M/s VMT Spinning Co. Ltd., Ludhiana V. ACIT, Ludhiana

ITA 678/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86164 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 25-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income
• Section: 143(3); 80HHC; 80IB; 10B; 148; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 678/CHD/2014 ASSESSMENT YEAR: 2004-05 M/S VMT SPINNING CO. LTD., VS THE ACIT, CIRCLE-I, LUDHIANA LUDHIANA PAN NO. AABCV 8087C ITA NO. 849/CHD/2008 ASSESSMENT YEAR: 2005-06 M/S VMT SPINNING CO. LTD., VS THE ACIT, RANGE-I, LUDHIANA LUDHIANA PAN NO. AABCV 8087C ITA NO. 1239/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S VMT SPINNING CO. LTD., VS THE ADDL. CIT, RANGE -I, LUDHIANA LUDHIANA PAN NO. AABCV 8087C ITA NO. 979/CHD/2008 ASSESSMENT YEAR: 2005-06 THE ACIT-I, VS M/S VMT SPINNING CO. LTD., LUDHIANA LUDHIANA PAN NO. AABCV 8087C ITA NO. 1291/CHD/2010 ASSESSMENT YEAR: 2006-07 THE ACIT, CIRCLE-I, VS M/S VMT SPINNING CO. LTD., LUDHIANA LUDHIANA PAN NO. AABCV 8087C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 04.02.2015 DATE OF PRONOUNCEMENT : 10.02.2015 2 ORDER PER T.R.SOOD, A.M. THESE ARE GROUP OF FIVE APPEALS OUT OF WHICH THREE ARE FILED BY THE ASSESSEE AND TWO BY THE REVENUE AGAINST THE SEPARAT E ORDERS OF CIT(A)-I & II, LUDHIANA. 2. SINCE IDENTICAL GROUNDS HAVE BEEN RAISED IN THES E APPEALS, THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS COMMON AND CONSOLIDATE ORDER. 3. FIRST WE SHALL DEAL WITH THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 678/CHD/2014 IN WHICH FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. THAT THE ORDER PASSED BY THE LD. CIT(A) IS CONTRARY TO LAW AND FACTS ON THE CASE. 2. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN RE DUCING THE FOLLOWING ITEMS FROM THE PROFIT OF THE UNDERTAKING WHILE CALC ULATING DEDUCTION U/S 10B; PARTICULARS AMOUNT BROKERAGE ON OCEAN FREIGHT 84,880 SALE OF SAMPLE 21,956 PROCESSING CHARGES 57,970 OTHER 80 TOTAL 1,64,886 4. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CER TAIN MISC. RECEIPTS DETAILS OF WHICH ARE AS UNDER:- BROKERAGE ON SHIPPING FREIGHT : RS. 84,880 3 SALE OF SAMPLES : RS. 91,956 PROCESSING CHARGES ; RS. 57,970 OTHERS : RS. 80 TOTAL ; RS. 164,6886 THE ASSESSEE HAS INCLUDED THESE ITEMS IN THE PROFIT FOR THE PURPOSE OF COMPUT ING DEDUCTION U/S 10B. IN RESPONSE TO THE SHOW CAUSE N OTICE THAT WHY THESE ITEMS SHOULD BE CONSIDERED AS PROFIT, THE ASSESSEE RELIED ON THE DECISION OF TRIBUNAL IN EARLIER YEARS. HOWEVER, THE ASSESSING OFFICER NOTI CED THAT AFTER DECISION OF TRIBUNAL, THE HON'BLE SUPREME COURT IN THE CASE OF CIT V K. RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) OBSERVED THAT PROFIT I NCENTIVES AND ITEM LIKE RENT AND COMMISSION WERE NOT PART OF THE PROFITS, THEREF ORE, HE EXCLUDED THESE ITEMS FROM THE PROFIT FOR THE PURPOSE OF COMPUTING DEDUCT ION U/S 810B. 5. ON APPEAL, THE ACTION OF THE ASSESSING OFFICER W AS CONFIRMED BY LD. CIT(A). 6. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT BROKERAGE ON OCEAN FREIGHT WAS BASICALLY A DISCOUNT AND THE ISSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL. THIS ITEM WAS COVERED IN FAVOUR OF THE AS SESSEE BY THE ORDER OF THE TRIBUNAL IN ITA NO. 654/CHD/2005 (COPY FILED). THE ITEM OF INCOME FROM SAMPLES WAS COVERED BY THE DECISION OF TRIBUNAL IN ITA NO. 556/CHD/2008. THE ISSUE REGARDING PROCESSING CHARGES IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN CIT V VALLABH YARNS P. LTD 20 TAXMAN.COM 678 . 7. ON THE OTHER HAND LD. DR RELIED ON THE ORDER OF CIT(A). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT IN CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02, IT WAS OBSERV ED VIDE PARA 23 AS UNDER:- 23. IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN THE CASE O F ACIT V PARKER CYCLE INDUS ((SUPRA)) AND THE DECISIO N OF ASSESSING 4 OFFICER FOR ASSESSMENT YEAR 200-304 IN ASSESSEES O WN CASE, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN HAVING T REATED THE MISCELLANEOUS RECEIPTS BY WAY OF FREIGHT DISCOUNT A LLOWED BY SHIPPING COMPANIES AND THE EXCHANGE FLUCTUATION DIF FERENCE AS PART OF BUSINESS RECEIPTS FOR THE PURPOSE OF COMMU TATION OF DEDUCTION UNDER SECTION 10B. WE ACCORDINGLY FIND NO MERIT IN THIS GROUND OF APPEAL RAISED BY THE REVENUE. FURTHER IN CASE OF VARDHMAN THREADS LTD LUDHIANA V ACIT IN ITA NO. 556/CHD/2008 VIDE PARA 13, IT WAS OBSERVED AS UNDE R:- AS FAR AS REBATE AND DISCOUNT AND SALE OF SAMPLES IS CONCERNED, BOTH RECEIPTS ARE OF THE NATURE OF REVEN UE AND ARE RELATED TO NORMAL BUSINESS OF THE ASSESSEE, THE REFORE, ON THESE TWO ITEMS THE ASSESSEE IS ELIGIBLE TO DEDUCTI ON. ACCORDINGLY WE SET ASIDE THE RIDER OF LD. CIT(A) ND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 80IB O N THESE TWO ITEMS. 9. FROM THE ABOVE IT BECOMES CLEAR THAT BROKERAGE W HICH IS BASICALLY REBATE ALLOWED BY THE SHIPPING COMPANY AS WELL AS SALE OF SAMPLE IS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE AND SINCE THE SAME HA S ALREADY BEEN HELD TO BE PART OF THE BUSINESS INCOME BY THE TRIBUNAL, THEREFORE, FOLLOWING THE SAME WE HOLD THAT THESE RECEIPTS ARE PART OF THE BUSINESS INCOME AND ELIGIBLE FOR DEDUCTION U/S 10B. 10. AS FAR AS THE ISSUE REGARDING PROCESSING CHARGE S IS CONCERNED, THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V VA LLABH YARNS P. LTD (SUPRA) FOLLOWING THE EARLIER DECISION IN THE CASE OF CIT V S IMPEL FORGE AND ALLIED INDUSTRIES LTD 325 ITR 27(P&H) HELD THAT THE ASSES SEE IS ENTITLED TO DEDUCTION U/S 80IB FROM THE JOB WORK DONE FOR OTHERS. THEREF ORE, FOLLOWING THIS RATIO, EVEN THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E. 5 11. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPINION THAT ASSESSEE IS ENTITLED TO DEDUCTION U/S 10B ON ALL THE ITEMS REF ERRED TO IN APPEAL. THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE ASSESSING OFFICER ALLOW DEDUCTION U/S 10B. 12. IN THE RESULT APPEAL IS PARTLY ALLOWED. ITA NO. 849/CHD/2008: 13. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WHI LE TREATING INTEREST RECEIVED FROM OTHERS AMOUNTING TO RS. 1863 19/- AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINES S OR PROFESSION, DETAILED AS UNDER: PARTICULARS AMOUNT (IN RS.) INTEREST ON INCOME TAX REFUND RS. 74582 BANK INTEREST RS. 34454 OTHER INTEREST RS. 77283 -------------- TOTAL RS. 186319 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE REDUCING ELIGIBLE PROFITS OF UNDERTAKING FOR DEDUCT ION U/S 10B BY THE FOLLOWING AMOUNTS:- PARTICULARS AMOUNT(IN RS.) OTHER INTEREST 1,86,619 BROKERAGE ON MISC. RECEIPTS 121594 SALE OF SAMPLES 82212 MISCELLANEOUS RECEIPT 25029 2,28,835 ------------ 4,15,454 14. AT THE TIME OF HEARING GROUND NO.1 AND ITEMS OF OTHER INTEREST AND MISC. RECEIPTS OF GROUND NO.2 WERE NOT PRESSED BEFORE US, THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 15. THE REMAINING TWO ITEMS OF GROUND NO.2 ARE BROK ERAGE AND FREIGHT RECEIPTS AND SALE OF SAMPLES. 6 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT BOTH THESE ITEMS ARE IDENTICAL TO THE ITEMS ADJUDICATED IN THE ABOVE NOT ED APPEALS IN ITA NO. 678/CHD/2014 AND, THEREFORE, FOLLOWING THAT ORDER W E DECIDE THAT THESE TWO ITEMS ARE ELIGIBLE FOR DEDUCTION U/S 10B. 17. IN THE RESULT APPEAL IS PARTLY ALLOWED. ITA NO. 1239/CHD/2010 18. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. THAT THE LD. CIT(A)HAS ERRED IN LAW AND ON FACTS WHILE TREATING INTEREST INCOME AMOUNTING TO RS. 13,30,172/- AS IN COME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS AND PROFE SSION. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S WHILE REDUCING PROFITS OF UNDERTAKING FOR CALCULATING DEDUCTION U/ S 10 B BY THE FOLLOWING AMOUNTS: PARTICULARS AMOUNT (IN RS.) INTEREST INCOME FROM EMPLOYER LOAN 65705 MISC. RECEIPT 12095 OTHER CLAIM RECEIVED 564789 6,42,589 3. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS WH ILE CONFIRMING THE ACTION OF THE LD. AO FOR REDUCING THE PROFITS OF UN DERTAKING FOR CALCULATING DEDUCTION U/S 10 B BY RS. 1175877/- AND RS. 88590/- AGGREGATING TO RS. 1264467/- WHICH HAD ALREADY BEEN REDUCED BY THE ASSESSEE. 19. OUT OF THE ABOVE, GROUND NOS. 1 & 2 WAS NOT PRE SSED, THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 20. GROUND NO.3: AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS CLAIMED DOUBLE DEDUCTION U/S 10B AND 80IB AMOUNTING TO RS. 5,23,80, 865/- AND RS. 1,28,62,597/-. THE ASSESSEE WAS ASKED TO EXPLAIN TH E JUSTIFICATION OF THESE 7 CLAIMS. IN RESPONSE IT WAS MAINLY STATED THAT DEDUC TION U/S 10B WAS CLAIMED ON PROPORTIONATE BASIS AND ON THE BALANCE AMOUNTS THE DEDUCTION U/S 80IB WAS CLAIMED. THE ASSESSING OFFICER DID NOT FIND FORCE I N THESE SUBMISSIONS AND REFERRED TO SECTION 10B(6)(III) AND 80IA(9) AND OBS ERVED THAT DOUBLE DEDUCTION WAS NOT PERMISSIBLE, THEREFORE, THE SAME CANNOT BE ALLOWED. 21. THIS ISSUE WAS TAKEN UP BEFORE LD. CIT(A) BY WA Y OF GROUND NO.5 BUT IT SEEMS THAT THE SAME HAS NOT BEEN ADJUDICATED BY FIR ST APPELLATE AUTHORITY. 22. BEFORE US IT WAS MAINLY SUBMITTED THAT IN TERMS OF SUB SECTION (4) OF SECTION 10B, THE DEDUCTION WAS TO BE ALLOWED ON PRO PORTIONATE BASIS I.E. IN PROPORTION OF THE EXPORT SALES TO THE TOTAL SALES. THIS CLEARLY MEANS THAT IF SOME DOMESTIC SALES ARE ALSO MADE THEN THIS DEDUCTION IS RESTRICTED. THEREFORE, NATURALLY ON SUCH DOMESTIC SALES THE ASSESSEE WOULD HAVE RIGHT TO CLAIM DEDUCTION U/S 80IB. 23. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER. 24. WE FIND FORCE IN THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE BECAUSE SUB SECTION (4) MANDATES PROPORTIONATE DEDUCTION ON PROFITS DEPENDING UPON THE QUANTITY OF EXPORT. HOWEVER, THE ASSESSING OFFICER HAS NOT DISCUSSED THIS ISSUE IN DETAIL HOW MUCH EXPORT WAS CARRIED OUT BY THE AS SESSEE AND WHETHER ANY DOMESTIC SALES WERE ALSO THERE. FURTHER, THIS ISSU E HAS NOT BEEN ADJUDICATED BY CIT(A) AND THE SAME REQUIRED VERIFICATION OF FACTS. THEREFORE, IN THE INTEREST OF JUSTICE, WE REMAND THIS ISSUE TO THE FILE OF ASSESS ING OFFICER TO DETERMINE THE FACTS REGARDING HOW DEDUCTION U/S 10B WAS CLAIMED A ND WHETHER SOME EXPORTS WERE THERE AND SOME DOMESTIC SALES WERE ALSO THERE AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 8 25. IN THE RESULT APPEAL IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. ITA NO. 979/CHD/2008 26. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT THE LD.CIT(A) HAS ERRED IN LAW & FACTS IN C ONSIDERING THE INTEREST RECEIVED FROM CUSTOMERS ON DELAYED PAY MENTS AMOUNTING TO RS. 14,14,575/- AS BUSINESS INCOME I NSTEAD OF INCOME FROM OTHER SOURCES AS CONSIDERED BY THE A. O. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW & FACTS IN DIRECTING THE A.O. TO TREAT THE GAIN ON FOREX FLUCTUATION OF RS. 7,05,637/- TO BE THE INCOME ELIGIBLE FOR DEDUCTION U/S 10 B. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW & FACTS IN DIRECTING THE A.O. TO ALLOW DEDUCTION U/S 80IB ON THE BALANCE PRO FIT OF THE UNIT AFTER DEDUCTION U/S 10B WHICH IS NOT ADMISSIBLE AS PER SECTION 10B(6)(III). 27. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS RECEIVED INTEREST FROM CUSTOMERS AMOUNTING TO RS. 14,14,575/ -. THIS AMOUNT WAS HELD NOT ELIGIBLE TO BE INCLUDED IN PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B. 28. ON APPEAL, THE LD. CIT(A) DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HON'BLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF PHATELA COTGIN INDUSTRIES P. LTD V CIT 303 ITR 4 11 (P&H) 29. BEFORE US LD. DR SUPPORTED THE ORDER OF ASSESSI NG OFFICER. 9 30. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PHATELA COTGIN INDUSTRIES P. L TD V CIT (SUPRA). 31. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PHATELA COTGIN IN DUSTRIES P. LTD V CIT (SUPRA) HELD AS UNDER:- HELD, THAT THE TRIBUNAL WAS UNJUSTIFIED IN NOT ALL OWING THE BENEFIT UNDER SECTIONS 80HH AND 80-I TO THE ASSESSEE ESPECIALLY WHEN THE BENEFIT HAD BEEN ALLOWED FOR TH E PRECEDING YEARS FOR SIMILAR ACTIVITIES. THE INTERES T WHICH WAS RECEIVED ON DELAYED PAYMENTS ON ACCOUNT OF SALE TO CUSTOMERS OF MANUFACTURED GOODS COULD CLEARLY BE TERMED TO BE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND WAS DI STINCT FROM INCOME ON ACCOUNT OF INTEREST WHICH HAD BEEN R ECEIVED FROM FIXED DEPOSITS. 32. FROM THE ABOVE IT BECOME CLEAR THAT INTEREST RECEIVED FROM DELAYE D PAYMENTS ON ACCOUNT OF SALE TO CUSTOMERS OF MANUFAC TURED GOODS IS DIRECTLY RELATED TO THE INDUSTRIAL UNDERTAKING AND WAS TO BE CONSIDERED AS PART OF THE PROFIT FOR COMPUTING DEDUCTION. THE LD. CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THIS DECISION. THEREFO RE, WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFIRM THE SAM E. 33. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS RECEIVED SOME AMOUNTS ON ACCOUNT OF EXCHANGE RATE FLUCTUATIO NS WHICH HAVE BEEN INCLUDED IN THE PROFITS FOR COMPUTING DEDUCTION. H E HELD THAT SUCH PROFITS CANNOT BE SAID TO HAVE BEEN DERIVED FROM INDUSTRIA L UNDERTAKING AND, THEREFORE, NOT ELIGIBLE FOR DEDUCTION U/S 10B. 10 34. ON APPEAL, LD. CIT(A) DECIDED THIS ISSUE IN FAV OUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OW N CASE. 35. BEFORE US LD. DR SUBMITTED THAT NEITHER THE ASS ESSING OFFICER NOR CIT(A) HAS EXAMINED THE NATURE OF FOREIGN EXCHANGE FLUCTUA TION. IF IT IS A SIMPLE CASE OF RECEIVING OF SALE PROCEEDS IN EXCESS DUE TO FORE IGN EXCHANGE FLUCTUATION, THEN DEDUCTION COULD HAVE BEEN ALLOWED BUT IF IT IS A CASE OF DEPOSIT ON FOREIGN EXCHANGE ABROAD AND FLUCTUATION AROSE BECAUSE OF TH AT THEN THE SAME WAS NOT ELIGIBLE FOR DEDUCTION AND IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V SHAH ORIGINA LS 327 ITR 19 (BOM) 36. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT NO DOUBT THIS FACT HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER BUT IN THE EARLIER YEARS THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HE FUR THER SUBMITTED THAT HE WOULD HAVE NO OBJECTION IF THE MATTER IS REMANDED TO VERI FY THIS FACT. 37. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY WE FIND THAT IN THE CASE OF CIT V SHAH ORIGINALS (SUPRA) THE ASSESSEE HAS FILED A RETURN FOR FOR THE ASSESSMENT YEAR 2000-01. AN ORDER OF ASSESSMENT WAS PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 ACCEPTING THE IN COME AS RETURNED. THE ASSESSEE CLAIMED A DEDUCTION UNDER SECTION 80HHC IN THE AMOUNT OF RS. 4.16 CRORES ON THE BASIS THAT THE EXPORT TURNOVER AMOUNT ED TO RS. 8.27 CRORES. ACCORDING TO THE REVENUE, DURING THE PREVIOUS YEAR, THE ACTUAL EXPORT TURNOVER WAS RS. 8 CRORES, THE DIFFERENTIAL AMOUNT OF RS. 26 .62 LAKHS BEING ON ACCOUNT OF GAINS ARISING OUT OF FOREIGN CURRENCY FLUCTUATION. THE ASSESSMENT WAS REOPENED UPON A NOTICE UNDER SECTION 148 ON THE GROUND THAT THE GAINS ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATION HAD NO RELATIONSHIP WI TH THE EXPORTS MADE DURING THE YEAR AND THAT THESE RECEIPTS WERE LIABLE TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR COMPUTING THE DEDUCTION UNDER SECTION UNDER SECTION 80HHC. THE 11 ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD REALI ZED THE FULL AMOUNT ON ACCOUNT OF EXPORT. IF THE AMOUNT WAS KEPT IN A RUPE E ACCOUNT, THERE WOULD BE NO RECEIPT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. THE FLUCTUATION WAS AS A RESULT OF THE ASSESSEE KEEPING A PORTION OF THE REC EIPTS OF EXPORT IN THE EEFC AMOUNT. THE ASSESSING OFFICER NOTED THAT THIS WAS N OT A CASE WHERE THERE WAS A DELAYED REALIZATION OF EXPORT PROCEEDS CONSEQUENT U PON WHICH AN EXCHANGE FLUCTUATION AROSE. CONSEQUENTLY, THE ENTIRE RECEIPT OF RS. 26.62 LAKHS ON ACCOUNT OF EXCHANGE FLUCTUATION WAS TREATED AS INCOME UNDER THE HEAD OF INCOME FROM OTHER SOURCES. THE ASSESSEE ALSO RECEIVED INTEREST INCOME OF RS. 31.29 LAKHS FROM THE EEFC ACCOUNT. THIS RECEIPT WAS ALSO TREATE D AS INCOME UNDER THE HEAD OF INCOME FROM OTHER SOURCES. THE ORDER OF THE ASSE SSING OFFICER WAS AFFIRMED BY THE COMMISSIONER (APPEALS). 38. ON APPEAL THE HON'BLE HIGH COURT HELD AS UNDER: - HELD, ALLOWING THE APPEAL, THAT THE PROCEEDS OF TH E EEFC ACCOUNT WERE TO BE UTILIZED FOR BONAFIDE PAYMENTS BY THE AC COUNT HOLDER SUBJECT TO THE LIMITS AND THE CONDITION PRESCRIBED. AN ASSESSEE WHO WAS AN EXPORTER WAS NOT UNDER AN OBLIGATION OF LAW TO MAINTAIN THE EXPORT PROCEEDS IN THE EEFC ACCOUNT BUT THIS WAS A FACILITY WHICH WAS MADE AVAILABLE BY THE RESERVE BANK. THE TRANSAC TION OF EXPORT WAS COMPLETE IN ALL RESPECT UPON THE REPATRIATION O F THE PROCEEDS. IT LIES WITHIN THE DISCRETION OF THE EXPORTER AS TO WH ETHER THE EXPORT PROCEEDS SHOULD BE RECEIVED IN A RUPEE EQUIVALENT I N ENTIRETY OR WHETHER A PORTION SHOULD BE MAINTAINED IN CONVERTIB LE FOREIGN EXCHANGE IN THE EEFC ACCOUNT. THE EXCHANGE FLUCTUAT ION IN THE EEFC ACCOUNT ARISES AFTER THE COMPLETION OF THE EXP ORT 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. BOTH THE ASSESSING OFFICER AND THE COMMISSIONER (APPEALS) HAD NOTED TH AT THE EXCHANGE FLUCTUATION AROSE SUBSEQUENT TO THE TRANSACTION OF EXPORT. IN OTHER WORDS, THE EXCHANGE FLUCTUATION WAS NOT ON ACCOUNT OF A DELAYED REALIZATION OF EXPORT PROCEEDS. THE DEPOSIT OF THE RECEIPTS IN THE EEFC ACCOUNT AND THE EXCHANGE FLUCTUATION WHICH HAD ARISEN THERE 12 FROM COULD NOT BE REGARDED AS BEING PART OF THE PRO FITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDIS E. THE INTEREST WHICH HAD ARISEN AS A RESULT OF THE DEPOSITS MAINTA INED IN THE EEFC ACCOUNT COULD SIMILARLY NOT BE REGARDED AS REPRESE NTING THE BUSINESS INCOME OF THE ASSESSEE. THE BUSINESS OF TH E ASSESSEE CONSISTS OF THE MANUFACTURE AND EXPORT OF GARMENTS. THE INTEREST INCOME WHICH WAS GENERATED FROM THE DEPOSITS HELD I N THE EEFC ACCOUNT WOULD NOT FALL FOR CLASSIFICATION AS INCOME UNDER THE HEAD OF BUSINESS AND PROFESSION BUT WOULD FALL FOR CLASSIFI CATION AS INCOME FROM OTHER SOURCES. THE INTEREST WHICH ACCRUED TO T HE ASSESSEE ON THE DEPOSITS HELD IN THE EEFC ACCOUNT COULD NOT BE TREATED AS BUSINESS INCOME. 39. THEREFORE, IT BECOMES CLEAR THAT IF AMOUNTS ARE KEPT IN THE EEFC ACCOUNT AND SOME INTEREST AND FLUCTUATION ON SUCH EEFC ACCO UNT IS RECEIVED, THEN THE SAME IS NOT ELIGIBLE FOR DEDUCTION. HOWEVER, WE AGA IN CLARIFY THAT IF GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS ON ACCOU NT OF NORMAL SALE PROCEEDS, THEN SUCH GAIN WOULD BE ELIGIBLE FOR DEDUCTION. SIN CE THESE FACTS HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER OR CIT(A), THEREF ORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO E XAMINE THESE FACTS AND THEN DECIDE THIS ISSUE IN ACCORDANCE WITH LAW. 40. GROUND NO.3 : THIS ISSUE IS IDENTICAL TO THE IS SUE RAISED BY THE ASSESSEE IN ITA NO. 1239/CHD/2010. THROUGH GROUND NO.3 WHICH W E HAVE DECIDED ABOVE VIDE PARA 24. FOLLOWING THE SAME, HERE AGAIN WE R EMAND THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH EXAMINATION IN TERMS OF OUR OBSERVATIONS CONTAINED IN PARA NO. 24. 41. IN THE RESULT APPEAL IS ALLOWED OF STATISTICAL PURPOSES. ITA NO. 1291/CHD/2010: 42. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 13 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONSIDERING THE INTEREST RECEIVED FROM CUSTOMERS ON DELAYED PAYMENTS AMOUNTING TO RS. 3,84,090/- AS BUSINESS I NCOME INSTEAD OF INCOME FROM OTHER SOURCES AS CONSIDERED BY THE A.O. 2. THAT THE LD. CIT(A) HAS ENTERED IN LAW AND ON FA CTS IN DIRECTING THE A.O. TO TREAT THE INTEREST RECEIVED F ROM CUSTOMERS ON DELAYED PAYMENTS AMOUNTING TO RS. 3,84,090/- TO BE THE INCOME ELIGIBLE FOR DEDUCTION U/S 10B. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DIRECTING THE A.O. TO TREAT THE MISCELLANEOUS RECEIPTS ON ACC OUNT OF BROKERAGE/FREIGHT DISCOUNT ALLOWED BY SHIPPING AGEN CIES AMOUNTING TO RS. 1,06,439/- TO BE THE INCOME ELIGIBLE FOR DED UCTION U/S 10B. 4. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO ALLOW DEDUCTION U/S 80IB ON THE BALANCE PROFIT OF THE UNIT AFTER DEDUCTION U/S 10B WHICH IS NOT ADMISSIBL E AS PER SECTION 10B(6)(III). 5. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AN D THAT OF THE A.O. BE RESTORED. 43. GROUND NO.1 & 2 : THE ISSUES RAISED BY THE REVE NUE THOUGH THESE GROUNDS RELATES TO INTEREST RECEIVED FROM CUSTOMERS ON DELA YED PAYMENTS. THE SAID ISSUES HAVE BEEN ADJUDICATED BY US ABOVE IN DETAIL IN REVENUES APPEAL IN ITA NO. 979/CHD/2008 VIDE GROUND NO.1 AND THE SAME IS C OVERED BY THE DECISION GIVEN ABOVE IN PARAS 31 & 32 AND FOLLOWING THE SAME WE DECIDE THESE GROUNDS AGAINST THE REVENUE. 44. GROUND NO. 3:- THE ISSUE RAISED VIDE THIS GROUN D IS IDENTICAL TO ISSUES RAISED IN THE ASSESSEE APPEAL VIDE GROUND NOS 1 & 2 AND OUR DECISION RENDERED IN IN RESPECT OF ABOVE GROUNDS IN PARA 8 & 9 OF THE ORDER HOLD GOOD FOR THIS GROUND ALSO 14 45. GROUND NO.4 : THE ISSUE REGARDING ALLOWABILITY OF DEDUCTION U/S 80IB AND 10B HAVE ALREADY BEEN ADJUDICATED AND DECIDED BY US WHILE DEALING WITH ITA NO. 678/CHD/2014 AND ARE COVERED BY THE SAID DECISI ON. THEREFORE, FOLLOWING THE SAME WE REMAND THIS ISSUE TO THE FILE OF ASSESS ING OFFICER WITH THE SAME DIRECTIONS. 46. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10.02.2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10 TH FEBRUARY,2015 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR