DCIT, Circle-2(2), Hyderabad, Hyderabad V. Granules India Limited, Hyderabad, Hyderabad

ITA 292/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2607 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-09-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: J J VARUN
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 292/HYD/2017 ASSESSMENT YEAR: 2011-12 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(2), HYDERABAD. VS. GRANULES INDIA LTD., HYDERABAD. PAN AAACG 7369K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI V. SREEKAR ASSESSEE BY : SHRI J.J. VARUN DATE OF HEARING : 18-09-2017 DATE OF PRONOUNCEMENT : 27-09-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX - 2, HYDERAB AD, DATED 22.11.2016 FOR AY 2011-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF BULK DR UGS (API), FORMULATIONS/GRANULATIONS (PFI) AND TABLETS (FD). I T FILED RETURN OF INCOME FOR THE AY 2011-12 ON 28/11/2011 DECLARING A PROFIT OF RS. 8,23,82,670/-. THE BOOK PROFIT WAS SHOWN AT RS. 27, 88,66,859/-. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 2 7/03/2015 ASSESSING THE PROFIT AT RS. 8,84,28,290/- AND BOOK PROFIT AT RS. 27,88,66,859/-, WHILE, THE AO DISALLOWED THE ASSESS EES CLAIM OF EXEMPTION U/S 10B OF RS. 38,10,410/- TOWARDS FOREX GAIN, RS. 2 ITA NO. 292/H/17 GRANULES INDIA LTD.. 18,56,384/- TOWARDS SALE OF SCRAP AND RS. 2,95,091/ - TOWARDS INTEREST RECEIVED ON THE GROUND THAT THESE WERE NOT THE PROF ITS DERIVED FROM THE EXPORT ACTIVITY. 3. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE THE CIT(A), THE CIT(A) FOLLOWING THE DECISION OF ITAT IN THE CASE OF M/S B.A. CONTINUM INDIA PVT. LTD., IN ITA NO. 1257/HYD/ 2015 & 1145/HYD/2014 FOR THE AYS 2010-11 AND 2008-09, ON W HICH RELIANCE PLACED BY THE ASSESSEE, DIRECTED THE AO TO DELETE T HE DISALLOWANCE TO THE EXTENT OF RS. 38,10,410/- ON ACCOUNT OF FOREIGN EXCHANGE GAIN AND SUSTAINED THE DISALLOWANCE OF RS. 18,56,384/- RECEI VED FROM SALE OF SCRAP AND RS. 2,95,091/- RECEIVED FROM INTEREST ON THE GROUND THAT THESE INCOMES WERE NOT DERIVED FROM EXPORT ACTIVITY . 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US AGAINST THE ACTION OF THE CIT(A) IN DELET ING THE DISALLOWANCE OF RS. 38,10,410/- TOWARDS FOREIGN EXCHANGE GAIN BY RAISING THE FOLLOWING EFFECTIVE GROUND OF APPEAL: IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHE R THE CIT(A) IS CORRECT IN LAW IN HOLDING THAT THE FOREIG N EXCHANGE GAIN OF RS. 38,10,410/- IS ENTITLED DEDUCTION U/S 1 0B OF THE ACT DISREGARDING PRINCIPLE LAID DOWN BY THE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINAL (2010) 191 TAXMAN 81 ? 5. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE LD. AR SUBMITTED THAT THE FOREX GAIN WAS EARNED BY THE ASSESSEE IN CARRYING ON THE ACTIVITY OF THE EXPORT AND THE GAIN IS OUT OF SALES REALISATION. THE ISSUE IN DISPUTE IS SQUAR ELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN THE CASE OF M/S BA CONTINUM INDIA PVT. LTD. (SUPRA), WHEREIN TH E COORDINATE BENCH HAS HELD THAT FOREIGN EXCHANGE GAIN IS NOTHIN G BUT VALUE OF SALE RECORDED AT THE TIME OF SALE AND VALUE REALIZE D AFTER REMITTANCE BY THE CUSTOMER AND, THEREFORE, THE SAME IS PART AN D PARCEL OF EXPORT TURNOVER. THE CIT(A) DIRECTED TO DELETE THE DISALLO WANCE MADE BY THE AO ON ACCOUNT OF FOREIGN EXCHANGE GAIN FOLLOWING TH E SAID DECISION. 3 ITA NO. 292/H/17 GRANULES INDIA LTD.. THE REVENUE IS RELYING UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINAL (CITED IN THE GR OUND OF APPEAL) AND WE FIND THAT IN THE SAID CASE, THE HONBLE BOMBAY H IGH COURT WAS DEALING WITH GAIN ON ACCOUNT OF EXCHANGE RATE FLUCT UATION UNDER EEFC A/C AND INTEREST THEREON AND ITS ALLOWABILITY AS A DEDUCTION U/S 80HHC(1) OF THE ACT AND THE HONBLE HIGH COURT HAD HELD THAT IT IS NOT ELIGIBLE BECAUSE SUCH GAIN ARISES AFTER COMPLETION OF EXPORT ACTIVITY AND DOES NOT BEAR PROXIMATE AND DIRECT NEXUS WITH E XPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION DERIVED BY TH E ASSESSEE. THEREFORE, THE FACTS OF THIS CASE ARE DISTINGUISHAB LE FROM THE FACTS OF THE CASE BEFORE US AND HENCE THE SAID DECISION IS N OT APPLICABLE. HOWEVER, THE DETAILS OF THE TRANSACTIONS RELATING T O FOREX GAIN IN THE CASE OF THE ASSESSEE ARE NOT PLACED ON RECORD. TH ERE IS NO FINDING RECORDED EITHER IN THE ASSESSMENT ORDER OR IN THE O RDER OF CIT(A). THEREFORE, FOR THE SAKE OF CLARITY AND JUSTICE, WE FIND IT APPROPRIATE TO REMIT THIS MATTER BACK TO THE FILE OF THE AO TO VER IFY THE TRANSACTION RELATING TO FOREX GAIN. IF IT IS RELATING TO SALES REALISATION I.E. SALES RECORDED IN THE BOOKS AND SUBSEQUENT REALISATION BY THE ASSESSEE, THEN, THE ADDITION MAY BE DELETED. ACCORDINGLY GROU ND RAISED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPO SES. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 27 TH SEPTEMBER, 2017. KV 4 ITA NO. 292/H/17 GRANULES INDIA LTD.. COPY TO:- 1) DCIT, CIRCLE 2(2), ROOM NO. 513, 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 2) M/S GRANULES INDIA LTD., 2 ND FLOOR, 34 D BLOCK, HOME HUB, HITECH CITY, MADHAPUR, HYDERABAD 500 081. 3) CIT(A) 2, HYDERABAD. 4) PR. CIT 2, HYD. 5) DR, ITAT, HYD. 6) GUARD FILE