Commissioner Of Income Tax-Iiisurat v. Bholabhai B. Patel....opponent(S

O/TAXAP/845/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 845 of 2006 TO TAX APPEAL NO. 846 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERIand HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-IIISURAT....Appellant(s) Versus BHOLABHAI B. PATEL....Opponent(s) ================================================================Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1MR SN SOPARKAR, SR. ADVOCATE, MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 04/12/2014ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.These tax appeals are by the appellant- O/TAXAP/845/2006 JUDGMENT revenue, seeking to challenge the order of the learned ITAT, Ahmedabad Bench ‘Camp at Surat’, (for short, ‘the Tribunal’), Dated : 02.12.2005, rendered in ITA No.288/Ahd/2003 for A.Y.1995-96 and ITA No.289/Ahd/2003 for A.Y.1995-96, whereby, it partly allowed the appeal of the assessee and dismissed the appeal filed by the Revenue. 2.The brief facts giving rise to the present appeals are that the Respondent-assessee, who is engaged in the business of cutting, processing and exporting the diamonds. The assessee filed his return of income for A.Y. 1995-96 on 30.10.1995, claiming deduction under Section 80HHC of the Income Tax Act, 1961 (for short,‘theAct’).Pursuantthereto, disallowances and additions came to be made to the income of the assessee. The assessee, therefore, approached the learned CIT(A), who partly allowed the appeals filed by the assessee. Since, both the assessee as well as the Revenue were not satisfied with the order of the learned CIT(A), they preferred separate appeals before the learned ITAT, wherein, it passed the impugned order. Hence, the present appeals. 3.At the time of admitting these appeals, this Court framed the following questions of law; O/TAXAP/845/2006 JUDGMENT “(A) Whetherthefactsand circumstances of the case, and in law the Appellate Tribunal was justified in holding that the exchange rate difference pertaining to exports made in earlier years was `profits business' within the meaning of Section 80HHC of the Act ? (B) Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified inholding that the issue was squarely covered by the decision of the jurisdictional High Court, in the case of Hindustan Trading Corporation [ 160 ITR 15 (GUJ) ] when the issue before the High Court in the said case was totally different ? O/TAXAP/845/2006 JUDGMENT “(A) Whetherthefactsand circumstances of the case, and in law the Appellate Tribunal was justified in holding that the exchange rate difference pertaining to exports made in earlier years was `profits business' within the meaning of Section 80HHC of the Act ? (B) Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified inholding that the issue was squarely covered by the decision of the jurisdictional High Court, in the case of Hindustan Trading Corporation [ 160 ITR 15 (GUJ) ] when the issue before the High Court in the said case was totally different ? (C) Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified inholding that “any other receipt of a similar nature” as mentioned in explanation (baa) to Section 80HHC (4b)would not include receipt on account of exchange rate difference ? (D) Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified in holding that the export of rejected and rough diamonds are eligible for deduction u/s.80HHC of the Act ?” 4. At the very outset, Mr. Soparkar, learned Advocate for the Respondent-assessee, invited our attention to a decision of this Court in “CIT VS. PRIYANKA GEMS”, [2014] 367 ITR 577 (Gujarat). In that case, which was a group of matters, this Court framed the following question of law for consideration; “Whether in the facts and circumstances of the case, Income Tax Appellate Tribunal was justified in holding that the receipt resulting out of exchange rate difference pertaining to the export made by the assessee was not the profit of business within the meaning of section 80HHC of the Income Tax Act, 1961?” 5.While dismissing the appeals filed by the Revenue-the appellant, therein, and answering the aforesaid question of law in favour of the assessee, this Court referred to various decisions and observed as under in Para-16 and 33; “16. In many cases when exports are made by an assessee, particularly, towards the fag end of the accounting year, it may not be possible to realize the sale proceeds of such exports before the end of the year. The period during which such remissions would be made may depend on various factors including the terms of the contract between the exporter and the importer. Such terms may also be bilaterally varied at times. The legislature, therefore, for the purpose of section 80HHC, recognized a period of six months for remissions in order to avail the benefit of deduction. Sub-section(2) of section 80HHC, therefore, provides for limit of six months from the end of the previous year for the foreign exchange to be remitted. Even such period was made extendible at the discretion of the competent authority, namely, the Reserve Bank of India or such other authority as may have been authorized for such purpose. For the purpose of claiming deduction under section 80HHC of the Act, therefore, one of the conditions would be that the foreign exchange remittance is made within six months from the end of the previous year during which the export was made or within such extended time as may be permitted. Once this condition along with other essential conditions are fulfilled the assessee would be entitled to deduction under the said provision to be computed in terms of sub-section(3) thereof. XXXXXX XXX may have been authorized for such purpose. For the purpose of claiming deduction under section 80HHC of the Act, therefore, one of the conditions would be that the foreign exchange remittance is made within six months from the end of the previous year during which the export was made or within such extended time as may be permitted. Once this condition along with other essential conditions are fulfilled the assessee would be entitled to deduction under the said provision to be computed in terms of sub-section(3) thereof. XXXXXX XXX 33. Learned counsel Mr. Nitin Mehta for the Revenue, however, contended that the foreign exchange fluctuation gain may arise under various circumstances, not all of them may be covered under section 80HHC of the Act. Primarily, we do not see any distinction possible on the basis of different situations under which foreign exchange fluctuation may result. We are conscious that law permits hedging of foreign exchange fluctuation risk to an importer or an exporter. The exporter may, therefore, take steps as found commercially prudent to safeguard himself against drasticforeignexchangerate fluctuations and in the process may also limit the possibility of gain in case of favourable currency rate trends. Nevertheless, the resultant gain in foreign exchange rate would still be due to the export made by the assessee. In any case, no such facts are recorded by the Assessing Officer in any of these cases. We would, therefore,notentertainsuch speculative contention.” O/TAXAP/845/2006 JUDGMENT 6.This Court, then, held that the source of the income of the assessee, i.e. the assessee, therein, was export and on the basis of accrual, income was already reflected in the assessee’s account on the date of the export, at the prevailing rate of exchange. This Court, further, held that the income was earned merely on account of foreign exchange fluctuation and such income, therefore, was directly related to the assessee’s export business and cannot be said to have been removed beyound the first degree and the assessee was entitled to deduction under Section 80HHC of the Act. 7.In above view of the matter, Mr. Soparkar submitted that the questions ‘A’ to ‘C’ being governed by the aforesaid decision, be answered in favour of the assessee, accordingly. 8.So far as question ‘D’ is concerned, Mr. Soparkar, invited our attention to a decision of this Court in Tax Appeal No. 62 of 2006 in “CIT VS. BHOJAL GEMS”, Dated “ 28.09.2006, wherein, this Court while answering question ‘E’, i.e. Whether on the fact and circumstances of the case, and in law the Appellate Tribunal was justified in holding that the export of rejected and rough diamonds are eligible for deduction u/s.80HHC of the Act, held that the said question O/TAXAP/845/2006 JUDGMENT related to deduction under Section 80HHC on the rejected rough diamonds, which are exported and when admitted facts are that they are exported, they are eligible for deduction under Section 80HHC and thereby, this Court answered the said question in favour of the assessee and against the Revenue. 9.Mr. Soparkar, therefore, submitted that as the questions raised in these appeals are covered by the decisions of this Court in “CIT VS. PRIYANKA GEMS” (Supra) and Tax Appeal No.62 of 2006 in favour of the assessee, present appeals be dismissed. appellant-Revenue in each appeal, does not dispute the aforesaid position of law. O/TAXAP/845/2006 JUDGMENT related to deduction under Section 80HHC on the rejected rough diamonds, which are exported and when admitted facts are that they are exported, they are eligible for deduction under Section 80HHC and thereby, this Court answered the said question in favour of the assessee and against the Revenue. 9.Mr. Soparkar, therefore, submitted that as the questions raised in these appeals are covered by the decisions of this Court in “CIT VS. PRIYANKA GEMS” (Supra) and Tax Appeal No.62 of 2006 in favour of the assessee, present appeals be dismissed. appellant-Revenue in each appeal, does not dispute the aforesaid position of law. 11.Having heard the learned Counsels for the parties and having gone through the material on record as well as the decisions of this Court relied on by Mr. Soparkar, as stated above, since, all the questions raised in these appeals are answered by this Court in favour of the assessee and against the Revenue, we do not propose to give further reasons and the present appeals deserve to be dismissed. O/TAXAP/845/2006 JUDGMENT 12.In the result, both the appeals fail and areDISMISSEDas being without merit. The questions raised in these appeals are answered against the appellant-Revenue and in favour of the respondent-assessee, accordingly. No order as to costs. (K.S.JHAVERI, J.) UMESH (K.J.THAKER, J)