MAERSK GLOBAL SERVICE CENTRES (I) P. LTD ( FORMELRY KNOWN AS MAERSK SERVICES (I) P. LTD), MUMBAI V. ASST CIT 15(1), MUMBAI

ITA 5042/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9076 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 29-06-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 27-06-2011
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Business income; Depreciation
• Section: 143(3); 10B; 10

Judgement Text

, , E, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5042/MUM/2011 ASSESSMENT YEAR: 2004-05 MA ERSK GLOBAL SERVICE CENTRES(I) P. LTD. (FORMERLY KNOWN AS MAERSK SERVICES (I) P. LTD.) 4 TH AND 5 TH FLOOR, PRUDENTIAL BLDG. CEN AVENUE, R.D. HIRANANDANI BUSINESS PARK, POWAI MUMBAI-400076 / VS. ASST. CIT 15(1) R.NO.522/576 AAYAKAR BHAVAN M.K. RD. MUMBAI-20 ( APPELLANT ) (RESPONDENT ) P.A. NO. AADCM7786M APPELLANT BY NONE REVENUE BY SHRI SUMAN KUMAR (DR) / DATE OF HEARING: 19/12/2016 / DATE OF ORDER: 06/01/2017 / O R D E R PER ASHWANI TANEJA: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), MUMBAI- 12 (IN SHORT CIT(A)}, DATED 11.03.2014 PASSED ORDER AGAI NST U/S 143(3) OF THE ACT, DATED 27.12.2006 FOR ASSESSMENT YEAR 2004- 05 ON THE FOLLOWING GROUNDS: MAERSK GLOBAL SERVICE CENTRES 2 2. DURING THE COURSE OF HEARING NONE APPEARED ON BEHA LF OF THE ASSESSEE. IT IS NOTED THAT THE CASE WAS FIXED L AST TIME ON 08.08.2006. ON THE SAID DATE, PETITION DATED 5 TH AUGUST, 2016 WAS FILED FOR SEEKING ADJOURNMENT AND THE CASE WAS ADJOURNED FROM 19.12.2016. THE DATE OF HEARING WAS NOTED BY O NE MR. SANDEEP, WHO HAD FILED ADJOURNMENT APPLICATION. EAR LIER TO THAT ALSO ADJOURNMENTS WERE GRANTED ON MORE THAN TH REE OCCASIONS AT THE REQUEST MADE ON BEHALF OF THE ASSE SSEE. DESPITE THESE FACTS, NONE HAS APPEARED TODAY DESPIT E THE FACT THAT TODAYS DATE WAS FIXED AS LAST OPPORTUNITY. UN DER THESE CIRCUMSTANCES, WE HAVE NO OTHER OPTION BUT TO HEAR AND DISPOSE THIS APPEAL EX-PARTE QUA THE ASSESSEE ON MERITS, ON THE BASIS OF MATERIAL HELD ON RECORD. 3. GROUND NO.1: IN THIS GROUND THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LOWER AUTHORITIES IN DENIAL OF BENEFI T OF DEDUCTION U/S 10B IN RESPECT OF INCOME ARISING FROM LIABILITI ES/PROVISIONS WRITTEN BACK AMOUNTING TO RS.1,96,76,819/-. 3.1. THE BRIEF BACKGROUND IS THAT THE ASSESSEE HAD FILE D ITS RETURN CLAIMING BENEFIT OF DEDUCTION U/S 10B WHICH WAS DENIED BY THE AO IN THE ASSESSMENT ORDER PASSED U/S 143(3). THE AO DENIED THE BENEFIT OF DEDUCTION U/S 10B IN R ESPECT OF INCOME ARISING FROM LIABILITIES/PROVISIONS WRITTEN BACK BY OBSERVING AS UNDER: THE ASSESSEES SERVICE CENTRE INCOME IS RS.14,35,10,728/- WHICH INCLUDED EXPORT SALES (SERV ICE CHARGES RECEIVED IN FOREIGN CONVERTIBLE INCOME INCL UDING UNREALIZED AMOUNT OF RS.77,32,574/- I.E. THE AMOUNT S NOT REALIZED WITHIN 6 MONTHS FROM THE END OF THE FINANC IAL YEAR) OF RS.13,15,70,612/- AND LOCAL SALE OF RS.1,19,40,116/-. THE ASSESSEE HAD OTHER INCOME OF RS.1,96,85,662/- WHICH INCLUDED THE WRITTEN OFF MAERSK GLOBAL SERVICE CENTRES 3 LIABILITY/PROVISIONS OF RS.1,96,76,8191- ALSO. THE ASSESSEE CLAIMED DEDUCTION U/S. 108 ON ABOVE WRITTEN OFF LIA BILITY ALSO. THE ASSESSEE WAS ASKED TO GIVE THE DETAILS OF LIABILITY, THE YEAR TO WHICH IT PERTAINS AND ALSO T HE EXPLANATION WHY DEDUCTION U/S. 10B CLAIMED ON ABOVE OTHER INCOME SHOULD NOT BE DISALLOWED. THE ASSESSEE DID NOT GIVE THE FULL DETAILS OF ABOVE LIABILITY/PROVISION. IT WAS STATED TO BE PERTAINING TO THE YEAR 2002 AND 2003. OUT OF THIS 1,08,25,314/- WAS STATED TO BE PERTAINING TO THE YEAR 2003. ABOUT THE CLAIM OF DEDUCTION. U/S. 10B, M/S. BSR & CO., CAS V IDE THEIR LETTER DT. 11/9/2006 STATED THAT ABOVE AMOUNT FORMS PART OF BUSINESS INCOME AND HAS BEEN INCLUDED UNDER THE PROVISIONS OF SECTION 41 OF THE ACT AND THEREFORE THE DEDUCTION U/S. 10B IS CLAIMED ON IT. THE ASSESSEE'S AUTHORIZED REPRESENTATIVE'S EXPLANATION IS NOT ACCEPTABLE. THE ASSESSEE HAS ST ATED THAT THE ABOVE LIABILITY PERTAIN TO THE YEAR 2002 A ND 2003. THE ASSESSEE COMPANY AS MENTIONED EARLIER PURCHASED THE SSC DIVISION OF MAERSK INDIA PVT. LTD . ON 1/1/2004. THUS, THE LIABILITY WHICH WERE WRITTEN OF F BY THE ASSESSEE WERE NOT THE LIABILITY/PROVISION MADE BY THE ASSESSEE BUT BY THE COMPANY FROM WHOM THE SSC DIVIS ION WAS PURCHASED. FACTUALLY ALSO THE EXPLANATION GIVEN BY THE ASSESSE E DOES NOT APPEAR TO BE CORRECT. THE LIABILITY/PROVISION W AS STATED TO BE FOR THE YEAR 2002 AND 2003. THE A.YRS. FOR THESE YEARS WILL BE A.YRS. 2003-04 AND 2004-05 I.E. THE LIABILITY/PROVISION FOR THE CURRENT YEAR ALSO. THE LIABILITY/PROVISION CANNOT BE MADE AND WRITTEN OFF A/SO IN THE SAME YEAR. THUS, THE YEAR MENTIONED BY THE ASSESSEE DOES NOT APPEAR TO BE CORRECT. IT WAS ALSO NOTICE THAT THE LIABILITY/PROVISION WAS MADE BY MAERSK INDIA PVT. LTD. (MIPL). MIPL HAD NOT CLAI MED THE DEDUCTION UNDER SECTION 1OB UPTO A. Y. 2002-03 . IT WAS CLAIMED BY IT FOR THE FIRST TIME IN A. Y. 2004- 05.THUS, BY MAKING THE PROVISION/LIABILITY IN EARLI ER YEARS MIPL SUPPRESSED ITS TAX INCOME IN THOSE YEARS. FURTHER, THE DEDUCT/ON U/S. 10B IS ADMISSIBLE ON TH E PROFITS OR DERIVED FROM EXPORT OF ARTICLE OR THINGS OR COMPUTER SOFTWARE WHOSE SALE PROCEEDS IS RECEIVED WITHIN 6 MONTHS FROM THE END OF THE FINANCIAL YEAR. IN MAERSK GLOBAL SERVICE CENTRES 4 THE INSTANT CASE, THE OTHER INCOME OF RS.1,96,76,8191- IS NOT THE PROCEEDS OF COMPUTER SOFTWARE OUT OF INDIA NOR THE SAME IS RECEIVE FOREI GN CONVERTIBLE EXCHANGE. IN VIEW OF THE FACTS MENTIONED ABOVE, THE DEDUCTION CLAIMED U/S. 10B ON ABOVE OTHER INCOME OF RS.1,96,76,819/- IS DISALLOWED AND ADDED TO ASSESSE ES TOTAL INCOME. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A), WHEREIN FOLLOWING SUBMISSIONS WERE MADE : THE INCOME OF RS. 1,96,76,819 ARISING FROM THE LIAB ILITIES / PROVISIONS WRITTEN BACK IS CREDITED TO THE PROFIT & LOSS A/C OF THE APPELLANT FOR THE CAPTIONED YEAR. IN THE TAX AUDIT REPORT (TAR) OF THE APPELLANT FOR THE CAPTION ED YEAR, THIS INCOME OF RS. 1,96,76,819 IS CONSIDERED AS TAXABLE BUSINESS INCOME UNDER SECTION 41(1) OF THE ACT. ACCORDINGLY, THE INCOME OF PS. 1,96,76,819 ARISING FROM THE LIABILITIES / PROVISIONS WRITTEN BACK IS ALSO CLAIMED AS 'PROFITS OF THE BUSINESS OF THE UNDERTAKING' AND 'TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING' AS ENVISAGED IN SECT ION 108(4) OF THE ACT WHILE COMPUTING THE DEDUCTION UND ER SECTION 10B OF THE ACT FOR THE CAPTIONED YEAR. IN R ESPONSE TO THE QUERIES RAISED, IT WAS EXPLAINED TO THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE CAPTIONED YEAR THAT: MAERSK INDIA PRIVATE LIMITED (MIPL) HAD CREATED A PROVISION DURING THE CALENDAR YEARS 2002 AND 2003 TOWARDS GLOBAL ONLINE COSTS SUCH AS MCS COST, INTERNATIONAL LEASE LINE CHARGES, GLOBAL DATA PROCE SSING CHARGES AND GLOBAL DATA COMMUNICATION CHARGES, FOR OPERATION OF ITS SSC UNDERTAKING. AS MIPL VIDE AGREEMENT DATED 16 DECEMBER 2003 SOLD ITS SSC UNDERTAKING ON A SLUMP SALE BASIS TO THE APPELLANT WITH EFFECT FROM 31 DECEMBER 2003, ALL THE PROPERTIES, ASSETS, BENEFITS, LIABILITIES AND OBLIGATIONS OF SSC UNDERTAKING WERE TRANSFERRED FROM MIPL TO THE APPELLANT. ACCORDINGLY, THE PROVISION TOWARDS GLOBAL ONLINE CHARGES, WHICH FORMED PART OF THE CURRENT LIABILITI ES OF SSC UNDERTAKING OF MIPL, WAS ALSO TAKER; OVER BY TH E MAERSK GLOBAL SERVICE CENTRES 5 APPELLANT ON ACQUISITION OF SSC UNDERTAKING FROM MI PL FOR A LUMP SUM CONSIDERATION (I. E. ON A SLUMP SALE BASIS). THE APPELLANT HAS REVERSED / WRITTEN HACK IN ITS B OOKS OF ACCOUNT DURING THE CAPTIONED 'YEAR THE SUM OF PS . 1,96, 76,819 REPRESENTING THE EXCESS OF PROVISION TOWARDS GLOBAL ONLINE CHARGES, WHICH WAS TAKEN OVER FROM MIPL. THE AO AS PER NOTICE DATED 4 AUGUST 2006 FIXED THE NEXT HEARING ON 21 DECEMBER 2006 AND ASKED THE APPELLANT TO FURNISH THE DETAILS OF LIABILITIES / P ROVISIONS OF PS. 1,96,76,819 WRITTEN BACK DURING THE CAPTIONED Y EAR ALONG WITH THE NATURE OF THESE LIABILITIES / PROVIS IONS AND THE YEARS TO WHICH THEY PERTAIN. THE APPELLANT RECEIVED THE SAID NOTICE ON 18 DECEMBER 2006. THE APPELLANT VIDE LETTER (REF.: TB-M: 4885) DATED 21 D ECEMBER 2006 SUBMITTED THAT THE PROVISIONS WERE MADE TOWARD S GLOBAL ONLINE COSTS SUCH AS MCS COST, INTERNATIONAL LEASE LINE CHARGES, GLOBAL DATA PROCESSING CHARGES AND GL OBAL DATA COMMUNICATION CHARGES, FOR THE CALENDAR YEARS 2002 AND 2003. SUBSEQUENTLY, THE APPELLANT REVERSED THE EXCESS PRO VISION OF RS. 1,96,76,819 DURING THE CAPTIONED YEAR IN ITS BOOKS OF ACCOUNT. DURING THE COURSE OF HEARING ON 21 DECEMBER 2006, THE AO ASKED THE APPELLANT TO SUBMIT ITEM-WISE CHAR T ON WRITE BACK OF PROVISION OF RS. 1,96,76,819 AND R E- FIXED THE HEARING ON 26 DECEMBER 2006. THE APPELLANT VIDE LETTER DATED 26 DECEMBER 2006 SUBMITTED THE CHART GIVING FULL DETAILS OF LIABILIT IES / PROVISIONS WRITTEN BACK TO THE AO. THE CHART DEPICT ED THE FOLLOWING INFORMATION IN A GREATER DETAIL: 1. THE PROVISION FOR GLOBAL ONLINE COSTS PERTAINING TO SSC UNDERTAKING FOR CALENDAR YEARS 2002 AND 2003 CREATED IN THE BOOKS OF MIPL; 2. THE AGGREGATE PROVISION IN RESPECT OF GLOBAL ON LINE COSTS PERTAINING TO SSC UNDERTAKING STANDING IN THE BOOKS OF MIPL AS ON 31 DECEMBER 2003 AND TAKEN OVER BY THE APPELLANT PURSUANT TO SLUMP SALE OF SSC UNDERTAKING BY MIPL; 3. THE AGGREGATE AMOUNT ACTUALLY PAYABLE IN RESPECT OF GLOBAL ONLINE COSTS ATTRIBUTABLE TO SSC UNDERTAKING AS WORKED OUT BASED ON INVOICES RECEIVED; AND 4. THE EXCESS PROVISION WRITTEN BACK I.E. DIFFERENC E MAERSK GLOBAL SERVICE CENTRES 6 BETWEEN 2 AND 3 ABOVE. THEREAFTER, THE AO TELEPHONED THE AUTHORIZED REPRESENTATIVE (AR), M/S. BSR & CO., CHARTERED ACCOUNTANTS, OF THE APPELLANT ON 27 DECEMBER 2006 A T AROUND 5.00 P.M. AND ASKED TO FURNISH THE CHART OF LIABILITIES / PROVISIONS WRITTEN HACK ON A FINANCIA L YEAR BASIS RATHER THAN CALENDAR YEAR BASIS. THE AR, AT T HE OUTSET, VOLUNTEERED TO VISIT THE AO'S OFFICE TO ONC E AGAIN EXPLAIN THE CHART ALREADY SUBMITTED ON 26 DECEMBER 2006. HOWEVER, THE AO INFORMED THE AR THAT SHE IS PASSING THE ASSESSMENT ORDER AND THEREFORE, SHE REQUESTED TO FAX THE CHART OF LIABILITIES / PROVISI ONS WRITTEN BACK ON A FINANCIAL YEAR BASIS. ACCORDINGLY, THE AR OF THE APPELLANT FAXED THE REQUESTED CHART TO THE AO, WHIC H ALSO DEPICTED THE ABOVE INFORMATION IN A GREATER DETAIL ON A FINANCIAL YEAR BASIS. IN THE IMPUGNED ASSESSMENT ORDER, THE AO DID NOT ACCEPT THE SUBMISSIONS MADE BY THE APPELLANT FROM T IME TO TIME ON WRITE BACK OF EXCESS LIABILITIES PROVISI ONS MOUNTING TO RS.1,96,76,819. THE AO DENIED THE APPELLANT'S CLAIM OF DEDUCTION CINDER SECTION 10B O F THE ACT IN RESPECT OF INCOME OF RS. 1, 96,76,819 AR ISING FROM THE LIABILITIES / PROVISIONS WRITTEN BACK BASE D CU' THE FOLLOWING CONTENTIONS: THE LIABILITIES / PROVISIONS WRITTEN OFF BY THE APPELLANT WERE NOT THE LIABILITIES / PROVISIONS MAD E BY THE APPELLANT, BUT BY THE COMPANY (I. E. MIPL) F ROM WHOM THE SSC UNDERTAKING WAS PURCHASED. THE LIABILITIES / PROVISIONS WERE STATED TO BE FOR THE YEARS 2002 AND 2003 (I.E. FOR ASSESSMENT YEARS 2003-04 AND 2004-05). THUS, THE LIABILITIES PROVISI ONS ALSO INCLUDE THE CURRENT YEAR. THE LIABILITIES / PR OVISIONS CANNOT BE MADE AND WRITTEN OFF IN THE SAME YEAR. MIPL SUPPRESSED ITS TAXABLE INCOME BY MAKING THE PROVISIONS IN THOSE YEARS WHEN IT WAS NOT CLAIM ING DEDUCTION UNDER SECTION 108 OF THE ACT. THE INCOME OF RS. 1,96,76,819 IS NOT THE SALE MAERSK GLOBAL SERVICE CENTRES 7 PROCEEDS OF COMPUTER SOFTWARE OUT OF INDIA NOT THE SAME IS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. 3.3. DURING THE COURSE OF HEARING BEFORE LD. CIT(A), TH E ASSESSEE FILED WRITTEN SUBMISSIONS AND DETAILS. BUT , THE CIT(A) WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSES SEE, AND THEREFORE, HE CONFIRMED THE ORDER OF THE AO BY OBSE RVING AS UNDER: 8.2. I HAVE CAREFULLY CONSIDERED THE ORDER OF THE ASSESSING OFFICER AND SUBMISSION OF THE APPELLANT AND I FIND THAT 1. IN RESPECT OF CONSIDERING INCOME FROM IIABILITIES/PROVISION WRITTEN BACK WHICH THE APPELLANT HAS TAKEN INTO CONSIDERATION FOR CALCULATING THE DEDUCTION UNDER SECTION 10 B OF THE INCOME TAX ACT, I FIND THAT THE ORDER OF THE AO CARRIES WEIGHT. THE AO HAS VERY CLEARLY BROUGHT TO RECORD, AS DETAILED IN HIS ORDER, AS TO WHY THE CONCERNED LIABILITY CANNOT BE CONSIDERED. IT IS A WELL-KNOWN FACT THAT DEDUCTION UNDER SECTION 10 B OF THE INCOME TAX ACT IS ONLY ALLOWABLE TO AN APPELLANT ON PROFITS AND GAINS OF EXPORT BUSINESS. THIS WOULD MEAN THAT ONLY INCOME WHICH HAS A DIRECT AND PROXIMATE RELATION WITH THE ACTIVITIES OFFERED BY EOU ARE TO BE CONSIDERED. NOT ALL INCOME ASSESSABLE AS BUSINESS INCOME WILL FALL UNDER THIS CATEGORY. THE EXCESS PROVISION OF EARLIER YEARS WRITTEN BACK IN THE BOOKS UNDER SECTION 41 (1) IT IS SEEN ARE NOT DERIVED FROM EXPORT BUSINESS AND HAVE NO LINK WITH THE EXPORT TURNOVER. THEREFORE DEDUCTION UNDER SECTION 10 B IS NOT ALLOWABLE ON THIS AMOUNT EVEN THOUGH THIS AMOUNT IS TAKEN TO BE THE INCOME OF THE APPELLANT FOR THE YEAR. RELIANCE HERE IS PLACED ON THE ORDER OF THE: HONOURABLE CHENNAI TRIBUNAL IN THE CASE OF TOCHEUNGLEE STATIONERY MANUFACTURING COMPANY (P) LTD VERSUS ITO (2006) 5 SO T4213 (CHENNAI - TRIBUNAL). IN THIS CASE IT IS SEEN THAT THE APPELLANT HAS ALSO CONSIDERED LIABILITIES AND PROVISIONS WRITTEN MAERSK GLOBAL SERVICE CENTRES 8 BACK FOR CALCULATING DEDUCTION U/S. 10B. BESIDES THIS, THE APPELLANT HAS CONSIDERED LIABILITIES NOT MADE BY IT BUT BY THE SSC DIVISION IT PURCHASED AND IT IS ALSO SEEN THAT THESE LIABILITIES ARE CURRENT. THESE LIABILITIES EVEN IF ALLOWED TO BE WRITTEN BACK WILL NOT FORM A PART OF THE EXPORT BUSINESS: OF THE EOU TO GET THE BENEFIT OF DEDUCTION U/S.10B. UNDER THE CIRCUMSTANCES, I AM IN AGREEMENT WITH THE ASSESSING OFFICER WHEREIN HE HAS DENIED THE DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT TO THE APPELLANT RESPECT OF INCOME FROM LIABILITIES/PROVISIONS WRITTEN BACK. 3.4. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE AO A S WELL AS LD. CIT(A). THE ASSESSEE WAS AGGRIEVED WITH THE ACTION OF THE AO WHEREIN THE AO HAD DENIED THE BENEFIT OF DEDUCTION U/S 10B ON THE AMOUNT OF LIABILITIES/PROVISIONS WRI TTEN BACK BY THE ASSESSEE WHICH WERE CONSIDERED BY THE ASSESS EE FOR COMPUTING DEDUCTION U/S 10B. IT HAS BEEN HELD BY LD . CIT(A) THAT BENEFIT OF DEDUCTION U/S 10B WOULD BE ALLOWABL E ONLY ON THE PROFITS DERIVED FROM EXPORT BUSINESS. IT WAS AL SO HELD THAT AMOUNT OF LIABILITIES/ PROVISIONS OF EARLIER YEAR W RITTEN BACK IN THE BOOKS CANNOT BE SAID TO BE DERIVED FROM EXPORT BUSINESS. NOTHING HAS BEEN BROUGHT BEFORE US TO NEGATE FACTUA L FINDINGS RECORDED BY THE LOWER AUTHORITIES. THERE IS NOTHING ON RECORD TO SHOW ANY LINKAGE BETWEEN THE EXPORT ACTIVITY AND AMOUNT ADDED IN THE PROFIT AND LOSS ACCOUNT IN THE FORM OF LIABILITIES/PROVISIONS OF EARLIER YEARS. NO DETAILS WHATSOEVER ARE AVAILABLE IN THIS REGARD. UNDER THESE CIRCUMSTANCES , IN ABSENCE OF ANY DETAILS HAVING BEEN BROUGHT BEFORE U S TO NEGATE THE FACTUAL ANALYSIS MADE BY THE LOWER AUTHORITIES, WE FIND THAT LD. CIT(A) HAS RIGHTLY UPHELD THE ACTION OF AO IN DENYING MAERSK GLOBAL SERVICE CENTRES 9 THE BENEFIT OF DEDUCTION U/S 10B ON THE IMPUGNED AM OUNT. THUS, GROUND NO. 1 IS HEREBY DISMISSED. 4. GROUND NO.2: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LOWER AUTHORITIES IN DENYING BENEFIT OF DEDUCTION U/S 10B IN RESPECT OF INCOME ARISING FROM REALIZED FOREIGN EXCHANGE GAINS ON EXPORT SALE AMOUNTING TO RS.25,82 ,367/-. IT IS NOTED THAT AO HAD DENIED BENEFIT OF DEDUCTION ON THE SAID AMOUNT BY OBSERVING AS UNDER: THE ASSESSEE IN THE COMPUTATION OF DEDUCTION U/S 10B RS.25,82,367/- TO THE EXPORT TURNOVER ON THE GROUND THAT SAME WAS EXCHANGE GAIN. HOWEVER, THE PROFIT AND LOSS ACCOUNT WAS NOT FOUND TO HAVE B EEN CREDITED WITH ANY SUCH AMOUNT. ON THE CONTRARY THE PROFIT AND LOSS ACCOUNT WAS DEBITED WITH EXCHANGE LOSS OF RS. 8,49,701/-. THE ASSESSEE WAS THEREFORE ASKED TO EXPLAIN WHY THE ABOVE ALLEGED EXCHANGE GAIN OF RS.25,82,3671- ADDED TO THE EXPORT TURNOVER SHOULD NOT BE DISALLOWED. IN REPLY TO IT M/S. BSR & CO., C AS VIDE THEIR LETTER DT. 11/9/2006 STATED THAT THE ASSESSEE RECEIVED EXCHANGE GAIN OF RS.25,82,367/- AND THEREFORE THE SAME IS ADDED TO THE EXPORT TURNOVER. THEY IN THE SAME LETTER ALSO ADMITTED THE NET RESULT OF EXCHANGE WAS LOSS OF RS.8,49,701/- AN D THE SAME IS DEBITED TO THE PROFIT AND LOSS ACCOUNT. SINCE THE NET RESULT OF EXCHANGE GAIN WAS LOSS THE ALLEGED EXCHANGE GAIN OF RS.25,82,367/- ADDED TO TH E EXPORT TURNOVER FOR- WORKING OUT THE DEDUCTION U/S. 10B IS DISALLOWED. 4.1. DURING THE COURSE OF HEARING BEFORE LD. CIT(A), TH E ASSESSEE FILED WRITTEN SUBMISSIONS TO CONTEST THE S AID DISALLOWANCE AS UNDER: THE APPELLANT HAS INCLUDED A SUM OF RS.25,82,367/- REPRESENTING REALIZED FOREIGN EXCHANGE GAINS ON EXPORT SALES IN 'TOTAL TURNOVER' AND 'EXPORT TURNOVER' AS ENVISAGED IN SECTION 1OB(4) OF THE ACT WHILE COMPUTING THE DEDUCTION UNDER SECTION L0B OF THE ACT FOR THE CAPTIONED YEAR . MAERSK GLOBAL SERVICE CENTRES 10 IN RESPONSE TO THE QUERIES RAISED, IT WAS EXPLAINED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE CAPTIONED YEAR THAT THE REALIZE D FOREIGN EXCHANGE GAINS ON EXPORT SALES AMOUNTING TO RS. 25,87,367 FORM PART OF EXCHANGE LOSS (NET) O F RS. 8,4 9, 701 DEBITED TO THE PROFIT & LOSS A/C OF THE CAPTIONED YEAR IN SCHEDULE J PERTAINING TO 'OPERATI NG, ADMINISTRATIVE AND OTHER EXPENSES' THE EXCHANGE LOSS OF RS. 8,49,701 IS ARRIVED AT AFTER NETTING OF F THE REALIZED FOREIGN EXCHANGE GAINS ON EXPORT SALES OF RS. 25,82,367 FROM THE TOTAL FOREIGN EXCHANGE LOSS OF RS. 34,32,068 SUFFERED IN OTHER BUSINESS TRANSACTIONS DURING THE CAPTIONED YEAR. IN VIEW OF THIS, IT IS CLEAR THAT THE REALIZED FOREIGN EXCHANGE GAINS ON EXPORT SALES AMOUNTING TO RS. 25,82,367 HAS ALREADY BEEN CREDITED TO THE PROFIT & LOSS A/C OF THE APPELLANT FOR THE CAPTIONED YEAR. IN THE IMPUGNED ASSESSMENT ORDER, THE AO TOOK A VIE W THAT AS THE NET RESULT OF EXCHANGE.- WAS A LOSS, TH E EXCHANGE GAIN OF PS. 2,82,367 ADDED TO THE EXPORT TURNOVER FOR WORKING OUT THE DEDUCTION UNDER SECTIO N 10B OF THE ACT IS DISALLOWED. 4.2. LD. CIT(A) EXAMINED THE ISSUE IN DETAIL. BUT HE WA S NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE AND UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER: THE APPELLANT HAS INCLUDED FOREIGN EXCHANGE FLUCTU ATION GAIN IN RESPECT OF EXPORT PROCEEDS IN THE PROFIT OF THE BUSINESS. THIS GAIN IS A RESULT OF THE DEPRECIATION IN THE VALUE OF INDIAN RUPEE. THE REASON FOR THE GAIN IS SAID TO BE THE APPRECIATION IN THE VALUE OF ADVANCE AVAILABLE IN THE BOOKS OF THE APPELLANT AS ON 31 MARCH 2004 THAT WAS PENDING ADJUSTMENTS REGARDING SERVICES RENDERED AND INVOICES RAISED ACCORDINGLY. THE ADVANCE THAT WAS APPEARING IN THE SCHEDULE G OF THE AUDITED FINANCIAL STATEMENT FOR T HE YEAR UNDER CONCERN WAS TAKEN TO BE AS RS. 62855166 AS AGAINST RS. 60272812 REPRESENTING A REALIZATION IN THE EXCHANAE GAIN. ACCORDING TO THE APPELLANT THIS AMOUNT REPRESENTS PROFIT REGARDING THE EXPORT SALES AS SEEN IN SECTION 10 B (4) OF THE INCOME TAX ACT. HOWEVER IT IS SEEN THAT AS NOTICED BY THE ASSESSING MAERSK GLOBAL SERVICE CENTRES 11 OFFICER IT IS CLEAR THAT THIS AMOUNT HAD NOT BEEN T REATED AS AN INCOME BY THE APPELLANT AT ALL. INSTEAD THE A P PELLANT HAS DEBITED AN EXCHANGE LOSS IN ITS PROFIT AND LOSS ACCOUNT. I FIND THAT THE AO'S ORDER ON OBSERVATION CARRIES WEIGHT REGARDING THIS ISSUE. I FIND THAT THIS EXCHANGE GAIN HAS FOUND NO MENTION IN THE PROF IT AND LOSS ACCOUNT OF THE APPELLANT AT ALL. AS PER TH E SUBMISSION OF THE APPELLANT BEFORE THE ASSESSING OFFICER IT HAS BEEN CLAIMED BY THEM THAT THE NET RE SULT OF THE EXCHANGE TRANSACTIONS WAS A LOSS AS DEBITED IN THE PROFIT AND LOSS ACCOUNT. IT IS ALSO FOR CONSIDERATION THAT THIS EXCHANGE FLUCTUATION HAS ARISEN NOT ON ACCOUNT OF ANY EXPORT ACTIVITY OF THE APPELLANT. NO PROXIMATE OR DIRECT NEXUS WITH EXPORT TRANSACTION CAN BE ESTABLISHED. THIS EXCHANGE FLUCTUATION HAS OCCURRED BECAUSE THE APPELLANT HAS MAINTAINED AN ADVANCE IN ITS BOOKS OF ACCOUNTS. THE APPELLANT WAS NOT OBLIGED TO DO SO. BUT AS PER THE ACCOUNTING PRINCIPLES IT HAD THE FACILITY TO DO SO AND CHOSE TO DO SO. THE EXPORT TRANSACTION WILL ONLY BE COMPLETED ON THE RECEIPTS OF PROCEEDS AND NOT ON ACCOUNT OF MERE FLUCTUATIONS OF FOREIGN EXCHANGE VALUE MAINTAINED AS AN ADVANCE IN THE BOOKS OF ACCOUNTS. THERE IS NO ACTUAL EXPORT ACTIVITY AS LON G ALL AMOUNT REMAINS AN ADVANCE. THEREFORE ANY EXCHANGE FLUCTUATION THAT TAKES PLACE WILL NOT BE TAKEN TO BE RECEIVED AS A RESULT OF EXPORT BUSINESS. THIS AMOUNT WILL ALSO NOT QUALIFY AS BUSINESS INCORRECT INCOME FROM OTHER SOURCES. IF TH E EXCHANGE FLUCTUATION HAD OCCURRED ON ACCOUNT OF DELAY IN REALISATION OF EXPORT PROCEEDS OF GOODS ACTUALLY' EXPORTED THEN THE SITUATION WOULD HAVE BEEN DIFFERENT AND THE AMOUNT SO REALISED WOULD HAVE BEEN TREATED AS EXPORT PROCEEDS. RELIANCE HERE IS PLACED ON THE PRINCIPLE BEHIND THE ORDER IN THE CAS E OF CIT VERSUS SHAH ORIGINAL PRONOUNCED BY THE HONOURABLE COURT, MUMBAI BY THEIR ORDER DATED 22/4/2010 IN IT APPEAL NO. 431 OF 2008. BENEFIT UNDER SECTION 105 IS ALLOWABLE ONLY TO PROFITS AND GAINS OF BUSINESS. THEREFORE ANY INCOME THAT IS TREATED AS INCOME FROM OTHER SOURCES CANNOT BE TAKEN INTO CONSIDERATION FOR DEDUCTION UNDER SECTIO N MAERSK GLOBAL SERVICE CENTRES 12 10B OF THE I.T. ACT. THIS DEDUCTION IS NOT ALLOWABL E IN RESPECT OF EACH AND EVERY ITEM OF INCOME ASSESSA BLE AS BUSINESS INCOME ALSO EVEN IF ONE CONSIDERS THE G AIN AS INCOME FROM A BUSINESS ACTIVITY. THEREFORE I AM IN AGREEMENT WITH THE ASSESSING OFFICER WHERE IT HAS B EEN STATED THAT THIS AMOUNT OF RS.25,82,367/- CANNOT FO RM A PART OF THE PROFITS FOR CALCULATION OF DEDUCTION UN DER SECTION 10B OF THE INCOME TAX ACT. 4.3. IT IS NOTED THAT LD. CIT(A) HAS ANALYSED ALL THE F ACTS WHEREIN IT WAS NOTED THAT ASSESSEE WAS NOT ABLE TO ESTABLISH PROXIMATE OR DIRECT NEXUS OF THE EXCHANGE FLUCTUATI ON WITH THE EXPORT TRANSACTION ACTIVITY DONE BY THE ASSESSEE. I T WAS ALSO NOTED THAT THE EXCHANGE FLUCTUATION WAS ACCOUNTED F OR ON THE AMOUNT OF ADVANCE IN ITS BOOKS OF ACCOUNTS, AND T HERE WAS NO ACTUAL EXPORT ACTIVITY. UNDER THESE CIRCUMSTANCES, THE EXCHANGE FLUCTUATION GAIN CANNOT BE SAID TO HAVE BE EN EARNED AS A RESULT OF EXPORT BUSINESS. IF THE EXCHANGE FLU CTUATION HAD OCCURRED ON ACCOUNT OF DELAY IN REALISATION OF EXPO RT PROCEEDS OF GOODS ACTUALLY EXPORTED, THEN THE SITUATION WOUL D HAVE BEEN DIFFERENT AND THE AMOUNT SO REALISED MAY HAVE BEEN TREATED AS PART OF EXPORT PROCEEDS. BUT, THE FACTS INVOLVED HE RE ARE DIFFERENT AS DISCUSSED IN DETAIL BY THE LD. CIT(A). NOTHING WAS BROUGHT BEFORE US TO POINT OUT ANY ERROR IN THE FAC TUAL AND WELL REASONED FINDINGS OF THE LD. CIT(A). THEREFORE, ORD ER OF LD. CIT(A) ON THIS ISSUE IS UPHELD. GROUND NO.2 IS DISM ISSED. MAERSK GLOBAL SERVICE CENTRES 13 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2017. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :06 /01/2017 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI