Foreign exchange gains qualify for deduction under section 80-HHC & machines assembly under section 32-AB.

The Tribunal held that receipts from foreign exchange rate fluctuations were part of export turnover and business activity, making them eligible for deduction under section 80-HHC. The decision was supported by the definition of "export turnover" and previous judgments. Additionally, the High Court allowed the deduction under section 32-AB for machines assembled by the assessee, following a similar precedent. The rulings were in favor of the assessee in both issues, resulting in the revenue's claims being dismissed.

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Issues involved:
1. Inclusion of receipt on account of fluctuation in foreign exchange rate in gross total income for computing deduction u/s 80-HHC.
2. Allowance of deduction u/s 32-AB on machines assembled by the assessee.

Issue 1: Inclusion of receipt on account of fluctuation in foreign exchange rate in gross total income for computing deduction u/s 80-HHC:
The Assessing Officer contended that the receipts from foreign exchange rate fluctuations were not part of business activity and thus could not be considered for deduction u/s 80-HHC. This view was upheld by the CIT(A). However, the Tribunal disagreed, stating that the receipt was part of export turnover, arising from business activity and was a trading receipt, not on capital account. The Tribunal's decision was supported by a judgment citing that losses or gains from foreign currency transactions are considered trading losses or profits if they occur in the course of business activities. The definition of "export turnover" under explanation (b) to Section 80-HHC(4) of the Act also supported this interpretation. As the amount received due to foreign exchange fluctuations was related to export of goods, it was deemed part of the gross turnover, making the assessee eligible for deduction u/s 80-HHC. The question was answered against the revenue and in favor of the assessee.

Issue 2: Allowance of deduction u/s 32-AB on machines assembled by the assessee:
The assessee claimed deduction u/s 32-AB for new machines purchased/assembled. While the claim for new machines was allowed, the claim for assembled machines was initially not allowed. However, the appellate authority accepted the claim for assembled machines, a decision affirmed by the Tribunal. The High Court referred to a previous judgment on a similar issue and decided in favor of the assessee, stating that the question had already been addressed in a previous case. Therefore, the question was answered against the revenue and in favor of the assessee. The reference was disposed of accordingly.

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