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TMI Blog2020 (5) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... g substantial questions of law:- a) Whether extra realization made in rupees for export sale proceeds in foreign exchange due to adverse exchange rate of rupee would be part of the export turnover in the year of receipt? b) Whether export sale proceeds received in accordance with and in terms of the contract and with the approval of Reserve Bank of India could be ignored for the purpose of relief under Section 80-HHC of the Act? 3) The undisputed facts of this case are that during the financial year 1992-1993, the appellant/assessee received an order from P.T. Ispat Indo, an Indonesian company for export of transformers, switch gears, conveyor rolls, etc. for a total CIF value of USD 29,40,000. The terms of payment by the Indonesian company to the assesse was that an advance payment of 10 per cent of the total value would be made (which came to Rs. 84,81,600/-) and balance 90 per cent would be paid in twelve (12) equal half yearly instalments commencing two years from the mean date of shipment. The Reserve Bank of India (in short "RBI") granted approval in respect of such export on deferred payment terms. The assessee obtained finance from Allahabad Bank against the outstandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal under Section 260A of the said Act. 9) Before we proceed further, it may be helpful to note the relevant portions of Section 80-HHC of the said Act. Sub-section 1 of Section 80-HHC of the said Act in so far as the same is material for our purpose, provides as follows: "(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, [a deduction to the extent of profits, referred to in sub-section (1-B),] derived by the assessee from the export of such goods or merchandise:" 10) Clause (a) of sub-section (2) of Section 80-HHC the said Act was amended by the Finance Act, 1999 with effect from June 1, 1999. Prior to such amendment, the said clause read as under: "(2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax/Chief Commissioner of Income Tax with retrospective effect cannot revalidate and/or legitimise the assessee's claim. The Assessing Officer also rejected the alternative submission of the assessee that the amount in question should be treated as export turnover for the years of export viz. assessment years 1993-94 and 1994-95. He held that if the amount did not qualify as export turnover in one year, it could not be treated as export turnover in any other year since the statutory provisions were the same. 14) On appeal, the Commissioner of Income Tax (Appeals) held that the assessee cannot claim relief under Section 80-HHC in the assessment year 1996-97 because the goods in question were not exported during the previous year relevant to the said assessment year. He observed that the sale proceeds had to be brought into India within a period of six months from the end of the previous year in which export took place. He held that the question of bringing in foreign exchange within the extended period did not arise because the export was concluded not during the previous year 1995-96 relevant to the assessment year 1996-97 but in an earlier year by, i.e., Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the RBI. According to the payment terms that RBI approved, a substantial part of the sale proceeds was to be received after the expiry of six months from the end of the previous year of export. However, with the subsequent permission of RBI, the sale proceeds were brought into India much earlier than the time provided in the original payment terms. 17) Mr. Khaitan then submitted that it cannot be disputed that the sum of Rs. 1,13,77,292/- is part and parcel of sale proceeds received in India by the assessee in convertible foreign exchange. The assessee had raised its invoice in US dollars and what it received from the foreign customer was the same amount of dollars as billed by it. To show the export in its books of accounts, the assessee converted the dollars into Indian rupees at the exchange rate prevalent at the time of export. By the time the sale proceeds were realised, the exchange rate went up and consequently, the same amount of US dollars yielded a larger amount in Indian currency. The assessee could know about such higher differential amount only when it actually received the sale proceeds. Before such receipt, the assessee could not have known or accounted for it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance in lumpsum. Mr. Khaitan submitted that if this court is of the view that the aspect of permission needs to be gone into, such aspet may be remanded to the Tribunal for examination and decision after taking into consideration subsequent developments. 20) Appearing for the Department, Mr. Debasish Chowdhury, learned Advocate defended the decisions of the authorities below. He submitted that in order to come under the category of export turnover, a transaction has to pass through the tests laid down under the provisions of Section 80-HHC of the said Act. All the conditions mentioned in the said section are required to be fulfilled. Partial compliance of the conditions will not be sufficient for a particular receipt to be eligible to be treated as export turnover. In the present case, all the conditions have not been fulfilled. If the conditions are not fulfilled for one assessment year, the receipt in question cannot qualify as export turnover in another year as the conditions remain the same in both the years. 21) Learned Counsel submitted that the assessee received the entire balance amount from Allahabad Bank in Indian currency. Once the amount receivable in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be denied to the assessee? 25) It is not in dispute that the appellant exported goods to the Indonesian purchaser. Such export was completed by January, 1994. The payment that was to be made by the foreign purchaser was agreed to be in installments. This arrangement had the sanction of the RBI. The payment terms contemplated payment in a staggered manner during a period of time which was much beyond six months from the date of export or from the end of the previous year. The appellant received the rupees equivalent of the invoice amount which was in US dollars, from Allahabad Bank. In other words, Allahabad Bank financed the export undertaken by the appellant. Allahabad Bank was in turn refinanced by the Export-Import Bank. The foreign purchaser paid the first two installments on the agreed dates. On those dates, US dollar was dearer vis-àvis Indian rupee which resulted in excess realization in terms of Indian rupee. This surplus was made over by Allahabad Bank to the appellant. The balance consideration amount for the export was paid by the foreign purchaser at one go after RBI granted permission to Allahabad Bank to receive the balance at one go. As on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income-tax (Appeals) nor the Tribunal have gone into the question whether the export turnover was realized beyond six months or not. Hence, we do not think that this question should be decided by us as no such point has been formulated by this court, nor any cross-appeal has been filed in this case. We are of the view that this amount received in a year or subsequent year by virtue of exchange rate difference cannot be said to be unrelatable to the export made. The same view has also been taken by the Gujarat High Court in the case of Amba Impex [2006] 282 ITR 144 and it has been held almost on the identical fact that "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 larger amount is received than the amount as reflected in the shipping bill. Hence, 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." 27) In coming to the aforesaid decision, the Division Bench referred to and followed the decision of the Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an exporter can be treated as part of the export turnover, it must also be shown that the convertible foreign exchange was received in or brought into India within a period of six months from the end of the previous year or within such extended period as the Chief Commissioner/Commissioner (now RBI) may allow. In the present case, it is not in dispute that the foreign exchange was received in India beyond the period of six months stipulated in sub-section (2)(a) of Section 80-HHC. However, this was in accordance with the permission granted by the RBI. Prior to completion of the assessment of the appellant for the assessment year 1996-97, the appellant had made an application before the Commissioner of Income Tax, West Bengal - I, requesting for permission to enable the appellant to claim the amount of excess realization due to exchange rate fluctuation as export turnover. It is also not in dispute that such application of the appellant was not disposed of by the Commissioner at any point of time. The view of the Assessing Officer was that after receiving the full amount from Allahabad Bank in Indian rupees, the chapter stood closed and any subsequent income which could not be vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant made an application to the RBI. By an order dated 11th June, 2005, the RBI has held that no further extension is required as the RBI had approved the original deferred payment terms as well as the subsequent preponement of payment in lumpsum. However, copy of such order has not been brought on record. 31) On an overall consideration of the facts and circumstances of the case, we are of the view that extra realization made in rupees for export sale proceeds in foreign exchange due to adverse exchange rate of rupee would be part of the export turnover in the year of receipt subject to the foreign exchange coming into the country within the statutorily prescribed time period. We are also of the view that export sale proceeds received in accordance with and in terms of the export contract and with approval of RBI could not be ignored for the purpose of relief under Section 80-HHC of the said Act. The questions of law on which the instant appeal was admitted are answered accordingly. 32) We have already recorded our opinion that the grounds on which the CIT and the learned Tribunal rejected the appellant's claim are not tenable in law. With regard to the appellant's alternative ..... 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