PETROLEUM INDIA INTERNATIONAL, MUMBAI V. ACIT CIR 19(3), MUMBAI

CO 4/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 3161 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 29-03-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 06-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: S E DASTUR SENIOR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI P.M. JAGTAP (ACCOUNTANT MEMBER) AND SHRI VIVEK VARMA (JUDICIAL MEMBER) ITA NO.6791/MUM/2002 A.Y-1999-2000 ITA NO. 5530/MUM/2003- A.Y. 2000-2001 ITA NO. 8125/MUM/2004- A.Y. 2002-2003 THE DY. CIT, CIRCLE 19(3), PIRAMAL CHAMBERS, R. NO. 305, 3 RD FLOOR, PAREL, MUMBAI-400 012 VS. M/S. PETROLEUM INDIA INTERNATIONAL, C-5 KESHWA, BANDRA KURLA COMPLEX, BANDRA(E), MUMBAI-400 051 PAN-AAAAPOO17B (APPELLANT) (RESPONDENT) C.O. NO. 4/MUM/2009 A.Y. 1999-2000 (ARISING OUT OF ITA NO. 6791/MUM/2002) A N D C.O. NO. 5/MUM/2009 A.Y. 2000-2001 (ARISING OUT OF ITA NO. 5530/MUM/2003) M/S. PETROLEUM INDIA INTERNATIONAL, C-5 KESHWA, BANDRA KURLA COMPLEX, BANDRA(E), MUMBAI-400 051 VS. THE DY. CIT, CIRCLE 19(3), PIRAMAL CHAMBERS, R. NO. 305, 3 RD FLOOR, PAREL, MUMBAI-400 012 (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY: SHRI B. JAYA KUMAR ASSESSEE BY: SHRI S.E. DASTUR, SENIOR ADVOCATE & SHRI NIRAJ SHETH DATE OF HEARING : 29.3.2012 DATE OF PRONOUNCEMENT:16.4.2012 O R D E R PER VIVEK VARMA, JM : ITA NO. 6791/M/02- REVENUES APPEAL THE DEPARTMENT HAS FILED THE APPEAL AGAINST THE ORD ER OF CIT(A) XIX, MUMBAI, DATED 30.09.2012. THE REVENUE HAS RAISED SI X GROUNDS OUT OF WHICH PETROLEUM INDIA INTERNATIONAL 2 GROUNDS NO. 2 & 3 WERE NOT PRESSED BY LD. DR. THER EFORE IT IS DISMISSED AS NOT PRESSED. GROUND NO. 6 IS GENERAL AND NEEDS NO CONSIDERATION. 2. THE TWO EFFECTIVE GROUNDS TAKEN UP BY THE REVENU E ARE GROUNDS NO. 1 AND 4. GROUND NO.1 PERTAINS TO THE DIRECTION OF CIT (A) TO ALLOW DEDUCTION U/S 80 O OF THE INCOME TAX ACT, WHICH HAD BEEN DISALLOW ED BY THE AO. 3. THE FACTS RELATING TO THE ISSUE ARE AS UNDER:- THE APPELLANT AOP IS A CONSORTIUM OF TEN PUBLIC SEC TOR COMPANIES IN THE PETROLEUM SECTOR AS ITS MEMBERS. IT IS ENGAGED I N THE BUSINESS OF PROVIDING OPERATIONAL ASSISTANCE AND TECHNICAL BACK -UP TO FOREIGN OIL COMPANIES AT THE CONTRACTUAL RATE. THE AO DISALLOWE D THE DEDUCTION CLAIMED FOR THE REASON THAT NO DOCUMENTARY EVIDENCE WAS FUR NISHED TO PROVE THE CLAIM AND BECAUSE THE CLAIMS RAISED U/S.80 O IN THE EARLIER YEARS HAD BEEN REJECTED AND THE SAME HAD BEEN CONFIRMED IN FIRST A PPEAL. THE AO ALSO STATED THAT THE TOTAL EXPENSES INCURRED IN IMPLEMENTING TH E PROJECT HAVE BEEN SHOWN AT RS. 10,64,020. HOWEVER, IT WAS NOT CLEAR WHETHER INDIRECT EXPENSES LIKE TRAVELING, INSURANCE, LIVING EXPENSES ETC. ARE INCL UDED IN THIS AMOUNT. 4. AT THE TIME OF ASSESSMENT PROCEEDINGS THE AO OBS ERVED AS UNDER:- DEDUCTION U/S.80-O HAS BEEN CLAIMED ON GROSS RECEIP TS. HOWEVER, THE ASSESSEE VIDE THEIR LETTER DT. 19.02.2002 HAS INTIM ATED THAT EXPENSES TO THE EXTENT OF RS. 4,13,685/- IN FOREIGN CURRENCY WERE INCURRED IN EARNING SUCH INCOME. NO DETAILS HAVE BEEN FURNISHED GIVING THE BIFURCATION OF SUCH EXPENSES. EVEN THE COMPUTATION OF DEDUCTION U/S.80-O HAS NOT BEEN FILED. NATURE OF BUSINESS IS STATED TO PROVIDE A SPECIALIZ ED TECHNICAL SERVICES MAINLY FOR FOREIGN CLIENTS IN THE FOLLOWING AREAS:- 1. TECHNICAL BACKUP SERVICES. 2. PROVISION OF SPECIALIZED TRAINING FACILITIES TO MEE T CLIENT REQUIREMENTS. 3. PROVISION OF CONSULTANCY SERVICES. 4. CONTRACTING SERVICES SUCH AS TURN AROUND MAINTENANC E OF REFINERIES. 5. OTHER EXPLORATION, PRODUCTION AND REFINERY RELATED SERVICES. THERE IS NO CHANGE IN THE NATURE OF BUSINESS AS CO MPARED TO THE EARLIER YEARS. PETROLEUM INDIA INTERNATIONAL 3 DEDUCTION U/S 80-O :- THE ASSESSEE WAS REQUESTED TO PROVE THEIR CLAIM FOR DEDUCTION U/S. 80-O WITH DOCUMENTARY EVID ENCES IN THEIR FAVOUR. THE ASSESSEE VIDE LETTER DT. 11.03.2002 HAS SUBMITTED AS UNDER (AS EXTRACTED) :- M/S GALANA, MADAGASCAR HAD APPROACHED PII TO SUGGEST WAYS AND MEANS TO MAKE THE REFINERY SITUATED IN MADAGSCAR VI ABLE. IN THE INITIAL STAGES BEFORE THE MANAGEMENT CONTRACT WAS ENTERED I NTO PII WAS APPROACHED BY THE CLIENT TO DO THE DESIGN OF THE RE FINERY PROCESS WITH REGARD TO CRUDE MIX, PRODUCTS SLATE, ECONOMICS OF M AXIMIZATION OF CRUDE YIELD. PII WITH ITS VAST EXPERIENCE IN THE FIEL D FOR SO MANY YEARS HAS DEVELOPED MODEL DESIGN AND BLUEPRINT WHICH WITH APPROPRIATE ADJUSTMENT COULD BE OF GREAT USE IN THE EXERCISE EN TRUSTED TO IT. THE EXERCISE INVOLVED A LOT OF TECHNICAL AND HIGHLY SKI LLED EFFORT IN STUDYING THE PRESENT SYSTEM AND IMPLEMENTING THE DESIGN AS P REPARED BY PII FOR THE PROFITABLE RUNNING OF THE REFINERY. HENCE, THE INCOME SO RECEIVED FROM M/S GALANA DURING 1998-99 IS RELATED TO THE USE OF DESIGN IN IMPROVING THE PERFORMANCE OF GALANA REFIN ERY. THE CONSIDERATION RECEIVED SATISFIES THE NECESSARY COND ITIONS FOR BEING ELIGIBLE TO DEDUCTION U/S. 80-O. SUBSEQUENTLY, PII H AS ENTERED INTO A MANAGEMENT CONTRACT WITH M/S GALANA, MADAGASCAR FOR MANAGEMENT OF THEIR REFINERY. THE INCOME HAS BEEN RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE IN INDIA AND HE DEDUCTION OF AN AMOUNT EQUAL TO 50% OF THE I NCOME SO RECEIVED HAS BEEN CLAIMED BY PII U/S. 80-O OF THE INC OME TAX ACT, 1961. THE RELEVANT COPIES OF FIRC WERE SUBMITTED VID E OUR LETTER DATED FEB. 1, 2002. HOWEVER, FOR CONVENIENCE WE ARE ONCE AGAIN ENCLOSING COPIES OF THE SAME. THE ASSESSEE HAS NOT GIVEN BIFURCATION OF EXPENSES INCURRED ON THE MADAGASCAR PROJECT. HOWEVER, SCHEDULE I GIVES THE DETAILS OF MADAGASCAR PROJECT EXPENSES AT RS. 10,99,372/-. IN THIS, NO TRAVEL RELATED, INSURANCE AND LIVING EXPENSES ETC. ARE INC LUDED. THE ASSESSEES APPEALS ON THIS POINT FOR THE ASST. YEARS 1993-1994 TO 1997-1998 HAS BEEN DISMISSED. THE REMUNERATION RECEIVED BY THEM F ROM FOREIGN COMPANY IS IN SUBSTANCE FOR SUPPLY OF TECHNICAL PER SONNEL. THEREFORE, NO TECHNICAL SERVICES WERE PROVIDED. 5. THE AO AFTER CONSIDERING THE DETAILED ARGUMENTS OF THE ASSESSEE, CAME TO THE CONCLUSION THAT THE ASSESSEE HAD MERELY PROV IDED ITS MAN POWER AND NOT ITS TECHNICAL KNOW HO FOR EXECUTING ITS PROJECT . THE AO, ON THIS CONSIDERATION, FOLLOWED HIS PREDECESSORS ORDERS FO R ASSESSMENT YEARS 1993- 94 TO 1997-98, WHERE THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE FIRST APPELLATE AUTHORITY FOR ASSESSMENT YEAR 1993-94 AS WELL. THE AO, THEREFORE, PETROLEUM INDIA INTERNATIONAL 4 CAME TO THE CONCLUSION THAT THAT DEDUCTION UNDER SE CTION 80 O AS CLAIMED BY THE ASSESSEE WAS NOT ELIGIBLE TO IT. THE ASSESSEE WAS NOT SATISFIED WITH THE OBSERVATIO N OF THE AO, THE ASSSESSEE APPROACHED THE CIT(A). 6. THE ASSESSEE, REITERATED ITS SUBMISSIONS BEFORE THE CIT(A) AND THE CIT(A) AFTER TAKING INTO CONSIDERATION ENTIRE FACTS AND GOING THROUGH THE MATERIAL BROUGHT ON RECORD, OBSERVED AS UNDER IN PA RA 2.4 OF HIS ORDER : I HAVE CAREFULLY CONSIDERED THE MATTER. THE DISALLO WANCE HAS BEEN MADE BY THE AO ROUTINELY IN A CASUAL MANNER. IT IS SEEN THAT VIDE PARA 6 OF LETTER DATED 23/12/2002 TO THE AO THE APPELLANT HAD EXPLAINED THE BASIS OF ITS CLAIM FOR DEDUCTION U/S 80 O TO THE AO. A COPY OF THE WORK PROPOSAL DETAILI NG THE NATURE OF THE WORK UNDERTAKEN WAS FURNISHED ALONGWITH THE DESIGNS FOR THE RETAIL OUTLET INFRASTRUCTURE. CERTIFICATES OF F OREIGN INWARD REMITTANCES FROM THE BANK EVIDENCING PAYMENTS RECEI VED FOR THE SAID WORK WERE FILED BY THE ASSESSEE BEFORE THE AO UNDER COVER OF THE SAID LETTER DATED 23/12/2002 AND AGAIN WITH LETTER DATED 26/12/2002. VIDE THE ASSESSEES LETTER DATED 07/01/ 2003 AND 12/01/2003 THE AO WAS INTIMATED THAT THE TOTAL EXPE NSES INCURRED ON THE PROJECT WERE RS. 18,37,636 OUT OF W HICH RS. 13,53,708 WERE INCURRED IN FOREIGN EXCHANGE AND THE BALANCE RS. 4,83,928 IN INDIAN RUPEES. THUS THE CONTENTION OF TH E AO THAT THE DETAILS WERE NOT FURNISHED DOES NOT APPEAL TO B E CORRECT. IT IS ALSO SEEN THAT THE AO HAS CONFUSED THE CLAIM OF DED UCTION U/S 80 O WITH THE REJECTION OF THE CLAIM IN THE EARLIER YE ARS. THE AO FAILED TO REALIZE THAT THE SCOPE OF DEDUCTION U/S80 O HAS COMPLETELY CHANGED WITH EFFECT FROM 01/04/1998. THE REFORE, THE REJECTION OF THE CLAIM UPTO 1997-98 ON THE FINDING THAT THE APPELLANT HAD NOT RENDERED ANY TECHNICAL PR PROFESS IONAL SERVICES ABROAD BUT HAD MERELY SUPPLIED TECHNICAL PERSONNEL FROM INDIA FOR SERVICES ABROAD HAS NO BEARING ON THE EXGIBILIT Y OF THE CLAIM AFTER 01/04/1998. THE NATURE OF THE CLAIM DURING TH E YEAR UNDER INSTANT APPEAL TO THE EXTENT OF SUPPLY OF DESIGNS F OR SETTING UP RETAIL NETWORK IS ENTIRELY DIFFERENT FROM THAT IN T HE YEARS WHEN IT WAS HELD TO BE MERELY FOR SUPPLY OF TECHNICAL MAN P OWER. ON THE CAREFUL EXAMINATION OF THE CLAIM I FIND THAT TO THE EXTENT OF SUPPLY OF DESIGNS ALL THE REQUISITE CONDITIONS FOR ALLOWANCE OF THE DEDUCTION ARE FULFILLED. THE ASSESSEE IS A RESIDENT . ITS GROSS TOTAL INCOME INCLUDES CONSIDERATION RECEIVED FROM A FOREI GN ENTERPRISE FOR THE USE OUTSIDE INDIA OF DESIGNS AND THE CONSIDE RATION HAS PETROLEUM INDIA INTERNATIONAL 5 BEEN RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE WITH THE PERMISSIBLE TIME. THUS, THE DEDUCTION U/S 80 O HAS TO BE ALLOWED TO THE ASSESSEE ON THE CONSIDERATION RECEIVED FOR S UPPLY OF DESIGNS. THE CIT(A), THEREFORE, ALLOWED THE CLAIM OF DEDUCT ION UNDER SECTION 80 O TO THE ASSESSEE. 7. HOWEVER, AFTER COMING TO THE CONCLUSION THAT DED UCTION U/S. 80-O WAS ALLOWABLE, THE CIT(A) RESTRICTED THE DEDUCTION CLAI MED AT RS. 8,52,744/- AGAINST RS. 13,84,754/-. 8. AGAINST THE ALLOWANCE OF DEDUCTION U/S. 80-O, TH E REVENUE IS IN APPEAL AND AGAINST THE QUANTUM OF DEDUCTION DETERMINED BY CIT(A) U/S. 80-O, THE ASSESSEE HAS FILED A C.O. BOTH THE SIDES ARE BEFOR E THE ITAT AND WE TAKE UP THE APPEAL BY THE DEPARTMENT AS WELL AS THE CO FILE D BY THE ASSESSEE AND ON THE FACTS EMERGING FROM THE ORDERS OF THE REVENUE A UTHORITIES AND FOR THE CONVENIENCE, WE ARE PASSING A COMMON ORDER. 9. BEFORE US, THE DR REITERATED THE OBSERVATIONS OF THE AO AND PRAYED TO SUSTAIN THE DISALLOWANCE. ON THE OTHER HAND SENIOR AR SUBMITS THAT THE ISSUE OF ALLOWANCE OF DEDUCTION HAS FIRST TO BE SEEN FROM THE OBSERVATION OF THE AO I.E. THE AO HAS BASED HIS DECISION ON THE DECISION ARRIVED AT BY THE ORDER OF THE CIT(A) IN ASSESSMENT YEAR 1993-94 TO 1997-98, W HEREIN THE CLAIM WAS DISALLOWED. THE AO IN THE CURRENT YEAR TAKES THOSE DECISIONS OF THE REVENUE AUTHORITIES AS BASIS AND DISALLOWS THE CLAIM OF THE ASSESSEE. THE SENIOR AR POINTED OUT THAT IF THE DECISION OF CIT(A) FOR ASSE SSMENT YEARS 1993-94 TO 1997-98 HAS TO BE TAKEN TO BE THE BASIS THEN THE CA SE OF THE AO AND THE DR FALLS, BECAUSE THE DECISION OF CIT(A) FOR THOSE YEA RS WAS REVERSED BY THE DECISION OF THE ITAT WHEREIN THE ITAT HAD ACCEPTED THE CLAIM OF DEDUCTION U/S. 80-O MADE BY THE ASSESSEE. 10. ON THE OTHER HAND, THE SENIOR AR TOOK US THROUG H THE PAPER BOOK FILED BY THE ASSESSEE AND SUBMITTED THAT THE ISSUE OF DIS ALLOWANCE CANNOT ARISE BECAUSE EVEN IN THE AMENDED PROVISIONS OF SECTION 8 0-O WHICH ARE EFFECTIVE PETROLEUM INDIA INTERNATIONAL 6 FROM 1998, THE EXISTENCE OF THE WORD DESIGN CONTI NUES. HE, THEREFORE, SUBMITTED THAT WHEN THE CONTRACTS AS ENTERED BY PII ARE SEEN, THE HEADINGS OF THE CONTRACTS TALKS ABOUT SUPPLY OF CONSULTANCY FOR IMPLEMENTATION OF DESIGN DEVELOPMENT BY PETROLEUM INDIA INTERNATIONAL FOR SOLIMA REFINERY, TAMATAVE, MADAGASCAR. THE AR POINTED OUT THAT THE TERMS OF REFERENCE ALSO TALKED ABOUT DESIGN AND DELIVERABLES OF THE ASSIGNMENT ALSO PROVIDES THAT THE PROCESS DESIGN OF PII WILL BE CUSTOMIZED FO R IMPLEMENTATION OF SOLIMA REFINERY. HE FURTHER POINTED OUT THAT RESPONSIBILI TIES OF PII FOR THE ASSIGNMENT HAS COMPREHENSIVE RESPONSIBILITIES, NOT JUST SUPPLY OF MANPOWER AS THE DR HAD POINTED OUT. 11. WE HAVE HEARD THE SUBMISSIONS FROM BOTH THE SID ES, ONE THING IS CLEAR THAT THE DR HAS NOT CHALLENGED THE ALLOWABILITY OF DEDUCTION U/S. 80-O, HE HAS SHOWN SERIOUS RESERVATIONS ON THE BASIS OF ALLOWABI LITY, I.E. WHETHER THE DEDUCTION SHOULD BE ALLOWED ON NET AMOUNT OR ON GRO SS AMOUNT. THE DR POINTED OUT THE DECISIONS OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS ASIAN CABLE CORPN. LTD. I.T. REFERENCE NO. 530 OF 1 987, REPORTED IN 129 TAXMAN 590. THE DR HAS ALSO REFERRED TO THE DECISI ON OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF ACIT VS ABCON ENGG. & SYS TEMS (P) LTD. REPORTED IN 164 TAXMAN 600 ON THE ISSUE OF ALLOWABILITY ON E XPORT PROCEEDS. BESIDES THIS, THE AR ALSO PLACED RELIANCE ON THE DECISION O F ITAT BANGALORE IN THE CASE OF ITO VS VIVEK PRABAKAR KUNTE, ITA NO. 79/BANGALOR E/2001, REPORTED IN 92 ITD 71, WHEREIN IT WAS HELD THAT THE OBJECTIVE OF S EC. 80-O IS MAINLY THE SUPPLY OF TECHNICAL KNOW-HOW OR TECHNICAL SERVICES TO DEVELOPING COUNTRIES. 12. WE FIND THAT THE ISSUE OF DISALLOWANCE IN TH E CURRENT APPEAL IS VIRTUALLY INFRUCTUOUS, FOLLOWING THE DECISION OF THE ASSESSEE S OWN CASE IN THE PRECEDING YEARS AND EVEN AFTER GOING THROUGH THE PR OVISIONS OF THE ACT IN PRE- AMENDMENT PERIOD AND POST AMENDMENT (RELEVANT TO TH E ASSESSEE), WHEREIN WE FIND THE WORD DESIGN STILL EXIST. WE CANNOT ACCEPT THE SUBMISSION OF THE DR THAT THE ASSESSEE WAS PRIMARILY SUPPLYING MAN PO WER AND NOT COMPREHENSIVE TECHNICAL SERVICES. WE FIND AND HOLD THAT THE ASSESSEE WAS PETROLEUM INDIA INTERNATIONAL 7 SUPPLYING COMPREHENSIVE TECHNICAL SERVICES FOR DESI GNING AND DEVELOPMENT OF SALIMA REFINERY, WHICH WOULD ALSO INCLUDE TO DEPUT E A COMPETENT TEAM OF PROFESSIONALS AS ONE OF THE SERVICES BESIDES O THER SERVICES AS MENTIONED IN THE TERMS OF REFERENCE AND DELIVERABLE S OF THE ASSIGNMENT. WE, THEREFORE, HOLD THAT THE ASSESSEE IS ELIGIBLE F OR CLAIMING DEDUCTION U/S. 80-O. THIS GROUND, THEREFORE, FILED BY THE REVENUE IS REJECTED. 13. GROUND NO. 4 RAISED BY THE REVENUE IS AGAINST THE CIT(A)S ORDER WHEREIN THE GAIN IN FOREIGN EXCHANGE FLUCTUATION HA S BEEN ALLOWED AS BUSINESS INCOME INSTEAD OF TREATING AND TAXING IT A S INCOME FROM OTHER SOURCES. 14. THE AO HAS MENTIONED IN THE ASSESSMENT ORDER TH AT THIS IS AN INCREMENT DUE TO EXCHANGE FLUCTUATION, WHICH HAS NO NEXUS WITH THE BUSINESS OF THE ASSESSEE AND HENCE IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. NOT SATISFIED WITH THE VIEW OF THE AO, T HE ASSESSEE CARRIED ITS GRIEVANCE BEFORE CIT(A). 18. THE CIT(A) ACCEPTED THE CONTENTIONS AND VIEW PR OPOUNDED BY THE ASSESSEE AND HELD THAT GAINS ARISING FROM FOREIGN E XCHANGE FLUCTUATIONS WERE CURRENT BUSINESS FUNDS FROM ROUTINE BUSINESS OPERAT IONS AND ANY CHANGE IN THEIR VALUE DIRECTLY AFFECTS THE PROFITS OF THE BUS INESS. HE, THEREFORE, DIRECTED THE AO TO TREAT THESE GAINS AS INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. 15. THE REVENUE NOT SATISFIED WITH THE DECISION OF THE CIT(A), HAS CARRIED THE GRIEVANCE BEFORE THE ITAT. 16. BEFORE US, THE DR SUBMITTED THAT THE VIEW TAKEN BY THE AO WAS CORRECT AND IS NOW COVERED BY THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS SHAH ORIGINALS, ITA NO. 431 OF 2008 REPOR TED IN 327 ITR 19. 17. THE SENIOR AR, HOWEVER SUBMITTED THAT THE CASE OF SHAH ORIGINALS, PER SE, PERTAINED TO INTEREST EARNED IN THE FOREIGN CURRENC Y LYING IN EEFC ACCOUNT PETROLEUM INDIA INTERNATIONAL 8 AND IT CANNOT GO INTO THE GAIN OR LOSS ON ACCOUNT O F CURRENCY FLUCTUATION, WHICH IS DIRECTLY RELATED TO THE BUSINESS/EXPORT PR OCEEDS RECEIVED BY THE ASSESSEE IN FOREIGN CURRENCY. ON THIS GROUND, THE ASSESSEE SUBMITTED THAT THE VIEW TAKEN BY THE CIT(A) WAS CORRECT. 18. THE SENIOR AR, SUBMITTED THAT IN THE CASE AT HAND, THE WHOLE ISSUE PERTAINS TO PROCEEDS RECEIVED IN FOREIGN EXCHANGE A ND IT WAS DURING THE COURSE OF BUSINESS THAT THERE WAS FLUCTUATION IN TH E CURRENCY, BECAUSE OF WHICH THE ASSESSEE HAD BOOKED A GAIN ON FLUCTUATION . 19. HAVING HEARD THE VIEWS OF EITHER SIDE, WE WENT INTO THE QUESTION THAT WAS REFERRED BEFORE THE HONBLE BOMBAY HIGH COURT I N THE CASE OF SHAH ORIGINALS. THE QUESTION REFERRED TO THE HONBLE BOM BAY HIGH COURT INCLUDED THE WORDS RECEIPTS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ON EEFC ACCOUNT.. 20. THE HONBLE BOMBAY HIGH COURT HAS HELD THAT GAI NS ON EXCHANGE FLUCTUATION DOES NOT HAVE A NEXUS WHEN THE FUNDS AR E KEPT IN EEFC ACCOUNT AND THERE IS A VARIATION IN THE EXCHANGE RATE. WE, RESPECTFULLY FOLLOW THE DECISION OF JURISDICTIONAL HIGH COURT, WHEREIN IT H AS BEEN HELD THAT THE GAIN ON ACCOUNT OF FLUCTUATION IN THE FOREIGN CURRENCY WHIC H TAKES PLACE AFTER THE EXPORT PROCEEDS HAVE BEEN REALIZED AND SUCH FUNDS O R PART THEREOF ARE PARKED IN THE EEFC ACCOUNT WOULD BE TREATED AS INCOME FROM OTHER SOURCES. 21. ON GOING THROUGH THE ARGUMENTS OF BOTH THE SIDE S, WE DEEM IT FIT TO DIRECT THE AO TO VERIFY THE EXCHANGE FLUCTUATION AC COUNT, AS MAINTAINED BY THE ASSESSEE, I.E. IF THE EXCHANGE FLUCTUATION IS ON TH E EXPORT PROCEED STAGE ITSELF, THEN IT HAS TO BE TREATED AS GAIN IN BUSINESS AND I F THE GAINS ON EXCHANGE FLUCTUATION OCCURS ON THE FUNDS LYING PARKED IN EEF C ACCOUNT, THEN IN THAT CASE, THE CASE OF SHAH ORIGINALS IS TO BE APPLIED A ND TREAT THAT GAIN AS INCOME FROM OTHER SOURCES. PETROLEUM INDIA INTERNATIONAL 9 22. THE APPEAL, THUS FILED BY THE AO IS ALLOWED IN PART. 12. WE NOW TAKE UP THE CORRESPONDING ISSUE OF QUANT UM OF DEDUCTION AS CLAIMED BY THE ASSESSEE IN C.O. NO. 4/MUM/2009 FOR ASSESSMENT YEAR 1999- 2000. IN THE C.O., THE ASSESSEE HAS CLAIMED THAT D EDUCTION BE ALLOWED AT RS. 27,69,508/- AS CLAIMED BY THE ASSESSEE. 23. WE FIND FROM PARA 3 OF THE ASSESSMENT ORDER TH AT THE DEDUCTION HAS BEEN CLAIMED AT RS. 13,84,754/- BEING 50% OF RS. 27 ,69,508/-. THE CIT(A) HAS DEDUCTED THE ENTIRE EXPENSE OF RS. 10,64,020/- AND COMPUTED THE DEDUCTION AT 50% ON RS. 17,05,488/- AND ARRIVED AT THE FIGURE OF RS. 8,52,744/-. 24. FROM THE ASSESSMENT ORDER, WE FIND THAT EXPENSE OF RS. 10,99,372/- AS PER SCHEDULE-I DOES NOT INCLUDE ANY TRAVEL RELATED, LIVING AND INSURANCE EXPENSES. THE ASSESSEE, HOWEVER HAD SHOWN THE EXPE NSES ON MADAGASCAR PROJECT AT RS. 10,64,020/-. THEREFORE, IT IS LIKEL Y THAT THE ENTIRE AMOUNT OF RS. 10,64,020/- ARE PROJECT RELATED EXPENSE. BUT BEFOR E THE CIT(A), IT HAS BEEN ASCERTAINED THAT IT INCLUDES RS. 4,13,685/- WHICH I NCLUDES SUNDRY EXPENSES, AS MENTIONED BY CIT(A) IN PARA 2.4. WE, THEREFORE REC OMPUTED THE DEDUCTION, WHEREIN WE THINK IT PROPER TO REDUCE RS. 4,13,685/- FROM RS. 10,64,020/- AND REDUCE THIS FIGURE FROM RS. 27,69,508/-. FROM THE REMAINDER, THE DEDUCTION WOULD BE ALLOWABLE AT 50% WHICH WILL WORK OUT AT RS . 10,59,586/- [ 50% OF RS. 27,69,508 - (RS. 10,64,020 RS. 4,13,685) ] . 25. IN THE RESULT, THE C.O. FILED BY THE ASSESSEE IS ALLOWED IN PART. ITA NO. 5530/MUM/003 A.Y. 2000-01 REVENUES APP EAL 26. REVENUES GROUNDS OF APPEAL ARE IDENTICAL AND TA KEN IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 1999-2000. FOR THE SAKE OF BREVITY, WE WILL FOLLOW THE DECISION WHICH WE HAVE TAKEN IN THE PRECEDING Y EAR, WITHOUT WRITING DETAILED ORDER IN THE CURRENT YEAR. PETROLEUM INDIA INTERNATIONAL 10 GROUND NO. 1 - APPEAL IS DISMISSED GROUND NO. 2- DECISION AGAINST THE REVENUE - DIS MISSED GROUND NO. 3 DECISION AGAINST THE REVENUE - DISM ISSED GROUND NO. 4 APPEAL ALLOWED IN PART. C.O. FILED BY THE ASSESSEE ALLOWED IN PART. ITA NO. 8125/MUM/04 A.Y. 2002-03 REVENUES APPE AL 27. GROUNDS NO. 1 & 2 ARE IDENTICAL GROUNDS AS GROU NDS NO. 2 & 3 FOR ASSESSMENT YEARS 1999-2000 AND 2000-01, DISMISSED A S AGAINST THE DEPARTMENT FOLLOWING THE DECISION OF ITAT IN ASSESS EES OWN CASE. 28. GROUND NO. 3 IS IDENTICAL AS GROUND NO. 4 IN AS SESSMENT YEAR 1999- 2000 & 2000-01, APPEAL OF THE REVENUE ALLOWED IN PA RT. 29. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE REVENUE ARE PARTLY ALLOWED AND THE CROSS OBJECTIONS FILED BY THE ASS ESSEE FOR ASSESSMENT YEARS 1999-2000 AND 2000-01 ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 16 TH APRIL, 2012 SD/- SD/- (P.M. JAGTAP) (VIVEK VARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH APRIL, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI