THE DY CIT 14(2), MUMBAI V. M/S. RISHABH IMPEX, MUMBAI

ITA 7133/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0905 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 12-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R N JHA
• Assessee Lawyers: F V IRANI
• Keywords: Gross profit estimation; Business income; Business expenditure; Additional evidence; Corroborative evidences
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI R.K. PANDA, ACCOUNTANT MEMBER I.T.A. NO. 6318/MUM/2007 (ASSESSMENT YEAR : 2004-05) M/S. RISHAB IMPEX 144, BEHRAM MAHAL, 2 ND FLOOR, 534 KALBADEVI ROAD, MUMBAI-400 002 PAN: AAAFR5747B VS. ADDL. CIT, RANGE 14(2) 3 RD FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI-400 021 APPELLANT RESPONDENT I.T.A. NO. 7133/MUM/2007 (ASSESSMENT YEAR : 2004-05) ADDL. CIT, RANGE 14(2) 3 RD FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI-400 021 VS. M/S. RISHAB IMPEX 144, BEHRAM MAHAL, 2 ND FLOOR, 534 KALBADEVI ROAD, MUMBAI-400 002 PAN: AAAFR5747B APPELLANT RESPONDENT ASSESSEE BY : SHRI F.V. IRANI REVENUE BY : SHRI R.N. JHA ORDER DATE OF HEARING: 12.07.2010 DATE OF ORDER: 30.07.2010 PER R.K.PANDA, AM , THESE ARE CROSS APPEALS, THE FIRST ONE FILED BY TH E ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AG AINST THE ORDER DATED 25 TH SEPTEMBER, 2007 OF THE CIT(A)-XIV, MUMBAI RELATING TO ASSESSMENT YEAR 2004-05. FOR THE SAKE OF CONVENIENCE THESE WERE HE ARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE AND GROUNDS OF APPEAL NO. 2 BY THE REVENUE RELATE TO THE PART RELIEF GIVEN BY THE CIT(A) BY DELETING AN AMOUNT OF RS.78,92,068 OUT OF THE GP ADDITION OF RS.2,75,8 9,717 MADE BY THE ASSESSING OFFICER. ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS INVOLVED IN MANUFACTURE AND EXPORT OF FABRIC AND OTHER ITEMS. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.61,39 ,482 AFTER CLAIMING DEDUCTION U/S. 80HHC OF INCOME-TAX ACT, 1961 AT RS. 25,87,814. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS NOTED THAT THE ASSESSEE HAD SHOWN TOTAL SALES OF RS.31,22,46,861 ( EXPORT SALES OF RS.31,20,00,143 AND LOCAL SALES OF RS.2,46,718) AND THE GROSS PROFIT OF RS.36,34,969 ONLY WHICH IS 1.17%. HE NOTED THAT TH E ASSESSEE HAS SHOWN HIGHER GROSS PROFIT RATE IN THE PRECEDING THREE YEA RS WHICH IS AS UNDER: A.Y. TOTAL SALES (RS.) GROSS PROFIT (RS.) GROSS PROFIT (%) 2003-04 39,02,02,282 4,67,24,149 11.97 2002-03 35,00,71,469 4,14,22,279 11.83 2001-02 43,55,29,670 5,37,52,961 12.34 4. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR SUCH DRASTIC FALL IN THE GROSS PROFIT RATE. IT WAS EXPL AINED BY THE ASSESSEE THAT THE FALL IN SUCH GP RATE IS DUE TO THE CONTINUOUS DROP IN THE VALUE OF US DOLLAR. IT WAS FURTHER STATED THAT THE EXCISE DUTY PAID HAS BE EN REVERSED FROM THE PURCHASES TO THE EXTENT OF EXCISE DUTY RECEIVABLE O F RS.1,32,90,350 AND EXCISE DUTY RECEIPT DURING THE YEAR AT RS.85,24,661 HAS BE EN CREDITED TO THE PROFIT AND LOSS A/C. THE CLOSING STOCK WAS VALUED AT COST ONLY. THUS THE ENTIRE EXCISE DUTY PAID HAS BEEN REDUCED FROM THE PURCHASE S. 5. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WI TH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE DECLINE I N VALUE OF RUPEE VIS--VIS US DOLLAR WAS THERE IN A.Y. 2003-04 ALSO WHEN THE ASSE SSEE WAS ABLE TO SHOW GP RATE OF 11.97%. SIMILARLY IT WAS ALSO THERE IN A.Y . 2002-03 AND 2001-02 WHEN THE ASSESSEE HAD SHOWN GP RATE OF 11.83 AND 12.34% RESPECTIVELY. HE FURTHER NOTED THAT THE EXPORT PROCEEDS ARE GENERALLY RECEIV ED WITHIN A PERIOD OF THREE TO FOUR MONTHS AND VERY LITTLE AMOUNT IS OUTSTANDIN G AT THE END OF THE FINANCIAL YEAR. WHATEVER AMOUNTS ARE OUTSTANDING AT THE END OF THE FINANCIAL YEAR ARE RECEIVED BACK WITHIN SIX MONTHS. CONSIDERING THE P ART OF DECLINE IN GP RATE DUE TO FALL IN EXCHANGE RATE AND CONSIDERING THE CY CLE OF THREE TO FOUR MONTHS FOR RECEIVING THE EXPORT PROCEEDS AFTER THE INVOICE S ARE PREPARED, THE ASSESSING ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 3 OFFICER WAS OF THE OPINION THAT THE AVERAGE FALL IN EXCHANGE RATE DURING A.Y. 2004-05 IS AROUND 2%. THEREFORE, THE ASSESSING OFF ICER WAS OF THE OPINION THAT FLUCTUATION IN US DOLLAR RATE TO THE EXTENT OF 2% CANNOT EXPLAIN THE FALL IN GP RATE FROM 12% APPROXIMATELY IN THE PRECEDING YEA R TO 1.17% IN THE CURRENT YEAR. 6. THE ASSESSING OFFICER NOTED FROM THE AUDITORS REPO RT IN FORM NO. 3CD THAT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGI STER AND PRODUCTION REGISTER. HE FURTHER NOTED FROM COLUMN NO. 9(C) OF FORM NO. 3CD THAT THE AUDITOR HAS EXAMINED THE BOOKS ONLY ON TEST CHECK B ASIS. THE AUDITORS HAVE QUALIFIED THE AUDIT REPORT IN COLUMN 28(A) OF FORM NO. 3CD WHICH READS AS UNDER: AS PER INFORMATION AND EXPLANATION GIVEN TO US, IT IS NOT POSSIBLE AND PRACTICAL FOR THE FIRM TO MAINTAIN QUA NTITATIVE DETAILS OF FINISHED PRODUCTS, HENCE WE ARE UNABLE T O GIVE DETAILS OF THE SAME. FURTHER THE ASSESSEE HAS ARRIVED AT CLOSING STOCK AS PER PHYSICAL VERIFICATION DONE BY THE PROPRIETOR AND WE HAVE RELIED UPON IT. SIMILARLY, THE ASSESSING OFFICER NOTED THAT THE AUD ITOR IN COLUMN NO. 32(D) OF FORM NO. 3CD HAVE HELD AS UNDER: MATERIAL CONSUMED/FINISHED GOODS PRODUCED : NOT APPLICABLE. 7. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER CAME TO THE FOLLOWING CONCLUSION: I) THE ASSESSEE HAS NOT BEEN MAINTAINING STOCK RE GISTER AND PRODUCTION REGISTER. II) THE QUANTITY-WISE DETAILS REGARDING CONSUMPTIO N OF MATERIAL AND PRODUCTION OF FINISHED GOODS ARE NOT MAINTAINED. III) THE RATIO OF MATERIAL CONSUMED/FINISHED GOODS PRODUCED ARE NOT DISCERNIBLE IN THE ABSENCE OF THESE DETAILS . IV) THE FALL IN GROSS PROFIT RATE FROM 12% IN EARL IER YEARS TO 1.17% IN A.Y. 2004-05 CANNOT BE FULLY EXPLAINED BY FALL IN EXCHANGE RATE ALONE. V) THE VALUATION OF CLOSING STOCK MADE BY THE ASSE SSEE IS NOT RELIABLE IN THE ABSENCE OF STOCK REGISTER AND PRODU CTION REGISTER. ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 4 8. THE ASSESSING OFFICER ACCORDINGLY REJECTED THE BOOK S OF ACCOUNT U/S. 145(3) OF THE ACT ON THE GROUND THAT THE BOOK RESU LTS OF THE ASSESSEE ARE NOT RELIABLE. RELYING ON A COUPLE OF DECISIONS AND CON SIDERING THE AVERAGE GP RATE OF APPROXIMATELY 12% FOR THE PRECEDING THREE YEARS AND AFTER GIVING BENEFIT OF 2% FALL IN US DOLLAR RATE DUE TO EXCHANGE RATE, THE ASSESSING OFFICER CALCULATED THE GP RTE FOR THE A.Y. 2004-05 @ 10% WHICH COMES T O RS.3,12,24,686 ON THE TOTAL SALES OF RS.31,22,46,861. AFTER DEDUCTING TH E GP SHOWN AT RS.36,34,969 THE ASSESSING OFFICER MADE AN ADDITION OF RS.2,75,8 9,717 TO THE TOTAL INCOME OF THE ASSESSEE. 9. BEFORE THE CIT(A), THE ASSESSEE FURNISHED CERTAIN A DDITIONAL EVIDENCES WHICH WERE FORWARDED TO THE ASSESSING OFFICER FOR H IS EXAMINATION/COMMENTS. IT WAS EXPLAINED BEFORE THE CIT(A) THAT THE FALL IN GP WAS DUE TO DECREASE IN THE VALUE OF SALES REALISATION DUE TO RISING VALUE OF INDIAN RUPEE, INCREASE IN COST OF PRODUCTION AND FAULTY PRESENTATION OF FINAN CIAL STATEMENT. IT WAS SUBMITTED THAT THE PRICE OF EXPORT CONSIGNMENT WAS NORMALLY FIXED KEEPING IN VIEW THE EXCHANGE RATE PREVALENT AT THE TIME OF REC EIVING THE ORDER FOR PURCHASE OF GREY FABRICS FROM VARIOUS PLACES. THER EAFTER THE WEAVERS PRODUCE THE GREY FABRICS AS PER THE REQUIREMENT OF THE BUYE RS. THE GREY FABRICS GET DIED, BLEACHED AND/OR PRINTED AT THE PROCESS HOUSES . THE PROCESS FURTHER TAKES ABOUT ONE MONTH AND AFTER SHIPMENT IT TAKES N ORMALLY SIX TO SEVEN MONTHS FOR RECEIVING PAYMENT FROM OVERSEAS BUYERS. THEREFORE, THERE IS A TIME DIFFERENCE OF NINE TO 10 MONTHS FROM THE DATE OF ORDER TO THE DATE OF PAYMENT ACTUALLY RECEIVED. IT WAS FURTHER SUBMITTE D THAT DURING THE YEAR THE GOVERNMENT HAS PRESCRIBED NEW EXCISE PROCEDURE ON T EXTILES AND TEXTILE ARTICLES W.E.F. 1.4.2003. THE ASSESSEE RECEIVED CE NTRAL EXCISE REBATE WORTH RS.85,24,661 WHICH STOOD CREDITED TO THE PROFIT AND LOSS A/C. SINCE THE EXCISE DUTY PAID ON PURCHASES HAS BEEN SHOWN ALONG WITH PU RCHASES IN THE TRADING ACCOUNT, IT WAS EXPLAINED THAT THE CENTRAL EXCISE R EBATE SHOULD HAVE BEEN REDUCED FROM THE COST OF PURCHASES SHOWN IN THE TRA DING ACCOUNT. IT WAS SUBMITTED THAT HAD THE AMOUNT OF CENTRAL EXCISE REB ATE BEEN TAKEN TO THE TRADING ACCOUNT THE GP WOULD HAVE INCREASED BY A SU M OF RS.85,24,661 RESULTING IN THE GP RATE OF MORE THAN 2.73%. THE A SSESSEE FURTHER SUBMITTED ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 5 THAT THE FALL IN GP WAS ALSO PARTIALLY DUE TO THE I NCREASE IN COST OF PURCHASES/PRODUCTION AND ALSO INCREASE IN COST OF C ARRIAGE INWARD AND PACKING MATERIAL. FINALLY IT WAS EXPLAINED THAT THE ASSESS EE DURING THE YEAR HAD RECEIVED HIGHER AMOUNT OF EXPORT INCENTIVES COMPARE D TO OTHER YEARS. IT WAS EXPLAINED THAT SINCE THE ASSESSEE WAS CONCERNED WIT H OVERALL PROFITS FROM EXPORT ACTIVITIES AND IN CONSIDERATION OF THE AMOUN T OF EXPORT INCENTIVES RECEIVED DURING THE YEAR THE GP RATE SHOWN BY THE A SSESSEE WAS COMPARABLE WITH THE REMAINING YEARS. THE ASSESSEE ALSO SUBMIT TED THE FOLLOWING CHART OF GP RATE AFTER INCLUDING THE AMOUNT OF EXPORT INCENT IVES. 31.3.2002 31.3.2003 31.3.2004 31.3.2005 31.3.2006 SALES 350071469 390202282 312246861 437961548 376943735 GROSS PROFIT 41422280 46724150 3634970 48594671 68312093 EXPORT INCENTIVES 33311654 28377847 52756123 24410634 8017972 GP INC. EXPORT INCENTIVES 74733934 75101997 56391093 73005305 76330065 GP RATIO 21.35 1925 18.06 16.68 20.25 10. AS REGARDS THE OBSERVATION OF THE ASSESSING OFFICER THAT THE BENEFIT OF SECTION 80HHC HAS BEEN PHASED OUT FOR WHICH THE ASS ESSEE HAS DRASTICALLY REDUCED THE GP, IT WAS EXPLAINED THAT THE ASSESSEE DURING THE A.Y. 2005-06 HAS SHOWN HIGHER GP AT 11.1%. IT WAS ACCORDINGLY S UBMITTED THAT DUE TO VARIOUS ABNORMAL FACTORS BEYOND THE CONTROL OF THE ASSESSEE THERE WAS FALL IN GP RATE. 11. ON THE BASIS OF THE ADDITIONAL EVIDENCE FORWARDED B Y THE CIT(A) WHICH WAS FORWARDED TO HIM, THE ASSESSING OFFICER UNDERTO OK INDEPTH EXAMINATION OF THE SUBMISSIONS/ADDITIONAL EVIDENCE SUBMITTED BY THE ASSESSEE AND CALLED FOR BOOKS OF ACCOUNT, VOUCHERS AND RELEVANT REGISTE RS IN ORDER TO VERIFY THE CORRECTNESS OF THE SUBMISSIONS/EXPLANATION FOR FALL IN GP RATE. THE ASSESSING OFFICER ALSO RECORDED THE STATEMENT OF MR. SHRIPAL JAIN, THE PARTNER AND MR. PRAVIN JAIN, THE AUDITORS. THE ASSESSING OFFICER I N HIS REPORT DATED 29 TH JUNE, 2007 ADMITTED THAT BECAUSE OF THE FAULTY PRESENTATI ON OF THE ACCOUNTS RS.85,24,661 WAS CREDITED TO PROFIT AND LOSS A/C. I NSTEAD OF TREADING ACCOUNT FOR WHICH THE ACTUAL GP WAS SHOWN AT A LESSER FIGUR E BY RS.85,24,661. AS REGARDS THE INCREASE IN COST OF PRODUCTION THE ASSE SSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE. HE COMMENTED THAT IF THE COST OF RAW MATERIAL OF FINANCIAL YEAR 2002-03 AND 2003-04 ARE COMPARED, IT WAS APPARENT THAT THERE WAS HARDLY ANY INCREASE IN THE COST OF RAW MATERIAL. THE ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 6 ASSESSING OFFICER FURTHER OBSERVED THAT IN THE AUDI TED ACCOUNTS THERE HAS BEEN NO MENTION OF ANY SHORTAGE CLAIM WHEREAS ON SCREENI NG THE MONTH-WISE DETAILS OF PURCHASES, CONSUMPTION AND SALES, THE AS SESSEE HAD CLAIMED SUBSTANTIAL SHORTAGE IN THE MANUFACTURING PROCESS W HICH WAS NOT SUPPORTED BY PROPER EVIDENCE. THE ASSESSING OFFICER CONCLUDED T HAT AS PER THE CHART SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS, THE CLOSING STOCK SHOULD HAVE BEEN RS.19,49,675.63 METRES WHERE AS THEY HAVE TAKEN THE VALUE OF ONLY 14,60,310.82 METRES IN THE BALANCE SH EET AND THE SHORTAGE HAS BEEN DECLARED VERY HIGH AT 3.45% FOR WHICH COMPLETE SUPPORTING EVIDENCE WAS NOT AVAILABLE. THE ASSESSING OFFICER EXAMINED THE PACKING SLIPS OF THE PROCESS HOUSES WORKING FOR THE ASSESSEE AND CAME TO THE CON CLUSION THAT ACTUAL SHORTAGE WORKED OUT IN THE CASE OF KITANGE VARIETY STOOD AT 2.3% ONLY AND TAKING INTO ACCOUNT THE SHORTAGE AND ELONGATION THE ASSESSEE COULD HAVE INCURRED THE SHORTAGE OF 2% OVER ALL ON THE CONSUMP TION OF RAW MATERIAL. HOWEVER, WITHOUT ANY DOCUMENTARY EVIDENCE THE ASSES SEE HAS CLAIMED SUCH SHORTAGE AT 3.44%. THE ASSESSING OFFICER ALSO ON A SAMPLE TEST CHECK BASIS FOUND THAT THE GP RATE WITH REGARD TO CERTAIN ITEMS OF FABRIC WAS ABNORMALLY HIGH RANGING AT 21.42%, 14.03%, 43.25% AS AGAINST 1 .17% DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. 12. THE LEARNED CIT(A) CONFRONTED THE REMAND REPORT TO THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND RELYING ON A COUPLE OF DECISIONS THE CIT(A) HELD THAT IT WOULD BE REASONAB LE TO ESTIMATE THE GP RATE @ 7% AS AGAINST 10% ESTIMATED BY THE ASSESSING OFFI CER. WHILE DOING SO, HE NOTED THAT THERE WERE CERTAIN DISCREPANCIES WHICH R EMAINED TO BE SATISFACTORILY EXPLAINED BY THE ASSESSEE. HE NOTED THAT AS PER THE AUDITORS REPORT THE ASSESSEE IS NOT MAINTAINING ANY STOCK RE GISTER AND THE AUDITOR HAS EXAMINED THE BOOKS OF ACCOUNT ON TEST CHECK BASIS O NLY. FURTHER AT THE TIME OF AUDIT THE AUDITORS WERE NOT PROVIDED WITH FULL RECO RDS/DETAILS SUCH AS STOCK REGISTER, QUANTITATIVE DETAILS OF RAW MATERIAL CONS UMED AND FINISHED PRODUCTS FOR WHICH THEY HAVE TO RELY ON THE ORAL OPINION SUP PLIED AND PHYSICAL VERIFICATION CLAIMED TO HAVE BEEN DONE BY THE PARTN ERS. THEREFORE, THE CORRECTNESS AND CREDIBILITY OF THE ACCOUNTS WAS NOT VERIFIED BY THE AUDITORS. HE NOTED THAT THE AUDITOR SHRI PRAVIN JAIN IN HIS S TATEMENT HAD ADMITTED THAT ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 7 HE HAS NOT EXAMINED THE PRODUCTION RECORD, INPUT AN D OUTPUT RATIO AND WASTAGE PERCENTAGE BECAUSE THE ASSESSEE HAS NOT PRO DUCED DOCUMENTS/ RECORDS BEFORE HIM. IT WAS ALSO ADMITTED BY HIM TH AT HE HAS NOT EXAMINED THE STOCK REGISTER AND PRODUCTION RECORD. IT WAS FURTH ER STATED BY HIM THAT SINCE THE TRIAL BALANCE WAS SUBMITTED ONLY TOWARDS THE FA G END OF THE LAST DATE OF SUBMITTING THE AUDIT REPORT, THE VARIOUS DETAILS CO ULD NOT BE EXAMINED BY HIM. THIS, ACCORDING TO THE CIT(A), IS A SERIOUS LAPSE A ND THE CLAIM THAT THE ASSESSEE HAD MAINTAINED ALL BOOKS OF ACCOUNT IN THE REGULAR COURSE OF BUSINESS IS NOT CORRECT. HE FURTHER NOTED THAT THE FACT THAT ALL N ECESSARY DETAILS/RECORDS/ BOOKS WERE NOT PRODUCED BEFORE THE AUDITORS, WHO PR EPARED THE AUDITED REPORT WITHOUT EXAMINING THE RELEVANT RECORDS, BY ITSELF W AS A SERIOUS DISCREPANCY AND ALSO A BREACH OF STATUTORY DUTIES COMMITTED BY THE AUDITORS IN COLLUSION WITH THE ASSESSEE. FURTHER THE ASSESSEE WAS ALSO N OT ABLE TO EXPLAIN THE HEAVY SHORTAGE @ 3.44%. FURTHER THERE IS NO PROPER BASI S FOR VALUATION OF CLOSING STOCK IN THE ABSENCE OF PROPER RECORDS, THE RATES A ND QUALITY OF THE RAW MATERIAL COULD NOT BE CORRELATED WITH THE ITEMS OF FINISHED PRODUCTS. IN VIEW OF THE ABOVE DISCREPANCIES CASTING DOUBT ON THE COR RECTNESS OF THE BOOKS OF ACCOUNT, HE WAS OF THE VIEW THAT THE ASSESSING OFFI CER WAS FULLY JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T. 13. AS REGARDS THE VARIOUS REASONS/FACTORS ATTRIBUTABLE TO FALL IN GP RATE, HE NOTED THAT THE ASSESSING OFFICER HAS ACCEPTED THE C ORRECTNESS OF ONE FACTOR I.E., FAULTY PRESENTATION WITH REGARD TO THE EXCISE DUTY REBATE OF RS.85,24,661 WHICH HAS BEEN WRONGLY CREDITED TO THE PROFIT AND LOSS A/ C. INSTEAD OF TRADING ACCOUNT. THEREFORE, TO THIS EXTENT HE ACCEPTED THE CONTENTION OF ASSESSEE. AS AGAINST THE FALL IN EXCHANGE RATE AT 2% AND THE CYC LE OF THREE TO FOUR MONTHS CONSIDERED BY THE ASSESSING OFFICER, THE CIT(A) WAS OF THE OPINION THAT THE ENTIRE PROCESS MUST HAVE INVOLVED AN AVERAGE PERIOD OF FIVE TO SIX MONTHS AND IN VIEW OF THE CONTINUOUS DECLINE IN THE EXCHANGE R ATE AND CONSIDERING THE ESTIMATE MADE BY THE ASSESSING OFFICER AT 2% BEING AT LOWER SIDE, HE WAS OF THE OPINION THAT THE ASSESSEE DESERVES A BENEFIT OF AROUND 3% ON ACCOUNT OF LESSER REALISATION DUE TO FALL IN EXCHANGE RATE. AS REGARDS THE CONTENTION OF THE ASSESSEE REGARDING INCREASE IN COST OF PRODUCTI ON, HE WAS OF THE OPINION THAT THE BENEFIT/ADJUSTMENT OF ABOUT 2% WAS ALLOWAB LE TO THE ASSESSEE ON ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 8 ACCOUNT OF INCREASE IN COST OF RAW MATERIAL. AS RE GARDS THE CLAIM OF THE ASSESSEE THAT IT HAD RECEIVED HIGHER EXPORT INCENTI VES DURING THE YEAR AT RS.5.28 CRORES AS AGAINST RS.2.84 CRORES AND RS.3.3 3 CRORES DURING THE PRECEDING TWO YEARS AND RS.2.44 CRORES DURING THE S UCCEEDING YEAR AND, THEREFORE, THE SALE PRICE HAD BEEN REDUCED, HE HELD THAT THE SAME HAS NEITHER BEEN PROVIDED BY THE ASSESSEE NOR IT IS A GENERAL P HENOMENON. SINCE THE ASSESSEE HAD RECEIVED EXPORT INCENTIVES AT A HIGHER RATE DURING THE YEAR, IT IS POSSIBLE THAT THE SALE PRICE MIGHT NOT HAVE BEEN IN CREASED BY THE ASSESSEE IN PROPORTION TO THE INCREASE IN THE COST OF PRODUCTIO N DURING THE YEAR. THEREFORE, THE IMPACT OF HIGHER EXPORT INCENTIVES R ECEIVED DURING THE YEAR ALREADY STOOD CONSIDERED. HE FURTHER NOTED THAT SO ME OF THE EXPORT INCENTIVES RECEIVED BY THE ASSESSEE DURING THE YEAR PERTAIN TO THE EXPORTS DONE DURING THE EARLIER YEARS. THEREFORE, THE ASSESSEE WAS NOT ENT ITLED TO ANY FURTHER ADJUSTMENT IN GP RATE ON ACCOUNT OF EXPORT INCENTIV ES. 14. CONSIDERING ALL THE FACTS, MATERIAL/EVIDENCES, HE W AS OF THE OPINION THAT THE ASSESSEE DESERVES THE ADJUSTMENT TO THE EXTENT OF 5% (3% ON ACCOUNT OF EXCHANGE RATE + 2% ON ACCOUNT OF COST OF PRODUCTION ). HE ACCORDINGLY HELD THAT THE GP RATE OF 7% ON TOTAL TURNOVER WILL BE RE ASONABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. AFTER EXCLUDING THE GP OF RS.1,21,59,631 (INCLUSIVE OF EXCISE DUTY REBATE), HE SUSTAINED THE ADDITION T O THE EXTENT OF RS.96,96,649 AS AGAINST RS.2,75,89,717 ADDED BY THE ASSESSING OF FICER. AGGRIEVED WITH SUCH PART RELIEF BOTH THE ASSESSEE AND THE REVENUE ARE I N APPEAL BEFORE US. 15. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE CIT(A). HE SUBMITTED THAT THE ASSE SSEE HAS EXPLAINED THE FALL IN GP RATIO WHICH WAS NOT PROPERLY APPRECIATED BY T HE CIT(A) WHO RESTRICTED THE SAME TO 7% AS AGAINST 1.17% DECLARED BY THE ASS ESSEE. HE SUBMITTED THAT THE ASSESSEE HAS WRONGLY TAKEN THE EXCISE REBATE OF RS.85,24,661 IN THE PROFIT AND LOSS A/C. INSTEAD OF TRADING ACCOUNT FOR WHICH THE GP HAS FALLEN DOWN BY 3.89%. DURING THE ASSESSMENT PROCEEDINGS, THE ASSE SSING OFFICER HAS ACCEPTED IN TOTO AND THE CIT(A) HAS ALSO ACCEPTED T HE SAME. AS REGARDS THE FALL IN VALUE OF US DOLLAR AS COMPARED TO EARLIER Y EAR THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 46 OF THE PAPER BOOK AND DREW THE ATTENTION OF ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 9 THE BENCH TO THE EXCHANGE RATE OF THE US DOLLAR FOR THE YEAR AS COMPARED TO THE PREVIOUS YEAR. HE SUBMITTED THAT THE TOTAL DIF FERENCE ON ACCOUNT OF FALL IN THE VALUE OF US DOLLAR AMOUNTS (APPROXIMATELY) TO R S. 48 LAKHS AND IF SUCH FALL IN THE VALUE OF US DOLLAR IS CONSIDERED, THEN IT CO MES TO 4.56% WHEREAS THE CIT(A) HAS ACCEPTED ONLY 3.10%. HE SUBMITTED THAT THE INCREASE IN THE COST OF INPUTS HAS GONE FROM 2.72% TO 12.40%. HOWEVER, THE CIT(A) HAS CONSIDERED ONLY 2% AS ATTRIBUTABLE TOWARDS DECLINE IN THE GP R ATIO AS AGAINST ALMOST 9% ON AVERAGE. HE SUBMITTED THAT IF THE EXPORT INCENT IVES ARE CONSIDERED FOR THE PURPOSE OF COMPUTING THE GP RATIO ALONG WITH THE EX CISE REBATE, FALL IN THE VALUE OF DOLLAR AND INCREASE IN COST OF INPUTS, THE RE WILL BE HARDLY ANY DIFFERENCE IN THE GP RATE OF THE CURRENT YEAR AS CO MPARED TO THE PRECEDING AND SUCCEEDING YEARS. HOWEVER, THE CIT(A) HAS NOT GIVE N ANY WEIGHTAGE FOR THE EXPORT INCENTIVES. HE SUBMITTED THAT THE ASSESSEE HAS MAINTAINED PROPER ACCOUNTS, ACCOUNTS ARE AUDITED AND NO MAJOR DISCREP ANCIES HAVE BEEN FOUND BY THE AUDITOR. HE ACCORDINGLY SUBMITTED THAT THE BOOK RESULT AS DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED AND ANY ADDITION ON ACCOUNT OF LOW GP RATE SHOULD BE DELETED. 16. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN A LIBERAL APPROACH BY GIVING CREDIT OF 2% TOWARDS FALL IN THE VALUE OF DOLLAR. THE EXCISE REBATE OF R.85,24,661 WHICH WAS WRONGLY TAKEN INTO PROFIT AND LOSS A/C. INSTEAD OF TRADING ACCOUNT HAS ALREADY BEEN CONSIDE RED BY THE CIT(A). AS REGARDS THE SUBMISSION OF THE LEARNED COUNSEL FOR T HE ASSESSEE THAT A PART OF THE FALL IN GP RATE IS DUE TO INCREASE IN COST OF I NPUTS, HE SUBMITTED THAT THE ASSESSEE MUST BE RAISING INVOICES AFTER TAKING INTO ACCOUNT THE RISE IN THE COST OF MATERIAL. REFERRING TO A FEW COPIES OF SAMPLE I NVOICES, HE SUBMITTED THAT THE SELLING PRICE PER METRE IN SOME CASES HAS GONE UP. SIMILARLY COST OF RAW MATERIALS ON ACCOUNT OF CERTAIN ITEMS HAS ALSO COME DOWN. FURTHER THIS ISSUE WAS NEVER RAISED BEFORE THE ASSESSING OFFICER DURIN G THE ASSESSMENT PROCEEDINGS WHEN THE ASSESSING OFFICER ASKED THE AS SESSEE TO EXPLAIN THE REASONS FOR SUCH FALL IN GP RATE. THEREFORE, NO BE NEFIT ON THIS ACCOUNT SHOULD BE GIVEN. AS REGARDS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT EXPORT INCENTIVES BE TAKEN INTO ACCOUNT FOR CA LCULATING GP RATIO, THE ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 10 LEARNED DR SUBMITTED THAT NO WEIGHTAGE SHOULD BE GI VEN BECAUSE EXPORT INCENTIVES ARE NOT PART OF THE TRADING RESULT AND I T HAS TO BE CONSIDERED ONLY IN THE PROFIT AND LOSS A/C. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER SHOULD BE UPHELD. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). WE HAVE ALSO CONSIDERED THE PAPER BOOK SUBMITTED ON BEHALF OF TH E ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE, IN HIS RESPO NSE TO THE NOTICE ISSUED BY THE ASSESSING OFFICER TO EXPLAIN THE FALL IN THE GP RAT E, HAS SUBMITTED THAT THE DECLINE IN GP RATE IS DUE TO CONTINUOUS DROP IN THE VALUE OF US DOLLAR AND NON CREDIT OF EXCISE DUTY REBATE OF RS.85,24,661 TO THE TRADING ACCOUNT. WE FIND THE ASSESSING OFFICER AFTER CONSIDERING THE EXPLANA TION OF THE ASSESSEE REGARDING FALL IN THE VALUE OF US DOLLAR ALLOWED CR EDIT OF 2% FROM THE AVERAGE GP RATE OF 12% FOR THE THREE PRECEDING YEARS AND ES TIMATED THE GP OF THE ASSESSEE AT 10%. WE FIND IN APPEAL THE ASSESSEE FI LED CERTAIN ADDITIONAL EVIDENCES AND THE CIT(A) AFTER CONSIDERING THE REMA ND REPORT OF THE ASSESSING OFFICER ON THE BASIS OF THE ADDITIONAL EVIDENCES AN D CONSIDERING THE SUBMISSIONS BY THE ASSESSEE BEFORE HIM, HAS GIVEN A FURTHER CREDIT OF 1% TOWARDS FALL IN THE US $ AND 2% ON ACCOUNT OF INCRE ASE IN INPUT COST AND SUSTAINED THE GP ESTIMATION AT 7%. IT IS THE SUBMI SSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FALL IN THE VALUE OF US D OLLAR SHOULD BE CONSIDERED AT 4.56% AND THE INCREASE IN COST OF INPUTS WHICH IS B ETWEEN 2.72% TO 12.40% SHOULD BE SUITABLY ENHANCED AS AGAINST 2% CREDIT GI VEN BY THE CIT(A). FURTHER THE EXPORT INCENTIVES ACCORDING TO THE LD. AR ALSO SHOULD BE TAKEN INTO ACCOUNT FOR CALCULATING THE OVERALL GP RATE OF CURRENT YEAR AS WELL AS THAT OF THE PRECEDING YEAR. HOWEVER, WE DO NOT FIND MUCH FORCE IN THE ABOVE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. WE FIND T HE CIT(A) AFTER CONSIDERING THE AVERAGE PERIOD OF 5 TO 6 MONTHS INVOLVED FROM T HE DATE OF RECEIVING THE ORDER TILL THE DATE OF REALISATION OF THE VALUE AND CONSIDERING THE CONTINUOUS DECLINE IN THE EXCHANGE RATE OF DOLLAR DURING THE R ELEVANT PERIOD AND THE PERCENTAGE FALL IN STOCK EXCHANGE RATE HAS CONSIDER ED 3% DECLINE IN GP RATE AS REASONABLE. SIMILARLY AS REGARDS THE INCREASE IN C OST OF INPUTS, WE FIND THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS HAS GIVEN A FINDING THAT IN ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 11 CASE OF CERTAIN ITEMS OF RAW MATERIALS THE PRICE HA S GONE DOWN. FURTHER FROM THE COPIES OF THE SAMPLE INVOICES PLACED AT PAPER B OOK PAGES 94 TO 96 IT CAN BE FOUND THAT THE SELLING PRICE PER METRE IN SOME CASE S HAS GONE UP AND IN SOME CASES IT HAS GONE DOWN. WE ALSO FIND SOME FORCE IN THE SUBMISSION OF THE LEARNED DR THAT THE ASSESSEE WHILE RAISING ITS INVO ICES MUST HAVE TAKEN INTO CONSIDERATION THE RISE IN THE INPUT COST. CONSIDE RING THE OVERALL SITUATION OF THE IMPUGNED CASE, WE FIND THE CIT(A) HAS REASONABL Y GIVEN CREDIT OF 2% TOWARDS FALL IN THE GP RATE DUE TO INCREASE IN COST OF INPUTS. AS REGARDS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT EXPORT INCENTIVES ALSO SHOULD BE TAKEN INTO ACCOUNT WE DO NOT FIND MUCH FO RCE IN THE SAME. IN OUR OPINION, THE EXPORT INCENTIVES ARE NOT A TRADING IT EM AND AN ITEM OF PROFIT AND LOSS A/C. IT IS ALSO A FACT THAT THE ASSESSEE HAD NOT MAINTAINED STOCK REGISTER OR PRODUCTION REGISTER. A FINDING HAS BEEN GIVEN B Y THE ASSESSING OFFICER ON THE BASIS OF STATEMENT RECORDED FROM THE PARTNER AS WELL AS THE AUDITOR OF THE ASSESSEE FIRM THAT THE TRIAL BALANCE WAS GIVEN TO T HE AUDITORS TOWARDS THE FAG END OF THE LAST DATE OF SUBMITTING THE AUDIT REPORT AND THE VARIOUS DETAILS COULD NOT BE EXAMINED BY THE AUDITORS WHO HAD SIMPLY RELI ED ON THE PHYSICAL VERIFICATION GIVEN BY THE PARTNER. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE FIND THE CIT(A) HAS MADE A REASONABLE ESTI MATE OF THE GP AT 7% AS AGAINST 10% ESTIMATED BY THE ASSESSING OFFICER IN H IS ELABORATE ORDER. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE SAME AN D ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. THE GROUNDS RAI SED BY THE ASSESSEE AS WELL AS THE REVENUE ON THIS ISSUE ARE ACCORDINGLY DISMIS SED. 18. GROUNDS OF APPEAL NO. 2 BY THE ASSESSEE AND GROUND S OF APPEAL NO. 4 BY THE REVENUE RELATE TO THE ORDER OF THE CIT(A) IN SUSTAINING THE DISALLOWANCE ON ACCOUNT OF KEYMAN INSURANCE PREMIUM AT RS.30,32, 256 OUT OF RS.67,54,701 DISALLOWED BY THE ASSESSING OFFICER. 19. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAD DEBITED A SUM OF RS.67,54,701 IN THE PROFIT AND LOSS A/C. AS KEYMAN INSURANCE PREMIUM ON ACCOUNT OF 8 PARTNERS. THE ASSESSING OFFICER NOTED THAT ALL THE ABOVE PERSONS WERE PARTNERS IN THE ASSESSEE FIRM BUT NONE OF THEM WAS DESIGNATED AS WORKING PARTNER IN THE PARTNERSHIP DEED. CONSIDERI NG THE FACT THAT NO SALARY/ ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 12 REMUNERATION AND INTEREST HAD BEEN PAID TO ANY OF T HE PARTNERS IN ANY OF THE ASSESSMENT YEAR AND REFERRING TO EXPLANATORY NOTE O F FINANCE ACT, 1996 FOR PROPER UNDERSTANDING OF THE MEANING OF THE EXPRESSI ON KEYMAN AND AFTER CONSIDERING THE FACT THAT THERE WERE THREE LADY PAR TNERS, THE ASSESSING OFFICER DISALLOWED THE ENTIRE AMOUNT OF RS.67,54,701 CLAIME D BY THE ASSESSEE IN THE PROFIT AND LOSS A/C. AS KEYMAN INSURANCE PREMIUM. 20. IN APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF KEYMAN INSURANCE PREMIUM ON ACCOUNT OF FIVE MALE PARTNERS BUT DISALL OWED THE SAME IN RESPECT OF LADY PARTNERS AMOUNTING TO RS.3,03,256 BY OBSERV ING AS UNDER: THE LADY PARTNERS COULD NOT BE TREATED AS KE YMAN AS THEY WERE NEITHER ACTIVE PARTNERS NOR WERE RENDERIN G ANY SERVICES WHICH COULD HAVE A SIGNIFICANT EFFECT ON T HE PROFITABILITY OF THE BUSINESS. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 21. AFTER HEARING BOTH THE SIDES, WE FIND SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-0 6 AND THE TRIBUNAL VIDE I.T.A. NO. 6585/MUM/08 AND I.T.A. NO.6352/MUM/08 OR DER DATED 29 TH SEPTEMBER, 2009 HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION FOR THE ENTIRE AMOUNT OF PREMIUM PAID AS KEYMAN INSURAN CE PREMIUM ON BEHALF OF THE PARTNER. RESPECTFULLY FOLLOWING THE DECISIO N OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT BEFORE US BY THE LEARNED DR, THE G ROUND RAISED BY THE ASSESSEE HAS TO BE ALLOWED AND THE GROUND RAISED BY THE REVENUE HAS TO BE DISMISSED. 22. IN GROUNDS OF APPEAL NO. 3 THE REVENUE HAS CHALLENG ED THE ORDER OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF LOSS OF RS.9,19,212 DUE TO EXCHANGE RATE DIFFERENCE. 23. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE CLAIMED THE LOSS OF RS.9,19,212 AS LOSS ON ACCOUNT OF EXCHANGE RATE FLU CTUATION. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO GIVE ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 13 THE YEARWISE BREAKUP OF THESE LOSSES. THE ASSESSEE SUBMITTED THE YEARWISE BREAKUP OF THE LOSSES, THE DETAILS OF WHICH ARE AS UNDER: A.YS. AMOUNT (RS.) 1998-1999 (+) 35,799 1999-2000 (+) 15,472 2000-2001 (-) 88,878 2001-2002 (-) 2,74,703 2002-2003 (-) 6,24,802 2003-2004 (+) 48,844 (-) 9,12,212 24. SINCE THESE TRANSACTIONS ARE ON ACCOUNT OF LOSSES P ERTAINING TO EARLIER YEAR, THE ASSESSING OFFICER REJECTED THE EXPLANATIO N GIVEN BY THE ASSESSEE AND FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. KIRAN EXPORTS VIDE I.T.A. NO.2604/MUM/05 ORDER DATED 20 TH APRIL, 2006 FOR A.Y. 2002-03 DISALLOWED THE CLAIM OF THE ASSESSEE. 25. IN APPEAL IT WAS SUBMITTED THAT THE LOSS DUE TO EXC HANGE RATE DIFFERENCE HAS DIRECT NEXUS AND CONNECTION WITH THE EXPORTS MA DE BY THE ASSESSEE AND AS SUCH THE LOSS HAD ARISEN ON ACCOUNT OF EXPORT REMIT TANCES RECEIVED DURING THE PREVIOUS YEAR. THEREFORE, THE LOSS ON ACCOUNT OF E XCHANGE RATE DIFFERENCE WAS NOTHING BUT A PART OF THE BUSINESS EXPENSES OF THE PREVIOUS YEAR. IT WAS SUBMITTED THAT THE SALE PROCEEDS RECEIVED OR BROUGH T INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE ARE PART O F THE EXPORT TURNOVER. THIS IMPUGNED LOSS IN EXCHANGE RATE DIFFERENCE WOULD CER TAINLY REDUCE THE AMOUNT OF EXPORT SALES AND IF THE EXPORT SALES OR TURNOVER WAS REDUCED BY THE LOSSES IN EXCHANGE RATE DIFFERENCE, THE DEDUCTION FOR THE SAM E WAS AUTOMATICALLY ALLOWABLE. IT WAS FURTHER SUBMITTED THAT IN THE PA ST THERE WAS GAIN IN EXCHANGE RATE DIFFERENCE AND THE SAME WAS SHOWN AS INCOME LIABLE TO TAX AND WITH THE SAME LOGIC THE LOSS IN EXCHANGE RATE DIFFE RENCE SUSTAINED DURING THE PREVIOUS YEAR IS ALLOWABLE AS EXPENDITURE. IT WAS SUBMITTED THAT THE ASSESSEE WAS SOLELY ENGAGED IN THE BUSINESS OF EXPORT OF TEX TILE GOODS AND THERE WAS NO SALE WITHIN THE TERRITORY OF INDIA EXCEPT SALE OF W ASTAGE, THE SALE PROCEEDS WERE RECEIVED DURING THE PREVIOUS YEAR AND AS SUCH THE L OSS IN EXCHANGE RATE DIFFERENCE HAD ARISEN DURING THE PREVIOUS YEAR ONLY IN SPITE OF THE FACT THAT THE ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 14 EXPORT WAS MADE IN THE EARLIER YEAR. SINCE THE LOS S HAS CRYSTALLISED DURING THE PREVIOUS YEAR THE SAME SHOULD BE ALLOWED AS DEDUCTI ON. THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SMT. SUJ ATA GROVERS VS. DCIT REPORTED IN 74 TTJ 347 AND THE DECISION OF THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. S.S. INDUSTRIES VS. ITO WERE AL SO RELIED UPON. BASED ON THE ARGUMENTS ADVANCED AND CASE DECISIONS RELIED ON BY THE ASSESSEE, THE CIT(A) DELETED THE ADDITION. WHILE DOING SO HE HELD THAT WHEN THE INVOICE IS ACTUALLY REALISED FROM THE FOREIGN COUNTRY AND THE AMOUNT IS REMITTED TO INDIA, IF THE EXCHANGE RATE IS MORE THERE IS GAIN AND IF THE EXCH ANGE RATE IS LESS THERE WILL BE LOSS ON THAT ACCOUNT BUT IT REMAINS ATTRIBUTABLE TO THE EXPORTS EFFECTED BY THE ASSESSEE. SINCE THE LOSS ON ACCOUNT OF EXCHANGE FL UCTUATION HAD ARISES/ CRYSTALLISED DURING THE YEAR AND ON ACCOUNT OF EXPO RTS, THE ASSESSEES CLAIM FOR EXCHANGE FLUCTUATION LOSS HAS TO BE ALLOWED. AGGRI EVED WITH SUCH ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 26. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDE R OF THE CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE LOSS IS MAINLY DUE TO GETTING LOWER PROCEEDS OF EXPORTS DUE TO EXCHANGE R ATE FLUCTUATION AND, THEREFORE, THIS IS AN ALLOWABLE BUSINESS EXPENDITUR E. 27. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE CIT(A). ADMITTEDLY THE AMOUNT RECEIVED DURING THE YEAR RELATES TO RECEIVABLES OF THE PAST YEAR AND DUE TO RISE IN THE VALUE OF INDIAN RUPEE THE ASSESSEE HAS RECEIVED LESS AMOUNT. THEREFORE, IN O UR OPINION, THE EXCHANGE FLUCTUATION LOSS HAS TO BE TREATED AS BUSINESS LOSS WHICH WAS CRYSTALLISED DURING THE YEAR AND HAS TO BE TREATED AS BUSINESS L OSS. THIS GROUND BY THE REVENUE IS ACCORDINGLY DISMISSED. 28. IN GROUNDS OF APPEAL NO. 3, THE ASSESSEE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.25,87,8 14 ON ACCOUNT OF DEDUCTION U/S. 80HHC. 29. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSI NG OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE HAS SHOWN TO HAVE ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 15 MADE EXPORT OF RS.31,20,00,143. THE FOB VALUE OF T HE EXPORTS AS PER THE CERTIFICATE OF THE CHARTERED ACCOUNTANT IN FORM NO. 10CCAC WAS RS.29,98,42,361. SINCE THE EXPORT TURNOVER WAS MOR E THAN RS.10 CRORES THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE VARIOUS EXPORT INCENTIVES WOULD QUALIFY FOR DEDUCTION U/S. 80HHC U NLESS THE ASSESSEE FULFILS THE CONDITIONS PRESCRIBED IN THE PROVISION. HOWEVE R, NO REPLY WAS RECEIVED FROM THE ASSESSEE. FROM THE VARIOUS DETAILS, THE A SSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN THE EXPORT INCENTIVES OF RS. 5,27,56,123 THE DETAILS OF WHICH ARE AS UNDER: ITEM AMOUNT (RS.) DEPB LICENCE PREMIUM 4,39,26,550 S.T. REFUND 97,727 CENTRAL EXCISE REBATE 85,24,661 DFRC PREMIUM 2,07,185 TOTAL 5,27,56,123 30. SINCE THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS PRESCRIBED IN PROVISOS 2 AND 3 OF SECTION 80HHC(3), THE ASSESSING OFFICER DID NOT CONSIDER THE DEPB LICENCE PREMIUM, THE SALE TAX REFUND AND T HE CENTRAL EXCISE REBATE AND ACCORDINGLY DISALLOWED THE CLAIM OF DEDUCTION U /S. 80HHC AMOUNTING TO RS.25,87,814. 31. IN APPEAL, THE CIT(A) UPHELD THE ACTION OF THE ASSE SSING OFFICER BY HOLDING AS UNDER: 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBM ISSIONS. ADMITTEDLY, THE APPELLANTS EXPORT TURNOVER EXCEEDE D RS.10 CRORES AND WITH REGARD TO DEPB/DFRC APPELLANT WAS R EQUIRED TO HAVE SUFFICIENT EVIDENCE TO PROVE THE FULFILMENT OF THE AFORESAID TWO CONDITIONS LAID DOWN IN THE 3 RD /4 TH PROVISO BELOW SECTION 80HHC(3). ADMITTEDLY, IN APPELLANTS CASE THESE CONDITIONS DID NOT STAND SATISFIED. THEREFORE, THE AO WAS JUSTIFIED IN DISALLOWING THE CLAIM OF DEDUCTION U/S . 80HHC WITH REGARD TO THE DEPG/DFRC. THEREFORE, THIS GROUND OF APPEAL IS REJECTED. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 32. THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUTSET , SUBMITTED THAT THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE DE CISION OF THE JURISDICTIONAL ITA NOS. 6318 & 7133/MUM/2007 M/S. RISHABH IMPEX ========================= 16 HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOURS AND CHEMICALS VIDE INCOME TAX APPEAL NO. 2887 OF 2009 ORDER DATED 28/2 9 TH JUNE, 2010. HE ALSO FILED A COPY OF THE SAME AND SUBMITTED THAT TH E DECISION OF THE SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS HAS BEEN REVERS ED. IN VIEW OF THE ABOVE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE, THIS GROUND BY THE ASSESSEE IS DISMISSED. 33. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENU E AS WELL AS THE ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2010 SD/- (R.V. EASWAR) PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATE 30 TH JULY, 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-XIV, MUMBAI 4. THE CIT--14, MUMBAI 5. THE DR D BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO