Income Tax Appellate Tribunal - Lucknow
Northern Tannery, Kanpur vs Department Of Income Tax
1
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH "B", LUCKNOW
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER
ITA No.381/LKW/2011
A.Y.:2003-04
Dy.C.I.T.-1, Vs. M/s Northern Tannery,
Kanpur. Jajmau,
Kanpur.
PAN:AAAFN6778L
(Appellant) (Respondent)
C.O.No.31/Lkw/2011
(in ITA No.381/LKW/2011)
A.Y.:2003-04
M/s Northern Tannery, Vs. Dy.C.I.T.-1,
Jajmau, Kanpur.
Kanpur.
PAN:AAAFN6778L
(Objector) (Respondent)
Revenue by Shri Y. P. Srivastava, D. R.
Assessee by Shri Shyam Sunder Gupta
Shri Ashish Jaiswal
Date of hearing 20/12/2013
Date of pronouncement 30/01/2014
ORDER
PER A. K. GARODIA, A.M.
The appeal is filed by the Revenue and the Cross Objection is filed by the assessee, which are directed against the order of CIT (A)-II, Kanpur dated 17/03/2011 for assessment year 2003-2004.
2. First we take up the appeal filed by the Revenue. Ground No. 1 is as under:
2"1. That the Ld. Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts in directing to treat the amount of Rs.13,83,260/- as exchange difference eligible for deduction u/s 80HHC of the Income Tax Act, 1961 without appreciating the facts brought on record by the assessing Officer during the course of assessment proceedings and also as per Explanation (baa) of Section 80HHC of the Income Tax Act, 1961."
3. Learned D.R. of the Revenue supported the assessment order whereas the learned A.R. of the assessee supported the order of learned CIT(A).
4. We have considered the rival submissions, perused the material available on record and gone through the orders of the authorities below. we find that it is noted by the Assessing Officer in Para 3 on page 2 of the assessment order that an amount of Rs.13,83,260/- was credited in profit & loss account under the head 'Exchange Difference'. He has further noted that on examination of the details and the books of account, it was gathered that this profit was due to foreign exchange fluctuation in respect of date of making invoice and date of realization. The Assessing Officer asked the assessee to furnish chart containing date of raising invoice, invoice amount in rupees as well as in foreign currency, date of receipt of sale proceeds and the amount realized. Thereafter, the Assessing Officer has noted on page No. 3 of the assessment order that no convincing reply was filed by the assessee. The learned CIT(A) has decided this issue in favour of the assessee on the basis that deduction u/s 80HHC is allowable in respect of foreign exchange fluctuation gain but no finding is given by learned CIT(A) as to whether this foreign exchange fluctuation gain is connected with the sales of the present year or of an earlier year. In our considered opinion, such foreign exchange fluctuation gain is eligible to be considered as export sale for the purpose of computing deduction allowable to the assessee u/s 80HHC but the same has to be considered as export turnover in the year of sale and not in the year of receipt. These details are not available on record. We find that this aspect is 3 very much relevant to be examined because if this aspect is not examined, the assessee may get double deduction or deduction may stand allowed to him even if there is violation of the requisite conditions. For example, if the sale was effected in last year but the same was not considered as export sale for the reason that the payment was not received within the prescribed period but was received after the lapse of the prescribed period in the subsequent year. In that situation, the assessee is not eligible for any deduction u/s 80HHC in respect of such sale and if such receipt of foreign exchange fluctuation gain is not correlated to the date of sale then the assessee may get deduction u/s 80HHC in respect of such foreign exchange fluctuation gain although the assessee is not eligible for deduction u/s 80HHC in respect of such sale because of non fulfillment of condition of receiving the payment within the prescribed time. Similarly, in the year of export, the export turnover may be considered by the auditor in Form No.10CCAC on the basis of amount actually realized although in the books of account of that year, the sales were accounted for on the basis of rate of foreign currency on the rate of invoice. In that situation, the foreign exchange fluctuation gain received in next year will not stand credited in the profit & loss account of the assessee in the year of sale and it will be so credited in the year of receipt but the assessee will get deduction in the year of sale also in respect of exchange fluctuation gain on the basis of export turnover in Form 10CCAC on the basis of actual receipt of export proceeds and the assessee may get deduction again in the next year i.e. the year of receipt. To avoid such situation, it is always preferable to correlate the foreign exchange fluctuation gain to the year of sale to which the foreign exchange fluctuation gain is related. Therefore, we set aside the order of CIT(A) and restore the matter to the file of the Assessing Officer for fresh decision. The assessee has to furnish the details and evidence before the Assessing Officer regarding the invoice number and date to which such foreign exchange fluctuation gain is related 4 with. If it is found that such invoices are of the current year then obviously, the foreign exchange fluctuation gain has to be considered as export turnover of the present year but if it is found that such invoices are of earlier year, the assessee cannot be allowed deduction in respect of foreign exchange fluctuation gain in the present year and the same should relate back to the year of export. Needless to say, in that situation, the income on account of foreign exchange fluctuation gain will also not be taxed in the present year but it will be taxed in the year in which the export sale was effected and in that year only, the same will be added to the export turnover and total turnover both. The Assessing Officer should pass necessary order as per law in the light of the above discussion after providing adequate opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
5. Ground No. 2 is as under:
"2. That the Commissioner of income Tax (Appeals)-II, Kanpur has erred in law and on facts in directing the Assessing Officer to treat the amount of Rs.37,45,875/- as sales proceeds eligible for deduction u/s 80HHC of the Income Tax Act, 1961, after accepting the additional evidences during appellate proceedings, no proper opportunity has been allowed to the Assessing Officer to examine these evidences as provided under rule 46A of the Income Tax Rules 1962."
6. Learned D.R. of the Revenue supported the assessment order. He has further submitted that a clear finding is given by the Assessing Officer that no permission from prescribed authority is available and, therefore, the benefit of deduction u/s 80HHC cannot be given on this unrealized amount of Rs.37,45,876/-. He further submitted that in spite of this clear finding of the Assessing Officer in the assessment order, the learned CIT (A) has allowed relief to the assessee by resorting to the provisions of section 155(13) of the Act without giving a finding that such sale proceeds were brought into India by the assessee as per the permission of the prescribed authority and, 5 therefore, on this issue, the order of learned CIT(A) should be reversed and that of the Assessing Officer should be restored.
7. As against this, the learned A.R. of the assessee supported the order of learned CIT (A).
8. We have considered the rival submissions, perused the material available on record and gone through the orders of the authorities below. First of all, we consider it appropriate that the provision of sub section (13) of section 155 should be reproduced below for the sake of ready reference:
"S.155 (13) Where in the assessment for any year, the deduction under section 80HHB or section 80HHC or section 80HHD or section 80HHE or section 80-O or section 80R or section 80RR or section 80RRA 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, by or on behalf of the assessee with the approval of the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings 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 Assessing Officer shall amend the order of assessment so as to allow deduction under section 80HHB or section 80HHC or section 80HHD or section 80HHE or section 80-O or section 80R or section 80RR or section 80RRA, as the case may be, in respect of such income or part thereof as is so received in, or brought into, India ; and the provisions of section 154 shall, so far as may be, apply thereto, and the period of four years shall be reckoned from the end of the previous year in which such income is so received in, or brought into India."
8.1 From the above provisions, we find that if the deduction was not allowed to the assessee u/s 80HHC for the reason that the assessee could not bring the sale proceeds to India in convertible foreign exchange within the 6 prescribed time or within the further time as allowed as per the approval of the RBI or such other authority as is authorized in this regard and subsequently the same is brought in India in the aforesaid manner then the assessment of such year should be rectified by the Assessing Officer u/s 155(13) of the Act. In our considered opinion, such rectification is possible only when the assessee is able to establish that the sale proceeds were brought in India in convertible foreign exchange as per prescribed provision of the Act or as per the approval of the prescribed authority. In the present case, it could not be shown by the assessee before any of the authorities below or even before us that any approval was obtained for receiving the sale proceedings beyond the prescribed time limit. Therefore, in the facts of the present case, the order of CIT (A) is not sustainable on this issue. We, therefore, reverse the same and restore that of the Assessing Officer on this issue. This ground of appeal is allowed.
9. Ground No. 3 & 4 of the appeal are general and do not require any separate adjudication.
10. In the result, the appeal of the Revenue stands allowed in the terms indicated above.
11. Now we take up the Cross Objection of the assessee. In its Cross Objection, the assessee has raised the following grounds:
"1. That the ld. Commissioner of income tax (Appeals)-II, Kanpur was correct in holding that a sum of Rs.1383260.00 being exchange difference is eligible for deduction u/s 80HHC which decision was based on cogent reason and based on the verdict of Hon'ble High Court as well as Hon'ble Tribunal and is well supported by the provisions of the act.
2. That the ld. Commissioner of income tax (Appeals)-II, Kanpur was correct in holding that sale proceeds received after the cut off date is eligible for deduction and same is 7 rectifiable u/s 155 (13) of the income tax act, 1961. He was also correct in ordering the ld. Assessing Officer to verify the facts and allow the claim only after verification. There was nothing like additional evidence which has been entertained by ld. Assessing Officer. Rather, the ground of appeal is misplaced.
3. That the ld. Commissioner of income tax (Appeals)-II, Kanpur was correct in allowing reliefs to the assessee which decisions was considered after considering the provisions of the act.
4. That ld. Commissioner of income tax (Appeals)-II, Kanpur has erred in confirming the assessment of Rs.218689.00 as income from other sources and not as income from business.
5. That ld. Commissioner of income tax (Appeals)-II, Kanpur has erred in confirming disallowance out of telephone expenses at Rs.49664.00; out of vehicle maintenance Rs.31037.00, out of depreciation on car Rs.42461.00 and out of travelling expenses Rs.5000.00.
6. That the order of ld. Commissioner of income tax (Appeals)-II, Kanpur was legal and correct being based on proper appreciation of facts and provisions of law and deserves to be confirmed.
7. That the cross objector craves leave to modify any one or more of the grounds of appeal given above and add any new grounds of appeal, if and when need for doing so arises."
12. Ground No. 1, 2 & 3 of the Cross Objection are merely in support of order of CIT (A) and, therefore, these grounds do not call for any separate adjudication.
13. Regarding ground No. 4, we find that dispute is regarding interest income of Rs.2,18,689/-. The learned CIT (A) has followed various judgments for holding that the interest income is assessable as income from other 8 sources and, therefore, we do not find any reason to interfere in the order of CIT(A) on this issue. Ground No. 4 of the Cross Objection is rejected.
14. Regarding ground No. 5 of the assessee's Cross Objection, we find that the same is with regard to alleged personal use of telephone and vehicles and an amount of Rs.5,000/- was disallowed out of travelling expenses for alleged personal use. The assessee is a partnership form and it is not shown to us or before the authorities below that the partners were having their own telephone or own vehicles and, therefore, it cannot be ruled out that there may be some personal use. Disallowance is only 1/10 th, which is not unreasonable. Hence, we do not find any reason to interfere in the order of CIT(A) on this issue.
15. In the result, the Cross Objection of the assessee stands dismissed.
16. In the combined result, the appeal of the Revenue is allowed and the Cross Objection of the assessee is dismissed.
(Order was pronounced in the open court on the date mentioned on the caption page) Sd/. Sd/.
(SUNIL KUMAR YADAV) ( A. K. GARODIA )
Judicial Member Accountant Member
Dated:30/01/2014
*C.L.Singh
Copy of the order forwarded to :
1. The Appellant
2. The Respondent.
3. Concerned CIT
4. The CIT(A)
5. DR, ITAT, Lucknow
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