BHAVANI GEMS, MUMBAI V. DCIT CEN CIR 35, MUMBAI

ITA 3062/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7655 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 29-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 11-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: REEPAL G TRAISHAWALA
• Keywords: Business income; Deemed export
• Section: 80HHC; 263; 28

Judgement Text

1 BHAVANI GEMS IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI I II I BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI T R SOOD T R SOOD T R SOOD T R SOOD , ,, , AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 3062/MUM/2009 3062/MUM/2009 3062/MUM/2009 3062/MUM/2009 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2004 2004 2004 2004- -- -05 0505 05) )) ) BHAVANI GEMS 101 PRASAD CHAMEBRS M P MARG OPERA HOUSE MUMBAI 400 002 VS THE DY COMMR OF INCOME TAX CEN.CIR 35, MUMBAI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAAFB2302G AAAFB2302G AAAFB2302G AAAFB2302G ASSESSEE BY SH REEPAL G TRAISHAWALA REVENUE BY SH SANJIV DUTT DT.OF HEARING 29 TH DEC 2011 DT OF PRONOUNCEMENT 6 TH , JAN 2012 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, , , , JM JMJM JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E REVISION ORDER OF THE CIT DATED 24 TH MARCH, 2009 PASSED U/S 263 OF THE I T ACT FOR THE ASSESSMENT YEAR 2004-05. 2 THE ASSESSEE HAS FILED CONCISE GROUNDS AS UNDER: I. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN PASSING ORDER ULS.263 OF THE ACT WITHOUT APPRECIATING THAT THE OR DER OF THE ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDI CIAL TO THE INTEREST OF REVENUE AND HENCE, ORDER PASSED ULS.263 OF THE A CT IS BAD-IN-LAW AND LIABLE TO BE QUASHED. 2. THE LD. CIT FAILED TO APPRECIATION THAT ISSUE OF DEDUCTION U/S.8OHHC OF THE ACT WAS EXAMINED AND VERIFIED IN D ETAIL BY THE ASSESSING OFFICER AND THEREAFTER REDUCED CLAIM OF D EDUCTION MORE PARTICULARLY CONSIDERING THE ISSUE OF INTEREST RECE IVED AND HENCE, THE ORDER PASSED U/S.263 DIRECTING THE ASSESSING OFFICE R TO VERIFY IS WITHOUT ANY JUSTIFICATION AND LIABLE TO BE QUASHED. 2 BHAVANI GEMS 3. THE LD. CIT FAILED TO APPRECIATE THAT EXCHANGE G AIN ON FORWARD CONTRACT TRANSACTION OF `.80,72,500/- WAS NEVER FOR MING PART OF EXPORT TURNOVER AND HENCE, DIRECTING THE ASSESSING OFFICER TO VERIFY AND REDUCE THE SAME FROM EXPORT TURNOVER IS UNJUSTI FIED, AND LIABLE TO BE QUASHED. 3 GROUND NOS 1 & 2 REGARDING DEDUCTION U/S 80HHC ON INTEREST RECEIPT. 3.1 THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S 1 43(3) VIDE ORDER DATED 29.12.2006. SUBSEQUENTLY, THE CIT PROPOSED TO REVIS E THE ASSESSMENT ORDER BY ISSUING SHOW CAUSE NOTICE DATED 29.3.2007, INTER-AL IA ON THE ISSUE OF DEDUCTION U/S 80HHC ON INTEREST RECEIPT AS UNDER: IT IS SEEN THAT THE TOTAL INTEREST RECEIVED DURING THE YEAR AS PER TDS CERTIFICATE ENCLOSED WITH THE RETURN OF INCOME IS ` 53,81,082/-. HOWEVER, AS PER THE DETAILS SUBMITTED AND THE FIGUR E OF INTEREST CONSIDERED FOR PURPOSE OF WORKING OF THE ELIGIBLE D EDUCTION U/.S 80HHC IS ONLY ` 47,86,487/-. BESIDES, IT IS SEEN FR OM THE TDS CERTIFICATES THAT THE INTEREST RECEIVED ARE ON FDS AND SECURITIES. ACCORDINGLY, THE SAME SHOULD HAVE BEEN TAXED AS INC OME FROM OTHER SOURCES. 3.2 THE ASSESSEE OBJECTED TO THE REVISION OF THE A SSESSMENT ORDER AND CONTENDED BEFORE THE CIT THAT THE ASSESSING OFFICE R HAS MADE ENQUIRY ABOUT THE INTEREST INCOME AND FINALLY DISALLOWED 90%A OF INT EREST UNDER CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC. THIS ISSUE WAS FURTHER R AISED BEFORE THE CIT(A) AS WELL AS BEFORE THE TRIBUNAL. THEREFORE, WHEN THE ISSUE W AS ALREADY CONSIDERED AND ADJUDICATED BY THE ASSESSING OFFICER AND ALSO A SUB JECT MATTER BEFORE THE APPELLATE AUTHORITIES, THEN THE CIT HAS NO JURISDIC TION U/S 263. 3.3 THE COMMISSIONER, REFERRING TO SERIES OF DECISI ONS OF VARIOUS HIGH COURTS AND SUPREME COURT HAS HELD THAT INTEREST RECEIVED B Y THE ASSESSEE HAS TO BE TAXED AS INCOME FROM OTHER SOURCES AND THE ORDER OF THE ASSESSING OFFICER, CONSIDERING THE SAME AS BUSINESS INCOME AND CONSEQU ENTLY EXCLUDING 90% OF 3 BHAVANI GEMS THE SAID RECEIPT FOR CALCULATION OF ELIGIBLE DEDUCT ION U/S 80HHC IS ERRONEOUS AND CONSEQUENTLY PREJUDICIAL TO THE INTEREST OF REVENUE , WHICH REQUIRES TO BE SET ASIDE. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS REFERRED THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSING OFFICER HAS DULY CONSIDERED THE ISSUE IN PARA 4.1 AND EXCLUDED 90% OF THE INTEREST RECEIVED FROM THE BANK AS PER CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC WHILE COMPUTING TH E DEDUCTION U/S 80HHC. WHILE DOING SO, THE ASSESSING OFFICER ALSO CONSIDER ED THE DECISIONS, AS RELIED UPON BY THE ASSESSEE, IN THE CASE OF PUNIT COMMERC IAL LTD VS CIT REPORTED IN 235 ITR 550(MUM); IN THE CASED OF NAGPUR ENGG CO LT D VS CIT REPORTED IN 245 ITR 806. HE HAS ALSO REFERRED THE QUERY RAISED BY THE ASSESSING OFFICER ON THIS ISSUE AS WELL AS THE REPLY GIVEN BY THE ASSESSEE. THUS, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE ASSESSING OFFICER HAS A PPLIED HIS MIND AND TAKEN ONE OF THE POSSIBLE VIEWS, THEN THE CIT HAS NO JURI SDICTION TO TAKE A DIFFERENT VIEW. 4.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT ON THE DATE WHEN THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER, THE ISSUE WAS SETTLED BY VARIOUS DECISIONS OF THE HONBLE HIGH COURTS AS WEL L AS HONBLE SUPREME COURT. THEREFORE, THE ASSESSING OFFICER WAS BOUND TO FOLLO W THE SETTLED JUDICIAL PRONOUNCEMENTS ON THE ISSUE AND BY NOT FOLLOWING TH E SAME, THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT VS DAMODAR MANGALLJI MINING CO REPORTED IN 326 ITR 43 7. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. IT IS SETTLED PROPOSITION OF LAW THAT I F THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS, THEN CIT CANNOT TAKE A D IFFERENT VIEW. THE ISSUE 4 BHAVANI GEMS REGARDING THE DEDUCTION U/S 80HHC ON INTEREST RECEI VED ON THE DEPOSITS WAS ALREADY CONSIDERED AND DECIDED BY THE TRIBUNAL IN A SSESSEES OWN CASE FOR THE AY 2000-01, 2001-02 AND 2002-03. THE ASSESSING OFFI CER REDUCED 90% OF THE INTEREST INCOME BY APPLYING CLAUSE (BAA) OF EXPLANA TION TO SEC.80HHC AND THEREFORE, THE VIEW TAKEN BY THE ASSESSING OFFICER IS A POSSIBLE VIEW ON THE ISSUE. BY INVOKING SEC. 263 WHAT IS REQUIRED TO BE SEEN IS WHETHER THE VIEW TAKEN BY THE ASSESSING OFFICER IS AFTER APPLICATION OF MIND AND A POSSIBLE VIEW AND NOT SOMETHING WHICH CANNOT BE DISPUTED. THUS, WHEN THE VIEW OF THE ASSESSING OFFICER IS NOT IMPOSSIBLE VIEW AS THE ISSUE, IN T HE YEAR UNDER CONSIDERATION, WAS PENDING IN THE APPEAL FILED BY THE ASSESSEE BEFORE THE CIT(A) AS WELL AS BEFORE THE TRIBUNAL AND VIDE ORDER DATED 10.3.2008, THE TR IBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER: 3. THE CIT(A) HAS CONSIDERED ASSESSEES SUBMISSION AN D FOUND BEYOND ANY DOUBT ASSESSEE HAS NO SURPLUS FUNDS WITH IT TO EARN INTEREST INCOME BUT DUE TO BUSINESS COMPULSION AND AS A REQUIREMENT OF BANK IN GRANTING CREDIT FACILITIES I T HAS TO DEPOSIT THE MONEY WITH THE BANK. THE SOURCE OF THE SAME WAS FRO M BANK FINANCE, I.E. FROM BORROWED FUNDS (INTEREST BEARING). THE AC TIVITY OF THE ASSESSEE THEREFORE, INEXTRICABLY LINKED WITH THE OV ERALL BUSINESS ACTIVITY OF THE FIRM. THE CIT(A) FURTHER NOTED THAT IN ASSESSEES OWN CASE FOR EARLIER YEAR IN ASSESSMENT YEARS 2000-01, 2001-02 AND 2002-03, THE CIT(A) AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 5.1 THUS, IN VIEW OF THE FACT THAT WHEN THIS ISSUE WAS CONSIDERED AND DECIDED BY THE TRIBUNAL AND ULTIMATELY ALLOWED IN FAVOUR OF THE ASSESSEE, THEN THE VIEW TAKEN BY THE ASSESSING OFFICER BY APPLYING CLAUSE ( BAA) OF EXPLANATION TO SEC. 80HHC IS, THOUGH WAS NOT UPHELD, ONE OF THE POSSIBL E VIEWS. THEREFORE, THE CITS JURISDICTION U/S 263 IS OTHERWISE BARRED ON THE ISS UE, WHICH IS A SUBJECT MATTER OF APPEAL BEFORE THE APPELLATE AUTHORITIES. 6 IN VIEW OF THE ABOVE DISCUSSION WE FIND THAT THE JURISDICTION EXERCISED BY THE CIT U/S 263 ON THE ISSUE OF DISALLOWANCE OF DED UCTION U/S 80HHC IS NOT PROPER AND JUSTIFIED. ACCORDINGLY, WE ALLOW THE GROUND OF THE ASSESSEE ON THIS ISSUE. 5 BHAVANI GEMS 7 NEXT GROUND IS REGARDING EXCHANGE GAIN ON FORWARD CONTRACT TRANSLATION. 7.1 THE CIT WHILE SEEKING REVISION OF THE ASSESSMEN T ORDER ON THE ISSUE OF EXCHANGE GAIN ON TRANSACTION OF FORWARD CONTRACT NO TED THAT THE ASSESSEE HAS SHOWN THE EXCHANGE GAIN OF ` 80,72,500/- ON ACCOUNT OF FORWARD CONTRACT OUTSTANDING AT THE END OF THE YEAR. THE ASSESSEE HA S INCLUDED THE SAME IN THE EXPORT TURNOVER. HOWEVER, THE SAID RECEIPT CANNOT B E CONSIDERED AS DERIVED FROM THE EXPORT SALES; THEREFORE, THE SAID TRANSLATION C ANNOT BE CONSIDERED AS PART OF THE TURNOVER. 7.2 AFTER CONSIDERING THE REPLY OF THE ASSESSEE, TH E CIT HAS HELD THAT THE CLAIM OF THE ASSESSEE ON ACCOUNT OF FORWARD CONTRACT TR ANSLATION HAS BEEN PART OF EXPORT TURNOVER IS INCORRECT ACCORDINGLY, THE ORDE R OF THE ASSESSING OFFICER ALLOWING SUCH CLAIM IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND REQUIRES MODIFICATION. 8 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE CIT HAS PROCEEDED UNDER A WRONG IMPRESSION THAT THE EXCHANG E GAIN ON FORWARD CONTRACT TRANSLATION IS PART OF THE EXPORT TURNOVER AND ACCO RDINGLY, DIRECTED TO EXCLUDE THE SAME FROM THE EXPORT TURNOVER. HE HAS SUBMITTED THA T THE EXCHANGE GAIN ON FORWARD CONTRACT WAS NOT INCLUDED IN THE EXPORT TUR NOVER OF THE ASSESSEE; THEREFORE, THERE IS NO QUESTION OF REDUCING THE SAM E. HE HAS REFERRED THE DETAILS OF COMPUTATION OF DEDUCTION U/S 80HHC AT PAGES 22 & 23 OF THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE HAS NOT INCLUDED THE EX CHANGE GAIN ON FORWARD CONTRACT IN THE EXPORT TURNOVER. THEREFORE, THE SAM E CANNOT BE EXCLUDED FROM THE EXPORT TURNOVER AS DIRECTED BY THE CIT IN THE R EVISION ORDER. 8.1 HE HAS ALSO FILED A RECONCILIATION SHEET AND EX PLAINED THE FIGURE OF EXPORT TURNOVER. HE HAS THUS SUBMITTED THAT WHEN THE CIT HAS PROCEEDED ON A WRONG FACT BY ASSUMING THAT THE EXCHANGE GAIN IS PART OF EXPORT TURNOVER, THEN THE 6 BHAVANI GEMS REVISION ORDER IS NOT JUSTIFIED AND SUSTAINABLE. T HE ASSESSING OFFICER HAS MENTIONED IN THE GIVING EFFECT PROCEEDINGS THAT THE ASSESSEE HAS ALREADY EXPLAINED ALL THE FACTS BEFORE THE ASSESSING OFFICE R; BUT THE ASSESSING OFFICER HAS PASSED THE GIVING EFFECT ORDER BY FOLLOWING THE DIR ECTIONS OF THE CIT(A). 8.2 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS TAKEN THE STAND FOR THE FIRST TIME AND HAS NOT TAKEN BEFO RE THE CIT IN THE 263 PROCEEDINGS. HE HAS REFERRED THE REPLY OF THE ASSES SEE TO THE SHOW CAUSE NOTICE U/S 263 AND SUBMITTED THAT THE ASSESSEE HAS TAKEN A STAND THAT EXCHANGE GAIN ON FORWARD CONTRACT TRANSLATION IS VERY MUCH PART A ND PARCEL OF THE EXPORT TURNOVER OF THE ASSESSEE AND THEREFORE, CANNOT BE E XCLUDED FROM THE EXPORT TURNOVER THEREFORE, THE CIT HAS RIGHTLY REVISED TO ORDER ON THIS ISSUE. HE HAS RELIED ON THE ORDER OF THE CIT. 9 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE ASSESSING OFFICER HAS NOT DISCUSSED THIS ISSUE WHILE PASSING THE ORIGINAL ASSESSMENT. THERE WAS NO ENQUIRY OR ADJUDICATION ON THIS ISSUE. THEREFORE, THERE IS NO APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER ON THIS ISSUE AND CONSEQUE NTLY THERE IS NO QUESTION OF TAKING ANY VIEW BY THE ASSESSING OFFICER AND DISAGR EEING BY THE CIT ON THE SAME. 9.1 IN THE SHOW CAUSE NOTICE, THE CIT HAS ASKED THE ASSESSEE AS UNDER: IT IS SEEN FROM THE DETAILS OF EXCHANGE GAIN THAT AN AMOUNT OF ` 80.73 LACS IS ON ACCOUNT OF TRANSLATION OF THE AMOU NT INVOLVED IN FORWARD CONTRACT AND ACCORDINGLY THE SAME CANNOT BE RELATED TO THE EXPORT TURNOVER. ACCORDINGLY, THIS RECEIPT SHOULD B E INCLUDED ONLY IN THE TOTAL TURNOVER. MOREOVER, IT WILL ALSO PARTAKE THE NATURE OF RECEIPTS COVERED UNDER EXPLANATION (BAA) TO SEC. 80 HHC CONSEQUENT TO WHICH 90% OF THE SAID RECEIPTS HAVE TO BE EXCLUD ED FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC. 7 BHAVANI GEMS 9.2 THUS, IT IS CLEAR FROM THE SHOW CAUSE NOTICE TH AT THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THIS RECEIPT OF EXCHANGE GAIN IS NOT TO BE EXCLUDED FROM THE EXPORT TURNOVER BY APPLYING CLAUSE (BAA) OF EXPLANA TION TO SEC. 80HHC. 9.3 IN REPLY TO THE NOTICE, THE ASSESSEE HAS SUBMIT TED BEFORE THE CIT AS UNDER: IN THE YEAR UNDER CONSIDERATION EXCHANGE GAIN OF ` 80.73 LACS ON ACCOUNT OF TRANSLATION OF THE AMOUNT INVOLVED IN FO RWARD CONTRACT IS CONSIDERED AS PART OF EXPORT TURNOVER. MECHANISM OF FORWARD CONTRACTS IN THE FOREIGN CURRE NCY HELPS ENTITY TO PROTECT ITSELF FROM UNDUE LOSS TO THE SUSTAINED BECAUSE OF FLUCTUATING EXCHANGE RATES. THESE FORWARD CONTRACTS HEDGE THE TRANSLATION RISK ON ACCOUNT OF EXPORT SALES THE AMO UNT OF WHICH IS NOT REALISED AT THE END OF THE FINANCIAL YEAR. SINCE TH ESE CONTRACTS ARE AGAINST EXPORT RECEIVABLES, THE GAIN ON THE SAME HA S DIRECT NEXUS TO SALES AND THE SAME ARE REQUIRED TO BE INCLUDED IN THE EXPORT TURNOVER. IN VIEW OF THIS, THE GAINS ON FORWARD CON TRACT ARE NOT COVERED UNDER EXPLANATION (BAA) TO SEC 80HHC. THUS, FOR CALCULATING DEDUCTIONS U/ S80HHC THE GAIN ON FORWARD CONTACT CA NNOT BE EXCLUDED FROM THE TURNOVER. 9.4 FROM THE REPLY OF THE ASSESSEE, IT IS CLEAR THA T THE ASSESSEE TOOK A STAND THAT THE EXCHANGE GAIN ON FORWARD CONTRACT HAS DIRE CT NEXUS TO THE SALES AND THE SAME REQUIRED TO BE INCLUDED IN THE EXPORT TURNOVER ; THEREFORE, THIS AMOUNT IS NOT COVERED AS PER CLAUSE (BAA) OF EXPLANATION TO S EC. 80HHC. 9.5 NOW, THE ASSESSEE BEFORE US HAS TAKEN A STAND T HAT THIS AMOUNT WAS NEVER PART OF THE EXPORT TURNOVER; THEREFORE, IT CANNOT B E REDUCED FROM THE EXPORT TURNOVER. IT IS TO BE NOTED THAT IN THE DETAILS OF EXPORT TURNOVER, AS FURNISHED BY THE ASSESSEE, AT PAGE 22 OF THE PAPER BOOK, THE ASS ESSEE HAS NOT INCLUDED THE AMOUNT OF EXCHANGE GAIN EITHER IN THE EXPORT TURNO VER OR IN THE TOTAL TURNOVER BUT INCLUDED THE SAID AMOUNT IN THE PROFIT FROM BU SINESS AND ACCORDINGLY CLAIMED FULL DEDUCTION ON THIS AMOUNT U/S 80HHC AS AVAILABLE TO THE PROFIT AND GAIN OF EXPORT TURNOVER. THE DETAILS MENTIONED BY T HE ASSESSEE AT PAGE 22 ARE AS UNDER: 8 BHAVANI GEMS BHAVANI GEMS: EXPORTS 3564259709 DEEMED EXPORTS 291534847 EXCHANGE GAIN 1665032 EXCHANGE GAIN OTHERS 55411493 ROUGH EXPORTS 13775808 TOTAL TURNOVER (AS SHOWN IN P&L A/C) 3926646889 9.6 WHEN THE ASSESSEE IS CLAIMING THE DEDUCTION ON THE FULL AMOUNT OF EXCHANGE GAIN BUT NOT INCLUDED THE SAID AMOUNT EITH ER IN THE EXPORT TURNOVER OVER OR IN THE TOTAL TURNOVER, THEN THIS EXERCISE O F THE ASSESSEE IS NOT AS PER SCHEME OF DEDUCTION U/S 80HHC. 9.7 BEFORE US, THE ASSESSEE IS NOT CLAIMING THE SAI D EXCHANGE GAIN AS PART OF THE EXPORT TURNOVER BUT CLAIMING AS BUSINESS INCOME THEN, AS PER CLAUSE (BAA) OF EXPLANATION TO SEC 80HHC, 90% OF THE SAME WILL BE E XCLUDED FROM THE PROFIT AND GAIN OF BUSINESS. WE GAINFULLY TAKE THE SUPPORT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME -TAX V. K. RAVINDRANATHAN NAIR295 ITR 228 WHEREIN THE SUPREME COURT, IN PARAS 22 HAS HELD AS UNDER: 22. AT THE OUTSET, WE MAY STATE THAT, IN THE PRESE NT CASE, WE ARE DEALING WITH THE LAW AS IT STOOD DURING ASSESSMENT YEAR 1993-94. AT THAT TIME SECTION 80HHC(3) OF THE INCOME-TAX ACT CO NSTITUTED A CODE BY ITSELF. SUBSEQUENT AMENDMENTS HAVE IMPOSED RESTRICTIONS/QUALIFICATIONS BY WHICH THE SAID PROVI SION HAS CEASED TO BE A CODE BY ITSELF. IN THE ABOVE FORMULA THERE EXI STED FOUR VARIABLES, NAMELY, BUSINESS PROFITS, EXPORT TURNOVER, TOTAL TU RN-OVER AND 90 PER CENT. OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO TH E SAID EXPLANATION. IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ALL FOUR VARIABLES HAD TO BE TAKEN INTO ACCOUNT. ALL FOUR VA RIABLES WERE REQUIRED TO BE GIVEN WEIGHT AGE. THE SUBSTITUTION O F SECTION 80HHC(3) SECURES PRO-FITS DERIVED FROM THE EXPORTS OF ELIGIBLE GOODS. THEREFORE, IF ALL THE FOUR VARIABLES ARE KEPT IN MI ND, IT BECOMES CLEAR THAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME W OULD NOT NECESSARILY INCLUDE ELEMENT OF EXPORT TURN-OVER. TH IS ASPECT NEEDS TO BE KEPT IN MIND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 90 PER CEN T. OF INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE, COMMISSION , INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDE D IN BUSINESS PROFITS, HAD TO BE DEDUCTED FROM BUSINESS PROFITS C OMPUTED IN TERMS OF SECTIONS 28 TO 44D OF THE INCOME-TAX ACT. IN OTH ER WORDS, RECEIPTS CONSTITUTING INDEPENDENT INCOME HAVING NO NEXUS WIT H EXPORTS WERE REQUIRED TO BE REDUCED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUSE (BAA)(1) INDICATES THAT RECE IPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES, ETC ., FORMED PART OF GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSES OF 9 BHAVANI GEMS WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTO RTION OF ARRIVING AT THE EXPORT PROFITS, CLAUSE(BAA) STOOD INSERTED TO S AY THAT ALTHOUGH INCENTIVE PROFITS AND INDEPENDENT INCOMES CONSTIT UTED PART OF GROSS TOTAL INCOME, THEY HAD TO BE EXCLUDED FROM GROSS TO TAL INCOME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. THEREFORE, IN THE ABOVE FORMULA, WE HAVE TO READ AL L THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY NOT CONSTITUTE SALE PROCEEDS FROM EXPOR TS. THAT, EVERY RECEIPT IS NOT INCOME UNDER THE INCOME-TAX ACT AND EVERY INCOME MAY NOT BE ATTRIBUTABLE TO EXPORTS. THIS WAS THE RE ASON FOR THIS COURT TO HOLD THAT INDIRECT TAXES LIKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FOR AND ON BEHALF OF THE GOVERNMENT, SHALL NOT BE INCLUDED IN THE TOTAL TURNOVER IN THE ABOVE FORMULA (SEE CIT V. LAKSHMI MACHINE WORKS [2007] 6 SCALE 168 9.8 UNDISPUTEDLY, THERE IS LACK OF ENQUIRY ON THE P ART OF THE ASSESSING OFFICER WHILE ALLOWING THE CLAIM OF THE ASSESSEE. THEREFORE , THE ASSESSMENT ORDER IS ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE CIT HAS RIGHTLY INVOKED THE JURISDICTION U/S 263 ON THI S ISSUE. 10 WE MAY CLARIFY HERE THAT THE EXCHANGE GAIN ON FO RWARD CONTRACT TRANSLATION DOES NOT HAVE ANY ELEMENT OF EXPORT TUR NOVER OR PROFIT FROM EXPORT. THEREFORE, AS PER CLAUSE (BAA) OF EXPLANATION TO SE . 80HHC, 90% OF THE SAID INCOME HAS TO BE EXCLUDED FROM THE BUSINESS PROFITS . HENCE, WE MODIFY THE REVISION ORDER ON THE POINT OF COMPUTATION OF DEDUC TION U/S 80HHC AND DIRECT THE ASSESSING OFFICER TO APPLY CLAUSE (BAA) OF EXPLANAT ION TO SEC. 80HHC ON EXCHANGE GAIN ON FORWARD CONTRACT TRANSLATION. 11 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 6 TH , DAY OF JAN 2012. SD/ SD/- ( T R SOOD ) ( T R SOOD ) ( T R SOOD ) ( T R SOOD ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) ( VIJAY PAL RAO ) ( VIJAY PAL RAO ) ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 6 TH , JAN 2012 RAJ* RAJ* RAJ* RAJ* 10 BHAVANI GEMS COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI