2011 (4) TMI 1278

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....of the case and in law, the ld.CIT(A) erred in directing the A.O. to allow deduction u/s.80HHC on profit on forward contract receipts of Rs. 1,39,30,067/-." 3. Briefly stated the facts of the case are that the assessee was engaged in the business of manufacturing and exports of readymade garments. On the perusal of the profit and loss account it was noted by the Assessing Officer that profit of forward contract receipts at Rs. 1,39,30,067 was netted off against the finance expenses paid and net finance expenses were debited to the profit and loss account. On being called upon to explain as to why deduction u/s.80HHC should not be allowed in respect of income earned from forward contract, the assessee submitted that "forward contract of c....

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....only dispute before the A.O. was about the head under which gain on forward contract was taxable, viz, the head "profits and gains of business or profession" or "income from other sources". Since the Assessing Officer held such income to be falling under the head`Income from other sources', which view has been overturned by the learned first appellate authority, the learned A.R. contended that the deduction was allowable. He further relied on the order passed in ACIT Vs. K.Mohan & Co. (Exports) (P) Ltd. [(2010) 130 TTJ (Bang) 719] by contending that in the next year the assessee was converted into a private limited company and the said Tribunal order has been passed holding that the assessee entered into forward contract in respect of forei....

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....ad `Income from other sources' [by A.O.] and Business income [by CIT(A)]. There is no dispute about the nature of income arising on the forward contracts and currencies. The Hon'ble jurisdictional High Court in the case of Shah Originals (supra) has categorically held that gain on account of exchange rate fluctuation under EEFC account and interest thereon is a facility which is made available by RBI and further exchange fluctuation in such account arises after the completion of export activity and does not bear proximate and direct nexus with export transaction so as to fall within the expression "derived" by the assessee in section 80HHC(1). It has been held that the gain on account of exchange rate fluctuation as well as interest on such....