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Section 80HHC in The Income- Tax Act, 1995
The Income- Tax Act, 1995
Section 155(13) in The Income- Tax Act, 1995
Section 80HHC(2) in The Income- Tax Act, 1995

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Income Tax Appellate Tribunal - Ahmedabad
Davaria Brothers, Surat vs Department Of Income Tax on 14 September, 2006
        IN THE INCOME TAX APPELLATE TRIBUNAL : 'D' BENCH : AHMEDABAD

           (Before Hon'ble Shri T.K. Sharma, J.M. & Hon'ble Shri A.N.Pahuja, A.M. )
                                  I.T.A. No. 2715/Ahd./2006
                                 Assessment Year : 2003-2004

        The A.C.I.T., Circle-9, Surat        -Vs-                M/s. Davaria Brothers, Surat
        (PAN : AACFD 0230F)
         (Appellant)                                                            (Respondent)

                Appellant by        :   Shri Anil Kumar, Sr.D.R
                Respondent by       :   Shri M.K.Patel, A.R.


                                        ORDER

Per Shri T.K. Sharma, Judicial Member :

This appeal filed by the Revenue is against the order dated 14.09.2006 passed by the Learned Commissioner of Income Tax (Appeals)-V, Surat for the assessment year 2003-2004.

2. Ground no.1 raised in this appeal by the Revenue reads as under:

"1. On the facts and in the circumstances of the case and in law, the Learned CIT(A)-V, Surat has erred in deleting addition of Rs.18,36,437/- made by the Assessing Officer as income from other sources and also directing to allow the claim of deduction u/s. 80HHC of the I.T.Act, 1961 on exchange rate difference income of Rs. 18,36,437/- as disallowed by the Assessing Officer as per assess- ment order u/s. 143(3) of the I.T. Act, 1961 dated 30.01.2006."

3. The facts relating to the aforesaid ground of appeal are that in the statement of computation of income, the assessee has claimed deduction under section 80HHC of Rs.1,35,65,558/-. On verification, the Assessing Officer noticed that the assessee had included a sum of Rs.18,36,437/- related to the exchange rate difference of earlier year in the sum of export turnover for the purpose of computing deduction under section 80HHC. The Assessing Officer took the view that exchange rate difference of earlier year is not a part of export turnover. He accordingly, treated the same as income from other sources and restricted the claim under section 80HHC accordingly.

2

ITA No. 2715-AHD-2006

4. On appeal, in the impugned order, the Learned Commissioner of Income Tax(Appeals), relying on the decision of the Hon'ble Gujarat High Court in the case of M/s. Amba Impex, allowed the assessee's claim for considering the exchange rate difference as part of export turnover.

5. Aggrieved with the order of the Learned Commissioner of Income Tax(Appeals), the revenue is in appeal before the Tribunal.

6. At the time of hearing before us, Shri M.K.Patel, appeared on behalf of the assessee and contended that ITAT 'D' Bench in order dated 25.10.2005 in assessee's own case for the assessment year 2002-03 in ITA No.1979/A/2005 has held that gain on account of foreign exchange rate difference on account of sales made in the earlier years form part of export turnover and assessee is entitled to deduction under section 80HHC accordingly. He accordingly contended that the view taken by the Learned Commissioner of Income Tax(Appeals) be upheld.

7. Shri Anil Kumar, Sr.D.R. appeared on behalf of the Revenue and contended that ITAT, Mumbai Special bench in the case of ACIT-vs- Prakash I. Shah reported in [2008] 306 ITR (AT) 1, Mumbai Special Bench in order dated 22.08.2008 held that gains due to difference in foreign exchange rate to be included in turnover in the year of export. With regard to the decision dated 25.10.2005 in assessee's own case relied on by the ld. Counsel for the assessee, the ld. D.R. pointed out that the said decision cannot be followed in view of the decision of the ITAT, Mumbai Special bench in the case of Prakash I. Shah (supra). He accordingly suggested that order of Learned Commissioner of Income Tax(Appeals) on this issue be set aside and the matter be restored to the file of Assessing Officer with the direction that he will re-compute the income of the relevant assessment year in which the export was made.

8. After hearing both the sides, we have carefully gone through the orders of the authorities below. The view taken by the Assessing Officer, in our opinion, is in conformity with the view taken by the Jurisdictional High Court in the case of Amba Impex reported in 282 ITR 144 (Guj.). This view is also supported by the decision of ITAT, Special Bench, Mumbai in the case of ACIT-vs- Prakash I. Shah (supra). In this decision, the Special bench, ITAT, Mumbai held as under:

3
ITA No. 2715-AHD-2006 "i) Exchange rate gain different pertaining to export is an integral part of exports and export turnover cannot be treated as income from other sources.
ii) However, whether such gain relates to export made in an earlier year, deduction under section 80HHC is allowable only in the year in which exports are made and not in the year of realization of gain.
iii) As it would not be permissible to assess the exchange gain in the year of realization, while allowing section 80-HHC deduction in earlier year, the Assessing Officer was directed to exclude the exchange gain from the total income of the current year and to include it in the year of income of export and allow the deduction under section 80-HHC accordingly."

8.1 It is pertinent to note that when ITAT, 'D' Bench vide order dated 25.10.2005 decided the assessee's own case for the assessment year 2002-03, the decision of ITAT, Special bench, Mumbai in the case of Prakash I. Shah (supra) was not available. We, therefore, following the decision of the ITAT, Special Bench, Mumbai in the case of Prakash I. Shah (supra), hold that exchange rate difference income of Rs.18,36,437/- is not assessable under the head 'income from other sources' in the assessment year under appeal because this exchange rate difference is pertaining to export made in the earlier year. The assessee is entitled to deduction under section 80-HHC in the year of export and not in the year of realization of this gain i.e. in the assessment year under appeal. The Assessing Officer is accordingly directed to exclude the exchange gain of Rs.18,36,437/- from the total income of the current year and to allow the deduction under section 80-HHC in the year of export, keeping in view the provisions contained in section 155(13) of the I.T. Act, 1961. The Assessing Officer is directed accordingly.

9. Ground no.2 raised in this appeal by the Revenue reads as under:

"2. On the facts and in the circumstances of the case and in law, the Learned C1T(A)-V, Surat has erred in deleting the disallowance of interest expenses made by the Assessing Officer of Rs.5,33,193/- on account of borrowed fund diverted for non-business purposes as per assessment order u/s. 143(3) of the I.T. Act, 1961 dated 30.01.2006."

10. During the course of assessment proceedings, the Assessing Officer observed that there was a debit balance of Rs.1,03,84,426/- in the name of one of the partners. The assessee had also shown advance of Rs.1,10,000/- in the name of Shri Vipul Davaria. The Assessing Officer also noticed that the assessee enjoyed overdraft facility from Andhra Bank and no interest was charged on the above debit balance and the advances whereas in the profit & loss a/c., the 4 ITA No. 2715-AHD-2006 assessee had debited a sum of Rs.1,22,89,629/- as interest on the overdraft availed from the bank. The Assessing Officer accordingly worked out the proportionate interest on pro-rata basis amounting to Rs.5,33,193/- on the borrowed funds diverted for non-business purpose and disallowed the same under section 36(1)(iii) of the I.T. Act on the ground that the assessee has failed to substantiate that the borrowed funds were wholly and exclusively utilized for the purpose of business activity.

11. On appeal before the Learned Commissioner of Income Tax(Appeals), it was contended that the withdrawals made by the partners did not affect the business activity of the assessee. It was further contended that borrowings were made against the export bills (debtors and stock). The total credit balance of remaining partners of the assessee firm, other than the partners, who had borrowed money from it, was a whopping sum of Rs.24.22 crores and against that borrowings as made by the partners was an insignificant amount. The assessee firm did not pay interest @18% on its credit balance taken as loan from its banker and similarly no interest was charged on the debit balance of the partners because it can be denied that it was always the prerogative of the firm to charge interest on the debit balance or not charge interest subject to terms and conditions of the Partnership Deed.

11.1 After considering the aforesaid submissions, in the impugned order, the Learned Commissioner of Income Tax(Appeals) deleted the addition for the detailed reasons given in para 5.4 at page 10 of the impugned order, which is reproduced as under:

5.4 I have perused the fads of the case as discussed by the Assessing Officer in his assessment order and also carefully went through the submission as made by the A, R. and the judicial analysis of the issues as decided In the cases relied upon by the Assessing Officer. After analyzing the facts, it is seen that the debit balance as shown in the capital account of the above referred two partners were nowhere found affecting the credit facilities of the appellant firm as taken by it from its banker. It is further found that the other partners had huge credit balances in the books of the firm and besides that the credit facilities availed by it were mainly against its debtors and stock. Further, according to the A, R., the borrowings as made by Shri Chandubhai Davariya was utilized towards buying of a flat at Mumbai and the said flat was pledged to its banker in the form of a collateral security along with other securities and thus, according to the A.R., though the said borrowing was made by Shri Chandubhai Davariya in his individual capacity but the generated asset was utilized for raising credit facilities to the appellant firm and thus, indirectly, according to the A. R,, the borrowings was meant for personal purposes but the same was used for business purposes only, has merit in it. It is also seen that the case laws as relied upon by the Assessing Officer did not cover the issue involved in the present case under consideration because here the Assessing Officer had failed to establish the nexus between the credit and advances taken by the appellant 5 ITA No. 2715-AHD-2006 from its banker and the withdrawals by its two partners, I, therefore, accordingly, delete the addition as made by the Assessing Officer of Rs,5,33,193/- on account of borrowed funds diverted for non-purposes. Accordingly, this ground of appeal is allowed."

11.2 Aggrieved with the order of the Learned Commissioner of Income Tax(Appeals) on this issue, the Revenue is in appeal before the Tribunal.

12. Shri Anil Kumar, D.R., appearing on behalf of the Revenue pointed out that the assessee had enjoyed the overdraft facility from Andhra Bank. In the Profit & loss a/c., the assessee has debited a sum of Rs.1,22,89,629/- as interest on overdraft availed from the bank. After considering all the facts and figures, the Assessing Officer worked out the proportionate interest on pro rata basis amounting to Rs.5,33,193/- on borrowed funds diverted for non-business purposes and disallowed the same under section 36(1)(iii) of the I.T. Act, 1961. He further pointed out that the assessee failed to substantiate that borrowed funds were wholly and exclusively utilized for the purpose of business. Hence, disallowance was rightly made.

13. On the other hand, Shri M.K.Patel, A.R., appearing on behalf of the assessee, vehemently supported the order of the Learned Commissioner of Income Tax(Appeals) and requested to uphold the same.

14. Rival submissions were considered. It is pertinent to note that debit balance shown in the capital account of two partners were nowhere found affecting the credit facility of the assessee firm, taken from its banker. It is not disputed by the ld. A.R. that other two partners had huge credit facility in the books of the firm and besides that the credit facilities availed by it were mainly against its debtors and stock. Admittedly, there is no evidence that borrowed funds were diverted for non-business purposes. Therefore, disallowance made by the Assessing Officer on doubts and suspicion is rightly deleted by the Learned Commissioner of Income Tax(Appeals). Hence, the view taken by the Learned Commissioner of Income Tax(Appeals) is upheld and this ground of appeal of the Revenue is rejected.

15. Ground no.3 raised in this appeal by the Revenue reads as under:

3. On the facts and in the circumstances of the case and in law, the Learned CIT(A)-V, Surat has erred in deleting the addition on account of low gross profit as made by the Assessing Officer of Rs.28,68,838/- as per assessment order u/s. 143(3) of the I.T. Act, 1961 dated 30.01.2006."

16. In the assessment order, the Assessing Officer made addition of Rs.28,68,838/- on account of low gross profit. In the assessment year under appeal, the assessee has shown gross 6 ITA No. 2715-AHD-2006 profit @9.14% as against gross profit rate of 10.56% in the immediately preceding assessment year. For low G.P., before the Assessing Officer, it was contended that the assessee is dealing in import of rough diamonds and manufacturing and polishing of the same in its own factory as well as got the same done on job work basis from outside agencies and exported the finished diamonds of international standards to various foreign countries. The assessee also submitted the details with regard to purchase of rough diamonds, polished diamonds as well as rejection of the same in terms of value as well as in terms of carats for three financial years ending on 31.03.2001, 31.03.2002 and 31.03.2003. On the basis of this submission, it was claimed that there was an increase in the average cost of purchase of rough diamonds by Rs.500.03 as compared to last year i.e. during the year under consideration. The average cost per carat was Rs.1085.75 whereas during the immediately preceding year, it was Rs.585.72 which resulted into an increase of 85.40%, as compared to last year. The assessee further submitted that the rate of purchase during the year was higher in comparison to the rate of purchase of financial year ending 31.03.2001 which is Rs.700.37. The second reason mentioned by the assessee for fall in gross profit was on account of reduction in average sale price. The sale price per carat, during the year under consideration, was realized at Rs.6054.10 whereas in the earlier year, it was Rs.7223.74. Hence, the average sale realization per carat was less by Rs.1169.64 which was finally 16.20% less, as compared to last year. The assessee further stated other factors, which was responsible for fall in gross profit rate, was increase in factory labour charges @14.76%. During the year under appeal, it was Rs.155.56 as against Rs.135.55 in the immediately preceding year, resulting into an increase of Rs.20.01. Moreover, the increase in the average labour charges was because of number of labourers deployed for the work during the year under consideration had gone up in comparison to the earlier year. It was also contended that during the year under consideration, the realization on account of net exchange rate difference was Rs.66,27,293/- in comparison to the net exchange rate difference of immediately preceding year i.e. Rs.1,10,14,884/- and on the basis of above, the assessee had realized less exchange rate difference by Rs.43,87,591/- (Rs.1,10,14,884/- minus Rs.66,27,293/-) and this has also affected the gross profit ratio adversely for the year under consideration.

17. The Assessing Officer, being dissatisfied with the explanation given by the assessee, observed various defects in the system of method of accounting adopted by the assessee. The 7 ITA No. 2715-AHD-2006 Assessing Officer rejected the books of accounts of the assessee under section 145(3) of the Act and estimated its gross profit. The Assessing Officer observed that the assessee has shown a fall in gross profit ratio but, however, after taking into account, the difference in exchange rate, the assessee had explained the fall in gross profit to the extent of Rs.43,87,591/- only and finally considering the entire facts, the Assessing Officer enhanced its gross profit by Rs.28,68,838/- being the figure of difference between loss worked for the year under appeal by the assessee for fall in gross profit rate and the figure worked out as loss on account of difference in foreign exchange receipt during the year vis-à-vis in the immediately preceding assessment year and added the same to its total income for taxation on account of suppression of gross profit. In the assessment order, the Assessing Officer took the view that it is not possible to verify the valuation of stock because the assessee has not furnished the details in terms of quality-wise production of diamonds from each lot. For rejection of books of accounts on this ground, the Assessing Officer relied on the decision of ITAT, 'C' Bench, Mumbai in the case of DCIT-vs- Samir Diamonds Export Pvt. Ltd. reported in 71 ITD 75 (Mum). As against this, at the time of hearing before us, the ld. D.R. drew our attention to para 5.2.(1)(h)(vii) of the assessment order, wherein the Assessing Officer has observed that in the absence of details of quality-wise production of diamonds from each lot, it is not ascertainable which type of diamonds was produced from a particular lot in order to determine the value. Therefore, valuation of stock is not verifiable. The ld. D.R. further pointed out that in the impugned order, the Learned Commissioner of Income Tax(Appeals) completely ignored the ratio of decision of the ITAT, 'C' Bench, Mumbai in the case of Samir Diamonds Export Pvt. Ltd. (supra). Therefore, the addition of Rs.28,68,838/- made by the Assessing Officer be restored.

18. On appeal, after considering the aforesaid submissions, in the impugned order, the ld. Learned Commissioner of Income Tax(Appeals) deleted the addition for the detailed reasons given in para 6.6, which reads as under:

"6.6 I have perused the facts of the case as discussed by the Assessing Officer and also carefully went through the submission as made by the A.R. as well as the case laws relied upon by him. After analyzing the facts as stated above, it is seen that the appellant firm had submitted all the details relating to the figures in the form of prices of rough diamonds, lesser realization in sales i.e. export of diamonds and increase in labour expenses incurred by it during the year under consideration. Besides above facts, it is found that the appellant-firm had also submitted all the above factors, it is found that the 8 ITA No. 2715-AHD-2006 appellant-firm had also submitted all the facts and figures before the Assessing Officer showing the lesser realization on account of net foreign exchange rate difference and these factors are found responsible for decrease in gross profit ratio of the appellant to a large extent. Besides above, it is also observed that the Assessing Officer had squarely failed to find out any defect in the books of accounts of the appellant and, therefore, rejection of its books of accounts by him (the Assessing Officer] on the basis of non- maintenance of proper details with regard to purchase of rough diamonds and export of the same is found totally unacceptable because after the perusal of the contents of the assessment records, it is found that from time to time the appellant had submitted the details with regard to purchase of rough diamonds made by it during the year along with other details such as details regarding receipt of polished diamonds from the production department and its valuation based on grade, weight, shape, etc. and finally the determination of its price for sale in the international market. Besides above, it is found that the judicial findings as relied upon by the A.R. also provide full support to the arguments as mode by him (the A. R,) during the appellate proceedings. I, therefore, in view of these facts hold that the rejection of the appellant's books of accounts by the Assessing Officer without pointing out any defect therein is not justified at all and similarly, the addition on account of low gross profit as made by the Assessing Officer amounting to Rs.28,68,838/- in view of the above discussed facts, is also found without any basis and not supported by concrete materials and accordingly, I delete the same by holding that it is not tenable in the eyes of law. In the result, this ground of appeal is allowed."

19. On the other hand, the ld. Counsel for the assessee vehemently supported the order of the Learned Commissioner of Income Tax(Appeals).

20. We have heard both the sides. In the impugned order, the Learned Commissioner of Income Tax(Appeals) has recorded a finding of fact that the Assessing Officer failed to find out any defects in the books of accounts. It is pertinent to note that in the impugned order, the Learned Commissioner of Income Tax(Appeals) ignored the decision of the ITAT, Mumbai Bench in the case of Samir Diamonds Export Pvt. Ltd. (supra). In that decision, the assessee did not furnish details regarding issuing of lots of rough diamond to labour parties for cutting, polishing, etc., and actual yield therefrom. In that decision, the addition was made and the same is confirmed by the Tribunal. In para 5.2.(1)(h)(vii), the Assessing Officer relied on the said decision but in the impugned order, the Learned Commissioner of Income Tax(Appeals) has not referred the said decision of the ITAT, 'C" Bench, Mumbai. Looking to the totality of the facts, we are of the view that it will meet the ends of justice, if the order of the Learned Commissioner of Income Tax(Appeals) is set aside and the matter is restored to the file of Learned Commissioner of Income Tax(Appeals) with the direction that he will consider the ratio of 9 ITA No. 2715-AHD-2006 decision of ITAT, 'C' Bench, Mumbai in the case of Samir Diamonds Exports Pvt. Ltd. (supra) and readjudicate the issue of addition of Rs.28,68,838/- afresh, after giving opportunity of being heard to both the sides. Resultantly, for statistical purposes, this issue is treated as allowed.

21. Ground no.4 raised in this appeal by the Revenue reads as under:

"4. On the facts and in the circumstances of the case and in law, the Learned CIT(A)-V, Surat has erred in reducing the disallowance made on account of foreign traveling expenses by Rs.l,40,411/- as made by the Assessing Officer as per assessment order u/s. 143(3) of the I.T. Act, 1961 dated 30.01.2006."

22. Brief facts relating to controversy involved in ground no.4 are that in the assessment order, the Assessing Officer disallowed Rs.2,80,022/- on account of foreign traveling expenses. On appeal, in the impugned order, the Learned Commissioner of Income Tax(Appeals) deleted 50% of the same for the detailed reasons given in para 7.3, which reads as under:

7.3 I have perused the findings of the Assessing Officer as mentioned by him in the assessment order end also carefully went through the submission as made by the A. R. After keeping in view the percentage of expenses under this head vis-a-vis total turnover, it is found that the same is a very small fraction i.e. 0.33% of the export turnover but along with that it was the sacrosanct duty of the appellant-firm to submit complete details of the expenses along with convincing reply before the Assessing Officer and by merely saying that all the expenses were incurred by the partners and its employees wholly and exclusively for the business purposes did not bring info account the fact that all the expenses were totally allowable under this head and there was no personal element involved in it. I, therefore, in view of the above referred facts hold that the disallowance as mode by the Assessing Officer was justified but at the same time it was excessive. I, therefore, keeping in view the quantum of export turnover, though not being fully agreeable with the submission as made by the A. R., restrict the disallowance under this head at 5% of the total expenditure incurred under this head. In this way, this ground of appeal is partly allowed and the appellant gets a relief of Rs.1,40,411/-(i.e.50% of Rs.2,80,822/-)."

23. We have heard both the sides. The only grievance of the revenue is that there is no justification for restricting the disallowance to 50%. In our considered opinion, the Learned Commissioner of Income Tax(Appeals) has given cogent reason for restricting the disallowance to 50%. We, therefore, incline to interfere with the order of the Learned Commissioner of Income Tax(Appeals). This ground of the revenue is rejected.

24. Ground no.5 raised in this appeal by the Revenue reads as under:

10
ITA No. 2715-AHD-2006 "5. On the facts and in the circumstances of the case and in law, the Learned CIT(A)-V, Surat has erred m reducing the disallowance made on account of telephone expenses by Rs.28,974/- as made by the Assessing Officer as per assessment order u/s. 143(3) of the I.T. Act, 1961 dated 30.01.2006."

25. We have heard both the sides. The only grievance of the revenue is that there is no justification for restricting the disallowance to 50%. In our considered opinion, the Learned Commissioner of Income Tax(Appeals) has given cogent reason for restricting the disallowance to 50%. We, therefore, incline to interfere with the order of the Learned Commissioner of Income Tax(Appeals). This ground of the revenue is rejected.

26. Ground no.6 raised in this appeal by the Revenue reads as under:

"6. On the facts and in the circumstances of the case and in law, the Learned CIT(A)-V, Surat has erred in directing to allow the claim of made u/s. 155(13) of the I.T.Act, 1961 in the revised return as rejected by the Assessing Officer as per assessment order u/s. 143(3) of the I.T, Act, 1961 dated 30.01.2006."

27. Shri Anil Kumar, D.R., appearing on behalf of the Revenue, drew our attention to para 9 of the impugned order of the Learned Commissioner of Income Tax(Appeals), which reads as under:

"9. In ground of appeal No.6, the appellant has raised a contention that the Assessing Officer has grossly erred in not considering the revised return of income filed by the assessee on 04/02/2004 under Sec.155(13) of the Income-tax Act, 1961, After going through the copy of acknowledgement of revised income-tax return filed and note attached with it, it is seen that the reason for tiling the revised return was because of , reduction in the exchange rate difference loss on outstanding unrealized sale bill by Rs.24,56,076/- which according to Section 155(13) of the Act is found in order and on the other hand, it is seen that the Assessing Officer had not given any reason for not taking the revised figure with respect of the reduction in loss pertaining to outstanding unrealized export sale bills. I, therefore, keeping in view the provisions of Sec.155(13) of the Income-tax Act, 1961 and on the facts of the case of the appellant-firm relating to the filing of revised return of income, direct the Assessing Officer to compute its revised income according to the provisions of law. Accordingly, this ground of appeal is allowed."

27.1 Referring to the aforesaid para, the ld. D.R. pointed out that the provisions of section 155(13) are applicable only in those cases in which deduction under section 80HHC has not been allowed on the ground that such income i.e. amount of export has not been received in foreign exchange in India with the approval of India or such other authority as authorised under the law for the time being in force for regulating payments and dealing in foreign exchange and 11 ITA No. 2715-AHD-2006 subsequently such income or part thereof has been or is received in India. In the instant case, the assessee had already claimed the deduction under section 80HHC on the debts inclusive of rate difference in foreign exchange of Rs.26,07,250/-. As the deduction has been claimed by the assessee and allowed by the department on such debts i.e. export sales, applicability of the provisions of section 155(13) on the subsequent receipt on account of rate difference of Rs.18,36,437/- does not arise. He pointed out that this payment is received by the assessee on account of fluctuation of the foreign currency. Therefore, this will fall under the category "income from other sources". He further submitted that from plain reading of the said explanation that value of goods declared in the shipping bill is only to be treated as sale proceeds. Therefore, deduction is restricted to the value of exported goods as per the rate of foreign exchange on the date of preparation of the shipping bill. Any excess money realized by the assessee cannot be treated as part of the sale proceeds i.e. what is statutorily prescribed in section 80HHC itself.

28. On the other hand, Shri M.K.Patel, relying on the decision of the Hon'ble Gujarat High Court in CIT-vs- Amba Impex reported in 282 ITR 144 (Guj.) and provisions contained in section 80HHC(2)(a), contended that the Learned Commissioner of Income Tax(Appeals) ought to have restored this issue to the file of the Assessing Officer with the direction to verify the claim of the assessee, as per the judgement of Hon'ble Bombay High Court in the case of CIT- vs- Amber (Exports) India reported in 326 ITR 455 (Bom).

29. After hearing both the sides, we have carefully gone through the orders of the authorities below. The Hon'ble Bombay High Court in the case of CIT-vs- Amber (Exports) India (supra), held that amount received by way of exchange rate fluctuation is includible in total turnover of the assessee in computing deduction under section 80-HHC of the I.T. Act, 1961. In this judgment, the Hon'ble Bombay High Court has duly considered the judgment of the Hon'ble Gujarat High Court in the case of CIT-vs- Amba Impex reported in 282 ITR 144 (Guj.). The ITAT, Special Bench, Mumbai in the case of ACIT-vs- Prakash I. Shah, in order dated 22.08.2008 has discussed, while adjudicating the ground no.1, held as under:

"i) Exchange rate gain different pertaining to export is an integral part of exports and export turnover cannot be treated as income from other sources.
12
ITA No. 2715-AHD-2006
ii) However, whether such gain relates to export made in an earlier year, deduction under section 80HHC is allowable only in the year in which exports are made and not in the year of realization of gain.
iii) As it would not be permissible to assess the exchange gain in the year of realization, while allowing section 80-HHC deduction in earlier year, the Assessing Officer was directed to exclude the exchange gain from the total income of the current year and to include it in the year of income of export and allow the deduction under section 80-HHC accordingly."

29.1 The Learned Commissioner of Income Tax(Appeals) passed the impugned order on 13.09.2006 on which date the decision of ITAT, Special Bench, Mumbai in the case of Amba Impex (supra) was not available. We, therefore, set aside the orders of both the departmental authorities below and restore this issue to the file of Assessing Officer with the direction to re- compute the deduction under section 80-HHC, keeping in view the ratio of decision of ITAT, Special Bench, Mumbai in the case of Prakash I. Shah (supra), after giving opportunity of being heard to the assessee.

30. Ground no.7 raised in this appeal by the Revenue reads as under:

"7. On the facts and in the circumstances of the case and in law, the Learned CIT(A)-V, Surat ought to have upheld entire Assessment order of the Assessing Officer."

31. This ground taken by the Revenue is of general in nature and therefore, needs no adjudication.

32. In the result, for statistical purposes, the appeal filed by the assessee is treated as partly allowed.

The Order pronounced in the Court on 08.04.2011.

                      Sd/-                                                  Sd/-
                 (A.N.Pahuja)                                           (T.K. Sharma)
              Accountant Member                                        Judicial Member
                                     DATED : 08/04/2011
  Copy of the order is forwarded to :
     1) The Assessee
     2) The Department.
     3) CIT(A.) concerned,
     4) CIT concerned,
     5) D.R., ITAT, Ahmedabad.
                            True Copy

                                                                     By Order

       Talukdar/Sr.P.S.                                      Deputy Registrar, ITAT, Ahmedabad
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     ITA No. 2715-AHD-2006