s.263 revision barred where appellate order merged with assessment; foreign exchange gains included in export turnover under s.80HHC

ITAT DELHI-E held that the CIT's invocation of s.263 was erroneous and prejudicial to Revenue because the issue of including foreign exchange fluctuation in export turnover for deduction u/s 80HHC was already considered and decided by the CIT(A), thereby merging the AO's order with the appellate order and ousting revision. The tribunal found exchange rate gains/losses are part of export turnover (additional sales price) and cannot be read into "any other receipts" under the ejusdem generis rule; consequently the CIT's attempt to treat such receipts as subject to 90% exclusion (brokerage/commission type) was unjustified.

---

---

Issues Involved:
1. Invocation of Section 263 by CIT.
2. Exclusion of foreign exchange difference from profit of business u/s 80HHC.
3. Application of the proviso to sub-section (3) of Section 80HHC.

Summary:

1. Invocation of Section 263 by CIT:
The assessee contested the CIT's invocation of Section 263 of the IT Act, 1961, arguing that the CIT(A) had already adjudicated on the matter of deduction u/s 80HHC, and thus, the CIT could not revise the order. The Tribunal noted that the CIT(A) had considered and decided the issue of including foreign exchange fluctuation income in the export turnover. Therefore, the CIT was not justified in revising the AO's order on the same matter, as it had already merged with the CIT(A)'s order.

2. Exclusion of Foreign Exchange Difference from Profit of Business u/s 80HHC:
The CIT directed the AO to exclude 90% of the foreign exchange fluctuation income from the profits of the business, considering it as "any other receipts of a similar nature" u/s 80HHC(4B). The Tribunal disagreed, stating that foreign exchange fluctuation income related to exports is part of the export turnover and not akin to brokerage, commission, or interest. The Tribunal emphasized that such income is attributable to export sales and should not be excluded from the profits of the business.

3. Application of the Proviso to Sub-section (3) of Section 80HHC:
The assessee argued that the CIT failed to consider the proviso to sub-section (3) of Section 80HHC. The Tribunal did not find it necessary to delve into this issue separately, as the primary contention regarding the exclusion of foreign exchange fluctuation income had already been resolved in favor of the assessee.

Conclusion:
The Tribunal quashed the CIT's order, holding that the CIT was not competent to revise the AO's order on the deduction u/s 80HHC, as it had already been adjudicated by the CIT(A). Additionally, the Tribunal ruled that foreign exchange fluctuation income related to exports should not be excluded from the profits of the business for the purpose of calculating deduction u/s 80HHC. The appeal was allowed in favor of the assessee.

---