ORDER
R.C. Sharma, A.M.
1. First six anneals have been filed by the assessees against different order of CIT(A) for asst yr 2001-02 m Case of ITA No. 2468/Ahd/2004 the appeal has been filed by the Revenue and the cross-objection by the assessee against Order of CIT (A) for asst yr ‘2001-02
2. since common grounds are involved in case of all the appeal even though related to different assessees, for the sake of convenience and brevity we dispose or all these appeals by this consolidated Order
3. The common ground in all the appeals relates to CIT(A)’s action for confirming the action of AO in treating exchange difference pertaining to exports of current and earlier years as other income and thereby declining deduction under Section 80HHC of the Act and taxing the same as “income from other sources”.
4. Rival contentions have been heard and record perused. The brief facts of the case are that all the impugned assessees are engaged in export business during the relevant assessment year under consideration. The assessee accounted for exchange rate difference on account of export made during the year as well as earlier year. The assessee treated this exchange difference including the export realisation for the prior period as part of export/total turnover and also part of profits. Some of the assessees have directly accounted for such receipt under head exchange rate difference. In the course of assessment proceeding, the AO proposed to reduce the amount represented by exchange difference from the export and also reduced 90 per cent of the same from the profits and gains of the business. The assessee was asked to explain as to why the amount of exchange rate difference related to the debtors of the last year should not be deducted from the export turnover as also 90 per cent of the same should not be excluded from the business profits for the purpose of calculation of deduction under Section 80HHC. It was submitted by the assessee that the exchange rate difference cannot be excluded from the export turnover of the current year as the same have already been taken as export turnover for the purpose of calculation of deduction under Section 80HHC as per the FOB value as certified by the banker of the exporter during the year under consideration. The bank certified the figure of export which was taken for calculation of export turnover. The AO did not agree with the assessee’s contentions and treated the amount realised account of exchange rate difference as income from other sources and declined assessee’s claim under Section 80HHC by including the same in export turnover. The only grievance of the AO was that such receipt on account of exchange rate fluctuation partakes the character of income falling in the purview of Expln. (baa)(l), as provided below Section 80HHC(4A). The order of AO was confirmed by the CIT(A).
5. It was argued by the learned Authorised Representative at the outset that the issue is squarely covered by the decision of the Co-ordinate Bench, in the case of Amba Impex v. Asstt. CIT in ITA No. 230/Ahd/2004, asst. yr. 2001-02 vide its order dt. 16th July, 2004. It was further submitted that the Tribunal while deciding the case of Amba Impex (supra) has relied basically on the judgment of Hon’ble jurisdictional High Court in the case of Hindustan Trading Corporation v. CIT. (1986) 160 ITR 15 (Guj), in addition to various judgments of different Benches of the Tribunal. Following the above decision of the jurisdictional High Court, the Tribunal vide para 7 of its order dt. 16th July, 2004, observed as under :
“7. Various decisions of the Tribunal relied upon by the learned counsel, as indicated hereinbefore are on all fours with the point in issue before us and there is a broad concensus among the various Benches of the Tribunal at Delhi, Chennai, Mumbai, etc. on the issue. In the case of Smt. Sujata Graver v. Dy. CIT (2002) 74 TTJ (Del) 347 relied upon by the learned counsel, it has been held that foreign exchange fluctuation gain pertaining to exports effected in the earlier years cannot be said to be ‘any other receipt of the similar nature in terms of Expln. (baa) of Section 80HHC for the purpose of adopting the figure of profits of the business’. The doctrine of ejusdem generis lays down well accepted principle of interpretation of statutes that the meaning of general words following the specific words in succession would derive colour from the specific words preceding them. In view of this principle of interpretation, foreign exchange gain on the realisation of exports cannot be treated as ‘any other receipt of a similar nature, since the preceding specific words used by the legislature are brokerage, commission, interest and rent. Exchange rate difference on account of exchange rate variation on outstanding sales would obviously not be of the character of brokerage, commission, interest, etc. Therefore, such gain would clearly be treated as profits of the business as defined under Expln. (baa). Such gain would also form part of the export turnover inasmuch as export turnover as defined under Expln. (b) means the sale proceeds received in cash brought in India by the assessee in convertible foreign exchange in accordance with Clause (viii) of Sub-section (2) of Section 80HHC. It appears to us that the view taken by Delhi Bench of the Tribunal in the case of Smt. Sujata Graver (supra) is fully in accordance with the provisions of Section 80HHC. Further, reliance is placed on the decision of Mumbai Bench of the Tribunal in the case of K. Uttamlal Exports Ltd. v. Dy. CIT 36 BCAJ 518 (Mum) and S.S. Industries v. ITO 34 BCAJ 596 (Mum) cited by the learned counsel. A similar view has been taken by the Madras Bench of the Tribunal in the case of Asstt. CIT v. Ashwini Fisheries Ltd. (2001) 72 TTJ (Mad) 261 relied upon by the learned counsel. Respectfully following the aforesaid binding decision of the jurisdictional High Court in the case of Hindustan Trading Corporation v. CIT (1986) 160 ITR 15 (Guj) as well as the decisions of the Tribunal, we are inclined to reverse the finding of the learned CIT(A) and hold that gain on account of exchange rate difference of Rs. 13,18,068 on account of sales made in the earlier years forms part of export turnover and the assessee would, therefore, be entitled to deduction under Section 80HHC accordingly. Ground No. 1 is, therefore, allowed.”
6. On the other hand, the learned Departmental Representative argued that while arriving at the conclusion in the case of Amba Impex (supra), the Tribunal has relied on the decision of Hindustan Trading Corporation (supra) whereas the issue before the Hon’ble Gujarat High Court in the case of Hindustan Trading’ Corporation (supra) was entirely different. As per the learned Departmental Representative in case of Hindustan Trading Corporation (supra), the assessee had claimed that receipt on account of devaluation of rupee was casual and non-recurring in nature and therefore, the same should not be forming part of total income. The Hon’ble High Court did not agree with assessee’s contentions and held that receipt of this nature was a revenue receipt because it was, related to sales and, therefore, the claim of exemption under Section 10(3) was rejected. As per the learned Departmental Representative there was no occasion for the Hon’ble High Court to go into the question whether such receipt was profit of business within the meaning of Section 80HHC of the Act The learned Departmental Representative-further submitted that the Hon’ble High Court also did not have occasion to consider whether such receipts of earlier sales could qualify for deduction under Section 80HHC in the current year since each year is an independent year It is, therefore, very clear, as per the learned ‘Departmental Representative that ,the Tribunal grossly erred in observing that the issue before it in the case of Amba Impex. (supra) was covered by the decision of Hon’ble Gujarat High Court in the case of Hindustan Trading Copn. (supra).
7. The learned ”Departmental Representative drew our attention to the provisions of Section 80HHC(1) and submitted that the statutes have used the word a deduction of the profit ‘denved’ by the assessee from the export of such goods or merchandise of Qualifying such profit for deduction under Section 80HHC As per learned Departmental Representative the word ‘derived’ is a very narrow Word and the exchange rate difference received by the assessee was not out Of the direct source of export sales but Was realisation from the debtors .He drew our attention to Expln (baa) below Section 80HHC(4C) which provide’s for definition of profits of the business to mean profits of the business as computed under the head “Profits and gains Of business as reduced by 90 percent of any receipt, by way of brokerage, commission, interest, rent charged or any other receipt of Similar nature included in such profits As per the learned Departmental Representative, the exchange rate difference is in the nature of such receipts and therefore, 90 per cent of it is required to the reduced while computing “profits of the business as provided by the statutes in Expln (baa) of the Act
8. As per the learned Departmental Representative deduction under Section 80HHC can be allowed in respect of income which is derived from export, What is immediate source of such income is to be seen if it is export, then same qualifies for deduction under s 80HHC, Whereas if the source is delayed receipts of exports proceeds or foreign exchange forward contract, the source is not direct from the export As per the learned Departmental Representative the gain or loss in foreign exchange depends on the perception about the exchange rate movement, time period and several other factors effecting Exchange rate movement He therefore, submitted that considering such income as derived ‘from export’ is not correct. The learned Departmental Representative also argued that Only the export ‘sale calculated on the basis of notional rate of foreign exchange should qualify for deduction and any amount received in excess of the amount of sales calculated on notional rate should be treated as income form other sources As per learned Departmental Representative excess amount received in case of delayed payment is not attributable to export sales and should be treated as interest, damages, etc and Which are in the nature of income to be treated as income from other sources and does not qualify for inclusion in the export turnover for computing deduction under Section 80HHC.
9. The learned Departmental Representative also drew our attention to various pages of the detailed paper book filed by him, more particularly at pp 49, 50, 57, 58, 65, 67, 72, 90, 94, 95, 97, 98, 99, 101, 105, 107 and 109 and also on the written submission filed by CIT, Surat-III , and placed in the paper book filed by learned Departmental Representative, to impress us that while arriving at the conclusion, the Tribunal in the case of Amba impex (supra) has not deliberated on various aspects and for which the judgment of the Tribunal requires reconsideration by makings reference to Special Bench, before applying the same to the current appeal under Consideration. Learned Departmental Representative also relied on various case laws placed by him in the paper book in the context of the Word derived Used in Section 80HHC(l)
10. On the other hand, the learned Authorised Representative submitted that while computing deduction under Section 80HHC, the definition of export turnover and ‘total turnover’ as given in the statutes itself should be adopted as it is given under Explns (b) and (baa) below Section 80HHC(4C) He further submitted that while making the export, ‘the assessee had received only converted value of the foreign currency and nothing beyond it In case or assessee making export of 100 dollars he will get only converted value of ‘100 dollars The converted amount of such dollars in terms of Indian currency vanes as per the rate of Indian currency prevailing at the particular point of time out by no stretch of imagination, the assessee will be getting more than me converted value of more than 100 dollars which is the actual amount of export
11. As per the learned Authorised Representatives even if the export proceeds are received in the subsequent years, Section 155(13) presided for allowing deduction to the assessee by modifying the assessment order and the provisions of Section 154 shall, so far as may be applied thereto, and the period of four years shall be reckoned from the end of the previous year, in which such income is to be received in or brought into, India
12. We have considered the rival submissions, carefully gone through the orders of the lower authorities We have minutely gone through and deliberated upon the cited judgment of Co-ordinate Bench in the case Of Amba Impex (supra) as well as the judgment of the Jurisdictional High Court in the case of Hindustan Trading Corporation (supra), in the context of factual matrix of the cases under consideration We have also carefully .gone through the detailed paper book filed by the learned Departmental Representative and especially to the pages to which our attention was drawn by the learned Departmental Representative during the course of hearing From the record, we find that the assessee is in receipt of exchange rate difference In ‘respect of exports undertaken by it during the year, under consideration as well as, in the preceding years, While computing deduction, under Section 80HHC, the assessee has treated such receipts as part of export turnover far claiming deduction under Section 80HHC. In case of export sales, export bills are drawn in foreign currency. On the basis of notional rate of exchange of foreign currency, prevailing on the date of making the sale bill, in terms of Indian currency, entries are made in the books of account. Actual amount of such export bill is realised when such foreign bills are retired by the foreign buyers and amount is paid by him to his concerned bank. On getting the advice from the bank of the foreign buyers, the assessee’s bankers credit the actual amount realised by converting the foreign currency into Indian currency. What the assessee receives is exactly the amount of dollars/foreign currency for which export bills are issued. The converted amount of Indian currency credited in the bank account is equivalent to the Indian value of money converted from foreign currency, as per the rate prevailing on the date of conversion by the bank of foreign supplier and corresponding entry in the assessee’s bank account as per the advice received from the foreign bank. It is only due to day-to-day change in conversion rate of Indian currency with reference to the foreign currency, the assessee might be receiving more or less amount on a particular point of time, in respect of same amount of export sales bill(s). Further it is also not correct to state that assessee always receives higher amount, at some instances the assessee might be losing because of the adverse/declining of foreign currency, in respect of the same amount of export bill(s). Thus there is a direct nexus between the amount realised on account of export sales and exchange rate difference, whether credited by the assessee in its books of account as export sales or as exchange rate fluctuation, but the fact remains that all these receipts are on account of export proceeds. We are aware of the fact that wherever the statute wants to give a restricted meaning, it has used the word “derived” and wherever the legislature wants to give benefit in a liberal and broader way, it has used the words “attributable to”. For clearly distinguishing the meaning of “derived” and “attributable to”, we have carefully gone through the cases referred to by the learned Departmental Representative. In the instant case, there is no dispute to the fact that direct and proximate source of income on account of exchange fluctuation receipts was the ‘export sales’ only. Even when there is any delay on the part of the foreign buyer to get the bills realised and thereby Indian exporters getting payment at a later stage and eventually such exporter might be getting higher/lower amount in terms of Indian currency depending upon the exchange rate prevailing at the material point of time but the fact remains the same to the effect that such amount is derived from the export sales/bills. We are, therefore, not persuaded to agree with the contentions of learned Departmental Representative to the effect that amount of exchange fluctuation was not “derived” from the export sales, but was on account of interest, brokerage, or any other receipts of similar nature as enumerated in Expln. (baa) below Section 80HHC(4A) of the IT Act.
13. With regard to learned Departmental Representative’s contention regarding manner of entering of such transactions in the books of account, in the name of exchange fluctuation, there are plethora of judgments to the effect that manner of making entry in the books of account would not be decisive for giving any benefit of the provisions which are not provided as per the statute, or withdrawing any benefit which has been specifically provided by the statute. As the provisions of Section 80HHC clearly provide for deduction of profits derived from the business of exports, it does not make any difference if amount realised in respect of export sales, part of which is being credited when realised in the subsequent year, under the accounting entry of exchange rate fluctuation. We are, therefore, not persuaded to agree with the learned Departmental Representative that by its own conduct of making entry in the books of account the assessee had excluded such receipts from the export realisation and, therefore, no deduction under Section 80HHC, be given to him. Furthermore, the definition of “export turnover” and “total turnover” as defined in Explns. (b) and (ba) of Section 80HHC(4A), specifically excludes freight or insurance attributable to the transport of goods or merchandise beyond the custom station as defined in Customs Act, 1962. Thus the ‘export turnover’ and ‘total turnover’ have been defined in a negative manner not to include freight or insurance, at nowhere it excludes exchange rate difference to be received by the assessee. When the definition specifically excludes certain items, from the export and total turnover, it would automatically follow that the remaining items of sale proceeds received in or brought into India in convertible foreign exchange, shall form part of export and total turnover, Thus, the amount received by the assessee on account of exchange rate difference is nothing but realisation from the goods exported by it and hence such proceeds have to be included for computation of deduction under Section 80HHC.
14. From the record we do not find that assessee had entered into any foreign exchange forward contract and that receipt on account of exchange rate fluctuation was due to any such forward contract. We therefore, do not find any reason to examine such receipts with reference to forward exchange contract. There is also no material on record to indicate that amount received on account of exchange rate difference was due to delayed receipt of payment. Even if there is any delay in realisation of export bill by the foreign buyer, the deduction enumerated under Section 80HHC cannot be denied if the convertible foreign exchange had been brought into India within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. We are, therefore, not inclined to agree with the contention of learned Departmental Representative that if there is any delay in receipt of export sales, source of such receipt does not remain directly from the export so as to qualify the receipt eligible for deduction under Section 80HHC. No material has been brought on record by the learned Departmental Representative to’ indicate that due to delay in payment, the assessee was paid interest. We are therefore not persuaded to agree with the contention of learned Departmental Representative that amount of export proceeds realised in excess of notional value of export bill was attributable to interest for delayed payment. There is no dispute to the proposition that interest income received on account of delayed payment of export bills, cannot be said to have derived from export of goods From the record we find that there was not only direct and proximate nexus between the exchange fluctuation receipt and the export turnover, but the receipt on account of exchange fluctuation only flows out of export proceeds If there was no export, there was no question of receiving any convertible foreign exchange What the assessee has got is exactly the amount of foreign exchange for which export bill was issued The converted amount of Indian currency credited in the bank account of the assessee was equivalent to the Indian value of money converted from foreign exchange, as per the rate prevailing on the date of conversion by the bank, after the foreign currency has been transferred by the bank of foreign buyer It is not the case of the Department that amount credited on account of exchange rate fluctuation pertains to the foreign currency received in excess of the export bill drawn by the Indian exporter For example if the export bill has been drawn for 100 dollars, the assessee has received only 100 dollars and nothing more, it is only due to change in the conversion rate of Indian currency with reference to the foreign currency, the assessee might be receiving more or less amount on a particular point of time for the same amount of export bill furthermore it is also not so that the assessee will always get more amount of Indian currency, it may also get less amount when the fluctuation of Indian currency & in negative direction. Nothing has also been brought on record by the Department ‘to the effect that the assessee has intentionally asked the foreign buyer to make delayed payment, so that he can get higher amount of (export proceeds In anticipation of rise of foreign currency rate The export ‘transaction is entered by the assessee in the normal course of its export business Mode of delivery, terms of payment etc are determined by entering in the export transaction If the foreign buyer did not get the export document retired from its banker well in time and there is a delay in getting the document retired and remittance of payment, the assessee cannot be faulted Such delay in payment and bringing of convertible foreign exchange to India, if duly approved by the competent authority, benefit of deduction under Section 80HHC cannot be denied Any delay in remitting such payment will also no); alter the character of the payment which is only the payment of export bill It is also not the case of the Department that as per documentation executed for export sales, the assessee has received any amount under the head interest or penalty for delayed payment If any extra amount is received as interest or penalty, as per terms of the export sales, the Department can very well bring the same under Expln (baa) We also find from the record that actual amount of export sale proceeds received over and above the notional value of sale bill as entered by the assessee in his books of account, does not partake the character of payment other than the proceeds of export sale We are, therefore, not persuaded to agree with the learned Departmental Representative that such actual receipts of export proceeds over the notional value should be treated in the nature of receipts, enumerated in Expln (baa), Rather we are inclined to agree with the learned Authorised Representatives that actual amount of Indian currency credited by the banker in assessee’s account over and above the notional value of sale entered by the assessee in his books of account, constitute only and only the export receipts eligible for deduction under Section 80HHC Statute nowhere provides nor it was the intention of the legislature to debar the assessee from deduction of 80HHC in respect of Indian currency received/credited to his account in respect of export bill prepared in foreign currency, due to day-to-day change in the exchange rate of Indian currency with reference to foreign currency in which export sale is effected With regard to the learned Departmental Representative’s contention regarding doctrine of ejusdem genens with reference to treating such receipts as per Expln (baa) and thereby excluding 90 per cent of such receipts included in the profit of the business, as per our considered view, expression “any other receipts of similar nature” as used in Expln (baa) is accompanied by receipts of brokerage, commission, interest, rent, etc This expression should mean only such items which are of the nature of brokerage, commission, etc and do not directly add to the export turnover Income from foreign currency fluctuation is part of the export turnover and is a sort of additional sales price and not in the nature of the items mentioned under the Expln (baa) The doctrine of ejusdem genens lays down well accepted principle of interpretation of statutes that the meaning of general words following the specific words in succession would derive colour from the specific words preceding them Per contra, the meaning of general words would have to be seen in the light of the words in whose company such general word falls The reasons being that such general words are used to provide completeness to the specific words in the statutes and to avoid the possibility of anything of that nature being excluded In such circumstances these general words should not be independent of the words accompanying them The object of such general words is only to supplement the scope of independent words used in the language of the section It implies that such words occurring in the provisions of the Act be read as accompanying them The expression “exchange fluctuation receipt” by no stretch of imagination can be treated at par with the receipts in the nature of brokerage, commission, interest, rent or any other receipts of similar nature The receipt on account of such fluctuation is directly going to add the export turnover and is resulted due to the export sales only We also see no reason as to how the exchange rate fluctuation income relating to the exports effected in the earlier years can be differentiated from the exchange rate difference in relation to the exports effected in the current year Basically exchange rate difference is nothing but part of the export sales When the goods are exported to a country outside India, the invoice has to be raised in terms of foreign currency prevailing in that country at the time of making exports When the export bills are realised by the foreign buyers, on receipt of advice, the assessee’s bank converts that currency into Indian rupee at the exchange rate prevalent at that time and accordingly the assessee takes cognizance of that amount as its export figure in its books of account Thus the notional value of the export sales, taken on the date of preparing the export bill is bound to differ from the amount actually realised on retirement of such export bills because of different rate of exchange prevailing on the date of preparation of the export bill vis-a-vis the rates prevailing on the date of realisation of export bills by the foreign buyer by making payment to his banker, which in turn comes to the bank account of the assessee exporter If the exchange rate is positive meaning thereby value of foreign currency increases on the date of realisation by the foreign buyer, it results into income from the exchange rate fluctuation and in case of declining value of foreign currency it becomes loss to the assessee on that account but under all circumstances, the basic character of the receipts of foreign currency remains the same, i e , it is derived out of export sales effected by the assessee exporter and it pertains to the same amount of foreign currency in which export bill is drawn A close reading of Expln (baa) also makes it clear that receipts which are in the nature of brokerage, commission, etc, are in no way part of the export turnover and hence the same did not contribute to the making of the exports These items are independent receipts and are in the nature of income and not any part of the export turnover nor such income is having direct and proximate connection with the export sales So to place income from exchange rate fluctuation in relation to exports, in this category by classifying it under expression “any other receipts of a similar nature”, is not in accordance with rule of ejusdem genens
15. Let us now examine the proposition laid down by Jurisdictional High Court in the case of Hindustan Trading Corporation (supra) It was held by the Court that the income which arose to the assessee as consequence of devaluation has arisen during the course of trade and is a trading profit, inasmuch as the amount is a part of sale proceed Thus it was clearly laid down that exchange fluctuation income is a part of sale proceeds
15.1. Once it is held to be part of sale proceeds, there is no gain in saying that it was not derived from export sale We are therefore not persuaded to agree with the learned Departmental Representative that such income is only incidental to export sales and therefore benefit of deduction under Section 80HHC cannot be given by treating it as derived from export sales and that 90 per cent of such income is to be reduced from profits of the business in terms of Expln (baa)
16. With reference to the contention of learned Departmental Representative for taking the notional value of export sales bills, with reference to Expln 2 to Section 80HHC(2), being the value declared in the shipping bill or bill of export as referred to in Sub-section (1) of Section 50 of the Customs Act, 1962, we are of the considered view that such bill value is deemed to be the sale proceeds only where any goods are transferred by assessee to a branch, office, warehouse or any other establishment of the assessee situated outside India and such goods are sold from such branch, office or warehouse In any of the appeals which are under consideration, there is no transfer of goods by the assessee to any of its branch or office situated outside India Thus the Expln 2 to Section 80HHC(2) has no bearing to the instant appeals under consideration
16.1. We are not oblivious of the proposition that interest received on delayed payment even though in connection with sales, cannot be said to be derived from export so as to entitle the same from the deduction under Section 80HHC Immediate and direct source of such interest is attributable to delayed realisation from the debtor However, in the instant appeals under our consideration, nothing has been brought on record by the Department to indicate that impugned receipt was on account of interest Contention of learned Departmental Representative that because of the assessee either willingly or otherwise allowed the money to remain abroad, it has got pecuniary advantage in the form of extra money and it is, at best, “attributable to export” made in earlier years, is merely based on hypothesis and is not supported by any material on record Any how while reaching to any judgment we cannot base our conclusions on any hypothesis which is not supported by any material on record
16.2. It is pertinent to mention here that in the written submission filed by the learned Departmental Representative at p 3 para 4 of his compilation, the Department itself has accepted that receipt which is incidental to exchange rate fluctuation during the intervening period is to be treated as part of the export sales Relevant portion of para 4 is reproduced as under
“4 The export sale is admittedly a result of contract between the seller and buyer There are conditions for delivery of goods and terms of payment If the transaction is completed comprehensively in accordance with the terms of such contract then, there is no dispute about the nature of receipt In other words if the price quoted in foreign exchange currency in the sale invoice is realized in accordance with the terms of the contract, i e , within the time prescribed, then the receipt which is incidental to exchange rate fluctuation during the intervening period is to be treated as part of the export sales”
16.3. In continuation of the same para 4, the Department has made some hypothesis with regard to position in case of postponement of payment and stated that once the period for settlement of dues under the terms of a sale contract is over, the money not realised becomes debt and any compensation or any other benefit which the assessee receives on a later date cannot be called to be profit “derived from” export turnover and such receipts will have to be taxed as income from other sources only However, this hypothesis of the Department is not supported by any material on record In none of the appeals under our consideration, the lower authorities had stated that assessee was in receipt of any compensation or any other benefit in the form of exchange rate difference, due to postponement of payment beyond the stipulated time as per terms of sale contract Even assuming if there is any delay in retirement of export bill by the foreign buyer and consequential delay in payment, the benefit of deduction under Section 80HHC cannot be declined if such export proceeds are brought into India within the extended time allowed by the competent authority We also fail to understand as to how such belated payment will not form part of export sales when payment is received only and only in respect of amount of export bill We are therefore inclined to agree with the contention of learned Authorised Representative that amount realised on retirement of export bill is to be treated as pan of export sale irrespective of varying amount which the assessee exporter may receive due to different rate of exchange prevailing at different times in respect of same amount of export bill, part of which assessee credits in its books of account as exchange rate difference and major part of which has already been credited on the date of preparing the export bill on the basis of notional rate of exchange
17. In view of above discussion, we are inclined to reverse the findings of the lower authorities to the effect that exchange rate difference partake the character of income enumerated in Expln (baa), 90 per cent of which is required to be excluded from the “profits of the business”, while computing deduction under Section 80HHC, and direct the AO to allow deduction under Section 80HHC with reference to the amount received by the assessee on account of exchange rate of fluctuation Thus this ground in all the appeals filed by the assessee as well as by the Revenue in ITA No 2468 is allowed in favour of assessee Even after considering the points of difference indicated by the learned Departmental Representative for the reasons given hereinabove, we are not persuaded to reach to any conclusion other than the conclusion that such receipts on account of exchange rate difference is derived from the export sales and is part and parcel of export proceeds only, and by no stretch of imagination it can be given colour of income from other sources to be excluded from profits of the business in terms of Expln (baa) below Section 80HHC(4A) We, therefore, do not see any reason for accepting learned Departmental Representative’s contention for referring the matter to the Special Bench, so as to reconsider the decision of the Tribunal in case of Amba Impex (supra)
18. Before parting with the matter it is pertinent to mention here that even if the Department treats such receipts/income as relating to export of earlier years, due benefit of Section 80HHC can be given as per provisions of Section 155(13) by amending the assessment order of respective assessment year
18A. In the result, all appeals of the assessee on this ground are allowed
19. The next common ground in these appeals relates to disallowance of deduction under Section 80HHC in respect of interest on fixed deposits earned by the assessee
20. It was argued by the learned Authorised Representative that deposits were given to the bank as collateral security for obtaining credit facilities for the purpose of export and these deposits were given as a business compulsion and as a condition of sanction of credit facilities He further submitted that assessee has also paid huge interest on such credit facilities during the year under consideration As per the learned Authorised Representative there was always debit balance of interest and, therefore, no disallowance is to be made in respect of debit balance of interest expenses On the other hand, learned Departmental Representative relied on the orders of lower authorities and submitted that no deduction can be allowed under Section 80HHC with reference to interest income
21. We have considered the rival contentions and find from the record that the assessee is engaged in the export and for availing export credit facilities from the bank they were required to give deposits to the bank On such deposits the assessee has earned interest income, whereas on the credit facilities enjoyed in respect of export, the assessee had paid huge interest to the bank itself Thus there was a debit balance in the interest account after adjusting the interest received against the interest paid We also find that receipt and payment of interest was inextricably related to the export business of the assessee There is no dispute to the fact that fixed deposits were kept with the bank as a collateral security against loan facilities taken from the bank There is also no dispute to the fact that loan facilities have been obtained for the purpose of export It has also not been disputed that the assessee would not have been able to secure the loan facilities had such fixed deposits not been placed as collateral security The Tribunal (Delhi) (SB) in the case of Lalsons Enterprises v. Dy CIT (2004) 82 TTJ (Del)(SB) 1048 (2004) 89 ITD 25 (Del)(SB) has observed that for the purposes of applying Expln (baa) below Sub-section (4B) of Section 80HHC while reducing 90 per cent of the receipts by way of interest from the profits of the business, it is only the 90 per cent of the net interest remaining after allowing a set off of interest paid, which has a nexus with the interest received, that can be reduced and not the 90 per cent of the gross interest
22. Respectfully following the verdict of the Tribunal (SB), we direct the AO to reduce 90 per cent of the net interest received by the assessee while computing deduction under Section 80HHC, as provided in Expln (baa) of Section 80HHC(4B) If the net result of interest payment and receipt is represented by excess of interest paid, no reduction is to be made m terms of Expln (baa) We direct accordingly
23. The next common issue in all the appeals relates to reduction of export receipt out of total export turnover on account of belated receipts of export sales
24. We have heard the rival contentions and find from the record that while computing deduction under Section 80HHC, the AO has excluded the export receipts which were belated on the ground that no deduction can be allowed as per Section 80HHC(2)(a) if the sale proceeds of the merchandise exported out of India are not received m or brought into India by the assessee m convertible foreign exchange within a period of 6 months from the end of the relevant previous year or within such further period as the competent authority may allow m this behalf In all these cases, we find that export receipts have been realised belatedly and brought into India, but m all the cases ex post facto approval of the competent authority, i e , Reserve Bank of India (RBI) was obtained by the assessee As per our considered view the deduction can be declined only if such foreign convertible exchange are not brought into India within the extended period beyond six months, only if the competent authority (RBI) did not grant approval Furthermore as per the provisions of Section 155(13), where in the assessment of any year the deduction under Section 80HHC has not been allowed on the ground that such income has not been received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, has not been brought into India, for and on behalf of the assessee with the approval of the RBI or such other authority as is authorised in terms of law for the time being in force, for regulating the payment and billing in foreign exchange and subsequently such income or part thereof, has been or is received in or brought into India in the manner aforesaid, the AO shall amend the assessment so as to allow deduction under Section 80HHC, in respect of such income or part thereof as he so received in, or brought into, India For this purpose the provisions of Section 154 shall so far as may be applied thereto and the period of four years shall be reckoned from the end of any previous year in which such income so received in or brought into India
25. In view of above discussion, we direct the AO to allow the claim of deduction keeping in view the provisions of Section 80HHC(2)(a) r/w Section 155(13), after verifying that due ex post facto permission has been received by the concerned assessee from the competent authority in this regard We direct accordingly
26. In the case of M/s BSP Exports m ITA No 475/Ahd/2004, the ground regarding disallowance of 20 per cent of total telephone expenses, has been taken by the assessee
27. We have heard the rival contentions and find from the record that while dealing with the expenses on account of telephone, the AO found that the assessee has incurred an expenditure of Rs. 1,36,635 as telephone expenses in current year whereas in the previous year it was Rs. 76,513 The AO observed that besides decrease in the turnover m comparison to the last year, the telephone expenses have been increased tremendously After verifying the details of telephone expenditure, the AO disallowed 20 per cent of the total expenses by observing that there is no check over the expenses and personal use of telephone by the partners of the assessee firm The order of the AO was confirmed by the CIT(A)
28. After going through the orders of lower authorities, we find that after recording due reasons the AO has made disallowance of 20 per cent of such expenses on account of personal use We do not find any reason to interfere in the orders of lower authorities in this regard However, the AO is directed to recomputed the deduction under s 80HHC as per the adjusted profits arrived at after such disallowance of telephone expenses We direct accordingly
29. In view of above discussion, we dismiss the Revenue’s appeal in ITA No. 2468/Ahd/2004 for asst yr 2001-02, with regard to deduction allowed by CIT(A) on the exchange rate fluctuation receipt by treating it as a part of export sales
30. The assessee has also filed cross-objection with reference to ITA No 2468/And/2004 filed by the Revenue in case of M/s Gami Exports for asst yr 2001 02
31. The first objection of the assessee relates to disallowance of foreign travelling expenses of Rs 1,41,275 The brief facts of the case are that in the course of assessment proceedings the AO observed that partners of the assessee-firm had not travelled abroad but the father of the partners namely Shri G M Patel travelled to Belgium in connection with purchase of rough diamonds It was submitted before the AO that Shri G M Patel had acquired skill in purchase of rough diamond because he was in this business for a long time and therefore, he was requested to travel abroad for the purpose of buying the rough diamond The AO did not accept the assessee’s contentions on the plea that Shri G M Patel had travelled twice – one in the month of July and another in the month of September, 2000, whereas the assessee had only one purchase from Belgium during the whole year
32. By the impugned order the CIT(A) confirmed the impugned disallowance by observing that there was no substantial benefit on account of the expenditure incurred by the appellant The CIT(A) further stated that there is a possibility that Shri Patel travelled abroad for his own purpose
33. We have considered the rival submissions and find from the record that expenses have been incurred on account of travelling of Shri G M Patel in connection with purchase of rough diamond The fact of incurring of expenditure has not been doubted nor the actual travelling done by Shri Patel was doubted No cogent material has been brought on record by the AO to reach to the conclusion that expenditure was not incurred for the purposes of business We find that Mr. Patel was an experienced person in this line of business and there is no bar on the assessee-firm from sending Mr. Patel to Belgium from where it used to buy rough diamond merely because Mr. Patel was father of the partners If any disallowance on account of expenditure incurred with reference to Section 40A(2) is to be made, the same can be done by bringing on record that payment was made in absence of commercial consideration or the same was excessive or unreasonable having regard to the fair market value of the goods or services or the facilities for which the payment was made or the legitimate needs of the business of the assessee In the instant case, the expenditure was incurred wholly and exclusively for the purposes of business and travelling was undertaken in connection with the purchases of rough diamond from Belgium and for which an experienced person was sent there which was fully and exclusively m the interest of assessee’s business The apprehension of the CIT(A) to the effect that by debiting such expenses the assessee wants to reduce its profits, cannot be considered in isolation and the fact of assessee being 100 per cent export oriented the profit of which is eligible for deduction under Section 80HHC cannot be lost sight of Keeping in view the totality of the facts and circumstances of the case, we do not find any merit in the action of lower authorities for disallowing travelling expenses, which is inevitable in export business The AO is, therefore, directed to allow the travelling expenses as actually incurred, after reducing the sum of Rs 23,726 not utilized for travelling out of the dollar purchased by the assessee on 13th March, 2001 We direct accordingly
34. The next objection of the assessee relates to disallowance of Rs 3,178 out of mobile expenses We have heard the rival contentions and find from the record that AO has made disallowance of l/5th of the expenditure for personal use We do not find any infirmity for such disallowance, as personal use of mobile by the partners for their personal purposes cannot be ruled out.
35. In ITA No 932/Ahd/2004, the assessee alleged that CIT(A) had not dealt with the ground raised before him with regard to unaccounted sales of rejection and confirming addition of Rs 10,457 in closing stock After going through the record we deem it fit to restore these issues to the file of CIT(A) for deciding afresh after giving due opportunity to the assessee Charging of interest under ss 234B and 234C is consequential, which does not require our interference.
36. In the result, the appeals and the CO of the assessees are allowed in part as indicated above, whereas the appeal of the Revenue is dismissed.