TaxTMI 
TaxTMI 
2006 (8) TMI 246
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....omputed by the learned AO and the manner in which it has been so determined or computed. The learned CIT(A) has erred in law in upholding the legal validity of the impugned order, whether in specific terms or by implication. 3. The learned AO has erred in law and on the facts and circumstances of the case in making additions of and the learned CIT(A) has erred in law and on facts in sustaining the impugned additions/computations: (a) In computing the deduction under s. 80HHD at Rs. 59,03,828 being based on misconception of law and facts, as against the claim of the assessee Rs. 76,77,032. (b) In net profits of business at Rs. 1,02,96,600 (A) as against Rs. 1,33,89,163 by excluding Rs. 30,92,563 from profits of business for computing deduction under s. 80HHD, though accepting the claim of the assessee that it is 'income from business or profession'. (c) In computing the net foreign exchange receipts at Rs. 5,06,59,179 (B) as against Rs. 5,30,18,504 by ignoring Rs. 22,67,477 being profits in exchange fluctuation account, which is an inherent part of gross receipts of foreign exchange earnings. (d) In taking the gross total receipts....
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....duction under s. 80HHD of the IT Act, 1961 at Rs. 76.77 lacs. In the course of assessment proceedings, the AO recomputed the deduction under s. 80HHD at Rs. 98.39 lacs and also enhanced the taxable income from Rs. 60.87 lacs to Rs. 78.61 lacs. While computing the deduction, the AO has denied deduction in respect of interest earned by the assessee out of its EEFC account amounting to Rs. 30.92 lacs even though included this amount while working out business profits of the assessee. As per AO, such income cannot be said to be "derived" from services provided to foreign tourists, and that an income can be said to be "derived" from services provided to foreign tourists only if it is directly related to such activities. After discussing various case laws, he reached to the conclusion that interest on EEFC account cannot be held to be eligible for deduction under s. 80HHD of the Act. 4. By the impugned order, the CIT(A) confirmed the disallowance made by the AO. The CIT(A) observed that the AO had excluded interest income of Rs. 30,92,563 received on FDR with bank as well as ignored Rs. 22,57,477 accrued on account of foreign exchange fluctuation, which were not derived from business ....
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....rections of the RBI, from where interest was accrued to the assessee. A portion of foreign exchange receipt is deposited in this account and the account is maintained in foreign exchange only. Interest was also credited by the bank in foreign exchange only and not in Indian currency. As per computation provision, provided in sub-s. (3) of s. 80HHD of the Act, the amount of deduction, shall be the amount which bears to the profit of the business as computed under the head "Profits and gains of business or profession", the same proportion as the receipts specified in the sub-s. (2), bear to the total receipts of the business carried on by the assessee. 9. It is crystal clear from the plain reading of sub-s. (3) that first we have to compute profit of the business under the head "Profits and gains of business or profession". In the instant case also, while computing the business income as per provisions of the IT Act, 1961, the AO himself at p. 8, had worked out gross total income at Rs. 1,37,66,324 which was inclusive of interest income. At p. 7 he has given a clear-cut finding that interest income from EEFC account was attributable to the business activity of the assessee. The AO....
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....essed as "income from other sources". Entire income of the assessee in the instant case has been undisputedly earned in convertible foreign exchange and was assessed as income from business or profession and that too only from business of rendering services to the foreign tourists. We also found that Tribunal, Special Bench in the case of Asstt. CIT vs. Lucky Tour & Travels (2004) 90 TTJ (Del) 1104 held that deduction under s. 80HHD has to be computed by determining the profit of business under the head "Profits and gains of business and profession", and thereafter apportioning the said profits in the proportion as receipts specified in sub-s. (2) bear to the total receipts without reducing the total receipts of tours by the amount paid by the assessee to book hotels, etc. Similarly, in case of Sita World Travel (I) Ltd. vs. Dy. CIT (2004) 91 TTJ (Del) 20, it was held that interest on FDRs comprising of advance receipts from tours is eligible for deduction under s. 80HHD of the Act. In the instant case, deposit with bank in EEFC account was put as per the requirement, and directions of the RBI, interest was allowed thereon by the bank, in convertible foreign exchange. Thus, not onl....
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.... exchange prevailing on that day, the amount was credited as income. As there is a difference in exchange rate on the date of raising the bills vis-a-vis the date on which the bill was actually realized, the excess amount realised or the loss incurred was on account of foreign exchange earning for the services rendered to foreign tourists only. This profit or loss was part and parcel of the foreign exchange sale proceeds only and by no stretch of imagination, it can be said to be "income from other sources", so as to disqualify for deduction under s. 80HHD of the Act. Total receipts in convertible foreign exchange is got increased or reduced due to change in foreign exchange rate applied at two different points of time. However what the assessee has got on account of services rendered to foreign tourists was exactly the Rupee equivalent of bills realized in foreign currency and nothing more or less. The actual income was exact value realized by the assessee when its bills were honoured by foreign tourists. In order to arrive at the net foreign exchange receipts, the amounts certified under Item 2A, in Form 10CCA are to be considered. However, while considering the total receipts an....