M/s Orient Clothing Co. Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 896/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3979 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 10-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Business income; Question of law
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 896(DEL)/2011 ASSESSMENT YEAR: 2007-08 M/S ORIENT CLOTHING CO. PVT. DE PUTY COMMISSIONER OF LTD.,1E/15, JHANDEWALAN EXTN., VS. INCOME -TAX, CIRCLE 13(1), NEW DELHI. NEW DELHI. PAN-AAACO1779K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.P. RASTOGI, A DV. RESPONDENT BY: MS. Y. KAKKA R, SR. DR ORDER PER K.G. BANSAL : AM IN THIS APPEAL, THE ASSESSEE-COMPANY HAD TAKEN UP ONLY ONE SUBSTANTIVE GROUND THAT THE LD. CIT(APPEALS) ERRE D IN EXCLUDING THE INCOME OF RS. 17,24,658/- FOR THE PURPOSE OF DEDUC TION U/S 10B OF THE INCOME-TAX ACT, 1961. THE DETAILS OF THIS AMOUNT HAVE BEEN NARRATED UNDER SIX HEADS IN THE GROUND. HOWEVER, IT MA Y BE MENTIONED HERE THAT THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED ARGUM ENTS ONLY IN RESPECT OF THE INCOME OF RS. 5,93,130/- ARISING ON ACCOUNT OF RA TE IN FLUCTUATION OF FOREIGN EXCHANGE, AND INTEREST ACCRUING ON FIXED DEPOSITS AMOUNTING TO RS. 2,98,282/-. IN THE COURSE OF HEARING, AN ADDIT IONAL GROUND WAS RAISED THAT INCOME OF RS. 23,24,488/- (RS. 17,34,827/- PLUS RS. 5,89,661/-) ARISING ON ITA NO. 896(DEL)/2011 2 ACCOUNT OF FLUCTUATION IN RATE OF FOREIGN EXCHANG E, CREDITED TO PROFIT AND LOSS ACCOUNT, IS NOTIONAL INCOME AND, THEREFORE, IT IS NOT LIABLE TO TAX. 2. IN THE COURSE OF HEARING BEFORE US, IT IS S UBMITTED THAT ALL FACTS REGARDING INCOME ARISING ON ACCOUNT OF FLUCTUATIO N IN RATE OF FOREIGN EXCHANGE ARE ON RECORD. IN PARTICULAR, OUR ATTE NTION HAS BEEN DRAWN TOWARDS PAGE NO. 5 OF THE PAPER BOOK, WHICH IS THE LEDGER ACCOUNT UNDER THE HEAD EXCHANGE FLUCTUATION-PCFC. THIS ACCO UNT SHOWS SURPLUS OF RS. 17,34,827/- IN THE NON-EXPORT ORIENTED UNIT AND RS. 5,89,650/- IN EXPORT ORIENTED UNIT (EOU), TOTALING TO RS. 23,24,4 88/-. IT IS ARGUED THAT SINCE ALL THE FACTS ARE AVAILABLE ON RECORD, T HE GROUND MAY BE ADMITTED IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, (1998) 229 ITR 383. AN AFFIDAVIT SWORN BY SHRI RAVI DHINGRA, THE DIRECTOR OF THE AS SESSEE COMPANY, DATED 10.5.2011 HAS ALSO BEEN FILED. IT IS DEPOSED THE REIN THAT THE ASSESSEE COMPANY HAD RAISED LOAN FROM STATE BANK OF BIKAN ER & JAIPUR UNDER PACKING CREDIT FOREIGN CURRENCY LOAN ACCOUNT. THIS ACCOUNT HAD OUTSTANDING LIABILITY ON 31.3.2007. IN VIEW OF ACCOUNTING STANDARD-11 (AS-11) ISSUED BY THE INSTITUTE OF CHARTERED ACCOU NTANTS OF INDIA, THE FOREIGN EXCHANGE ASSETS AND LIABILITIES HAVE T O BE CONVERTED INTO INDIAN ITA NO. 896(DEL)/2011 3 RUPEES. ACCORDINGLY, THE LOAN AMOUNT WAS CONVERTE D INTO INDIAN RUPEES ON THE PREVAILING MARKET RATE. THIS RESULTED IN NOT IONAL GAIN OF RS. 17,34,828/- IN NON-EOU UNIT AND RS. 5,89,660/- IN THE EOU UNIT. THESE AMOUNTS WERE OFFERED FOR TAXATION. THE AO AND THE LD. CI T(A) DID NOT GRANT DEDUCTION U/S 10B IN RESPECT OF THE GAIN ARISING IN EOU UNIT. IT WAS REALIZED THAT A MISTAKE HAS OCCURRED IN OFFERING THE NOTIONAL GAIN FOR TAXATION. 2.1 THE LD. DR OPPOSED THE ADMISSION OF THE GROU ND. IT HAS BEEN SUBMITTED THAT THE RETURN OF INCOME WAS FILED ON 27.10.2007. THE ASSESSMENT WAS COMPLETED ON 29.12.2009. THE LD. CIT(APPEALS) PASSED THE IMPUGNED ORDER ON 15.11.2010. THE ASSESSEE FILED APPEAL ON 17.02.2011. THE ASSESSEE DID NOT TAKE UP THIS ISSUE BEFORE ANY AUTHORITY TILL THIS DATE. THE ADDITIONAL GROUND HAS NOW BEEN FILED IN MAY, 2011. THE ASSESSEE HAS NOT SHOWN ANY REASON FOR INORDI NATE DELAY IN TAKING UP THIS GROUND. THEREFORE, THE ACTION OF THE ASSESSE E IS NOT BONA-FIDE. IT IS FURTHER SUBMITTED THAT THE FACTS REGARDING TAK ING OF LOAN FROM STATE BANK OF BIKANER AND JAIPUR AND ITS INTENT AND PURPOSE REQUIRE FURTHER VERIFICATION OF FACTS. ACCORDINGLY, IT CANNOT BE SAID THAT IT IS PURELY A QUESTION OF LAW AND, THUS, THE RATIO OF THE CASE OF NATIONAL THERMAL POWER ITA NO. 896(DEL)/2011 4 CORPORATION LTD. (SUPRA) IS NOT APPLICABLE. IT IS ALSO SUBMITTED THAT THE ASSESSEE HAS ALL ALONG BEEN ASSERTING THAT THE GAIN IN RESPECT OF EOU IS THE INCOME DERIVED FROM ELIGIBLE UNDERTAKING AND , THUS, DEDUCTIBLE IN COMPUTING ITS TOTAL INCOME. THE STAND TAKEN BY T HE ASSESSEE NOW IS COMPLETE REVERSAL FROM EARLIER. THE GROUND ALSO D OES NOT EMANATE FROM THE ASSESSMENT ORDER OR THE IMPUGNED ORDER. THEREFOR E, IT IS ARGUED THAT THE GROUND MAY NOT BE ADMITTED. 2.2 IN THE REJOINDER, THE LD. COUNSEL SUBMITTED THAT THE PURPOSE OF ASSESSMENT AND APPELLATE PROCEEDINGS IS TO DETE RMINE THE TAX LIABILITY OF AN ASSESSEE. THEREFORE, TECHNICALITIES SHOULD NO T COME IN THE WAY OF SUCH DETERMINATION. ALL THE FACTS IN REGARD TO TH E CONTROVERSY ARE AVAILABLE ON RECORD IN THE FORM OF PAGE NO. 5 OF THE PAPER BOO K. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE ARE OF THE VIEW THAT PAGE NO. 5 O F THE PAPER BOOK, BEING THE LEDGER ACCOUNT OF EXCHANGE FLUCTUATION-EPFC CONTAINS ALL THE FACTS WHICH ARE REQUIRED FOR DETERMINING THE CONTROVE RSY. THEREFORE, THE CONTENTION OF THE LD. DR THAT THE ADDITIONAL FA CTS ARE REQUIRED TO BE ITA NO. 896(DEL)/2011 5 DETERMINED IN RESPECT OF LOAN TAKEN FROM STATE BANK OF BIKANER & JAIPUR IS NOT ACCEPTABLE. 3.1 THE ISSUE REGARDING TAXABILITY OF THE GAIN OR DEDUCTION OF LOSS ARISING ON ACCOUNT OF FLUCTUATION IN RATE OF FOR EIGN EXCHANGE HAD BEEN SUBJECT MATTER OF DECISION BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWORD GOVERNOR P. LTD., (2007) 294 ITR 451. THUS, THE MOST APPROPRIATE TIME FOR THE ASSESSEE TO RAISE THIS ISSUE WAS EITHER AT THE TIME OF FILING THE RETURN OF INCOME AS PER EX ISTING CASE LAW, ON WHICH THE LD. COUNSEL HAS RELIED UPON, TO WHICH WE SHAL L REVERT LATER ON, OR THE DATE ON WHICH THE HONBLE DELHI HIGH COURT RENDE RED THE DECISION. IN FACT, THE HONBLE DELHI HIGH COURT HAD RENDERED THE DECISION ON 30.04.2007, WHILE THE ASSESSEE HAD FILED ITS RE TURN ON 27.10.2007. THEREFORE, THE ASSESSEE SHOULD HAVE MADE THIS CL AIM IN THE RETURN OF INCOME ITSELF. NO CAUSE HAS BEEN SHOWN WHICH SUDDENLY PROMPTED THE ASSESSEE TO TAKE UP THIS GROUND IN MAY, 2011 FOR TH E FIRST TIME. THEREFORE, IT IS HELD THAT THERE IS LONG DELAY IN RAISING T HE CLAIM. WE ALSO AGREE WITH THE LD. DR THAT THE ADDITIONAL GROUND SOUGHT T O BE RAISED IS COMPLETELY IN CONTRADICTION WITH THE STAND TAKEN BY IT IN ALL PROCEEDINGS TAKEN TILL MAY, ITA NO. 896(DEL)/2011 6 2011, WHICH IS THAT THE GAIN IN THE EOU UNIT IS INCOME DERIVED FROM THE BUSINESS OF ELIGIBLE UNDERTAKING. 3.2 IN THE CASE OF PHOOL CHAND GAJANAND VS. CIT, 6 2 ITR 232 (ALL.), THE FACTS ARE THAT A PARTICULAR GROUND WAS NEVER RAISED BEFORE THE AO AND THE AAC. THE REASON FOR RAISING THE GROUND FOR THE FIRST TIME WAS THAT THE ASSESSEE WAS IGNORANT OF LAW. THE HON BLE COURT MENTIONED THAT THE MATTER OF GRANTING OR REFUSING LEAVE IS IN THE DISCRETION OF THE TRIBUNAL. IT HAS TO BE EXERCISED JUDICIALLY AND NOT ARBIT RARILY. SO LONG AS THE DISCRETION IS EXERCISED FOR REASONS WHICH HAVE S OME LOGICAL CONNECTION WITH THE WAY IN WHICH IT IS EXERCISED, IT CANNOT B E SAID THAT THE TRIBUNAL ACTED ARBITRARILY. THE TRIBUNAL IS REQUIRED TO ACT JUDICIALLY NOT CORRECTLY. IT WAS FURTHER MENTIONED THAT TO SAY THAT LEAV E CAN BE GRANTED DOES NOT MEAN THAT LEAVE MUST BE GRANTED. ON THE BASIS O F THIS DECISION, IT CAN BE SAID THAT THE TRIBUNAL IS REQUIRED TO EXERCISE I TS DISCRETION IN A REASONABLE MANNER. 3.3 FURTHER, IN THE CASE OF INDIAN STEEL & WIRE PRODUCTS LTD. VS. CIT, 208 ITR 740 (CAL.), THE FACTS ARE THAT THE AS SESSEE SOUGHT TO RAISE A FRESH GROUND FOR THE FIRST TIME BEFORE THE TRIBUNAL WHICH DID NOT ARISE OUT OF ITA NO. 896(DEL)/2011 7 THE ORDER OF THE AO AND THE FIRST APPELLATE AUTH ORITY. THE TRIBUNAL DID NOT ADMIT THE ADDITIONAL GROUND BY MENTIONING TH AT THE PROVISION FOR TAXATION SHOULD BE TREATED AS A FUND AND THE EX CESS OF COST OF THE DIVIDEND YIELDING SHARES OVER SUCH FUND COULD BE THE A MOUNT OF DIMINUTION. THIS FINDING WAS BASED ON PRE-EXISTING DECISIONS. THE H ONBLE COURT MENTIONED THAT THE ACCEPTANCE OF THE GROUND ALTOGETHER CHA NGES THE COMPLEXION OF THE CASE AS BROUGHT BEFORE THE CIT(APPEALS). IT IS FURTHER MENTIONED THAT WHERE THE GROUND IS A GROUND OF ADDITIONAL NAT URE INVOLVING A CLAIM OF A LARGER RELIEF THAN THAT URGED BEFORE THE LOWER A UTHORITIES, THE SAME IS IMPERMISSIBLE. THE RATIO OF THIS CASE IS SQ UARELY APPLICABLE AS FACTS ARE SIMILAR. 3.4 IN THE CASE OF CIT VS. PLASTIC DELA FOOTWEA R, 203 ITR 759 (RAJ.), THE HONBLE COURT MENTIONED THAT WHAT THE AAC HA S TO SEE IN RESPECT OF A NEW GROUND IS AS TO WHETHER THE OMISSION WAS W ILLFUL OR UNREASONABLE. NO SUCH FINDING WAS GIVEN. IF IT IS A PURE QUES TION OF LAW, THEN IT COULD BE ALLOWED TO BE RAISED. THE TRIBUNAL PROCEEDED ON THE BASIS THAT THE QUESTION WAS PURE QUESTION OF LAW. IF IT WAS A PURE QUESTION OF LAW, THEN THE TRIBUNAL COULD HAVE DIRECTED THE AAC TO TAKE INTO ACCOUNT THE SAID GROUND AND DECIDE IT ON MERITS. THUS, THE HON BLE COURT CAME TO THE ITA NO. 896(DEL)/2011 8 CONCLUSION THAT THE TRIBUNAL WAS NOT RIGHT IN SETTING ASIDE THE ORDER AND RECORD A FINDING THEREON. IT MAY BE MENTIONED THA T IN THE CASE AT HAND, THE ASSESSEE HAD NOT TAKEN ADDITIONAL GROUND BEFORE THE LD. CIT(APPEALS) AND IT HAS BEEN TAKEN BEFORE US FOR THE FIRST TIME. 3.5 IN THE CASE OF RAJ KUMAR JALAN VS. CIT, 108 ITR 301 (BOM.), THE TRIBUNAL POINTED OUT THAT NONE OF THE RELEVANT FACTS ON THE BASIS OF WHICH THE ADDITIONAL GROUNDS WERE SOUGHT TO BE URGED WAS TO BE FOUND IN THE ORDER OF ASSESSMENT PASSED BY THE ITO OR BY TH E AAC. IN FACT, SUCH GROUNDS WERE NOT RAISED BEFORE ANY OF THE LOWER AUTHORITY. THE ASSESSEE HAD FILED THE RETURN ON THE BASIS THAT THE RECEI PT WAS A REVENUE RECEIPT. THE TRIBUNAL FOUND THAT THE CASE OF THE ASSESSEE HAD TO BE DECIDED ON THE BASIS OF FACTS ON RECORD AND IT WAS NOT POSSIBL E TO GO INTO ADDITIONAL GROUND UNLESS FRESH INVESTIGATION OF FACTS WAS MA DE. THE ORDER OF THE TRIBUNAL WAS UPHELD. THE FACTS OF THIS CASE AR E SIMILAR AND, THEREFORE, THE RATIO OF THIS CASE IS APPLICABLE. 3.6 THE LD. DR ALSO RELIED ON THE DISCUSSION IN RESPECT OF THIS ISSUE IN THE CASE OF WOODWARD GOVERNOR INDIA P. LTD. DECI DED BY HONBLE SUPREME COURT, (2009) 312 ITR 254. AT PAGE 26 5, IT IS MENTIONED THAT ITA NO. 896(DEL)/2011 9 IN CASE OF REVENUE ITEM FALLING UNDER SECTION 37( 1), PARAGRAPH 9 OF AS-11, WHICH DEALS WITH RECOGNITION OF EXCHANGE DIFFE RENCES, NEEDS TO BE CONSIDERED. UNDER THAT PARAGRAPH, EXCHANGE DIFF ERENCES ARISING ON FOREIGN EXCHANGE TRANSACTIONS HAVE TO BE RECOGNIZE D AS INCOME OR AS EXPENSE IN THE PERIOD IN WHICH THEY ARISE EXCEP T AS STATED IN PARAGRAPH NOS. 10 AND 11, WHICH DEAL WITH EXCHANGE DIFFERENC ES ARISING ON REPAYMENT OF LIABILITIES INCURRED FOR THE PURPOSE OF ACQUIR ING FIXED ASSETS, WHICH TOPIC FALLS UNDER SECTION 43A OF THE ACT. FURTHER, IT HAS BEEN MENTIONED IN PLACITUM 19 THAT IF THE RATE OF EXCHANGE ON THE BALANCE-SHEET DATE IS DIFFERENT FROM THE DATE ON WHICH THE LIABILITY WA S INCURRED AND THE DATE ON WHICH THE LIABILITY WAS PAID, THE EFFECT OF EXCHA NGE DIFFERENCE HAS TO BE TAKEN INTO ACCOUNT IN THE PROFIT AND LOSS ACCOUN T. THE HONBLE COURT FINALLY STATED THE DECISION AS UNDER:- . WE MAY STATE THAT IN ORDER TO FIND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN IN TO ACCOUNT (I) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY TH E ASSESSEE IS THE MERCANTILE SYSTEM, WHICH BRINGS INTO DE BIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED AND BRIN GS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEF ORE IT IS ACTUALLY RECEIVED; (II) WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THER E WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS B ONA FIDE; (III) WHETHER THE ASSESSEE HAS GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS T HAT MAY ACCRUE TO IT; (IV) WHETHER THE ASSESSEE HAS BEEN CONSISTENT AND ITA NO. 896(DEL)/2011 10 DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAINS; (V) WHETHER THE METHOD ADOP TED BY THE ASSESSEE FOR MAKING ENTRIES IN THE BOOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED ACCOUNTING STANDS; (VI) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCIDENCE OF TAXATION. 3.7 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT IS FOLLOWING THIS SYST EM CONSISTENTLY IN RESPECT OF FLUCTUATION IN RATE OF FOREIGN EXCHANGE INCLUDIN G IN THE INSTANT YEAR. THE ASSESSEE HAS BEEN CONSISTENTLY MAKING ENTRIES IN T HE BOOKS ON THIS BASIS FOR PROFITS AND LOSSES. THIS IS IN ACCORDANCE WITH NATIONALLY ACCEPTED ACCOUNTING STANDARD-11. THIS IS ALSO A FAIR AND REASONABLE VIEW. THE HONBLE SUPREME COURT, IN THE CASE OF WOODWARD G OVERNOR INDIA P. LTD. HAS REPEATEDLY MENTIONED ABOUT THE PROFIT OR TH E LOSS AND NO DISTINCTION HAS BEEN MADE BETWEEN THE PROFIT AND THE LOSS. THEREFORE, ACCORDING TO THIS DECISION OF THE APEX COURT, THE CASE OF THE ASSESSEE HAS TO BE DISMISSED. THIS BEING THE ONLY CASE ON THE ISSUE REGARDING RATE OF FOREIGN EXCHANGE, ONE NEED NOT GO INTO GENERAL PRINCIPLE S REGARDING VALUATION OF STOCK OR IN BROADER ASPECT OF ACCOUNTING OF RECE IPTS AND EXPENDITURE IN MERCANTILE SYSTEM OF ACCOUNTING. THUS, WE ARE NOT DISCUSSING THE CASES RELIED UPON BY THE LD. COUNSEL IN RESPECT OF VALU ATION OF STOCK, I.E., CHAINRUP SAMPATRAM VS. CIT, (1953) 25 ITR 481. ITA NO. 896(DEL)/2011 11 3.8 IN THIS VERY CONNECTION, RULE 115 OF THE INC OME-TAX RULES, 1962, REGARDING RATE OF EXCHANGE FOR CONVERSION INTO RUPEES OF INCOME EXPRESSED IN FOREIGN CURRENCY WAS ALSO DISCUSSED WITH THE LD. COUNSEL. SUB-CLAUSE (C) OF CLAUSE (2) OF THE EXPLANATION TO THE RULE DEFINES SPECIFIED DATE, IN CASE OF BUSINESS PROFITS TO BE THE LAST DATE OF THE PREVIOUS YEAR. IN SUB-RULE (1), IT IS PROVIDED T HAT THE RATE OF EXCHANGE FOR CALCULATION OF THE VALUE IN RUPEES OF AN INCOME ACCRUING OR ARISING ARE DEEMED TO ACCRUE OR ARISE TO THE ASSESSEE IN FO REIGN CURRENCY OR RECEIVED OR DEEMED TO BE RECEIVED BY HIM IN FOREIGN CURRE NCY SHALL BE TELEGRAPHIC TRANSFER BUYING RATE OF SUCH CURRENCY ON THE SPEC IFIED DATE. THUS, DE HORS AS-11, THIS RULE REQUIRES THAT REDUCTION IN LIABI LITY ON REVENUE ACCOUNT ON ACCOUNT OF RATE OF FOREIGN EXCHANGE SHALL BE RE CKONED ON THE LAST DATE OF THE PREVIOUS YEAR AS PER TELEGRAPHIC TRANSFER BU YING RATE. THIS MEANS THAT ANY REDUCTION IN LIABILITY, LEADING TO REVENUE GAIN WILL HAVE TO BE ACCOUNTED AS PROFITS IN CASE OF BUSINESS INCOME. THUS, THIS RULE INDEPENDENTLY REINFORCES THE CONTENTS OF AS-11 FOR RECOGNITION OF INCOME AS WELL AS LOSS ARISING ON REVENUE AC COUNT. 3.9 THUS, THE ADDITIONAL GROUND IS NOT ADMITTED O N THE GROUNDS THAT (I) THERE ARE LATCHES IN RAISING THE GROUND WHICH HA VE NOT BEEN SATISFACTORILY ITA NO. 896(DEL)/2011 12 EXPLAINED AND, THEREFORE, THE GROUND IS NOT BONA F IDE; (II) THE ASSESSEE IS RAISING THE GROUND FOR THE FIRST TIME CLAIMING MUCH HIGHER RELIEF; AND (III) THE ASSESSEE IS NOT ENTITLED TO THE RELIEF IN VIEW OF THE DECISION IN THE CASE OF WOODWARD GOVERNOR INDIA P. LTD. (SUPRA) AND, THEREFORE, IT WOULD BE MEANING LESS TO ADMIT THIS GROUND. 4. COMING TO THE GROUND TAKEN AT THE TIME OF FI LING THE APPEAL, IT IS CLEAR THAT INCOME BY WAY OF FLUCTUATION IN RATE OF FOREIGN EXCHANGE ARISES FROM THE BUSINESS TRANSACTIONS. THUS, THE INCOME H AS PROXIMATE RELATIONSHIP WITH THE BUSINESS OF THE ASSESSEE. THEREFORE, THE INCOME CAN BE RIGHTLY SAID TO BE DERIVED FROM THE BUSINESS OF ELIGIBLE UNDERTAKING. THE AO IS DIRECTED TO INCLUDE THIS AMOUNT FOR THE PURPOSE OF GRANT OF DEDUCTION U/S 10B. 4.1 IN SO FAR AS INTEREST ON FIXED DEPOSITS IS CONCERNED, THE CASE OF THE LD. COUNSEL IS THAT FUNDS WERE BORROWED FROM THE BANK AND INVESTED IN FDRS, WHICH WERE KEPT AS SECURITY AGAINST PACKI NG CREDIT LIMIT. HIS ARGUMENTS WERE TWO-FOLD THAT THE INCOME IS DERIV ED FROM THE BUSINESS AND THAT IN ANY CASE NET OF THE INTEREST RECEIVED AND PAID SHOULD BE EXCLUDED. THE CASE OF THE LD. DR IS THAT NO SUCH CLAIM WAS MADE BEFORE THE AO. ITA NO. 896(DEL)/2011 13 HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE INCOME CANNOT BE SAID TO BE DERIVED FROM THE BUS INESS OF THE ELIGIBLE UNDERTAKING AS IT DOES NOT ARISE OUT OF OPERATI ONS OF THE BUSINESS. HOWEVER, IF ANY EXPENDITURE HAS BEEN INCURRED F OR EARNING THIS INCOME THAT HAS ALSO TO BE TAKEN INTO ACCOUNT FOR DET ERMINING THE NET INTEREST INCOME, WHICH CAN BE EXCLUDED FROM THE OPERATIO N OF SECTION 10B. THUS, THE AO IS DIRECTED TO ASCERTAIN THE NET INTEREST INCOME AND EXCLUDE ONLY THIS AMOUNT FOR THE PURPOSE OF GRANT OF DEDUCTION U/S 10B. 4.2 THE CLAIM IN RESPECT OF OTHER AMOUNTS IS D ISMISSED AS NOT PRESSED. 4.3 THUS,, THE GROUND IS PARTLY ALLOWED. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED AS DISCUSSED ABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 13 MAY, 2011. SD/- SD/- (I.P. BANSAL) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 13TH MAY, 2011. SP SATIA ITA NO. 896(DEL)/2011 14 COPY OF THE ORDER FORWARD: M/S ORIENT CLOTHING CO. PVT. LTD., NEW DELHI. DY. CIT, CIRCLE 13(1), NEW DELHI. CIT CIT(A) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR .