Income Tax Appellate Tribunal - Mumbai
Rishabh Impex, Mumbai vs Department Of Income Tax on 12 July, 2010
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 Vs. Addl. CIT, Range 14(2)
144, Behram Mahal, 3rd Floor, Earnest House,
2nd Floor, 534 Kalbadevi Road, Nariman Point,
Mumbai-400 002 Mumbai-400 021
PAN: AAAFR5747B
Appellant Respondent
I.T.A. No. 7133/Mum/2007
(Assessment year : 2004-05)
Addl. CIT, Range 14(2) Vs. M/s. Rishab Impex
3rd Floor, Earnest House, 144, Behram Mahal,
Nariman Point, 2nd Floor, 534 Kalbadevi Road,
Mumbai-400 021 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 the assessee and the second one filed by the Revenue and are directed against the order dated 25th September, 2007 of the CIT(A)-XIV, Mumbai relating to assessment year 2004-05. For the sake of convenience these were heard 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.2,75,89,717 made by the Assessing Officer.
2 ITA Nos. 6318 & 7133/Mum/2007M/s. Rishabh Impex =========================
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 proceedings 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 the assessee has shown higher gross profit rate in the preceding three years which is as under:
Gross Total sales Gross A.Y. profit (Rs.) profit (Rs.) (%) 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 explained 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 been reversed from the purchases to the extent of excise duty receivable of Rs.1,32,90,350 and excise duty receipt during the year at Rs.85,24,661 has been 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 purchases.
5. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He noted that the decline in value of Rupee vis-à-vis US Dollar was there in A.Y. 2003-04 also when the assessee 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 received within a period of three to four months and very little amount is outstanding 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 part of decline in GP rate due to fall in exchange rate and considering the cycle of three to four months for receiving the export proceeds after the invoices are prepared, the Assessing 3 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= Officer was of the opinion that the average fall in exchange rate during A.Y. 2004-05 is around 2%. Therefore, the Assessing Officer 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 year to 1.17% in the current year.
6. The Assessing Officer noted from the auditor's report in Form No. 3CD that the assessee has not maintained any stock register 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 basis. 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 quantitative details of finished products, hence we are unable to 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 auditor 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 register and production register.
ii) The quantity-wise details regarding consumption 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 earlier 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 assessee is not reliable in the absence of stock register and production register."4 ITA Nos. 6318 & 7133/Mum/2007
M/s. Rishabh Impex =========================
8. The Assessing Officer accordingly rejected the books of account u/s. 145(3) of the Act on the ground that the book results of the assessee are not reliable. Relying on a couple of decisions and considering 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 to Rs.3,12,24,686 on the total sales of Rs.31,22,46,861. After deducting the GP shown at Rs.36,34,969 the Assessing Officer made an addition of Rs.2,75,89,717 to the total income of the assessee.
9. Before the CIT(A), the assessee furnished certain additional evidences which were forwarded to the Assessing Officer for his 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 financial statement. It was submitted that the price of export consignment was normally fixed keeping in view the exchange rate prevalent at the time of receiving the order for purchase of grey fabrics from various places. Thereafter the weavers produce the grey fabrics as per the requirement of the buyers. 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 normally 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 submitted that during the year the Government has prescribed new excise procedure on textiles and textile articles w.e.f. 1.4.2003. The assessee received Central 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 purchases in the trading account, it was explained that the Central Excise rebate should have been reduced from the cost of purchases shown in the trading account. It was submitted that had the amount of Central Excise rebate been taken to the trading account the GP would have increased by a sum of Rs.85,24,661 resulting in the GP rate of more than 2.73%. The assessee further submitted 5 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= that the fall in GP was also partially due to the increase in cost of purchases/production and also increase in cost of carriage inward and packing material. Finally it was explained that the assessee during the year had received higher amount of export incentives compared to other years. It was explained that since the assessee was concerned with overall profits from export activities and in consideration of the amount of export incentives received during the year the GP rate shown by the assessee was comparable with the remaining years. The assessee also submitted the following chart of GP rate after including the amount of export incentives.
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 assessee 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 submitted 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 by the CIT(A) which was forwarded to him, the Assessing Officer undertook indepth examination of the submissions/additional evidence submitted by the assessee and called for books of account, vouchers and relevant registers 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 in his report dated 29th June, 2007 admitted that because of the faulty presentation of the accounts Rs.85,24,661 was credited to Profit and Loss A/c. instead of treading account for which the actual GP was shown at a lesser figure by Rs.85,24,661. As regards the increase in cost of production the Assessing 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 6 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= Assessing Officer further observed that in the audited accounts there has been no mention of any shortage claim whereas on screening the month-wise details of purchases, consumption and sales, the assessee had claimed substantial shortage in the manufacturing process which was not supported by proper evidence. The Assessing Officer concluded that as per the chart submitted by the assessee during the assessment proceedings, the closing stock should have been Rs.19,49,675.63 metres whereas they have taken the value of only 14,60,310.82 metres in the Balance Sheet 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 conclusion 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 consumption of raw material. However, without any documentary evidence the assessee 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 and relying on a couple of decisions the CIT(A) held that it would be reasonable to estimate the GP rate @ 7% as against 10% estimated by the Assessing Officer. While doing so, he noted that there were certain discrepancies which remained to be satisfactorily explained by the assessee. He noted that as per the auditor's report the assessee is not maintaining any stock register and the auditor has examined the books of account on test check basis only. Further at the time of audit the auditors were not provided with full records/details such as stock register, quantitative details of raw material consumed and finished products for which they have to rely on the oral opinion supplied and physical verification claimed to have been done by the partners. Therefore, the correctness and credibility of the accounts was not verified by the auditors. He noted that the auditor Shri Pravin Jain in his statement had admitted that 7 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= he has not examined the production record, input and output ratio and wastage percentage because the assessee has not produced documents/ records before him. It was also admitted by him that he has not examined the stock register and production record. It was further stated by him that since the trial balance was submitted only towards the fag end of the last date of submitting the audit report, the various details could not be examined by him. This, according to the CIT(A), is a serious lapse and 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 necessary details/records/ books were not produced before the auditors, who prepared the audited report without examining the relevant records, by itself was a serious discrepancy and also a breach of statutory duties committed by the auditors in collusion with the assessee. Further the assessee was also not able to explain the heavy shortage @ 3.44%. Further there is no proper basis for valuation of closing stock in the absence of proper records, the rates and 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 correctness of the books of account, he was of the view that the Assessing Officer was fully justified in invoking the provisions of section 145(3) of the Act.
13. As regards the various reasons/factors attributable to fall in GP rate, he noted that the Assessing Officer has accepted the correctness 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 cycle 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 rate 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 production, he was of the opinion that the benefit/adjustment of about 2% was allowable to the assessee on 8 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= account of increase in cost of raw material. As regards the claim of the assessee that it had received higher export incentives during the year at Rs.5.28 crores as against Rs.2.84 crores and Rs.3.33 crores during the preceding two years and Rs.2.44 crores during the succeeding 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 phenomenon. 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 increased by the assessee in proportion to the increase in the cost of production during the year. Therefore, the impact of higher export incentives received during the year already stood considered. He further noted that some 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 entitled to any further adjustment in GP rate on account of export incentives.
14. Considering all the facts, material/evidences, he was 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 reasonable 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 to the extent of Rs.96,96,649 as against Rs.2,75,89,717 added by the Assessing Officer. Aggrieved with such part relief both the assessee and the Revenue are in appeal before us.
15. The learned counsel for the assessee reiterated the same submissions as made before the CIT(A). He submitted that the assessee has explained the fall in GP ratio which was not properly appreciated by the CIT(A) who restricted the same to 7% as against 1.17% declared by the assessee. 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 Assessing Officer has accepted in toto and the CIT(A) has also accepted the same. As regards the fall in value of US Dollar as compared to earlier year the learned counsel for the assessee referred to page 46 of the Paper Book and drew the attention of 9 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= the Bench to the exchange rate of the US Dollar for the year as compared to the previous year. He submitted that the total difference on account of fall in the value of US Dollar amounts (approximately) to Rs. 48 lakhs and if such fall in the value of US Dollar is considered, then it comes 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 ratio as against almost 9% on average. He submitted that if the export incentives are considered for the purpose of computing the GP ratio along with the Excise rebate, fall in the value of Dollar and increase in cost of inputs, there will be hardly any difference in the GP rate of the current year as compared to the preceding and succeeding years. However, the CIT(A) has not given any weightage for the export incentives. He submitted that the assessee has maintained proper accounts, accounts are audited and no major discrepancies 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 considered by the CIT(A). As regards the submission of the learned counsel for the assessee that a part of the fall in GP rate is due to increase in cost of inputs, 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 invoices, 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 during the assessment proceedings when the Assessing Officer asked the assessee to explain the reasons for such fall in GP rate. Therefore, no benefit 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 calculating GP ratio, the 10 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= learned DR submitted that no weightage should be given because export incentives are not part of the trading result and it 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 both 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 the assessee. There is no dispute to the fact that the assessee, in his response to the notice issued by the Assessing Officer to explain the fall in the GP rate, 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 explanation of the assessee regarding fall in the value of US Dollar allowed credit of 2% from the average GP rate of 12% for the three preceding years and estimated the GP of the assessee at 10%. We find in appeal the assessee filed certain additional evidences and the CIT(A) after considering the remand report of the Assessing Officer on the basis of the additional evidences and 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 increase in input cost and sustained the GP estimation at 7%. It is the submission of the learned counsel for the assessee that the fall in the value of US Dollar should be considered at 4.56% and the increase in cost of inputs which is between 2.72% to 12.40% should be suitably enhanced as against 2% credit given 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 the CIT(A) after considering the average period of 5 to 6 months involved from the 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 relevant period and the percentage fall in stock exchange rate has considered 3% decline in GP rate as reasonable. Similarly as regards the increase in cost of inputs, we find the Assessing Officer in the assessment proceedings has given a finding that in 11 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= case of certain items of raw materials the price has gone down. Further from the copies of the sample invoices placed at Paper Book pages 94 to 96 it can be found that the selling price per metre in some cases 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 invoices must have taken into consideration the rise in the input cost. Considering the overall situation of the impugned case, we find the CIT(A) has reasonably 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 force in the same. In our opinion, the export incentives are not a trading item 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 by 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 the 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 relied 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 estimate of the GP at 7% as against 10% estimated by the Assessing Officer in his elaborate order. We, therefore, do not find any infirmity in the same and accordingly uphold the order of the CIT(A) on this issue. The grounds raised by the assessee as well as the Revenue on this issue are accordingly dismissed.
18. Grounds of appeal No. 2 by the assessee and grounds 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. Considering the fact that no salary/ 12 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= remuneration and interest had been paid to any of the partners in any of the assessment year and referring to Explanatory Note of Finance Act, 1996 for proper understanding of the meaning of the expression "Keyman" and after considering the fact that there were three lady partners, the Assessing Officer disallowed the entire amount of Rs.67,54,701 claimed 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 disallowed the same in respect of lady partners amounting to Rs.3,03,256 by observing as under:
" ... The lady partners could not be treated as "Keyman" as they were neither active partners nor were rendering any services which could have a significant effect on the profitability of the business. ... "
Aggrieved with such order of the CIT(A), the assessee 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 assessee's own case for A.Y. 2005-06 and the Tribunal vide I.T.A. No. 6585/Mum/08 and I.T.A. No.6352/Mum/08 order dated 29th September, 2009 has directed the Assessing Officer to allow the deduction for the entire amount of premium paid as Keyman Insurance Premium on behalf of the partner. Respectfully following the decision of the co-ordinate Bench of the Tribunal in assessee's own case and in absence of any distinguishable features brought before us by the learned DR, the ground 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 challenged 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 fluctuation. The Assessing Officer during the course of assessment proceedings asked the assessee to give 13 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= the yearwise breakup of these losses. The assessee submitted the yearwise breakup of the losses, the details of which are as under:
Amount A.Ys.
(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 pertaining to earlier year, the Assessing Officer rejected the explanation 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 20th April, 2006 for A.Y. 2002-03 disallowed the claim of the assessee.
25. In appeal it was submitted that the loss due to exchange rate difference has direct nexus and connection with the exports made by the assessee and as such the loss had arisen on account of export remittances received during the previous year. Therefore, the loss on account of exchange rate difference was nothing but a part of the business expenses of the previous year. It was submitted that the sale proceeds received or brought into India by the assessee in convertible foreign exchange are part of the export turnover. This impugned loss in exchange rate difference would certainly 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 same was automatically allowable. It was further submitted that in the past 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 difference sustained during the previous year is allowable as expenditure. It was submitted that the assessee was solely engaged in the business of export of textile goods and there was no sale within the territory of India except sale of wastage, the sale proceeds were received during the previous year and as such the loss in exchange rate difference had arisen during the previous year only in spite of the fact that the 14 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= export was made in the earlier year. Since the loss has crystallised during the previous year the same should be allowed as deduction. The decision of the Delhi Bench of the Tribunal in the case of Smt. Sujata Grovers vs. DCIT reported in 74 TTJ 347 and the decision of the Mumbai Bench of the Tribunal in the case of M/s. S.S. Industries vs. ITO were also 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 exchange 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 fluctuation had arises/ crystallised during the year and on account of exports, the assessee's claim for exchange fluctuation loss has to be allowed. Aggrieved 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 order 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 rate fluctuation and, therefore, this is an allowable business expenditure.
27. After hearing both the sides, we do not find any infirmity 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 our 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 loss. This ground by the Revenue is accordingly dismissed.
28. In grounds of appeal No. 3, the assessee has challenged the order of the CIT(A) in confirming the disallowance of Rs.25,87,814 on account of deduction u/s. 80HHC.
29. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that the assessee has shown to have 15 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= made export of Rs.31,20,00,143. The FOB value of the exports as per the certificate of the chartered accountant in Form No. 10CCAC was Rs.29,98,42,361. Since the export turnover was more 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 unless the assessee fulfils the conditions prescribed in the provision. However, no reply was received from the assessee. From the various details, the Assessing Officer noted that the assessee had shown the export incentives of Rs.5,27,56,123 the details of which are as under:
Amount Item (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 the 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 Assessing Officer by holding as under:
"6.3 I have carefully considered the facts and submissions.
Admittedly, the appellant's export turnover exceeded Rs.10 crores and with regard to DEPB/DFRC appellant was required to have sufficient evidence to prove the fulfilment of the aforesaid two conditions laid down in the 3rd/4th proviso below section 80HHC(3). Admittedly, in appellant's 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 assessee 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 decision of the jurisdictional 16 ITA Nos. 6318 & 7133/Mum/2007 M/s. Rishabh Impex ========================= High Court in the case of CIT vs. Kalpataru Colours and Chemicals vide Income Tax Appeal No. 2887 of 2009 order dated 28/29th June, 2010. He also filed a copy of the same and submitted that the decision of the Special Bench in the case of Topman Exports has been reversed. 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 Revenue as well as the assessee are partly allowed.
Pronounced in the open court on 30th July, 2010
Sd/- Sd/-
(R.V. EASWAR) (R.K. PANDA)
PRESIDENT ACCOUNTANT MEMBER
Mumbai, date 30th 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