M/s. INTER GOLD (INDIA) P. LTD., MUMBAI V. ACIT RG- 8(2), MUMBAI

ITA 5124/MUM/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88293 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 22-01-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 12-08-2008
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: P P BHANDARI
• Keywords: Business income; Opportunity of being heard; Competent authority
• Section: 80HHC; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO. 5124/M/2008 ( AY: 2003 - 20 04 ) ./I.T.A. NO. 291/M/2008 ( AY: 2004 - 20 05 ) INTER GOLD (INDIA) PVT. LTD., 34 SEEPZ, ANDHERI (EAST), MUMBAI 400 096. / VS. ACIT - 18(2), AAYAKAR BHAVAN, MAHARTSHI KARVE ROAD, CHURCHGATE, MUMBAI - 400 020. ./ PAN : AAACI2677Q ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 8293/M/2011 ( AY: 2004 - 20 05 ) ACIT - 18(2), AAYAKAR BHAVAN, MAHARTSHI KARVE ROAD, CHURCHGATE, MUMBAI - 400 020. / VS. INTER GOLD (INDIA) PVT. LTD., 34 SEEPZ, ANDHERI (EAST), MUMBAI 400 096. ./ PAN : AAACI2677Q ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI NITESH JOSHI AND MR. P.P. BHANDARI / REVENUE BY : SHRI SACHCHIDANAND DUBE, DR / DATE OF HEARING : 27 .1.2015 / DATE OF PRONOUNCEMENT :13 .2 .2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE THREE APPEALS UNDER CONSIDERATION INVOLVING TWO ASSESSMENT YEARS 2003 - 04 AND 2004 - 05. OUT OF THE THREE APPEALS, TWO APPEALS ARE FILED BY THE ASSESSEE AND ITA NO.8293/M/2011 IS FILED BY THE REVENUE U/S 271(1)(C) OF THE ACT RELATING TO ASSESSEES APPEAL ITA NO.291/M/2008 . WE ARE INFORMED THAT THERE IS NO PENALTY PROCEEDINGS IN CONNECTION WITH THE ITA NO.5124/M/2008. FOR THE AYS UNDER CONS IDERATION, THE REVENUES APPEALS WERE ALREADY HEARD IN THE PAST AND THE COPIES 2 OF THE ORDERS OF THE TRIBUNAL ARE FILED BEFORE US. IT IS NOTICED FROM THE INSTANT APPEALS THAT THE ISSUES RAISED IN THESE APPEALS ARE UNCONNECTED TO THE ISSUES RAISED IN THE RE VENUES APPEALS. OTHERWISE, IN THESE TWO ASSESSEES APPEALS THERE ARE COMMON ISSUES RELATING TO THE SPECULATIVE NATURE / BUSINESS NATURE OF THE PROFITS EARNED ON THE FORWARD CONTRACTS ENTERED INTO BY THE ASSESSEE. THEREFORE, CONSIDERING THE CONNECTIVITY O F THESE APPEALS AND FOR THE SAKE OF CONVENIENCE, THESE APPEALS ARE HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. ITA NO.5124/M/2008 (AY 2003 - 2004) (BY ASSESSEE) 2. THIS APPEAL FILED BY THE ASSESSEE ON 12.8.2008 IS AGAINST THE ORDER OF THE CIT (A) - VIII, MUMBAI DATED 18.6.2008 FOR THE AY 2003 - 04. IN THIS APPEAL, ASSESSEE RAISED 4 GROUNDS IN TOTO AND THE MAIN ISSUES INVOLVED IN THESE GROUNDS READ AS UNDER: 1. THE LD CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 5,89,200/ - OUT OF GENERAL EXPENSES ON AD - HOC BASIS. 2. THE CIT (A) ERRED IN UPHOLDING THAT GAINS OF RS. 40,28,243/ - ARISING ON CANCELLATION OF FORWARD CONTRACTS IN FOREIGN CURRENCY ARE TA XABLE AS INCOME FROM OTHER SOURCES AND ACCORDINGLY EXCLUDING THE SAME FROM BUSINESS PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 3. THE LD CIT (A) ERRED IN UPHOLDING THAT GAINS OF RS. 2,53,95,129/ - ARISING ON REVALUATION O F FOREIGN CURRENCY BORROWINGS FROM BANKS ARE TAXABLE AS INCOME FROM OTHER SOURCES AND ACCORDINGLY EXCLUDING THE SAME FROM BUSINESS PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 4. THE LD ASSESSING OFFICER ERRED IN TREATING I NTEREST OF RS. 8,49,573/ - RECEIVED DURING THE YEAR AS INCOME FROM OTHER SOURCES AND ACCORDINGLY EXCLUDING THE SAME FROM THE BUSINESS PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE UNDER SECTION 80HHC OF THE ACT. 3. GROUND NO.1 RELATES TO DISALL OWANCE OF RS. 5,89,200/ - OUT OF GENERAL EXPENSES. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE CLAIMED RS. 29,46,079/ - TOWARDS GENERAL EXPENSES DURING THE YEAR. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICED THAT THE S AID EXPENSES BEING EMPLOYEES AWARDS, SWIPE / ID CARDS FOR EMPLOYEES, DIWALI EXPENSES AND EXPENSES FOR CUSTOMERS VISITS ETC., ARE UNVERIFIABLE AND IT IS NOT CLEAR AS TO WHETHER THE SAID EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. ASSESSEE MERELY SUBMITTED THE BREAKUP OF THE SAID EXPENSES AND NOT THE EVIDENCES. ACCORDINGLY, ASSESSING OFFICER DISALLOWED 1/5 TH OF THE CLAIM I.E., 3 5,89,200/ - (RS. 29,46,079 / 5) AND ADDED THE SAME TO THE TOTAL INCOME OF TH E ASSESSEE. ON APPEAL, CIT (A) CONFIRMED THE SAME. AGGRIEVED , ASSESSEE FIELD THE PRESENT APPEAL BY RAISING THE GROUND NO.1. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE FILED A WRITTEN NOTE STATING THAT THE SIMILAR CLAIM OF THE ASSESS EE WAS ACCEPTED BY THE REVENUE IN THE PAST UNDER COMPARABLE CIRCUMSTANCES. THIS IS THE CASE WHERE THE AUDIT DONE BY THE AUDITORS U/S 44AB OF THE ACT WITHOUT ANY REMARKS. IN VIEW OF SUCH CIRCUMSTANCES, THE DISALLOWANCE IS UNWARRANTED. ALTERNATIVELY, ASS ESSEE SUBMITTED THAT THE ASSESSING OFFICERS CONCLUSION OF DISALLOWANCE OF 1/5 TH OF THE CLAIM OF THE ASSESSEE IS ON HIGHER SIDE. LD COUNSEL REQUESTED THE BENCH TO REDUCE THE DISALLOWANCE. 5. ON THE OTHER HAND, LD DR RELIED HEAVILY ON THE ORDER OF THE ASSE SSING OFFICER AND MENTIONED THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE FAILED TO EVIDENCE THE GENUINENESS OF THE EXPENDITURE WITH THIRD PARTY EVIDENCES. IN SUCH CIRCUMSTANCES, THE CONCLUSION DRAWN BY THE ASSESSING OFFICER NEEDS TO BE UPHELD. 6. ON HEA RING BOTH THE PARTIES WE FIND IS AN ADMITTED FACT THAT THE EVIDENCES WERE NOT FURNISHED TO THE ASSESSING OFFICER BY THE ASSESSEE AS THE ASSESSING OFFICER DID NOT CALL FOR SUCH DETAILS. OTHERWISE, IT IS A FACT THAT THE ASSESSEE ONLY SUBMITTED THE BREAKUP OF THE EXPENSES AND NOT EVIDENCES . THE VERY NATURE OF THE EXPENSES DOES NOT APPEAR VERY IS AN ESSENTIAL EXPENDITURE ; BUT IT IS LIKELY SOME OF THE EXPENDITURE MAY NOT BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN PRINCIPLE, WE ARE OF THE OPINION THAT SOME DISALLOWANCE HAS TO BE DONE IN THE ASSESSMENT IF NOT 1/5 TH OF THE CLAIM OF THE ASSESSEE AS DONE BY THE A SSESSING OFFICER. AS SUCH , THERE IS NO BASIS FOR ADOPTING 1/5 TH AS A FACTOR FOR COMPUTING THE DISALLOWANCE. THEREFORE, IN OUR OPINION, SOME AD - HOC DISALLOWANCE SHOULD MEET THE ENDS OF THE JUSTICE. THUS, WE ARE OF THE OPINION, CONSIDERING THE FACTS OF TH E PRESENT CASE FOR THE YEAR UNDER CONSIDERATION DISALLOWANCE OF A SUM OF RS. 3 LAKHS SHOULD MEET THE REQUIREMENT OF LAW. WE ORDER ACCORDINGLY AND THE GROUND NO.1 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 7. GROUND NO.2 RELATES TO THE TREATMENT OF GAINS AR ISING ON CANCELLATION OF FORWARD CONTRACTS IN FOREIGN EXCHANGE. RELEVANT FACTS ARE THAT THE ASSESSEE IS A MANUFACTURER AND EXPORTER OF THE JEWELLERY. IT IS SUBMITTED THAT FOR MINIMIZING THE 4 RISK OF FOREIGN EXCHANGE FLUCTUATIONS, ASSESSEE ENTERED INTO FOR WARD CONTRACTS AND EARNED CERTAIN GAINS ON THEIR CANCELLATION. IT IS THE CLAIM OF THE ASSESSEE THAT THE SAID FORWARD CONTRACTS ARE PART AND PARCEL OF THE NORMAL BUSINESS ACTIVITY. THUS, THE IMPUGNED RECEIPTS CONSTITUTE BUSINESS PROFITS AND ASSESSEE CLAIME D DEDUCTION U/S 80HHC OF THE ACT ON THE SAID PROFITS EARNED ON THE CANCELLATION OF THE FORWARD CONTRACTS. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER DID NOT ACCEPT THE ABOVE CLAIM OF THE ASSESSEE AND TREATED THE AMOUNT OF RS. 40,28,243/ - AS INCO ME FROM OTHER SOURCES. THUS, ASSESSING OFFICER DENIED THE CLAIM OF DEDUCTION U/S 80HHC ON THE SAID INCOME. AS PER THE ASSESSING OFFICER THESE RECEIPTS ARE NOT TO BE CONSIDERED AS DERIVED FROM THE BUSINESS OF EXPORTS. MATTER TRAVELLED TO THE CIT (A). 8. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, THE CIT (A) FOLLOWED HIS ORDER FOR THE AY 2004 - 05 AND HELD THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN THE EXPORT INVOICES AND THE IMPUGNED FORWARD CONTRACTS. THEREFORE, THE GAINS IN QUESTION SHOULD BE TREATED AS SPECULATIVE BUSINESS AND AFFIRMED THE ASSESSING OFFICERS DENIAL OF DEDUCTION U/S 80HHC OF THE ACT. 9. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE EXPLAINED THE BUSINESS OF THE ASSESSEE, THE REQUIREMENT OF E NTERING INTO FORWARD CONTRACT, THE DEFINITION OF SPECULATION TRANSACTION AS PROVIDED IN EXPLANATION TO SECTION 28 OF THE ACT AND OTHER RELEVANT PROVISIONS AS WELL AS THE JUDICIAL PRONOUNCEMENTS AND SUBMITTED THAT THERE IS NO REQUIREMENT IN LAW FOR ESTABLIS HING SUCH NEXUS. FOR THIS, HE RELIED ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) PVT LTD VS. DCIT [2013] 37 CCH 217 MUM. TRIBUNAL. REFERRING TO THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 1997 - 19 98 [(2009) 124 TTJ (MUMBAI) 337, DATED 18.11.2009] WHEREIN THE TRIBUNAL DECIDED THE ISSUE AGAINST THE ASSESSEE CONCLUDING THAT THE IMPUGNED PROFITS ARE NOT TO BE CONSIDERED DERIVED FROM THE IMPORT ACTIVITIES AND SUCH RECEIPTS HAVE TO BE DEALT WITH AS PER T HE PROVISIONS OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. IT IS NOT CLEAR AS TO WHY SUCH INCOME WAS TREATED AS A SPECULATIVE PROFIT BY THE CIT (A) AND THE ORDER OF THE CIT (A) DATED 18.6.2008 IS DEFICIENT TO THAT EXTENT. IT IS THE FINDING OF THE TR IBUNAL FOR THE AY 1997 - 1998 (SUPRA) THAT THE GAINS FROM THE FORWARD CONTRACTS CONSTITUTE A BUSINESS INCOME AND NOT A SPECULATIVE INCOME. THIS ORDER OF THE TRIBUNAL WAS NOT AVAILABLE TO THE CIT (A) AS THE IMPUGNED ORDER IS DATED 5 18.6.2008. LD COUNSEL SUBM ITTED THAT THE CIT (A) IS WRONGLY HELD THE IMPUGNED RECEIPTS AS SPECULATIVE IN NATURE WHEN THE TRIBUNAL HIS CATEGORICALLY MENTIONED THAT THE SAME CONSTITUTES A BUSINESS INCOME. SINCE THE INCOME IN QUESTION HAS TO BE TREATED AS THE BUSINESS INCOME, THE ISS UE IS WHETHER THE SAME CONSTITUTES INDEPENDENT INCOME IS TO BE TREATED IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT OR CORE BUSINESS INCOME OF THE ASSESSEE TO BE TREATED AS ALLOWABLE DEDUCTION US 80HHC OF THE ACT. 10. MENTIONING THAT THE SAID INCOME IS NOT INDEPENDENT INCOME AS POSTULATED VIDE THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAVINDRANATHAN NAIR (295 ITR 228), LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE JURISDICTIONAL HIGH COURT JUDGM ENT HELD IN THE CASE OF CIT VS. PFIZER LTD (330 ITR 62) THAT THE INSURANCE RECEIPTS RELATING TO THE STOCK - IN - TRADE CONSTITUTES A BUSINESS INCOME AND NOT AN INDEPENDENT INCOME . HE ALSO REFERRED ANOTHER JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CA SE OF CIT VS. MOTOR INDUSTRIES CO. LTD 331 ITR 79 (KAR) WHERE THE HIGH COURT HELD THAT FEES RECEIVED FOR DEVELOPMENT WORK FROM FOREIGN COMPANY IS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT AND NOT TO BE TREATED IN ACCORDANCE WITH THE EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT . LD COUNSEL FOR THE ASSESSEE ALSO DISTINGUISHED IN HIS WRITTEN NOTE THE OTHER DECISIONS RELIED UPON BY THE LD DR. IN PARA 16 OF THE WRITTEN NOTE, LD COUNSEL FOR THE ASSESSEE SUMMED UP THE LEGAL POSITION AND MENTIONED THAT THE IMP UGNED RECEIPTS ARE ELIGIBLE FOR DEDUCT ION U/S 80HHC OF THE PARA. P ARA 17 OF THE WRITTEN NOTE CONTAINS THE DESCRIPTION HOW THE DECISIONS RELIED UPON BY THE LD DR ARE DISTINGUISHABLE. OTHERWISE, THE LD DR RELIED ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. SHAH ORIGINALS [2010] 327 ITR 19; DECISION OF THE TRIBUNAL IN THE CASE OF K. MOHAN & CO. (EXPORTS) VIDE ITA NO.3473/MUM/2008 (AY 2004 - 05) DATED 20.4.2011; THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOD HAR ELECTRO DESIGN (P) LTD [2008] 300 ITR 103 (BOM); JUDGMENT OF THE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT [2009] 317 ITR 218 (SC) . IN PARA 18 ASSESSEE MENTIONED THAT THE TRIBUNAL DID NOT FOLLOW THE ORDERS RELIED UPON BY THE LD DR. HE HEAVILY R ELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PFIZER LTD (SUPRA) AND THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MOTOR INDUSTRIES CO. LTD (SUPRA). 6 11. ON THE OTHER HAND, LD DR SUBMITTED THAT THE ASSESSEE FAILED T O ESTABLISH THE NEXUS BETWEEN THE IMPUGNED FORWARD CONTRACTS WITH THE EXPORT INVOICES AND THEREFORE, THE ASSESSING OFFICER IS JUSTIFIED IN TREATING THE SAME AS THE INCOME FROM OTHER SOURCES. ALTERNATIVELY, CIT (A) JUSTIFIED IN TREATING THE SAME AS SPECULA TIVE PROFITS. IT IS THE SUBMISSION OF THE LD DR THAT ASSESSEE FAILED TO GIVE REASONS FOR CANCELLATION OF THE FORWARD CONTRACTS. REFERRING TO THE COORDINATE BENCH DECISION IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) PVT LTD (SUPRA), LD DR MENTIONED THA T THERE IS A NEED FOR EVALUATING THE QUANTITY / VOLUME OF THE FORWARD CONTRACT AND THE SAME SHOULD NOT EXCEED THE TOTAL VOLUME OF THE EXPORT ACTIVITY OF THE ASSESSEE. HE ALSO MENTIONED THAT THE CANCELLATIONS SHOULD HAVE A REASON AND THE SAME MUST NOT BE IN THE FORM OF THE SPECULATIVE ACTIVITY. IN THE ABSENCE OF SUCH DETAILED WORKING, THE CIT (A) IS JUSTIFIED IN TREATING THE SAME AS A SPECULATIVE TRANSACTION. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDER OF THE REVENUE AUTHORITIES ALONG WITH THE DECISIONS CITED ABOVE BY THE LD REPRESENTATIVES OF BOTH THE PARTIES. THE LIMITED ISSUE FOR ADJUDICATION BEFORE US RELATES TO IF THE IMPUGNED PROFITS EARNED ON CANCELLATION OF THE FORWARD CONTRACTS CONSTITUTE BUSINESS INCOME OF THE ASSESSEE OR INDEPENDENT INCOME OR INCOME FROM OTHER SOURCES OR THE SPECULATIVE INCOME. THE SIMILAR PROFIT WAS HELD BY THE TRIBUNAL AS BUSINESS INCOME OF THE ASSESSEE AND NOT THE SPECULATIVE INCOME IN THE AY 1997 - 98 IN THE ASSESSEES OWN CASE . HOWEVER, THE SAID INCOME WAS TO BE DEALT WITH AS PER THE PROVISIONS OF CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC OF THE ACT. THIS ORDER OF THE TRIBUNAL WAS FINALIZED PRIOR TO THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PFIZER LTD (SUPRA) AND THE HONBLE KARNATAKA HI GH COURT JUDGMENT IN THE CASE OF MOTOR INDUSTRIES CO. LTD (SUPRA). THESE JUDGMENTS HAVE SET GUIDELINES AS TO HOW THE INDEPENDENT INCOME RELATED ISSUES ARE TO BE DECIDED WHEN COMES TO THE GRANTING OF DEDUCTION U/S 80HHC OF THE ACT. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE ISSUES RELATING TO THE INDEPENDENT INCOME ARE REQUIRED TO BE ADJUDICATED BY THE LOWER AUTHORITIES AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FURTHER, REGARDING THE CANCELLATION OF FORWARD CONTRA CTS, THE TRIBUNAL HAS EXPLAINED THE RELEVANT PROVISIONS IN ITS ORDER IN THE CASE OF LONDON S TAR DIAMOND COMPANY (I) PVT LTD (SUPRA) , WHERE ONE OF US (AM) IS A PARTY AND THE SAME SHOULD ALSO BE CONSIDERED BY THE ASSESSING OFFICER IN THE REMANDING 7 PROCEEDING S. THERE IS A NEED FOR GIVING DEFINITE FINDING OF FACT IF THE IMPUGNED PROFITS ARE INDEPENDENT INCOME OR PART OF THE NORMAL BUSINESS PROFITS OF THE ASSESSEE. IN ANY CASE, SPECULATIVE NATURE OF PROFIT IS RULED OUT BY THE TRIBUNAL IN THE ASSESSEES OWN C ASE IN EARLIER YEARS. ASSESSING OFFICER SHALL MAKE USE OF THE E XPLANATION GIVEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF PFIZER LTD (SUPRA) AFTER ANALYZING THE DATES OF THE CONTRACTS, CONNECTION TO THE INVOICES AND ALSO THE REASONS FOR CONCLUSION . WE ALSO FIND THAT THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (SUPRA) DELIVERED IN THE CONTEXT OF DIFFERENT FACTS I.E, GAIN ON ACCOUNT OF EXCHANGE RATE FLUCTUATIONS AND EEFC ACCOUNT AND THE SAME WAS RELIED UPON BY THE TRIBUNAL IN T HE CASE OF K. MOHAN & CO. (EXPORTS) (SUPRA). OF COURSE, THE OTHER ORDERS OF THE TRIBUNAL RELIED UPON BY THE LD DR MUST ALSO BE CONSIDERED. WE ACCORDINGLY REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER AND THE GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO.3 RELATES TO THE GAIN ARISING ON REVALUATION OF FOREIGN CURRENCY BORROWINGS. ASSESSEE CLAIMED THE SAME AS BUSINESS INCOME AND QUALIFIES FOR DEDUCTION U/S 80HHC OF THE ACT. THE FACTS ARE THAT THE ASSESSEE B ORROWED FUNDS UNDER PRE - SHIPMENT AND POST - SHIPMENT CREDIT FACILITIES IN CONNECTION WITH THE EXPORT TRANSACTIONS. THESE BORROWINGS / LOANS ARE IN TERMS OF FOREIGN CURRENCY. THESE LOANS WERE VALUED AT THE END OF THE FY AND THE SAME RESULTED IN GAINS REGARD ING THE GAINS OF RS. 2,53,95,129/ - WHICH IS CREDITED TO THE P & L ACCOUNT. ASSESSING OFFICER TREATED THE SAME AS INCOME FROM OTHER SOURCES AND DENIED THE CLAIM OF DEDUCTION AS THE SAME DOES NOT AMOUNT TO DERIVED FROM INDUSTRIAL UNDERTAKING. CIT (A) UPHELD THE VIEW OF THE ASSESSING OFFICER AND MENTIONED THAT THESE RECEIPTS HAVE NO D IRECT NEXUS WITH THE IMPORTS OR EXPORTS. 14. BEFORE US, LD COUNSEL ARGUED THAT THE ASSESSEE TOOK FOREIGN CURRENCY LOANS AND EARNED GAINS ON REVALUATION OF THE BALANCES AT THE END OF THE FY I.E., 31.3.2002. HE FURTHER ARGUED THAT THE SAID GAINS DO NOT CONSTITUTE RECEIPTS BY WAY OF BROKERAGE COMMISS ION ETC. SINCE, IT IS NOT A RECEIPT OF ANY AMOUNT BUT ONLY RESULTED IN REDUCTION OF LIABILITY, THE SAID AMOUNT CANNOT BE EXCLUDED AS SPECIFIED IN CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. THUS, THE IMPUGNED GAINS DOES NOT CONSTITUTE IND EPENDENT INCOME AS DISCUSSED BY THE HONBLE SUPREME COURT IN THE CASE OF RAVINDRANATHAN NAIR (SUPRA). ON PERUSAL OF THE ORDER, WE FIND 8 THE REVENUE AUTHORITIES HAVE NOT EXAMINED THE ABOVE STATED CONTENTION OF THE ASSESSEE. THEREFORE, WE REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. IN THE REMANDING PROCEEDINGS, ASSESSING OFFICER IS DIRECTED TO APPLY THE PRINCIPLES RELATING TO INDEPENDENT INCOME AS MANDATED BY THE ABOVE CITED RELEVANT JUDGMENT OF THE HONBLE HIGH COURT AN D ALSO SPEAK ON HOW THIS KIND OF GAINS ON REVALUATION OF THE BALANCE IN FOREIGN CURRENCY AT THE END OF THE FY CONSTITUTES RECEIPTS AS EXPRESSED IN CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. ASSESSING OFFICER IS DIRECTED TO GIVE A REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE REMANDING PROCEEDINGS. ACCORDINGLY, GROUND NO.3 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.4 RELATES TO THE CLAIM OF DENIAL OF DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF INTEREST ON FIXED DEPOSITS. IN THIS REGARD, ASSESSEE SUBMITTED THAT FIXED DEPOSIT WITH BANK AS MARGIN MONEY IS THE SOURCE OF IMPUGNED INTEREST INCOME. THE SAME WAS TREATED BY THE ASSESSEE AS THE BUSINESS INCOME. HOWEVER, ASSESSING OFFICER CONSIDERED THE SAME AS INCOME FROM OTHER SOURCES AND DENIED THE CLAIM OF DEDUCTION. THE SAID INCOME HAS TO BE NOW TREATED AS PER THE PROVISIONS OF THE SAID CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. IT IS THE PRAYER OF THE ASSESSEE BEFORE US THAT WHILE A PPLYING THE SAID PROVISIONS OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT, THE NET INTEREST INCOME MAY BE CONSIDERED AS . FOR THIS, LD COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED C APSULES PVT LTD VS. CIT 343 ITR 89. WE FIND MERIT IN THE SAME. THEREFORE, ALTERNATIVE SUBMISSIONS MADE BY THE ASSESSEE ARE FOUND NOT REQUIRED TO BE ENTERTAINED. ASSESSING OFFICER IS DIRECTED TO GIVE AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DEC IDE THE ISSUE APPLYING THE SAID JUDGMENT OF THE APEX COURT. ACCORDINGLY, GROUND NO.4 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ./I.T.A. NO. 291/M/2008 ( AY: 2004 - 2005) (BY ASSESSEE) 17. THIS APPEAL FILED BY THE ASSESSEE ON 11.1.2008 IS AGAINST THE ORDER OF THE CIT (A) - VIII, MUMBAI DATED 27.11.2007 FOR THE ASSESSMENT YEAR 2004 - 05. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 9 1. THE LD CIT (A) ERRED IN (A) CONFIRMING THE ASSESSMENT BY THE ASSESSING OFFICER OF ASSESSING THE GAINS ON CANCELLATION OF FORWARD EXCHANGE CONTRACTS (NET) OF RS. 1,57,03,388/ - AS SPECULATION INCOME AND NOT AS BUSINESS INCOME AND CONSEQUENTLY, NOT CONSIDERING THE SAME AS FORMING PART OF PROFITS OF THE BUSINESS, RELEVANT FOR QUANTIFYING ADMISSIBLE DEDUCTION UNDER SECTION 80HHC OF THE ACT. (B) CONFIRMING THE ASSESSMENT BY THE ASSESSING OFFICER OF ASSESSING THE FOLLOWING INCOME AS INCOME FROM OTHER SOURCES AND ACCORDINGLY, NOT BEING ELIGIBLE TO BE INCLUDED IN PROFITS OF THE BUSINESS RELEVANT FOR QUANTIFYING ADMISSIBLE DEDUCTION UNDER SECTION 80HHC OF THE ACT. (C) CONFIRMING THE STAND OF THE ASSESSING OFFICER IN QUANTIFYING EXPORT TURNOVER, RELEVANT FOR THE PURPOSE OF QUANTIFYING ADMISSIBLE DEDUCTION UNDER SECTION 80HHC AS UPTO 30 TH SEPTEMBER, 2004 NOTWITHSTANDING THE FACT THAT AS PER AP (DIR SERIES) CIRCULAR NO.91 OF THE RESERVE BANK OF INDIA, EXCHANGE CONTROL DEPARTMENT, CENTRAL OFFICE DATED 1 ST AP RIL, 2002 THERE IS NO TIME LIMIT PRESCRIBED FOR REALIZATION OF EXPORTS MADE BY UNITS IN SEZS, A COPY WHEREOF WAS SUBMITTED TO THE LOWER AUTHORITIES. 18. GROUND NO.1 (A) RELATES TO THE TREATMENT OF GAINS ARISING ON CANCELLATION OF FORWARD CONTRACTS IN FO REIGN EXCHANGE. THIS ISSUE IS IDENTICAL TO THAT OF THE GROUND NO.2 RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE AY 2003 - 04, WHICH IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER. SINCE, THE ISSUE RAISED IN THE INSTANT GROUND IS SIMILAR TO THAT OF THE GROUND NO.2 OF THE ABOVE ASSESSEES APPEAL, THEREFORE, OUR DECISION GIVEN THEREOF SQUARELY APPLIES TO THE INSTANT GROUND TOO. CONSIDERING THE SAME, GROUND NO.1(A) RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 19. GROUND NO.1(B) RAISE D BY THE ASSESSEE IN THE PRESENT APPEAL IS IDENTICAL TO THAT OF THE GROUND NOS.3 AND 4 RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE AY 2003 - 04, WHICH IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER. SINCE, THE ISSUE RAISED IN THE INSTANT GROUND IS SIMILAR TO THAT OF THE GROUND NOS.3 & 4 OF THE ABOVE ASSESSEES APPEAL, THEREFORE, OUR DECISION GIVEN THEREOF SQUARELY APPLIES TO THE INSTANT GROUND TOO. CONSIDERING THE SAME, GROUND NO.1(A) RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 20. GROUND NO.1(C) RELA TES TO THE GRATING OF DEDUCTION U/S 80HHC IN RESPECT OF UNREALIZED EXPORT PROCEEDS UP TO 30.9.2004. RELEVANT FACTS ARE THAT THE ASSESSEE REALIZED THE IMPUGNED EXPORT PROCEEDS BEYOND THE SPECIFIED PERIOD OF 6 MONTHS IGNORING THE FACT THAT THE ASSESSEE IS COVERED BY THE CIRCULAR NO.91 OF THE RESERVE BANK OF INDIA, EXCHANGE CONTROL DEPARTMENT AND ALSO IGNORING THE FACT THAT THERE IS NO TIME LIMIT PRESCRIBED FOR REALIZATION OF THE EXPORTS IN RESPECT OF THE UNITS ALLOCATED IN THE SPECIAL ECONOMIC ZONES (SEZS). RBI IS THE COMPETENT AUTHORITY IN THESE MATTERS AND THEREFORE, THE DENIAL OF DEDUCTION IN RESPECT OF THE IMPUGNED EXPORT PROCEEDS IS NOT SUSTAINABLE. FOR THIS PROPOSITION, LD COUNSEL FOR THE ASSESSEE RELIED 10 ON THE COORDINATE BENCH D ECISION IN THE CASE OF ITO VS. M/S. INTERNATIONAL GOLD CO. LTD., VIDE ITA NO.1615/MUM/2008 (CROSS APPEALS) DATED 24.4.2012. HE BROUGHT OUR ATTENTION TO PARAS 14 TO 20 OF THE SAID ORDER OF THE TRIBUNAL WHEREIN THE TRIBUNAL CONSIDERED THE SAID CIRCULAR ISSU ED BY THE RBI QUA THE SEZ UNITS . PARA 17 OF THE SAID ORDER OF THE TRIBUNAL WAS ALSO BROUGHT TO OUR NOTICE WHEREIN THE TRIBUNAL REPORTED THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MORGAN STANLEY ADVANTAGE SERVICES PVT LTD (339 ITR 291) WHICH IS RELEVANT FOR THE PROPOSI TION THAT IT IS A CASE OF DEEMED GRANT OF EXPLANATION AND THE BENEFITS UNDER INCOME TAX ACT ARE ALLOWABLE. CONSIDERING THE IMPORTANCE OF THE PARAS 14 TO 20 OF THE SAID ORDER OF THE TR IBUNAL (SUPRA), WE EXTRACT THE SAME AS FOLLOWS: 14. GROUND NO. 2 IS AGAINST THE DECISION OF THE REVENUE AUTHORITIES TO EXCLUDE RS. 2,23,46,705/ - BEING THE EXPORT PROCEEDS, RECEIVED WITHIN THE STIPULATED TIME. 15. THE FACTS ARE THAT THERE WAS A DELAY IN THE RECEIPT OF EXPORT PROCEEDS, THE AO REJECTED THE A SSESSEE'S PLEA, THAT THE PROCEEDS CAN BE RECEIVED AT ANY TIME, EVEN AFTER THE REGULAR TIME PERIOD HAS ELAPSED . THE CIT(A) SUSTAINED THE OBSERVATION MADE BY THE AO IN THE ASSESSMENT ORDER, WHEREIN THE AO EXCLUDED THE IMPUGNED AMOUNT OF RS. 2,23,46,705/ - FRO M THE TOTAL EXPORT PROCEEDS FOR THE COMPUTATION OF EXEMPTION. 16. AGGRIEVED BY THE DECISION OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 17. BEFORE US, THE AR OF THE ASSESSEE COMPANY SUBMITTED THAT THERE IS NO DISPUTE BY THE REVENUE AUTHOR I T I ES THAT THE EXPORT PROCEEDS WERE REALIZED BY THE ASSESSEE COMPANY, THE ONLY ISSUE I N D I SPUTE IS THAT THE RECEIPTS OF THE PROCEEDS HAD GOT DELAYED BY MORE THAN SIX MONTHS. IN THIS CONTEXT, THE AR SUBMITTED THAT SO FAR AS THE RECEIPT FOR FOREIGN EXCHANGE IS CONCERNED, THE CONTROLLING AUTHORITY IS RESERVE BANK OF IND I A. THE AR SUBMITTED THAT EVEN THE EXPLANAT I ON TO SECTION 10A(3), THE ACT ITSELF CLARIFIES THAT RBI IS THE COMPETENT AUTHORITY. IN THE CASE OF THE ASSESSEE THERE WAS A DELAY, WHICH IS NOT IN DIS PUTE, BUT THE FACT THAT WHERE THE CONTROLLING AUTHORITY ITSELF DOES NOT PRESCRIBE ANY BAR ON THE DELAY, THEN ACCORDING TO THE AR, THE BAR SHOULD NOT BE CREATED BY THE REVENUE AUTHORITIES TO DENY OR RESTRICT THE EXEMPTION. THE AR TOOK US THROUGH THE CIRCULA R ISSUED BY THE CONTROLLING AUTHORITY I.E. THE RBI , APPENDED IN THE APB THAT ' UNITS SITUATED IN SPECIAL ECONOMIC ZONES HAVE BEEN PERMITTED TO REALIZE AND REPATRIATE TO INDIA THE FULL VALUE OF GOODS OR SOFTWARE WITHIN A PERIOD OF TWELVE MONTHS FROM THE DATE OF EXPORT . IT HAS NOW BEEN DECIDED TO REMOVE THE STIPULATION OF TWELVE MONTHS OR EXTENDED PERIOD THEREOF FOR REALIZATION OF EXPORT PROCEEDS. ACCORDINGLY, THERE SHALL BE NO PRESCRIPTION OF ANY TIME LIMIT FOR REALIZATION OF EXPORTS MADE BY UNITS IN SEZS. H OWEVER THE UNITS IN SEZS WILL CONTINUE TO FOLLOW THE GR/PP/SOFTEX EXPORT PROCEDURE OUTLINED IN PART B OF ANNEXURE A . P.(OIR SERIES) C I RCULAR NO. 12 DT. SEPTEMBER 9, 2000 AS AMENDED FROM TIME TO TIME ' : THE AR FURTHER SUBMITTED THAT THE AO'S OBSERVATIONS THAT THE CIRCULAR IS ONLY PROSPECTIVE WOULD BE OUT OF PLACE. THE AR HAS FURNISHED COMPLETE LIST OF EXPORT PROCEEDS WHICH HAS BEEN DENIED BY THE REVENUE AUTHORITIES. THE AR REFERRED TO THE CASE OF CIT VIS MORGAN STANLEY ADVANTAGE SERVICES PVT. LTD., REPORTED IN 339 ITR 291, 294, WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS HELD, 'THE EXTENSION HAS BEEN GRANTED IN SUBSTANCE AND THEREFORE, THE BENEFIT OF 11 SECTION 10A HAS TO BE ALLOWED TO THE ASSESSEE ON THE GROUN D THAT THE EXTENSION IS DEEMED TO HAVE BEEN GRANTED. THE AR SUBMITTED THAT IN THE CASE OF THE ASSESSEE, IT IS THE COMPETENT AUTHORITY WHO IS ISSUING THE CIRCULAR FOR THE PROJECTS IN THE SEZS, WHERE, NOW, ACCORDING TO THE CIRCULAR THERE IS NO TIME LIMIT FOR REALIZATION OF EXPORT PROCEEDS. THE AR THEREFORE , SUBMITTED THAT THE REVENUE AUTHORITIES WERE WRONG TO EXCLUDE THE UNREALIZED EXPORT PROCEEDS FOR COMPUTATION OF THE EXEMPTION. 18. AGAINST THE SUBMISSIONS MADE BY THE AR, THE DR SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES AND HE FURTHER SUBMITTED THAT THOUGH THE COMPETENT AUTHORITY HAS ISSUED THE CIRCULAR, BUT THAT MAY NEVER BE THE INTENTION THAT THERE WOULD BE A BLANKET PERMISSIO N TO THE EXPORTERS FOR REALIZATION OF THEIR EXPORT PROCEEDS. 19. WE HAVE HEARD THE SUBMISS I ONS AND PERUSED THE MATER I AL AND EVIDENCE PLACED ON RECORD, WE FIND THAT THE REVENUE AUTHORITIES HAVE NEVER DISPUTED THE RECEIPT OF THE EXPORT PROCEEDS, AS IS EVID ENT FROM THE OBSERVATIONS OF THE CIT(A) IN HIS ORDER, WHEREIN HE MENTIONS, 'TILL DATE , THE CONFIRMATIONS/CLARIFICATIONS FROM THE RESPECTIVE BANKS IS NOT ON RECORD ' . GOING BY THIS OBSERVATION, WE HAVE TO ACCEPT THAT THE SUBMISSIONS MADE BY THE AR THAT ONL Y THE DELAY IN RECEIPT OF EXPORT PROCEEDS WOULD NOT BAR THE ELIGIBILITY FOR THE CLAIM OF EXEMPTION UNDER SECTION 10A. IF THE GRIEVANCE OF THE REVENUE AUTHORITIES IS BASED ONLY ON THE CLARIFICATION/CONFIRMATION, THEN THE CASE OF JURISDICTIONAL HIGH COURT OF BOMBAY, IN THE CASE OF CIT V/S STANLEY MORGAN (SUPRA) SHALL SQUARELY APPLY ON THE ISSUE, THAT THE EXTENSION HAS BEEN GRANTED IN SUBSTANCE AND THEREFORE, THE BENEFIT OF SECTION LOA HAS TO BE ALLOWED TO THE ASSESSEE ON THE GROUND THAT THE EXTENSION IS DEEME D TO HAVE BEEN GRANTED. 20. WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES WERE INCORRECT IN EXCLUDING RS. 2,23,46,705 FROM THE EXPORT TURNOVER FOR THE COMPUTATION OF EXEMPTION UNDER SECTION 10A. WE, THEREFORE, SET ASIDE THE DECISION OF THE REVENUE AUTHORITIES ON THIS ISSUE AND DIRECT THE AO TO INCLUDE THE AMOUNT OF UNREALIZED EXPORT PROCEEDS IN THE EXPORT TURNOVER AND ALLOW THE EXEMPTION AS PER LAW. 21. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE ISSUE IS IN FAVOUR OF THE ASSESSEE. ACCO RDINGLY, GROUND NO.1(C) RAISED BY THE ASSESSEE IS ALLOWED. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ./I.T.A. NO.8293/M/2011 (AY:2004 - 2005) (BY REVENUE) 23. THIS APPEAL FILED BY THE REVENUE ON 8.12.2011 IS AGAINST THE ORDER OF THE CIT (A) - 17, MUMBAI DATED 14.9.2011 FOR THE AY 2004 - 05. 24. THIS APPEAL RELATES TO THE PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF THE ADDITIONS MADE IN THE QUANTUM APPEAL ITA NO .291/M/2008. WHILE DECIDING THE SAID APPEAL, WE HAVE EITHER REMANDED THE ISSUES TO THE FILE OF THE ASSESSING OFFICER (GROUND NOS. 1(A) AND 1(B)) OR ALLOWED IN FAVOUR OF THE ASSESSEE (GROUND NO.1(C)) AND IN THE RESULT, THE SAID QUANTUM APPEAL WAS PARTLY ALL OWED FOR STATISTICAL PURPOSES. CONSEQUENTLY, THE PENALTY, WHICH IS THE SUBJECT MATTER OF THE INSTANT 12 APPEAL, SINCE RELATED TO THE ISSUES ADJUDICATED ABOVE, DOES NOT SURVIVE. AS SUCH, THE CIT (A) HAS GRANTED RELIEF TO THE ASSESSEE IN THE IMPUGNED ORDER DAT ED 4.9.2011. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 25. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNC ED IN THE OPEN COURT ON 1 3 T H FEBRUARY, 2015. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 1 3 .2 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI