K.M. Enterprise,, Vapi vs Department Of Income Tax

Before S/Shri G. D. Agrawal, V.P. & Shri Rajpal Yadav, J.M.

ITA No.2653/Ahd/2011 Asst. Year 2008-09

Income-tax Officer, Vs K. M. Eneterprise, Vapi Ward-2, Vapi. Plot No.1/D Nanji Indl. Estate, Kharadpada, Silvasa. (Appellant) (Respondent) PA No.AADFK 3790J

Appellant by Shri B. L. Yadav, Sr. DR Respondent by Shri Sunil Talati, AR

Date of hearing: 12/5/2011 Date of pronouncement: 15/5/2015

ORDER

PER Rajpal Yadav, Judicial Member.

The present appeal is directed at the instance of Revenue

against the order of ld. CIT(A) dated 26th August, 2011 for AY 2008-

09. The grievance of Revenue is that ld. CIT(A) has erred in allowing

deduction u/s 80IB of the Income-tax Act, 1961, on foreign exchange

fluctuation gain amounting to Rs.39,44,496/-. ITA No.2653/Ahd/2001 2 Asst. Year 2008-09

2. The brief facts of the case are that assessee has filed its return

of income electronically on 30th September, 2008 declaring total

income Nil. The case of the assessee was selected for scrutiny and

notice under section 143(2) of the I.T. Act, 1961 was issued and

served upon the assessee. The assessee firm at the relevant time

was engaged in manufacturing printed flexible packaging. On scrutiny

of accounts it revealed to the AO that the present assessment year is

the 9th year of manufacturing activities and the assessee has been

claiming deduction under section 80IB of the I.T. Act,1961. This year

the deduction has been claimed @ 25%of its manufacturing profit.

The assessee had foreign exchange fluctuation gain amounting to

Rs.39,44,496/-. On the strength of Hon'ble Gujarar High Court''s

decision in the case of CIT vs. Amba Impex (2006) 282 ITR 144

(Guj) the assessee has claimed deduction on the foreign exchange

fluctuation gain. The ld. A.O. was not satisfied with the stand of the

assessee. He observed that exchange gain difference is one kind of

speculation profit, because the same is on account of forward

contract purchased by the assessee. According to the AO the

assessee has purchased hedge fund, it entered into a forward

contract and stands benefitted by the fluctuation in foreign exchange ITA No.2653/Ahd/2001 3 Asst. Year 2008-09

irrespective of the fact whether the trade agreement exists or not. He

further observed that exchange gain has no connection with the

exports of the assessee company. It has not been derived from the

eligible business under section 80IB. In this way the ld. AO has

disallowed the claim of the assessee.

3. On appeal, the ld. first appellate authority has observed that the

issue is squarely covered in favour of the assessee by the decision of

Hon'ble Jurisdictional High Court in the case of CIT vs. Amba Impex

(supra).

4. With the assistance of ld. representatives we have gone

through the case record carefully. The Hon'ble Gujarat High Court in

the case of Amba Impex (supra) has observed that exchange gain

forms an integral part of export proceedings. The assessee had

recorded the export sales @ exchange prevalent at the time of

booking, however, when the proceeds are received the exchange

rate may be different i.e. it may either be adverse or favourable. The

difference on same account is transferred to exchange rate

fluctuation. It suggests that the exchange rate gain as received by the

assessee has a direct link with the sale of manufacturing goods. ITA No.2653/Ahd/2001 4 Asst. Year 2008-09

Apart from the above decision, the ld. counsel has placed on record,

a large number of ITAT orders, where deduction u/s 80IB on

exchange gain have been allowed. A reference is being made to ITA

No.841Ahd/2006 in the case of M/s Jay Chem vs. ACIT. The ld. first

appellate authority has rightly placed its reliance on the decision of

Hon'ble Jurisdictional High Court and has rightly construed the

provisions. In view of the above, we do not find any merit in this

appeal. It is dismissed.

Order pronounced in the open Court on 15/5/2015

Sd/- Sd/-

(G. D. Agrawal) (Rajpal Yadav) Vice President Judicial Member

Mahata/-

Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy. Registrar, ITAT, Ahmedabad ITA No.2653/Ahd/2001 5 Asst. Year 2008-09

1. Date of dictation: 12/5/2011

2. Date on which the typed draft is placed before the Dictating Member: 13/5/2011 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk:

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: