By K. B. Bhujle | Advocate
New Page 1
Unreported :
41 Industrial undertaking: Deduction u/s. 80IB of I. T. Act,
1961: A Y 2002-03: Deduction allowable in respect of exchange rate difference:
CIT Vs. M/s. Rachna Udyog (Bom); ITA No. 2394 of 2009 dated
13/01/2010:
The assessee’s industrial undertaking was entitled to
deduction u/s. 80IB of the Income-tax Act, 1961. The Tribunal had allowed the
deduction in respect of (1) Duty drawback; (2) Export entitlement; (3) DEPB
licence, and (4) Exchange rate difference.
In an appeal by the Revenue, the Bombay High Court set aside
the order of the Tribunal as regards the first three items, in view of the
judgment of the Supreme Court in Liberty India Vs. CIT; (2009) 317 ITR 218 (SC).
And as regards the fourth item, the Bombay High Court held as below:
“i) In so far as the question of difference in the rate of
exchange is concerned, the submission of the assessee before the Assessing
Officer was that exchange rate fluctuation forms a part of the sale proceeds
eligible for deduction u/s. 80IB. According to the assessee, the receipt was
directly related to the process of carrying on the business of the industrial
undertaking. The export invoices were made in terms of US $. When the sale
proceeds of goods exported are received in India in convertible foreign
exchange, the rupee equivalent of the sale proceeds is liable to vary
consequent to the fluctuations in the rate of foreign exchange between the
date when the goods are exported and the date on which the sale proceeds are
received in India. In other words, it was the contention of the assessee that
the value of the goods exported remains the same but the rupee equivalent is
liable to vary due to fluctuation in the rate of foreign exchange.
Consequently, a book entry is made in order to ensure that the rupee
equivalent of the value of the goods exported out of India is correctly
reflected in the books of account, since the books are maintained in rupee
terms.
ii) We are of the view that the difference on account of
exchange rate fluctuation is liable to be allowed u/s. 80IB. The exchange rate
fluctuation arises out of and is directly related to the sale transaction
involving the export of goods of the industrial undertaking. The exchange rate
fluctuation between the rupee equivalent of the value of the goods exported
and the actual receipts which are realized arises on account of the sale
transaction. The difference arises purely as a result of a fluctuation in the
rate of exchange between the date of export and the date of receipt of
proceeds, since there is no variation in the sale price under the contract.
iii) In the circumstances, we would affirm the judgment of
the Tribunal in so far as the question of exchange rate fluctuation is
concerned.
