M/s. Fine Care Bio Systems, Kalol V. The Jt.CIT, Mehsana Range, Mehsana

ITA 513/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5114 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 09-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K P SHAH
• Section: 143(3); 10AA; 10B

Judgement Text

, SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 513/AHD/2015 ( ASSESSMENT YEAR : 2011-12) M/S. FINE CARE BIO SYSTEMS, 228-1-4, DANTALI INDUSTRIAL OWNERS ASSOCIATION, GOTA- VADSAR ROAD, KALOL-382721 / VS. JCIT, MEHSANA RANGE, MEHSANA ././ PAN/GIR NO. : AABFF3176F ( APPELLANT ) .. ( !' / RESPONDENT ) # / APPELLANT BY : SHRI K. P. SHAH, A.R. !' $# / RESPONDENT BY : SHRI S. K. DEV, SR. D.R. % &'($) DATE OF HEARING 05/07/2018 *+, $) / DATE OF PRONOUNCEMENT 02/08/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), GANDHINAG AR (CIT(A) IN SHORT), DATED 10.11.2014 ARISING IN THE ASSESSMENT ORDER DATED 05.02.2014 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 20 09-10. 2. THE ASSESSEE AS PER ITS GROUNDS OF APPEAL HAS AS SAILED ACTION OF THE REVENUE TOWARDS DENIAL OF DEDUCTION UNDER S.10B OF THE ACT IN ITA NO. 513/AHD/15 [M/S. FINE CARE BIO SYSTEMS VS. JCIT] A.Y. 2011-12 - 2 - RESPECT OF GAINS DERIVED ON CONVERSION OF FUNDS FRO M EEFC AMOUNTING TO RS.6,14,964/-. 3. BRIEFLY STATED, THE ASSESSEE, A PARTNERSHIP FIRM , IS ENGAGED IN MANUFACTURING AND TRADING OF EQUIPMENTS, SPARES AND ACCESSORIES FOR LABORATORIES AND ORTHOPEDIC APPLIANCES ETC. IN THE SCRUTINY ASSESSMENT, THE AO NOTICED THAT ASSESSEE FIRM HAS D ERIVED CERTAIN GAINS ON CONVERSION OF FUNDS FROM ITS EEFC (EXCHANG E EARNERS FOREIGN CURRENCY) ON CONVERSION OF THE EEFC ACCOUNT TO RUPEE CURRENCY. THE AO SIMULTANEOUSLY NOTED THAT THE ASS ESSEE HAS INTER ALIA CLAIMED DEDUCTION UNDER S.10B ALSO ON SUCH GAINS D ERIVED ON CONVERSION OF FUNDS. THE AO DECLINED TO GRANT BENE FIT OF SECTION 10B OF THE ACT IN RESPECT OF SUCH EEFC GAINS ON THE GRO UND THAT DEDUCTION UNDER S.10B OF THE ACT IS AVAILABLE ON PROFITS AND GAINS DERIVED BY THE ASSESSEE (BEING 100% EXPORT ORIENTED UNDERTAKIN G FOR EXPORT OF ARTICLES AND THINGS MANUFACTURED OR PRODUCED BY IT) IN DISTINCTION TO THE PROFIT ATTRIBUTABLE TO SUCH EXPORTS. THE AO THUS WAS OF THE VIEW THAT EEFC GAINS DO NOT FALL WITHIN THE SWEEP OF EXP RESSION DERIVED FROM AS PROVIDED UNDER S.10B(1) OF THE ACT AND SUC H GAINS ARE MERELY ATTRIBUTABLE TO EXPORT OF ARTICLES AND THUS NOT ELI GIBLE FOR DEDUCTION. THE AO ACCORDINGLY DENIED DEDUCTION AMOUNTING TO RS .6,14,964/- ATTRIBUTABLE TO SUCH EEFC GAINS. 4. IN THE FIRST APPEAL, THE CIT(A) CONFIRMED THE AC TION OF THE AO. 5. IN SECOND APPEAL BEFORE US, THE LEARNED AR FOR T HE ASSESSEE SUBMITTED AT THE OUTSET THAT THE GAINS ARISING ON C ONVERSION OF EEFC ACCOUNT BEARS DIRECT NEXUS TO THE EXPORT AND IS ELI GIBLE FOR DEDUCTION UNDER S.10B OF THE ACT IN VIEW OF THE RATIO OF THE DECISION OF FULL BENCH OF HONBLE KARNATAKA HIGH COURT IN CIT VS. HE WLETT PACKARD GLOBAL SOFT LTD. [2017] 87 TAXMANN.COM 182 (KARNATA KA) (FB). ITA NO. 513/AHD/15 [M/S. FINE CARE BIO SYSTEMS VS. JCIT] A.Y. 2011-12 - 3 - 6. THE LEARNED DR RELIED UPON THE ORDER OF THE CIT( A). 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS ON THE ISSUE AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. T HE CONTROVERSY INVOLVES ALLOWABILITY OF DEDUCTION ON GAINS ARISING FROM CONVERSION OF EEFC ACCOUNT INTO RUPEE ACCOUNT FOR THE PURPOSE OF SECTION 10B OF THE ACT. WE STRAIGHTWAY FIND THAT ISSUE IS SUBSTAN TIALLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE GUJARAT HIGH COURT IN CASE OF CIT VS. PRIYANKA GEMS (2014)367 IT R 575 (GUJ) AND CIT VS. GEM PLUS JEWELLERY INDIA LTD. [2010] 194 TA XMAN 192 (BOM.). THE ISSUE IS ALSO SETTLED IN FAVOUR OF THE ASSESSEE BY LONG LINE OF JUDICIAL PRECEDENTS INCLUDING HEWLETT PACKA RD GLOBAL SOFT LTD. (SUPRA) WHERE A CONSISTENT VIEW HAS BEEN TAKEN THAT FOREIGN EXCHANGE GAINS ARISING OUT OF THE FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE CANNOT BE DIVESTED FROM THE EXPORT BUSINESS OF THE ASSESSEE. ONCE EXPORT IS MADE, THE FOREIGN EXCHANGE GAINS/LOSS MAY OCCUR DUE TO VARIETY OF REASONS AT THE TIME OF REMISSION OF EXPO RT SALE PROCEEDS. IN THIS VIEW OF THE MATTER, THE FOREIGN EXCHANGE FLUCT UATION GAINS REQUIRED TO BE TAKEN AS INTEGRAL PART OF THE BUSINE SS PROFITS DERIVED FROM EXPORTS. EVEN, INDEPENDENTLY, IN SO FAR AS SE CTION 10AA OF THE ACT IS CONCERNED, SUB-SECTION 7 THEREOF EXPLICITLY EXPLAINS THE TERM PROFIT DERIVED FROM THE EXPORT OF ARTICLES OR THIN GS TO MEAN THE AMOUNT WHICH BEARS TO BE PROFITS OF THE UNDERTAKIN G, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THUS, WHAT IS REQUIRED TO BE DETERMINED IS PROFITS OF THE BUSINESS OF THE UNDER TAKING WHICH IS OSTENSIBLY WIDER THAN PROFITS & GAINS DERIVED BY T HE UNDERTAKING. IN SHORT, THE PROFITS DERIVED FROM EXPORT HAVE BEEN EQ UATED WITH BUSINESS PROFITS OF THE UNDERTAKING IN VIEW OF THE FORMULA P ROVIDED IN SECTION 10AA(7) OF THE ACT. ITA NO. 513/AHD/15 [M/S. FINE CARE BIO SYSTEMS VS. JCIT] A.Y. 2011-12 - 4 - 8. IN VIEW OF THE AFORESAID DISCUSSION, WE FIND CON SIDERABLE FORCE IN THE PLEA RAISED ON BEHALF OF THE ASSESSEE. CONS EQUENTLY, THE ISSUE REQUIRES TO BE DECIDED IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE. THE AO IS ACCORDINGLY DIRECTED TO GRANT D EDUCTION UNDER S.10B OF SUCH GAINS. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 02/08/2018 TRUE COPY S. K. SINHA / COPY OF ORDER FORWARDED TO:- ..' / REVENUE 2.' / ASSESSEE 0. ) % 1) / CONCERNED CIT 4. % 1)- / CIT (A) 4.5'67!8)8& 9 9 / DR, ITAT, AHMEDABAD :.7;<= / GUARD FILE. BY ORDER / 9 / 9 THIS ORDER PRONOUNCED IN OPEN COURT ON 02/08/2 018