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Bombay High Court
Parel, Mumbai - 400 012 vs Mumbai - 400 013 on 13 January, 2010
Bench: Dr. D.Y. Chandrachud, J.P. Devadhar

1

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO.2394 OF 2009

The Commissioner of Income Tax - 18,

R.No.517, 5th Floor, Piramal Chambers,

Parel, Mumbai - 400 012 ..Appellant. Versus

M/s.Rachna Udhog,

101, Amir Industrial Estate, Sunmill

Compound, Lower Parel,

Mumbai - 400 013 ..Respondent. Ms.Padma Divakar for the appellant.

Mr.Atul K. Jasani for the respondent.

CORAM : Dr.D.Y. Chandrachud &

J.P. Devadhar, JJ.

DATE : 13th January, 2010.

ORAL JUDGMENT (Per Dr.D.Y. Chandrachud, J.) :

1. The appeal by the revenue arises out of the judgment of the Income Tax Appellate Tribunal dated 14th October 2008 pertaining to assessment years 2

2002-2003 and 2003-2004. The present appeal relates to assessment year 2002-2003.

2. The appeal is admitted on the following substantial question of law : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of learned CIT (A) in allowing the claim of deduction u/s 80IB in respect of incentives received of Rs.1.17 crores (consisting of Duty Drawback of Rs.81.51 lacs, Export Entitlement of Rs.8.29 lacs, Rs.14.76 lacs being DEPB licence and Exchange rate difference of Rs.13.22 lac) which were not actually derived from industrial undertaking ?

3. The question in the appeal is as to whether the tribunal has committed an error in allowing a claim of deduction under Section 80IB in respect of certain specific incentives namely (1) Duty Drawback; (2) Export Entitlement; (3) DEPB licence, and (4) Exchange Rate difference. In so far as the first three items are concerned, the judgment of the tribunal cannot be sustained in view of the law declared by the Supreme Court in Liberty India V/s. CIT, (2009) 317 ITR 218 (SC). This position is not in dispute before us. In the circumstances, the judgment of the tribunal to the extent to which it holds that the deduction under Section 80IB was allowable in respect of duty draw back, export entitlement and DEPB license would have to be set aside.

4. However, in so far as the question of difference in the rate of exchange is concerned, the submission of the assessee before the assessing officer was that exchange rate fluctuation forms part of the sale proceeds eligible for deduction u/s. 80IB. According to the assessee, the receipt was directly related to the process of carrying on the business of the industrial undertaking. The export invoices were 3

made in US $ terms. When the sale proceeds of goods exported are received in India in convertible foreign exchange, the rupee equivalent of the sale proceeds is liable to vary consequent upon the fluctuation in the rate of foreign exchange between the date when the goods are exported and the date on which the sale proceeds are received in India. In other words, it was the contention of the assessee that the value of the goods exported remains the same but the rupee equivalent is liable to vary due to fluctuation in the rate of foreign exchange. Consequently, a book entry is made in order to ensure that the rupee equivalent of the value of the goods exported out of India is correctly reflected in the books of account, since the books are maintained in rupee terms.

5. Having heard the learned counsel appearing on behalf of the appellant and learned counsel appearing for the assessee, we are of the view that the difference on account of exchange rate fluctuation is liable to be allowed under Section 80IB. The exchange rate fluctuation arises out of and is directly related to the sale transaction involving the export of goods of the industrial undertaking. The exchange rate fluctuation between the rupee equivalent of the value of the goods exported and the actual receipts which are realized arises on account of the sale transaction. The difference arises purely as a result of a fluctuation in the rate of exchange between the date of export and the date of receipt of proceeds, since there is no variation in the sale price under the contract. The view which we have taken is also consistent with the view taken by a Division Bench of this Court on 15th December 2009 in the case of Syntel Limited (Income Tax Appeal Nos.1974, 1976 and 1978 of 2009). In the circumstances, we would affirm the judgment of the tribunal in so far as the question of exchange rate fluctuation is concerned. 4

6. In the circumstances, following the judgment of the Supreme Court in Liberty India (supra), we set aside the judgment of the tribunal in so far as the tribunal has allowed the claim of deduction under Section 80IB in respect of (1) duty draw back; (2) export entitlement; and (3) DEPB license. The judgment of the tribunal is affirmed in so far as the claim of deduction under the head of exchange rate difference is concerned. The appeal shall accordingly stand disposed of and the question of law stands answered accordingly. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)