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TMI Blog2013 (7) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... oth questions and the findings recorded by the tribunal is erroneous and warrants interference. "Whether the Appellate Authorities were correct in directing the Assessing Officer not to exclude 90% of gains on foreign exchange fluctuations from the business profits for quantification of deduction admissible u/s 80HHE of the Act? Whether the Tribunal was correct in allowing the cross objections filed by the assessee that the business profits should not be reduced by unabsorbed depreciation and unabsorbed loss before computing deduction u/s. 80HHE of the Act? 3. Under the impugned order, the tribunal had dismissed the appeal preferred by the revenue contending that the CIT - appeals had committed an error in direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of foreign currency. The assessee had also computed the business profits, without adjusting the brought forward unabsorbed depreciation of the earlier years and carried forward losses of the earlier years and also in the computation of the profits attributable to exports. 7. The assessing officer held that the difference attributable to the fluctuation in the exchange rate and the amount received is not any part of the value of the exported software but because of the fortuitous circumstances and therefore cannot be added to the export turnover. Insofar as the deductions are concerned, the assessing officer therefore directed that 90% of the income has to be reduced in arriving at the profits of the business. 8. It so happened that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, learned standing counsel is that with reference to Section 80HHC(i) now read as Section 80HHC(iv), the assessee is entitled for the benefit of Section 80HHE deduction from the gains that is derived by the assessee from the business of export activity; that the gains attributable to fluctuation in foreign exchange rate is not precisely derived from the export business but because of the fortuitous circumstance of the exchange rate being not the same throughout and the word 'derived' having come in for interpretation and noticed by the Supreme Court in the case of LIBERTY INDIA LIMITED vs COMMISSIONER OF INCOME TAX reported in 317 ITR 218 and following its earlier view taken in COMMISSIONER OF INCOME TAX vs STERLING FOODS reported in 237 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be claimed under Section 80HHC, the ratio is equally applicable to the deduction that can be claimed under Section 80HHE of the Act and in terms of the answer to a similar question posed for determination, the question had been answered in favour of the revenue and therefore, the question may be answered in favour of the revenue. 15. However, with regard to the first question regarding the amount attributable to the fluctuation in the foreign exchange rate, Mr Suryanarayana would submit that this amount is not the amount which can be said to be derived from the second degree source as pointed out in the very judgment of the Supreme Court in the case of Liberty India Limited Vs Commissioner Of Income Tax, in particular paragraph 14, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be an aspect beyond the control of the assessee or the revenue, it does affect the actual value of the exported goods either way. We are of the opinion that the tribunal has not committed any error on this aspect. Therefore, there is no occasion to exclude 90% of the amount attributable to export gains from the foreign exchange rate fluctuation and accordingly, we answer the first question against the revenue and in favour of the assessee. 18. The second question whether the tribunal was correct in allowing the cross objection of the assessee and that the business profits should not be reduced by unabsorbed depreciation and unabsorbed losses is answered in the negative against the assessee and in favour of the revenue, as this question i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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