TaxTMI 
TaxTMI 
2008 (3) TMI 502
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....Clothing Co. and M/s. Pooja Traders Inc. In M/s. Herry Textile the assessee made sales worth Rs. 5,72,36,406 by trading cloth in the local market. In M/s. Henry Clothing Co., the assessee admitted income on account of difference in foreign exchange received in the year at Rs. 41,04,095 in respect of exports made in earlier year besides interest earned at Rs. 3, 98,369 and sundry balances written back all aggregating to Rs. 44,62,873. The net profit of Rs. 33,51,944 was declared from this concern on which the assessee claimed deduction under section 80HHC at Rs. 16,20,822. As there was no export of goods during the year under consideration, on being questioned by the Assessing Officer, it was informed that the difference in exchange had taken place on account of sales made in earlier year. It was also stated that the difference in exchange gains was part of the export turnover. The auditor in report in Form 10CCAC also certified Nil turnover because there was no actual sales during the year. Since there was no export turnover during the year, the claim of assessee for deduction under section 80HHC was rejected by Assessing Officer. While rejecting the claim of assessee, he also plac....
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....sessee will not be entitled for the benefit under section 80HHC merely on the ground that the sale proceeds were realized in convertible foreign exchange in the year under consideration. He, therefore, supported the orders of ld. CIT(A) and Assessing Officer. 6. We have heard both the parties and perused the material available on record. There is no dispute that assessee had not made any export sales during the year under consideration. The assessee had admitted income on account of foreign exchange fluctuation rates in respect of sales made in earlier years, which were realized in the year under consideration The assessee is entitled for deduction under section 80HHC(1) in respect of profits and gains derived from business of export of eligible goods and merchandise. Section 80HHC(3), the machinery section provides for computation of deduction under section 80HHC(1) reads thus : "(3) For the purpose of sub-section (1)- (a )where the export out of India is of goods or merchandise manufactured (or processed) by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in resp....
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.... Export Profits = ET x PB TT = 0 x PB = 0 0 0 = Indeterminate (ii )In clause (b) ET - D&I Costs = 0 - D &I Costs = Negative profits (iii)In clause (c) [ET x PB] + [ET - D&I Costs] TT = [0 x PB] + [0 - D&I Costs] 0 = 0 (Indeterminate) + Negative profits 0 = Indeterminate From above, it is clear that in the absence of export turnover and the assessee had local turnover the computation of export profits under clause (a) will be zero and in clauses (b) and (c ) will be negative profits. In the cases where the assessee has neither export sales nor local sales the export profits in clauses (a) and (c) will be indeterminate. However, export profit in clause (b) will be negative profits as the computation formula does not contain in it the total turnover of the business carried on by the assessee. Further it is a settled law in view of decision of Hon'bl....
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....y' means the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealing in foreign exchange." 8.1 Thus from the plain reading of clause (b) of the Explanation to section 80HHC, it is clear that the term 'export turnover' under the existing provisions means the sale proceeds (excluding freight and insurance) received by the assessee in convertible foreign exchange. In other words it means the FOB value of exports. The Finance Act, 1990, has restricted the definition of the term 'export turnover' to mean FOB sale proceeds actually received by the assessee in convertible foreign exchange within six months of the end of the previous year or within such further period as the competent authority may allow in this regard. Thus it can be logically concluded that the sale proceeds realized within the time permitted by law will relate to the year in which exports were made. As a corollary it can be held that sale proceeds realized in convertible foreign exchange in the immediately succeeding year cannot be treated as export turnover of such succeeding year. 9. In the case before us the export turnover of ....
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.... admittedly there was no export made out of India in the year under consideration. The assessee has received foreign exchange gains on sale proceeds realized during the year relatable to exports made in earlier years. The sale proceeds received in convertible foreign exchange inclusive of exchange gains cannot be treated equivalent to the exports made out of India in the current year. The ratio of the decision of Hon'ble Delhi High Court in the case of Sanjeev Malhotra (supra) is that in the absence of exports in a particular year special deduction under section 80HHC couldn't be allowed. Therefore, assessee's case is squarely covered by the decision of Hon'ble Delhi High Court in the case of Sanjeev Malhotra (supra). 12. In view of above discussions it is held that the assessee will not be entitled for deduction under section 80HHC(1). Therefore, it is held that the authorities below were justified in not allowing the claim of assessee under section 80HHC on foreign exchange fluctuation gains. 13. The next issue for consideration relates to confirming the disallowance of Rs. 57,049 being the contribution of employers contribution to EPF. The Assessing Officer disallowed the ....