TaxTMI 
TaxTMI 
2016 (9) TMI 398
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....fits of business for computing the deduction u/s. 10B. 4. The Ld. CIT (A) has erred in holding that the export incentives has direct nexus with the business of the assessee, when the Apex Court in the case of Liberty India has held that these are not profits derived from eligible business but are only ancillary profits. 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Commissioner of Income Tax(Appeals) may please be set aside and that of the Assessing Officer restored." 2. The brief facts of the case are the assessee is engaged in the business of manufacturing of metallic tips for pens and filed its return of income on 16.09.2009 declaring a total income of Rs..2,98,88,520/-. Subsequently, revised return was filed on 16.09.2010. The case was selected for scrutiny and issued notice under section 143(2) and 142(1) of the Act. During the course of assessment proceedings, the Assessing Officer has noted that the assessee had international transactions exceeding Rs..15 crores. Therefore, reference to the Transfer Pricing Officer for determination of Arm's Length Price in respect of the international transactions was ....
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....d the claim of the assessee based on the decision of the Hon'ble Bombay High court in the case of CIT v. Shah Originals as also jurisdictional ITAT in the case of DC IT v. Astron Document Management P Ltd 49 SOT 46. 5.2 Admittedly the foreign exchange gain arisen out of the import of rawmaterials or export of finished goods and not interest from external commercial borrowings. The issue regarding taxability of gain or deduction of loss arising on account of fluctuation in rate of foreign exchange has been subject matter of the decision of the Hon'ble Delhi High Court in the case of CIT v. Woodward Governor India P Ltd. 294 ITR 451 and also the Hon'ble Supreme Court in 312 ITR 254. In terms of the above said judgments the effect of exchange difference in the case of revenue item has to be taken into account in the P&L a/c. As the foreign exchange fluctuation in the case of the assessee relates to import of raw material and export of finished goods the same cannot be excluded and have to be taken in to account while computing deduction under section 10B of the Act. Accordingly, the ld. CIT(A) directed the Assessing Officer to amend the order. 5.3 With regard to (ii)....
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....case of Liberty India CIT 317 ITR 218. As reiterated here the word "derived from" is narrower as compared to that of words "attributable". By using the expression "derived from" in section 10B(1) of the Act the Legislature intended to cover sources not beyond the first degree. Therefore, what is to be seen is as to whether the gain bears a direct nexus and was on account of the assessee's export activities. 5.7 In the case of MPS Ltd. v. ACIT in I.T.A. No. 1972/Mds/2011 dated 10.12.2013 reported in 152 ITD 483, with regard to foreign exchange gains, the Coordinate Bench of the Tribunal has observed and held as under: "11. Ground no. 3.5.1 to 3.5.5 raised by the assessee are against the action of the Assessing Officer and the DRP in holding that foreign exchange gain should be excluded from the export turnover for the purpose of allowing deduction under section 10B of the Act. The counsel for the assessee submits that foreign exchange gain is inextricably connected with the sales and therefore the same should be considered as part of export turnover. He places reliance on the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Pentasoft Technologies Ltd. (....
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.... are incurred in foreign currency / Indian rupee and not for losses due to exchange fluctuation. Therefore, grounds 3.4.1 to 3.4.3 raised by the assessee are dismissed and that of grounds 3.5.1 to 3.5.5." 5.8 Further, we find that in the case of CIT v. Motorola India Electronics (P.) Ltd. 265 CTR 94, the Hon'ble Karnataka High Court has observed as under: "8. In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not par take the character of a profit and gains from the sale of an article, it is the income w....