DCIT 8(2), MUMBAI V. PERFECT ENGINERING PRODUCTS LTD, MUMBAI

ITA 3997/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3679 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2014
• Court: TRIBUNAL
• Department Lawyers: GANESH BAREDR
• Assessee Lawyers: AJAY R SINGH
• Keywords: Capital asset; Depreciation; Question of law; Capital expenditure
• Section: 80HHC; 115JB; 37(1); 10B; 32; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.3997/MUM/2014 ASSESSMENT YEAR:-2009-10 DCIT - 8 (2), ROOM NO.209/216A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S PERFECT ENGINEERING PRODUCTS LTD. 31, GOLDEN BEACH, RUIYA PARK, JUHU, MUMBAI-400049 PAN NO. AABCP6180E ( / REVENUE) ( / ASSESSEE) ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 2 C.O. NO.197/MUM/2015 (ARISING OUT OF ITA NO.3997/MUM/2014) ASSESSMENT YEAR:-2009-10 M/S PERFECT ENGINEERING PRODUCTS LTD. 31, GOLDEN BEACH, RUIYA PARK, JUHU, MUMBAI-400049 / VS. DCIT - 8(2), ROOM NO.209/216A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 PAN NO. AABCP6180E ( / ASSESSEE) ( / REVENUE) / REVENUE BY SHRI GANESH BARE-DR / ASSESSEE BY SHRI AJAY R. SINGH ! / DATE OF HEARING : 26/05/2016 ! / DATE OF ORDER: 09/06/2016 / O R D E R PER BENCH THE REVENUE AS WELL AS THE ASSESSEE IS AGGRIEVED, THEREFORE, APPEAL HAS BEEN PREFERRED BY THE REVENUE WHEREAS, THE ASSESSEE HAS PREFERRED CROSS OBJECTION AGAINST THE IMPUGNED ORDER DATED 28/03/2014 OF THE FIRST AP PELLATE AUTHORITY, MUMBAI. 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE REVEN UE, WHEREIN, GROUNDS NUMBER 1 TO 3 ARE WITH RESPECT TO DELETING ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 3 THE ADDITION OF RS.4,58,10,722/- ON THE GROUND THAT PRODUCT DEVELOPMENT AND RESEARCH EXPENDITURE WAS NOT IN THE NATURE OF INTANGIBLE ASSET AS ENVISAGED IN SECTION 32 OF T HE ACT AND THUS THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 35( 1)(IV) OF THE ACT. 2. DURING HEARING, THE LD. DR, SHRI GANESH BARE, ADVANCED ARGUMENTS WHICH IS IDENTICAL TO THE GROUND RAISED BY SUBMITTING THAT THE LD. COMMISSIONER OF INCOME T AX (APPEAL) DID NOT APPRECIATE THE FACT THAT THE ASSES SEE FAIL TO SUBSTANTIATE ITS CLAIM THAT THE SAID CAPITAL EXPEND ITURE WAS OF THE NATURE SPECIFIED IN SECTION 35(1)(IV) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, SHRI AJAY R. SINGH, DEFENDED THE CONCLUSI ON ARRIVED AT IN THE IMPUGNED ORDER BY CLAIMING THAT T HE ISSUE UNDER HAND IS COVERED BY THE DECISION OF THE TRIBUN AL FOR ASSESSMENT YEAR 2010-11 (ITA NO.4604/MUM/2014) ORDE R DATED 04/02/2016. THIS FACTUAL MATRIX WAS NOT CONTR OVERTED BY THE REVENUE. ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 4 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER OF THE TRIBUNAL DATED 04/0 2/2016 FOR READY REFERENCE AND ANALYSIS:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 17-04-2014 OF COMMISSIONER OF INCOME TAX (APPEALS)-17, MUMBAI (HE REINAFTER CALLED AS THE CIT(A)) FOR ASSESSMENT YEAR 2010-11. THE ASSESS EE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE CLAIM OF THE ASSESEE OF DEDUCTION U/S 35(1)(I) WITHOUT APPRECIATING THAT BY ITS VERY NATURE SUCH E XPENDITURE RESULTS IN ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE AND IS CAPITAL EXPENDITURE? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE CLAIM OF THE ASSESEE OF DEDUCTION U/S 35(1)(I) WITHOUT APPRECIATING THAT THE ASSESSEE COMPANY ITSE LF HAD TREATED SIMILAR EXPENDITURE IN THE EARLIER YEARS AND CLAIMED DEPREC IATION THEREON? 2. THE COMMON ISSUE RAISED IN GROUND NO. 1 & 2 IS AGAINST THE UPHOLDING THE CLAIM OF THE ASSSESSEE U/S 35(1)(I) OF THE ACT BY I GNORING THE FACT THAT SAID EXPENDITURE WAS CAPITAL IN NATURE AND ALSO IGNORING THE FACT THAT IN THE EARLIER YEARS THE ASSESSEE HAD TREATED THE SIMILAR EXPENDIT URE AS CAPITAL ASSET AND CLAIMED DEPRECIATION @ 25% THEREON. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE EFILED ITS RETURN OF INCOME ON 14.10.2010 DECLARING A LOSS OF RS.94,65,190/- WHILE COMPUTING THE LOSS U/S 115JB O F THE ACT AT RS.6,88,45,389/-. THE ASSESEE COMPANY DURING THE YE AR INCURRED RS. 6,46,18,933/- WHICH WAS SHOWN UNDER THE HEAD INTAN GIBLE ASSSETS I.E. DEVELOPMENT EXPENDITURE BUT WHILE COMPUTING THE TOT AL INCOME , THE SAME WAS CLAIMED AS DEDUCTION U/S 35(1)(I) OF THE ACT AS BEING R&D EXPENDITURE AND THUS WRITTEN OF FULLY DURING THE YEAR. ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 5 3. THE AO DURING THE COURSE OF SCRUTINY PROCEEDING OBSERVED THAT THE ASSESSEE HAD CLAIMED RS.6,46,18,933/- AS RESEARCH A ND DEVELOPMENT EXPENDITURE AND ASKED THE ASSESSEE TO JUSTIFY ITS C LAIM WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 15.11.12 STATING THA T THE EXPENDITURE WAS INCURRED IN CONNECTION WITH RESEARCH AND DEVELOPMEN T AND THE SAME WAS RIGHTLY CLAIMED U/S 35(1)(I) OF THE ACT. IT WAS ALS O HOWEVER STATED THAT SIMILAR EXPENDITURE WHICH INCLUDED RAW MATERIAL, STORES, LA BOUR, POWER & FUEL, PROCESSING CHARGES AND INTEREST ETC WAS TREATED AS INTANGIBLE ASSET IN THE EARLIER YEAR DEPICTING THE SAME ON THE ASSETS SIDE OF THE BALANCE SHEET AND DEPRECIATION AT THE RATE OF 25% ACCORDINGLY IN THE THAT YEAR AND ALSO DURING THE YEAR IN RESPECT OF OPENING WDV. THE ASSESSEE SU BMITTED THAT THESE EXPENSES WERE OF REVENUE IN NATURE AND WERE ALLOWAB LE U/S 35(1)(I),35(1)(IV) AND 37(1) OF THE ACT NOTWITHSTANDING THE FACT THE S AME WERE CAPITALIZED IN THE EARLIER YEAR. THE LD. AO REJECTED THE CONTENTION OF THE ASSESSEE BY COMING TO THE CONCLUSION THAT THESE EXPENDITURE HAD RESULT IN ENDURING BENEFIT FOR LONGER A PERIOD. THUS, THE BENEFIT OF THE SAID EXPENDITURE WOULD BE ACCRUING OVER AND ABOVE CURRENT YEAR AND THE CLAIM OF THE ASSESSEE WA S NOT TENABLE. THE LD. AO ALSO OBSERVED THAT IN THE EARLIER YEAR THE SIMILAR EXPENDITURE WAS CAPITALIZED AND DEPRECIATION AT THE RATE OF 25% ON THE SAME BY REFERRING TO THE ASSESSMENT ORDER FOR THE AY 2009-10 IN WHICH THE W.D.V OF THE R&D EXPENDITURE WAS WORKED OUT AT RS.15,21,60,264/-. THE LD. AO TREATED THE R&D EXPENDITURE AS CAPITAL IN NATURE AND ALLOWED THE DEPRECIATION AT T HE RATE OF 25% AND THE NET DISALLOWANCE MADE BY THE AO WORKED OUT AT RS.4,84,6 4,199/- ACCORDINGLY. 4. THE LD. AR SUBMITTED BEFORE US THAT THE CASE OF THE ASSESSEE WAS COVERED BY THE ORDER OF THE TRIBUNAL IN ITS OWN CASE IN ITA NO. 33&36/MUM/2012 (A.Y.2007- 08 &2008-09) DATED 21-08-13 AND FURTHER ARGUED THAT IN VIEW OF THE SAID ORDER OF THE CO-ORDINATE BENCH, THE APPEAL OF THE REVENUE DESERVED TO BE DISMISSED BY UPHOLDING THE ORDER OF THE CIT(A). THE LD. DR PER CONTRA, WAS IN AGREEMENT WITH THE ARGUMENT OF THE LD. AR QU A THE ISSUE BEING COVERED BY ABOVE ITA. ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 6 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND FROM THE COPY OF THE JUDGMENT IN ITA NO. 33 &36/MUM/2012 (A.Y.2007-08 &2008-09) THAT THE SIMILAR ISSUE WAS D ECIDED BY THE TRIBUNAL C BENCH MUMBAI IN FAVOUR OF THE ASSESEE WHEREIN I T HAS BEEN HELD THAT EXPENDITURE INCURRED ON RESEARCH WAS ADMISSIBLE U/S 35(1)(I) OF THE ACT. THE RELEVANT PARA 6 IS REPRODUCED AS UNDER: IN VIEW OF THE FOREGOING, WE HAVE NO HESITATION IN DIRECTING THE A.O. TO ALLOW THE ASSESSEES CLAIM IN RESPECT OF THE SCIENT IFIC EXPENDITURE INCURRED ON RESEARCH EXPENSES FOR THE CURRENT YEAR/S U/S.35(1)( IV); THE ASSESSEE HAVING ITSELF CONSIDERED IT AS CAPITAL EXPENDITURE. CONSEQ UENTLY, NO AMOUNT WOULD SURVIVE FOR BEING CARRIED OVER AS THE WDV OF THE RE LEVANT BLOCK OF ASSETS U/S.43(6); THE ASSESEE HAVING ALREADY SECURED ALL D EDUCTION FOR THE IMMEDIATELY PRECEDING YEAR/S. THE DECISIONS OF THE TRIBUNAL ARE BASED THE MATERIAL ON RECORD AS ALSO, IN NO LESS MEASURE, ON THE ARGUMENTS ADVANCED BEFORE IT. OUR ORDER BEING AT VARIANCE WITH THAT FO R AY 2007-07, WE RESTRICT THE APPLICABILITY OF THE SAME ONLY TO THE YEARS UND ER APPEAL, SO AS NOT TO PREJUDICE THE CASE OF EITHER PARTY FOR ANY OTHER YE AR. WE DECIDE ACCORDINGLY. 6. WE FIND THAT THE FACTS OF THE ASSESSEE ARE FULLY COVERED BY THE DECISION OF THE TRIBUNAL AND WE, THEREFORE, RESPECTFULLY FOLLOW ING THE DECISION OF THE CO- ORDINATE BENCH UPHOLD THE ORDER OF THE CIT(A) BY DI SMISSING THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 2.3. WE FIND THAT THE TRIBUNAL HAS MADE AN ELABORA TE DISCUSSION ON THE ISSUE IN HAND ON IDENTICAL FACT I N THE OWN CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 BY FOLLOWING THE DECISION OF THE TRIBUNAL FOR ASSESSME NT YEAR 2007-08 AND 2008-09 ORDER DATED 21/08/2013 (ITA NOS .33 & 36/MUM/2012), WHEREIN, THE CLAIM OF THE ASSESSEE WITH RESPECT TO SCIENTIFIC EXPENDITURE INCURRED ON RESEA RCH U/S ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 7 35(1)(IV) WAS CONSIDERED AS CAPITAL EXPENDITURE, CONSEQUENTLY, NO AMOUNT WOULD SURVIVE FOR BEING CAR RIED OVER AS WDV OF THE RELEVANT BLOCK OF ASSET U/S 43 (6) OF THE ACT, THE ASSESSEE HAVING ALREADY SECURED ALL DEDUC TION FOR THE IMMEDIATE PRECEDING YEAR/S. CONSIDERING THE TOT ALITY OF FACTS AND FOLLOWING THE AFORESAID DECISION OF THE T RIBUNAL, WE FIND NO MERIT IN THE IMPUGNED GROUND, THEREFORE, TH E STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL) IS A FFIRMED. 3. NEXT GROUNDS I.E. GROUND NUMBER 4 TO 6 ARE WITH RESPECT TO TREATING THE GAIN ON FOREIGN EXCHANGE FL UCTUATION AS INCOME DERIVED FROM UNDERTAKING FOR THE PURPOS ES OF COMPUTING DEDUCTION U/S 10B OF THE ACT. THE LD. DR, DEFENDED THE ADDITION MADE BY THE ASSESSING OFFICER , WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY CONT ENDING THAT THE DEDUCTION WAS ALLOWED TO THE ASSESSEE AFTE R CALLING REMAND REPORT FROM THE ASSESSING OFFICER AND PLACED RELIANCE UPON THE DECISION FROM HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GEM PLUS JEWELLERY INDIA LTD. (2011) 330 ITR 175(BOM.) BY CLAIMING THAT THE AMOUNT IS FR OM SALE ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 8 PROCEEDS AND BILL DISCOUNTING, THEREFORE, IT HAS BE EN DERIVED FROM INDUSTRIAL UNDERTAKING. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE REMAND REPORT FROM THE ASSESSING OFFICER WAS CONSID ERED, WHEREIN, HE REWORKED THE DEDUCTION U/S 10B OF THE A CT AT RS.1,98,65,767/-. THE ASSESSEE FILED REVISED WORKIN G OF DEDUCTION U/S 10B, CLAIMING DEDUCTION OF RS.3,83,93 ,259/-. THE ASSESSEE SHOWED PROFIT OF THE UNDERTAKING AT RS.15,85,74,673/- WHICH INCLUDED FOREIGN EXCHANGE G AIN OF RS.6,65,23,615/- WHEREAS, THE ASSESSING OFFICER RED UCED FOREIGN EXCHANGE GAIN AND ARRIVED AT THE FIGURE OF PROFIT AT RS.8,20,51,058/-. THE STAND OF THE ASSESSEE RIGHT F ROM ASSESSMENT STAGE IS THAT THE FOREIGN EXCHANGE GAIN IS FROM REALISATION OF EXPORT PROCEEDS AND FROM BILL DISCOU NTING, TERM LOAN FOR WORKING CAPITAL, ETC. WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE IN THE CASE OF CIT VS GEM PLUS JEWELLERY INDIA LTD.(2011) 330 I TR 175(BOM.) BY OBSERVING AS UNDER:- ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 9 14. THE TRIBUNAL HAS FOLLOWED A DECISION OF ITS SP ECIAL BENCH IN COMING TO THE CONCLUSION THAT FOREIGN EXCHANGE EARN ED ON THE REALIZATION OF EXPORT RECEIPTS IN A YEAR OTHER THAN THE YEAR IN WHICH THE GOODS WERE EXPORTED WOULD HAVE TO BE CONSIDERED IN THE YEAR OF EXPORT FOR THE PURPOSE OF EXEMPTION UNDER SECTION 8 0HHC. THE TRIBUNAL HAS, HOWEVER, DIRECTED THE ASSESSING OFFIC ER, WHILE GRANTING A DEDUCTION TO THE ASSESSEE UNDER SECTION 10A IN THE YEAR OF EXPORT TO EXCLUDE THE AMOUNT FROM THE PROFITS OF THE YEAR UNDER CONSIDERATION SIMULTANEOUSLY. THIS IS TO ENSURE THA T THE ASSESSEE DOES NOT OBTAIN A DEDUCTION TWICE OVER. 15. FOR THE PURPOSES OF THE APPEAL IT HAS NOT BEEN DISPUTED ON BEHALF OF THE REVENUE THAT THE FOREIGN EXCHANGE WAS REALIZED BY THE ASSESSEE WITHIN THE PERIOD STIPULATED IN LAW. T HE ASSESSEE REALIZED A LARGER AMOUNT BECAUSE OF A FOREIGN EXCHA NGE FLUCTUATION. THE FACT THAT THIS FORMS PART OF THE SALE PROCEEDS WOULD HAVE TO BE ACCEPTED IN VIEW OF THE JUDGMENT OF THE DIVISION BE NCH OF THIS COURT IN COMMISSIONER OF INCOME TAX V. AMBER EXPORT (INDIA) (ITA 1249 OF 2007 DECIDED ON 18 FEBRUARY 2009). THE JUDGMENT OF THIS COURT IN TURN FOLLOWED THE DEC ISION OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX V. AMBA IMPEX5. THE SOLE GROUND WHICH HAS BEEN URGED ON BEH ALF OF THE REVENUE IN SUPPORT OF THE APPEAL ON THIS ISSUE IS B ASED ON THE JUDGMENT OF A DIVISION BENCH OF THIS COURT IN COMMI SSIONER OF INCOME TAX V. SHAH ORIGINALS (ITA 431 OF 2008 DECID ED ON 22 APRIL 2010). THE DECISION IN SHAH ORIGINALS IS, HOW EVER, DISTINGUISHABLE FOR THE REASON THAT THE FOREIGN FLU CTUATION IN THAT CASE AROSE AFTER THE EXPORT TRANSACTION HAD BEEN CO MPLETED AND 5 (2006) 282 ITR 144 (GUJ) AFTER THE EXPORT PROFITS W ERE DEPOSITED BY THE ASSESSEE IN AN EEFC ACCOUNT. THIS IS EVIDENT FROM THE FOLLOWING OBSERVATIONS : 'THE ASSESSEE ADMITTEDLY IN THE PRESENT CASE RECEIV ED THE ENTIRE PROCEEDS OF THE EXPORT TRANSACTION. THE RESERVE BAN K OF INDIA, HAS GRANTED A FACILITY TO CERTAIN CATEGORIES OF EXPORTE RS TO MAINTAIN A CERTAIN PROPORTION OF THE EXPORT PROCEEDS IN AN EEF C ACCOUNT. THE ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 10 PROCEEDS OF THE ACCOUNT ARE TO BE UTILIZED FOR BONA FIDE PAYMENTS BY THE ACCOUNT HOLDER SUBJECT TO THE LIMITS AND THE CO NDITIONS PRESCRIBED. AN ASSESSEE WHO IS AN EXPORTER IS NOT U NDER AN OBLIGATION OF LAW TO MAINTAIN THE EXPORT PROCEEDS I N THE EEFC ACCOUNT BUT, THIS IS A FACILITY WHICH IS MADE AVAIL ABLE BY THE RESERVE BANK. THE TRANSACTION OF EXPORT IS COMPLETE IN ALL RESPEC TS UPON THE REPATRIATION OF THE PROCEEDS. IT LIES WITHIN THE DI SCRETION OF THE EXPORTER AS TO WHETHER THE EXPORT PROCEEDS SHOULD B E RECEIVED IN A RUPEE EQUIVALENT IN THE ENTIRETY OR WHETHER A PORTI ON SHOULD BE MAINTAINED IN CONVERTIBLE FOREIGN EXCHANGE IN THE E EFC ACCOUNT. THE EXCHANGE FLUCTUATION THAT ARISES, IT MUST BE EM PHASIZED, IS AFTER THE EXPORT TRANSACTION IS COMPLETE AND PAYMEN T HAS BEEN RECEIVED BY THE EXPORTER. UPON THE COMPLETION OF TH E EXPORT TRANSACTION, WHAT THE SELLER DOES WITH THE PROCEEDS , UPON REPATRIATION, IS A MATTER OF HIS OPTION. THE EXCHAN GE FLUCTUATION IN THE EEFC ACCOUNT ARISES AFTER THE COMPLETION OF THE EXPORT ACTIVITY AND DOES NOT BEAR A PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION 'DE RIVED' BY THE ASSESSEE IN SUB SECTION (1) OF SECTION 80HHC.' (EMP HASIS SUPPLIED) IN THE PRESENT CASE, THE ASSESSEE HAS REA LIZED A LARGER AMOUNT IN TERMS OF INDIAN RUPEES AS A RESULT OF A F OREIGN EXCHANGE FLUCTUATION THAT TOOK PLACE IN THE COURSE OF THE EX PORT TRANSACTION. 16. FOR THE AFORESAID REASONS, THE QUESTION OF LAW IS ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 3.2. IN THE LIGHT OF THE ABOVE DECISION/DISCUSSION , WE ARE OF THE VIEW THAT THE FOREIGN EXCHANGE GAIN ARIS ING OUT OF THE FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE CAN NOT BE DIVESTED FROM THE EXPORT BUSINESS OF THE ASSESSEE. AS NOTED, ONCE EXPORT IS MADE, DUE TO VARIETY OF REASONS, THE REMISSION ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 11 OF THE EXPORT SALE CONSIDERATION MAY NOT BE MADE IMMEDIATELY. IF DURING THE SAME YEAR OF THE EXPORT, THE REMISSION IS ALSO MADE, THE DIFFERENCE IN THE RATE RECORDED IN THE ACCOUNTS OF THE ASSESSEE AND THAT EVENTUALLY RE CEIVED BY WAY OF REMISSION EITHER POSITIVE OR NEGATIVE, WOULD BE DULY ADJUSTED. MAY BE THE ACCOUNTING STANDARDS REQUIRE T HAT THE SAME MAY BE RECORDED IN SEPARATE FOREIGN EXCHANGE FLUCTUATION ACCOUNT. NEVE RTHELESS ANY DEVIATION EITHER POSITIVE OR NEGATIVE MUST HAVE DIRECT RELATION TO THE EXPORT ACTUALLY MADE. PAYMENT WOULD BE DUE TO THE ASSESSEE ON ACCOUNT OF THE FACTUM OF EXPORT. CURRENT PRICE OF THE GOODS SO EXPORTED WOULD ALSO BE PRE-DE CIDED IN THE FOREIGN EXCHANGE CURRENCY. THE EXACT REMITTANCE IN INDIAN RUPEES WOULD DEPEND ON THE PRECISE EXCHANGE RATE AT THE TIME WHEN THE AMOUNT IS REMITTED. THIS FLUCTUAT ION AND POSSIBILITY OF INCREASE OR DECREASE, IN OUR OPINION , CAN HAVE NO BEARING ON THE SOURCE OF SUCH RECEIPT. PRIMARILY AND ESSENTIALLY, THE RECEIPT WOULD BE ON ACCOUNT OF THE EXPORT MADE. IF THIS IS SO, ANY FLUCTUATION THEREOF ALSO M UST BE SAID TO HAVE ARISEN OUT OF THE EXPORT BUSINESS. MERE PER IOD OF ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 12 TIME AND THE VAGARIES OF RATE FLUCTUATION IN INTERN ATIONAL CURRENCIES CANNOT DIVEST THE INCOME FROM THE CHARAC TER OF THE INCOME FROM ASSESSEE'S EXPORT BUSINESS. IN THAT VIEW OF THE MATTER, THE REVENUE'S CONTENTION THAT SUCH INCO ME CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE EXPO RT BUSINESS MUST FAIL. IF THIS IS THE POSITION WHEN TH E REMITTANCE IS MADE DURING THE SAME YEAR OF THE EXPO RT, WE FAIL TO SEE WHAT MATERIAL CHANGE CAN IT BRING ABOUT IF WITHIN THE TIME PERMITTED UNDER SUB-SECTION(2) OF SECTION 80HHC, THE REMITTANCE IS MADE BUT IN THE PROCESS ACCOUNTIN G YEAR HAS CHANGED. TO OUR MIND MERE CHANGE IN THE ACCOUNT ING YEAR CAN HAVE NO REAL IMPACT ON THE NATURE OF THE R ECEIPT. THE CONCLUSION OF THE ASSESSING OFFICER THAT SINCE THE YEAR DURING WHICH SUCH SALE PROCEEDS WERE RECEIVED BY TH E ASSESSEE EXPORT WAS NOT MADE, WOULD NOT IN ANY MANN ER CHANGE THE SITUATION. THE ASSESSEE BEING ENGAGED IN THE BUSINESS OF EXPORT AND HAVING MADE THE EXPORT, MERE FACT OF THE REMITTANCE BEING MADE AFTER 31ST OF MARCH OF TH E YEAR WHEN EXPORT WAS MADE, WOULD NOT CHANGE THE SITUATIO N INSOFAR AS, RELATION OF SUCH INCOME TO THE ASSESSEE 'S EXPORT ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 13 BUSINESS IS CONCERNED. CLAUSE (BAA) TO THE EXPLANAT ION TO SECTION 80HHC PROVIDES FOR EXCLUSION OF CERTAIN INCOMES FOR COMPUTATION OF EXPORT PROFIT UNDER SECTION 80HH C. SUB- CLAUSE (1) OF CLAUSE (BAA) THEREOF PERTAINS TO 90% OF THE SUM REFERRED TO IN CLAUSES (IIIA), (IIIB),(IIIC),(IIID) AND (IIIE) OF SECTION 28 OR ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF SIM ILAR NATURE INCLUDED IN SUCH PROFITS. THE TERM 'FOREIGN EXCHANGE DIFFERENCE' IS NOT SPECIFIED IN A NY OF THE CATEGORIES SPECIFICALLY MENTIONED IN THE SAID CLAUS E. THE REVENUE, HOWEVER, CONTENDED THAT THE SAME MUST BE INCLUDED BY NECESSARY IMPLICATION AS PART OF OTHER RECEIPTS. LEGISLATURE, HOWEVER, HAS USED THE TERM 'ANY OTHER RECEIPT OF SIMILAR NATURE'. THIS EXPRESSION 'SIMILAR NATURE' W OULD HAVE CONSIDERABLE BEARING ON THE ULTIMATE CONCLUSION THA T WE ARRIVE IN THIS RESPECT. WHAT IS TO BE EXCLUDED UNDE R THE SAID SUB-CLAUSE (1) OF CLAUSE (BAA) IS ANY OTHER RECEIPT OF A NATURE SIMILAR TO THE BROKERAGE, COMMISSION, INTEREST, REN T OR CHARGES. THE RECEIPT BY WAY OF FOREIGN EXCHANGE FLU CTUATION NOT BEING SIMILAR TO ANY OF THESE RECEIPTS MENTIONE D ABOVE, ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 14 APPLICATION OF CLAUSE (BAA) MUST BE EXCLUDED. SUB-R ULE (1) OF RULE 115 ONLY PROVIDES FOR ADOPTING THE RATE OF EXC HANGE FOR CALCULATION OF VALUE OF RUPEE OF ANY INCOME ACCRUIN G OR ARISING IN CASE OF AN ASSESSEE AND PROVIDES THAT TH E SAME SHALL BE TELEGRAPHIC TRANSFER OF BUYING RATE OF SU CH CURRENCY ON THE SPECIFIED DATE. THE TERM 'SPECIFIED DATE' HA S BEEN DEFINED IN EXPLANATION-2 TO THE SAID SUB-RULE (1). RULE 115 OF THE INCOME-TAX RULES, 1962 THUS HAS APPLICATION FOR A SPECIFIC PURPOSE AND HAS NO BEARING WHILE JUDGING W HETHER FOREIGN EXCHANGE RATE FLUCTUATION GAIN CAN FORM PAR T OF THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN THE CA SE OF COMMISSIONER OF INCOME-TAX AND OTHERS VS. CHOWGU LE AND CO. LTD. REPORTED IN [1996]218 ITR 384, THE COURT H ELD THAT RULE 115 DOES NOT LAY DOWN THAT ALL FOREIGN CURRENC IES RECEIVED BY THE ASSESSEE WILL BE CONVERTED INTO IND IAN RUPEES ONLY ON THE LAST DATE OF THE ACCOUNTING PERIOD. RUL E ONLY FIXED THE RATE OF CONVERSION OF FOREIGN CURRENCY. I F THERE IS NO FOREIGN CURRENCY TO CONVERT ON THE LAST DATE OF ACC OUNTING PERIOD, THEN NO QUESTION OF INVOKING RULE 115 WILL ARISE. WE ARE CONSCIOUS THAT LAW PERMITS HEDGING ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 15 OF FOREIGN EXCHANGE FLUCTUATION RISK TO AN IMPORTER OR AN EXPORTER. THE EXPORTER MAY, THEREFORE, TAKE STEPS A S FOUND COMMERCIALLY PRUDENT TO SAFEGUARD HIMSELF AGAINST DRASTIC FOREIGN EXCHANGE RATE FLUCTUATIONS AND IN T HE PROCESS MAY ALSO LIMIT THE POSSIBILITY OF GAIN IN CASE OF F AVOURABLE CURRENCY RATE TRENDS. NEVERTHELESS, THE RESULTANT G AIN IN FOREIGN EXCHANGE RATE WOULD STILL BE DUE TO THE EXPORT MADE BY THE ASSESSEE. IN THE PRESENT APPEAL, THERE IS NO DOUBT THAT THE GAIN OUT OF EXPORT OF GOODS AND ALSO THE GAIN/LOSS OUT OF FOREIGN EXCHANGE FLUCTUATION HAVE DIRECT NEXUS WITH THE GOODS WHICH WERE MANUFACTURED/EXPOR TED WERE DERIVED FROM THE INDUSTRIAL UNDERTAKING. CLAU SE (A) OF THE EXPLANATION TO SECTION 80HHC COINS A DEFINITION OF THE EXPRESSION CONVERTIBLE FOREIGN EXCHANGE SO AS TO MEAN FOREIGN EXCHANGE WHICH IS FOR THE TIME BEING TREATE D BY THE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHAN GE FOR THE PURPOSES OF FOREIGN EXCHANGE REGULATION ACT 1973 AN D ANY RULE MADE THEREUNDER. FOREIGN EXCHANGE FLUCTUATION GAIN IS OFFSHOOT OF THE EXPORT MADE BY THE ASSESSEE, THUS, IT HAS DIRECT NEXUS AND CAN BE SAID TO BE DERIVED FROM T HE EXPORT ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 16 MADE BY THE ASSESSEE. IF THIS ISSUE IS ANALYZED W ITH RESPECT TO SECTION 80IA OF THE ACT, IT SPEAKS ABOUT TOTAL I NCOME OF AN ASSESSEE INCLUDES ANY PROFIT & GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION(4)(SUCH BUSINESS BEING HEREINAFTE R REFER TO AS ELIGIBLE BUSINESS) THEN A DEDUCTION OF ANY AMOUN T EQUAL TO 100% OF THE PROFIT & GAINS DERIVED FROM SUCH B USINESS FOR SPECIFIED PERIOD, MEANING THEREBY THERE SHOULD BE DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND IT SHOU LD BE DERIVED FROM THE BUSINESS OF THE ASSESSEE. AS MEN TIONED EARLIER, THE GAINS FROM FOREIGN EXCHANGE FLUCTUATIO N IS THE RESULT OF INCOME (EXPORT) DERIVED FROM AN INDUSTRIA L UNDERTAKING, THEREFORE, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE LD. COMMISSIONER OF INCOME TAX (A PPEAL), THUS, THE IMPUGNED GROUND WAS RIGHTLY DECIDED IN FA VOUR OF THE ASSESSEE, RESULTANTLY, THE IMPUGNED GROUND IS DISMISSED. 4. SO FAR AS, THE CROSS OBJECTION NO.197/MUM/2015 IS CONCERNED, THE CROSS OBJECTION HAS BEEN RAISED B Y THE ASSESSEE IN SUPPORT OF GROUND NO.1, RAISED BY THE R EVENUE, ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 17 IN ITA NO.3997/MUM/2014 AND SINCE WE HAVE AFFIRMED THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL ) ON THE ISSUE, THEREFORE, THIS CROSS OBJECTION OF THE ASSES SEE HAS REMAINED FOR ACADEMIC INTEREST ONLY. FINALLY, THE APPEAL OF THE REVENUE AS WELL AS TH E CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESEN CE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCL USION OF THE HEARING ON 26/05/2016. SD/- SD/- (RAJENDRA) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER MUMBAI; $ DATED : 09/06/2016 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. &' () / THE APPELLANT (RESPECTIVE ASSESSEE) 2. * +() / THE RESPONDENT. 3. , , - ( &' ) / THE CIT, MUMBAI. 4. , , - / CIT(A)- , MUMBAI, 5. /01 *2 , , &' ! &23 , / DR, ITAT, MUMBAI ITA NO.3997/MUM/2014 C.O. NO.197/MUM/2015 M/S PERFECT ENGINEERING PRODUCTS LTD. 18 6. 14 5 / GUARD FILE. / BY ORDER, +/' * //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI