2014 (3) TMI 938 - HC - Income Tax

Deduction u/s 80HHC of the Act – Receipts arising out of fluctuation of rate of foreign exchange - Whether the Tribunal was justified in holding that the receipt resulting out of exchange rate difference pertaining to the export made by the assessee was not the profit of business within the meaning of section 80HHC of the Act – Held that:- The decision in Commissioner of Income-Tax Versus Amba Impex [2005 (12) TMI 58 - GUJARAT High Court] followed - As a corollary, by the time such sale proceeds are received within the prescribed time, by virtue of exchange rate difference there might be a situation where a larger amount is received that the amount as reflected in the shipping bill - merely because an amount is received in a year subsequent to the year of export by way of exchange rate difference, it does not necessarily always follow that the same is not relatable to the exports made.

The foreign exchange gain arising out of the fluctuation in the rate of foreign exchange cannot be divested from the export business of the assessee - once export is made, due to variety of reasons, the remission of the export sale consideration may not be made immediately - Under the accounting principles, the assessee, on the basis of accrual, would record sale consideration at the prevailing exchange rate on the quoted price for the exported goods in the foreign currency rates - The exact remittance in Indian rupees would depend on the precise exchange rate at the time when the amount is remitted.

The Tribunal followed the judgement of assessee’s own case in PRIYANKA GEMS. Versus ASSISTANT COMMISSIONER OF INCOME TAX [2004 (12) TMI 288 - ITAT AHMEDABAD-B] was of the view that receipts on account of exchange rate difference is derived from the export sales and is part and parcel of export proceeds only, and by no stretch of imagination it can be given colour of income from other sources to be excluded from profits of the business in terms of Expln. (baa) below s. 80HHC(4A) of the Act - There is no distinction possible on the basis of different situations under which foreign exchange fluctuation may result - law permits hedging of foreign exchange fluctuation risk to an importer or an exporter - The exporter may take steps as found commercially prudent to safeguard himself against drastic foreign exchange rate fluctuations and in the process may also limit the possibility of gain in case of favourable currency rate trends - the resultant gain in foreign exchange rate would still be due to the export made by the assessee – order of the Tribunal upheld - Decided against Revenue.