and Driers Pvt. Ltd., [AAR No.983-984 of 2012] which adjudged this issue in favour of Department wherein it was held that, "No doubt that the agents rendered services abroad and have solicited orders, but the right to receive the commission arises in India when the order is executed by the applicant in India. The fact that the agents have rendered services abroad in the form of soliciting the order and the commission is to be remitted to them abroad are wholly irrelevant for the purpose of determining the situs of their income. We follow the ruling of this Authority in [Rajive Malhotra AAR 671 of 2005, 284 ITR 564}. We therefore hold that the income arising on account of commission payable to the two agents is deemed to accrue and arise in India, and is taxable under the Act in view to the specific provision of section.5(2)(b) read with section.9(1)(i) of the Act. The provision of Section. 195 would apply, and the rate of tax will be as provided under the Finance Act for the relevant year".

3.4. The CIT(A) erred in not following the decision of Rajiv Malhotra AAR 671 of 2005, (284 ITR 564), where facts are similar.

Limited Company manufacturing garments and having 100% export

oriented unit (EOU) and filed e-return of income on 08.09.2010

admitting total income of �2,36,51,160/- under normal computation

and �2,00,59,175/- under presumptive provisions of Sec.115JB of the

Act and return was processed u/s.143(1) of the Act on 15.03.2011.

The case was selected for scrutiny under CASS and notice u/s.143(2)

of the Act was issued. The Assessing Officer after considering the

submissions of the assessee made an addition in respect of deemed

dividend u/s.2(22) (e) �1,02,11,870/-. In the appellate proceedings,

it was explained that assessee has availed loan from sister concern

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M/s. Penguin Garments P. Ltd. wereas the Director of M/s. Penguin

Garments P. Ltd Shri. K.S.S.A. Mariappan holds 35.86% of shares and

company also has accumulated profits of �4,66,34,760/-. The Director

also holds 52.49% of shares in M/s. Penguin Apparels P. Ltd and the

ledger copy was provided in respect of M/s. Penguin Garments P. Ltd

and peak credit established �1,02,11,870/- and entire amount was

squared off by repaying the amount. The Assessing Officer treated the

transaction as deemed dividend and show cause notice was issued and

the assessee has filed explanation as under:-

‘’The assessee-company filed relevant ledgers and details regarding the same. Further the assessee-company have submitted that provisions of Sec.2(22)(e) is not applicable in regard to the transaction for the reason that "we admit that A. Mariappan is holding the requisite percentage of shareholding in our company as well as in M/s. Penguin Garments P. Ltd., But it should be noted that neither Penguin Garments P. Ltd., is a shareholder in our company nor our company shareholder in Penguin Garments P. Ltd., Therefore the primary requisite that the loaner should be a shareholder of the lending company is not satisfied". The assessee-company relied upon CIT vs Ankitech Itd 340 ITR. However, the matter had not been finalized and the department had filed SLP against this order. To have better understanding of the provisions of the section, it is worthwhile to reproduce the section here which reads as- •• 'dividend' includes any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after 31st day of May, 1987, by way of advance or loan to a shareholder being a person who is the beneficial owner of the shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than 10% of the voting power, or to any concern in which such

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shareholder is a member or a partner and in which he has a substantial interest [hereafter in this clause referred to as a said concern] or any payment by any such company on behalf, or for the individual benefit of any such shareholder, to the extent to which a company in either case possess accumulated profits. "

But the Assessing Officer relying on judicial decisions made an addition

of �1,02,11,870/-. Aggrieved by the order, the assessee filed an

appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the assessee filed written 5.

submissions and explained the provisions of deemed dividend does not

apply to the assessee company and ld. Commissioner of Income Tax

(Appeals) considered the provisions of the Act and the circumstances

and holding of the share observed at para 4.4 of his order as under:-

‘’4.4 In the present case, under consideration, the appellant company has received business advances from time to time, from Penguin Garments Pvt Ltd., with whom, the appellant company had an open & mutual current account. The Assessing Officer, has taken a peak credit as the loan given by the Penguin Garments Pvt. Ltd., treated the same as dividend income uls 2(22)( e). The AR in his submissions has stated that the appellant company is not a shareholder in Penguin Garments Pvt. Ltd. As the appellant company do not hold any shares in Penguin Garments Pvt. Ltd., the provisions of Section 2(22)( e) are not attracted. In his submissions the AR has mentioned, that, the reliance placed by the AO on several case laws mentioned supra, are related to the transaction between the assessee company and the shareholder. In the case of the appellant, there is no such relationship as a shareholder between the appellant

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company and Penguin Garments Pvt. Ltd. Thus the appellant company Penguin Apparels Pvt. Ltd does not hold any shares in Penguin Garments Pvt. Ltd. Similarly, Penguin Garments Pvt. Ltd does not hold any shares in Penguin. Apparels Pvt. Ltd., i.e the appellant company. Therefore, the contention of the AO is totally untenable. Thus the AR of the appellant requested for deletion of the addition under Section 2(22)( e) of the Income tax Act, 1961. 4.5 The provisions of Sec. 2(22)(e) of the Act creates a fiction, purpose being that persons who manage closely held companies should not arrange their affairs in a manner that they assist the shareholder in avoiding the payment of taxes by having these companies pay to distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of advance or loan. The word 'advance' has to be read in conjunction with the word 'loan'. Usually a loan involves positive act of lending coupled with acceptance by the other side of the money as loan and carries an interest with an obligation or repayment. The term 'advance' mayor may not include lending. Both the terms, i.e. advance or loan are related to the accumulated profits of the company. The purpose behind insertion of the term advance was to bring within the tax net, payments made in guise of loan to shareholders by companies in which they have a substantial interest so as to avoid payment of tax by the shareholders. Whereas trade advances, which are in the nature of money transacted to give effect to a commercial transaction would not be deemed dividend. Thus the current account maintained between the parties establishing the payment to the result of trading transaction between the parties and not given by way of loan or advance, the same cannot be treated as dividend. 4.6 The purpose of Section 2(22)( e) is to tax the distribution of profits to share holders, where the same is distributed not by way of dividend but by way of loan or advances. The AR placed his reliance on the ratios held in Navyug Promoters (p) Ltd., where in it was held clearly, that the condition precedent is that borrower must hold shares in lending companies. An assessee who is not a share holder of the company from which he received a loan or an advance cannot be treated as being covered by the definition of the word, dividend. The provision of Sec. 2(22)( e) can be applied, only when the shareholder of the company is in receipt of loan / advance. Similarly,

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the AR placed his reliance on Ankitech Pvt. Ltd., & Others, wherein it was held that the appellant company had received some amount by way of book entries from one Jackson Generators P. Ltd., which the AO treated as deemed dividend. The ratio held in the above judgement that the amount received cannot be assessed in the hands of the assessee company as it was not a shareholder in Jackson Generators P. Ltd. Thus the business advances received from Penguin Garments Pvt, Ltd., and the appellant company cannot be termed as deemed dividend U/S 2(22( e) as both the companies are not shareholders in each other and has to be treated as business transactions and hence the question of taxing them as deemed dividend and income u/s 2(22)(e) does not arise.

4.7 Therefore, respectfully following the ratios held in the case laws mentioned supra, the addition made by the AO under the head deemed dividend at ₹1,02,11,870 is deleted as both the companies are not holding each other's share holding and hence the business advances received from penguin garments Pvt. Ltd., is treated as commercial transaction which do not attract the provision of deemed dividend and hence deleted. The appellant succeeds on this ground of appeal’’.

and allowed the ground of the assessee. Aggrieved by the

Commissioner of Income Tax (Appeals) order, the Revenue has

assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative agitated the 6.

grounds that Commissioner of Income Tax (Appeals) erred in holding

that both the companies are not holding each other’s share and hence

the business advances received from M/s. Penguin Garments Pvt. Ltd

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was treated as commercial transaction and but any payment by the

company to any concern in which share holder is a member or a

partner in which he is having substantial interest deeming provision

shall apply and also relied on the judicial decisions and argued that

the borrower need not be a share holder to invoke the deeming

provisions.

submissions made in the appellate proceedings, judicial decisions

relied in the appellate proceedings and written submissions filed before

Commissioner of Income Tax (Appeals). The Commissioner of Income

Tax (Appeals) has considered the provisions and allowed the ground of

the assessee. The ld. Authorised Representative further substantiated

his arguments with the factual matrix of shareholding and prayed for

dismissing the appeal of the Revenue.

We heard the rival submissions and perused the material on 8.

record and judicial decisions. The contention of the ld. Departmental

Representative that the assessee company transactions cannot be

treated as advance received from M/s. Penguin Garments Pvt. Ltd and

does not have commercial existence and by applying the provisions as

per the findings of the Assessing Officer even though transaction is

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squared off the company will be treated as beneficiary and deeming

provisions are applicable. Further on perusal of findings and

observation of order the Commissioner of Income Tax (Appeals) and

the arguments of the ld. Authorised Representative, The provision is

very clear that to become a beneficiary they must be registered as

shareholder. We rely on the decision of CIT vs. Madurai Chettiyar

Karthikeyan 223 Taxman 350 (Madras) were held trade advance in

relation to business transaction cannot be treated as deemed dividend

within Sec.2(22) (e) of the Act. Considering the apparent facts and

also deeming provisions, we are not inclined to interfere with the order

of Commissioner of Income Tax (Appeals) on this issue as ld.

Commissioner of Income Tax (Appeals) discussed elaborately and

examined the details. Therefore, we upheld the same and dismiss the

ground of the Revenue.

The second ground raised by the Revenue being payment of 9.

foreign commission paid to foreign agent in procuring orders.

During the financial year 2009-2010, the assessee company 10.

has availed the services of M/s. Natural Origin Worldsise Pte. Ltd,

Singapore for procuring the orders. The assessee paid the

commission without deduction of tax as per Sec.195 of the Act as

there was no permanent established in India. The ld. Assessing Officer

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relied on the CBDT circular discussed elaborately at page 4 of his order

as under:-

‘’The Central Board of Direct Taxes has by its Circular 7 of 2009 dated 22.10.2009 withdrawn its earlier [i] Circular No.23 dated 23.07.2009 [ii] Circular No.163 dated 29.05.1975 and [iii] Circular No.786 of 07.02.2000. The impact of such withdrawal is that in respect of entities who engage non- resident agents for canvassing overseas contract, for export of their products and such agents who render service overseas are paid commission would become taxable. The earlier circular have clearly furnished illustrations to explain that such commission can be paid without deduction of tax. But all that had been withdrawn by the circular mentioned in supra. The recent rulings by the Authority for Advance Ruling in the case of M/s. SKF Boilers and Driers Pvt. Ltd., (AAR No.983- 984 of 2012), had adjudged this issue in favour of Department. The relevant Paragraphs are reproduced below:

" On the above stated facts, the applicant has raised the following questions, common in both the above applications, for a ruling by this authority. 1. Whether the income of the non-resident agent can be deemed to accrue or arise in India? 2. Whether tax deduction would be mandatory under section 195 under export commission paid to non-resident agent, if so, at what rate? ........... It is stated that the Circular No.786 has been withdrawn. The income arising to the two agents on account of export commission falls under section 5(2)(b) of the Act as the income has accrued in India when the right to receive the income became vested’’.

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and disallowed an amount of �63,70,717/- for non compliance of Sec.

40(a)(i) of the Act. Aggrieved by the order, the assessee filed an

appeal before the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 11.

Representative reiterated the submissions made before Assessing

Officer and supported the case with various provisions and case laws

to prove that there is no permanent establishment in India and filed

written submissions. The ld. Commissioner of Income Tax (Appeals)

considered the findings and observations of the Assessing Officer and

written submissions of the assessee and discussed elaborately on the

issue of foreign agency commission at page 9 to 13 of his order and

allowed the ground of the assessee. Aggrieved by the order of

Commissioner of Income Tax (Appeals), the Revenue has assailed an

appeal before Tribunal.

Before us, the ld. Departmental Representative argued that 12.

the Commissioner of Income Tax (Appeals) erred in not considering

that the income has accrued and arised in India and provisions of

Sec.195 and CBDT circular and the foreign agent who received the

commission are liable to the taxed. Therefore, prayed the Tribunal to

set aside the Commissioner of Income Tax (Appeals) order.

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Contra, the ld. Authorised Representative of the assessee 13.

relied on the findings of the Commissioner of Income Tax (Appeals)

and substantiated his arguments on various aspects alongwith High

Court decisions and filed paper book and drew attention to the various

aspects of commission payments and pleaded for dismissal of the

appeal.

We heard the rival submissions and perused the material on 14.

record and judicial decisions. The contention of the ld. Departmental

Representative being that payment made to foreign agent are liable

for TDS and there is no evidence to prove that they do not have any

establishment in India even the ld. Commissioner of Income Tax

(Appeals) has relied on the other aspect without considering the

findings of the Assessing Officer and CBDT circular. The ld. Authorised

Representative substantiated his arguments and drew our attention to

the agreements with the non-resident at page 1 and confirmation

letter at page 4 of the paper book that they do not have any

establishment in India and exclusively deal outside India. Further

substantiated the grounds with the debit note raised in respect of

foreign agent and jurisdictional High Court decisions. The assessee has

not substantiate with the type of works undertaken by Foreign Agent

and volume of business conducted by them in proportionate to total

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turnover and also there is no confirmation produced in respect of

commission s by foreign agent. Considering the facts, we set aside the

order of Commissioner of Income Tax (Appeals) and remit the issue to

the Assessing Officer for limited purpose to verify the genuineness of

transaction whether foreign agent have paid taxes in their country.

We rely on the Co-ordinate Bench decision in the case of ACIT vs. Euor

Leder Fashions Ltd (2015) 44 ITR (Trib) 571(Chennai) observed at

para 10 & 11 as under:-

‘’The aforesaid clause makes it clear that the disallowance shall be made in case of any payment made which is chargeable under this Act and is payable outside India or in India to a nonresident not being a company or to a foreign company on which tax is deductible at source. Therefore, the first condition required to be fulfilled is the payment must be chargeable under the Act, thereafter the question of deduction of tax will arise. Section 195 (1) of the Act also prescribes that tax has to be deducted while making payment to non-resident which is chargeable under the provisions of the Act. Therefore, the condition precedent for deduction of tax is the income must be chargeable under the provisions of the Act. In the facts of the present case, the assessee has not produced the agreement entered into by the assessee with foreign agents to show that they were appointed to act as Commission agents outside India in their respective countries. The AO has disallowed commission payment u/s 40(a)(i) of the Act, since, there was no agreement to suggest the payment of sales commission.

As seen from the order s of the lower authorities, the assessee has not discharged the burden cast upon it to show the nature of services rendered by non-resident agent. If there are services rendered by non-residents,

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who have no permanent establishment in India or have any business connection in India, by virtue of which the payment of commission accrued or arose in India then, it is exempted, if the assessee is able to prove that the services were rendered by those non-residents at abroad. In the present case, the assessee has not established the facts on record that the non-resident has rendered services at abroad and there is no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these details, we are not in a position to decide the nature of services rendered by the non-resident agent. Therefore, it is appropriate to remit the entire issue back to the file of the AO with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad. Accordingly, the entire issue is remitted back to the file of the AO for fresh consideration and the AO is directed to make necessary enquiry regarding the nature of services rendered by the non-resident agent and the payments made thereof. With these observations, the appeal is allowed for statistical purposes’’.

Respectfully, following the decision of Co-ordinate Bench, we remit the

issue to the file of Assessing Officer for verification and examination

and the appeal of the Revenue is partly allowed for statistical purpose.

.In the result, the appeal of the Department in ITA 15.

No.2230/Mds/2013 of assessment year 2010-2011 is partly allowed.

Now we take up ITA No.390/Mds/2014 of assessment year 16.

2009-2010 for adjudication.

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The ground raised by the Revenue that Commissioner of 17.

Income Tax (Appeals) erred in considering the claim of deduction

u/s.80IB of the Act on job works treated as business income and also

not considering the findings of the Punjab and Haryana High Court in

the case of CIT vs. Impal Forge and Allied Industries Limited were

income derived from a job work charges received from the process of

dry cleaning is not an income derived from the industrial undertaking

from the manufacturing process and the assessee is not entitled to

deduction u/sec. 80IB of the Act. The second ground that

Commissioner of Income Tax (Appeals) erred in allowing bank discount

representing gains on the foreign exchange forward contract as

income derived from the industrial undertaking from eligible business.

The assessee filed return of income for the assessment year 18.

2009-10 on 15.09.2009 admitting an income of �2,29,65,699/- under

the normal provisions of the Act and �2,61,00,317/- under the

provisions of 115JB of the Act. The return of income was processed

u/s.143(1) on 09.02.2011 resulting in a demand of �29,97,289/- and

the case was selected for scrutiny and the assessment was completed

u/s.143(3) of the Act, treating receipts received towards duty

drawback and job work as other income and excluded from business

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income. Aggrieved by the order, the assessee filed an appeal before

the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Commissioner of 19.

Income Tax (Appeals) based on the submissions and findings of the

Assessing Officer has observed at para 7 of his order and allowed the

ground of the assessee and directed the Assessing Officer to allow to

treat the job works as income from business and allow deduction.

Aggrieved by the Commissioner of Income Tax (Appeals) order, the

Revenue has assailed an appeal before Tribunal.

grounds and also Commissioner of Income Tax (Appeals) erred in

considering the facts that job works are in the nature of business and

deduction be disallowed and further substantiated his arguments with

the judicial decisions and prayed for set aside of the order of

Commissioner of Income Tax (Appeals).

on the findings of the Commissioner of Income Tax (Appeals) and the

judicial decisions and opposed the ground.

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We heard the rival submissions and perused the material on 22.

record and judicial decisions. The contention of the ld. Authorised

Representative being that the nature of job works are similar to the

business and the assessee has rightfully claimed deduction in respect

of Sec 80IB of the Act and we rely on the findings of CIT vs. Impel

Forge & Allied Industries Ltd 326 ITR 27 were it was held that once it

is found that the assessee is deriving income from eligible businesses

covered by Sec.80IB, apart from other conditions, the assessee is at

liberty to do manufacturing activity not only for himself but for others

also. Consequently profits derived from job work done for others also

quality for deduction under sec. 80IB of the Act and further supported

with the decision of CIT vs. Sadhu Forging Ltd 336 ITR 444 were it

was held that activity of forging which involves heat treatment of

material to produce automobile parts is ‘’manufacture’’ and, therefore,

labour charges and job work charges earned by the assessee for doing

the job of forging for customers are gains derived from industrial

undertakings and the same are entitled for deduction under Sec. 80IB

of the Act. We considered the submissions and findings of the ld.

Departmental Representative on the order of Commissioner of Income

Tax (Appeals) which lacks clarity and the claim of job works by the ld.

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Authorised Representative does not specify the nature of work

undertaken by the assessee company and the same was not reflected

by the Assessing Officer in his order nor assessee has produced

relevant materials on record to explain the nature of job works

undertaken and job works charges takes the characteristic of business

income. Even before us, the ld. Authorised Representative could not

substantiate the working criteria of nature of job works with any

supporting material in respect of particular product and further there

is no discussion on the product used in job works by the Commissioner

of Income Tax (Appeals). We are of the opinion that the matter has

to be re-examined for limited purposes to verifying the nature of job

works for captive consumption or for others. Therefore, we deem it

necessary to set aside the impugned order of Commissioner of Income

Tax (Appeals) and remit the file to the Assessing Officer to pass the

order on above findings and Assessing Officer shall also provided

adequate opportunity of being heard to the assessee. This ground of

the Department is partly allowed for statistical purpose.

The Assessing Officer in the assessment proceedings found 23.

that the assessee has claimed bank discount on foreign exchange

forward contract as income derived from eligible business and such

discount represent gain on foreign exchange forward contract and

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directly attributable to the business and deduction u/s.80IB of the Act.

But the Assessing Officer has denied the claim. Aggrieved by the

order, the assessee filed an appeal before Commissioner of Income

Tax (Appeals).

In the appellate proceedings, the ld. Commissioner of 24.

Income Tax (Appeals) considered the grounds, written submissions

and decision of Apex Court based on the submissions of the assessee

at paras 8.1 and 8.2 of his order as under:-

With regard to allowability of Discount for computing deduction u/s 80-IB, Asseessee submitted as under The Bank discount represents gains on the foreign exchange forward contract. As soon as we book the order of our readymade garments abroad in USD or in Euro; we hedge it by entering with the bank forward cover to prevent any erosion in exchange rate at the time of shipment. Sometimes the shipment takes place beyond the expected period when we have been obliged to cancel the forward contract. The bankers pass on the benefit on foreign exchange contract by crediting to our account and loss to the debit our account. This is in the course of export trade. Therefore the exchange gain on hedging is in the nature of export trade. The decision of the Apex Court in CIT Vs. Woodward Governor India (P) Ltd. (312 ITR 254 (SC) will apply and it cannot be treated as an income under 'other sources' and relief under section 80lB cannot be denied. As per AS11 the incomes or losses arising in foreign currency transaction have to be recognized as income or expenses and hence it is clearly business income and neither it can be assessed under 'other sources' nor Relief under Section 80IB denied. 8.2 Thus discount which represents gains in foreign exchange is directly attributable to the business of the assessee

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i.e. exports and is on revenue account. Following the decision of the Apex Court in CIT vs Woodward Governor India (P) Ltd 312 ITR 254(SC) the Assessing Officer is directed to allow the claim of the assessee for this deduction under section 80IB.

and allowed the ground of the assessee. Aggrieved by the order, the

Revenue has assailed an appeal before Tribunal.

In the appellate proceedings, the ld. Departmental 25.

Representative contention that the assessee is not eligible for

deduction u/s.80IB of the Act in respect of foreign exchange forward

contract and relied on the findings of the Assessing Officer and

Commissioner of Income Tax (Appeals) erred in directing the Assessing

Officer to allow the claim were the characteristic of profit derived from

foreign exchange contract are not eligible for deduction and such

speculative business cannot be considered for claim of deduction.

On the other hand, the ld. Authorised Representative relied 26.

on the findings of the Commissioner of Income Tax (Appeals) and

supported his arguments with the judicial decisions.

We heard the rival submissions and perused the material on 27.

record and judicial decisions. The contention of the ld. Departmental

Representative that nature of transaction of foreign exchange gain is

speculation and they are not eligible for any benefit for eligible

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business. There is no nexus provided with respect to business

activities. Prime facie the assessee enters into international business

transactions and such foreign exchange gain should be part of the

business activity. The activity of rate difference arised directly related

to the sale transaction involving export of goods of industrial

undertaking. We rely on the decision of Jurisdictional High Court in

the case of CIT vs. Pentasoft Technologies Ltd 347 ITR 578 (Mad)

were it was held that in order to allow a claim under section 10A what

all is to be seen is whether such benefit earned by the assessee was

derived by virtue of export made by the assessee. The exchange

value based on upward or downward of the rupee value is not in the

hands of the assessee. Therefore, when the fluctuation in foreign

exchange rate was solely relatable to the export business of the

assessee, and the higher rupee value was earned by virtue of such

exports carried out by the assessee, the benefit of section 10A should

allowed to the assessee in respect of such gain and also relied on

Bombay High Court decision in the case of CIT vs. Rachna Udhyog 230

CIT 72 were it was held that exchange rate difference arises and is

directly related to sale transaction involving export of goods of the

industrial undertakings and, therefore, the difference on account of

exchange rate fluctuation is entitled to deduction under section 80IB of

the Act. Considering apparent facts we are not inclined to interfere

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with the order of Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue.

To sum up, the appeals of the Revenue in ITA Nos. 29. 2230/Mds/2013 and 390/Mds/2014 are partly allowed.

Order pronounced on Wednesday, the 27th day of April, 2016, at Chennai.

Sd/- Sd/- (चं� पूजार�) (जी. पवन कुमार) (CHANDRA POOJARI) (G. PAVAN KUMAR) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:27.04.2016 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF