COMMISSIONER OF INCOME TAX Vs. SHAH ORIGINALS

JUDGEMENT

(1.) The Appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 has been admitted on the following question of law:

(2.) The Appeal arises out of proceedings for Assessment Year 2000-01. The order of the Income Tax Appellate Tribunal dated 25 October 2007 is a common order which governs Assessment Years 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05. The assessee filed a return of income for Assessment Year 2000-01 declaring a total income of Rs. 28,25,080/-. An order of assessment was passed under Section 143(3) on 25 March 2003 accepting the income as returned. The assessee had claimed a deduction under Section 80HHC in the amount of Rs. 4.16 Crores on the basis that the export turnover amounted to Rs. 8.27 Crores. According to the Revenue, during the previous year, the actual export turnover was Rs. 8 Crores, the differential amount of Rs. 26.62 lacs being on account of gains arising out of foreign currency fluctuation. The assessment came to be reopened upon a notice under Section 148, the contention of the Revenue being that the gains on account of foreign currency fluctuation had no relationship with the exports made during the year and that these receipts were accordingly liable to be excluded from the export turnover for computing the deduction under Section 80HHC.

(3.) The assessee, it is common ground before the Court, had opened an Exchange Earners Foreign Currency (EEFC) Account in the earlier year. According to the assessee the balance-sheet reflected the conversion of the balance at the end of the year into Indian rupees at the prevailing exchange rate. The fluctuation on account of foreign exchange rates was predicated to the foreign exchange account.