DHANRAJ DHADDA EXPORTS, MUMBAI V. DCIT RG 16(3), MUMBAI

ITA 9114/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3433 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 03-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 29-12-2010
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Business income
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & RAMLAL NEGI (JM) I.T.A. NO. 9114 /MUM/ 2010 (ASSESSMENT YEAR 2004 - 05 ) M/S. DHANRAJ DHADDA EXPORTS 1208 PANCHRATNA OPERA HOUSE MUMBAI - 400 007. VS. DCIT, RANGE 16(3) MATRU MANDIR MUMBAI - 400 007. ( APPELLANT ) ( RESPONDENT ) PAN NO . AABFD3080A ASSESSEE BY SHRI YOGESH THAR DEPARTMENT BY SHRI B.S. BIST DATE OF HEARING 22 .2 . 201 6 DATE OF PRONOUNCEMENT 18 . 5 . 201 6 O R D E R PER B.R. BASKARAN, A M : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 21.9.2010 PASSED BY LEARNED CIT(A) - 27, MUMBAI AND IT RELATES TO A.Y. 2004 - 05. 2. THE ONLY ISSUE URGED IN THIS APPEAL IS TO WHETHER LEARNED CIT(A) WAS JUSTIFIED IN REJECTING THE CLAIM FOR DEDUCTION U/S. 80HHC OF THE ACT IN RESPECT OF THE GAINS ARISING ON MATURITY OF FOREIGN CONTRACT S . 3. LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A DIAMOND EXPORTER AND IT HAD ENTERED INTO FOREIGN EXCHANGE FORWARD CONTRACTS I N RELATION TO SPECIFIC EXPORT INVOICE. THE ASSESSEE EARNED PROFITS UPON MATURITY OF FOREIGN EXCHANGE CONTRACT AND CLAIMED DEDUCTION THEREON U/S. 80HHC OF THE ACT TREATING THE SAME AS INCOME DERIVED FROM EXPORT ACTIVITY. THE ASSESSING OFFICER HELD THE SAME TO BE SPE CULATION INCOME AND ACCORDINGLY DENIED DEDUCTION U/S. 80HHC OF THE ACT. HOWEVER, THE LEARNED CIT(A) HELD THE SAME AS BUSINESS INCOME , BUT HE HELD THAT DEDUCTION U/S. M/S. DHANRA J DHADDA EXPORTS 2 80HHC OF THE ACT WILL NOT BE AVAILABLE AS SAME DOES NOT RESULT FROM EXPORT ACTIV ITY. 4. LEARNED COUNSEL PLACED RELIANCE ON THE DECISION RENDERED BY HON'BLE GUJARAT HIGH COURT IN FOLLOWING CASES AND SUBMITTED THAT THE HONBLE GUJARAT HIGH COURT HAS CLEARLY HELD THAT THE GAINS ARISING FROM FOREIGN CURRENCY FORWARD CONTRACT IS ELIGIBLE FOR DEDUCTION U/S. 80HHC OF THE ACT. CIT VS. MITSU LIMITED (TAX APPEAL NO. 658 OF 2009 DATED 19.3.2014) CIT VS. VEER GEMS (TAX APPEAL NO. 1051 OF 2007 DATED 21.7.2015) CIT VS. PRIYANKA GEMS (367 ITR 575) 5. ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL IN FOLLOWING CASES HAS HELD THAT DEDUCTION U/S. 80HHC IS NOT ALLOWABLE IN RESPECT OF GAINS REALISED ON FOREIGN CURRENCY FORWARD CONTRACT. A) DCIT VS. INTERGOLD (I) LTD. (2009) 27 SOT 239) B) ACIT VS. K. MOHAN & CO. (EXPORTS) (ITA NO. 3473/MUM/2008 DATED 20.4.2011) LEARNED COUNSEL SUBMITTED THAT THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHAH ORIGINALS (191 TAXMAN 81) 6. LEARNED AR, IN REJOINDER SUBMITTED THAT DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (SUPRA) PERTAINING TO GAINS REALIZED ON CANCELLATION OF CONTRACT. HE SUBMITTED THAT, IN THE INSTANT CASE, GAINS REALISED ON MATURITY OF FORWARD CONTRACT HENCE THE SAME IS I NTRICA TE LY LINKED WITH EXPORT ACTIVITY. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION US/. 80HHC OF THE ACT IN RESPECT OF GAINS REALISED ON FOREIGN EXCHANGE FORWARD CONTRACT. 7. WE HEARD THE RIVAL CO NTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE LD A.R HAS PLACED RELIANCE ON THE DECISIONS RENDERED BY HONBLE GUJARAT HIGH COURT. HOWEVER, AS POINTED OUT BY LD D.R, THE JURISDICTIONAL HONBLE M/S. DHANRA J DHADDA EXPORTS 3 BOMBAY HIGH COURT HAS DECIDED THIS ISSUE AGAINST THE AS SESSEE IN THE CASE OF SHAH ORIGINALS (SUPRA). FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ABOVE SAID CASE: - 11. THE ASSESSEE ADMITTEDLY IN THE PRESENT CASE RECEIVED THE ENT IRE PROCEEDS OF THE EXPORT TRANSACTION. THE RESERVE BANK OF INDIA, HAS GRANTED A FACILITY TO CERTAIN CATEGORIES OF EXPORTERS TO MAINTAIN A CERTAIN PROPORTION OF THE EXPORT PROCEEDS IN AN EEFC ACCOUNT. THE PROCEEDS OF THE ACCOUNT ARE TO BE UTILIZED FOR BONA FIDE PAYMENTS BY THE ACCOUNT HOLDER SUBJECT TO THE LIMITS AND THE CONDITIONS PRESCRIBED. AN ASSESSEE WHO IS AN EXPORTER IS NOT UNDER AN OBLIGATION OF LAW TO MAINTAIN THE EXPORT PROCEEDS IN THE EEFC ACCOUNT BUT, THIS IS A FACILITY WHICH IS MADE AVAILABLE B Y THE RESERVE BANK. THE TRANSACTION OF EXPORT IS COMPLETE IN ALL RESPECTS UPON THE REPATRIATION OF THE PROCEEDS. IT LIES WITHIN THE DISCRETION OF THE EXPORTER AS TO WHETHER THE EXPORT PROCEEDS SHOULD BE RECEIVED IN A RUPEE EQUIVALENT IN THE ENTIRETY OR WHE THER A PORTION SHOULD BE MAINTAINED IN CONVERTIBLE FOREIGN EXCHANGE IN THE EEFC ACCOUNT. THE EXCHANGE FLUCTUATION THAT ARISES, IT MUST BE EMPHASIZED, IS AFTER THE EXPORT TRANSACTION IS COMPLETE, AND PAYMENT HAS BEEN RECEIVED BY THE EXPORTER. UPON THE COMPL ETION OF THE EXPORT TRANSACTION, WHAT THE SELLER DOES WITH THE PROCEEDS, UPON REPATRIATION, IS A MATTER OF HIS OPTION. THE EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT ARISES AFTER THE COMPLETION OF THE EXPORT ACTIVITY AND DOES NOT BEAR A PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION 'DERIVED' BY THE ASSESSEE IN SUB - SECTION (1) OF SECTION 80HHC. BOTH THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME - TAX (APPEALS) HAVE MADE A DISTINCTION, WHICH MERITS EMPHASIS. THE EXCHANGE FLUCTUATION, AS BOTH THOSE AUTHORITIES NOTED, 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 HAS ARISEN THERE FROM CANNOT BE REGARDED AS BEING PART OF THE PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE. 8. THERE SHOULD NOT BE ANY DISPUTE THAT THE DECISION RENDERED BY THE HONBLE JURISD ICTIONAL HIGH COURT IS BINDING ON ALL FALLING WITHIN THE JURISDICTION OF THE HIGH COURT. BEFORE US, THE LD A.R TRIED TO DISTINGUISH THE DECISION OF HONBLE BOMBAY HIGH COURT BY SUBMITTING THAT THE HONBLE HIGH COURT WAS DEALING WITH A CASE, WHERE THE FORW ARD CONTRACTS WERE CANCELLED PREMATURELY, WHERE AS THE IN PRESENT CASE, THE FORWARD CONTRACTS GOT MATURED AFTER EXPIRY OF THE PRESCRIBED PERIOD. IN OUR VIEW, THE SAME CANNOT BE CONSIDERED TO BE M/S. DHANRA J DHADDA EXPORTS 4 DISTINGUISHING FEATURE. THE HONBLE HIGH COURT HAS HELD THAT THE EXCHANGE FLUCTUATION IN EEFC ACCOUNT DOES NOT BEAR A PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION DERIVED BY THE ASSESSEE IN SUB - SECTION (1) OF SECTION 80HHC. THE TIMING OF OCCURRENCE, IN OUR VIEW, MAY NOT CHANGE THE CHARACTER OF INCOME ARISING FROM EXCHANGE FLUCTUATION. 9. ACCORDINGLY, BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF M/S SHAH ORIGINALS (SUPRA), WE HOLD THAT THE LD CIT(A) WAS JUSTIFIED IN HOL DING THAT THE INCOME ARISING FROM FOREIGN EXCHANGE FORWARD CONTRACT IS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT, SINCE IT CANNOT BE CONSIDERED TO BE AN INC OME DERIVED FROM EXPORT OF GOODS OR MERCHANDISE . 10. IN THE RESULT, THE APPEAL OF THE ASS ESSEE IS DISMISSED. ORDER HAS BEEN PRONOU NCED IN THE OPEN COURT ON 18 .5 .2016 . SD/ - SD/ - (RAMLAL NEGI ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 18 / 5 /20 1 6 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. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS