Adverse Exchange Rate of Rupee is part of Export Turnover, Eligible for Relief: Calcutta HC [Read Order]

The High Court of Calcutta held 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 and export sale proceeds received in accordance with and in terms of the contract and with the approval of Reserve Bank of India (RBI) will be eligible for the purpose of relief under Section 80-HHC of the Income Tax Act, 1961.

The appellant-assessee, Ispat Project Limited received an order from 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 assessee was that an advance payment of 10 percent of the total value would be made and balance 90 percent would be paid in twelve equal half-yearly installments commencing two years from the mean date of shipment.

The RBI granted approval in respect of such export on deferred payment terms. The assessee obtained finance from Allahabad Bank against was in turn refinanced by Export-Import Bank of India. At the time when the assessee raised the export invoice for USD 29,40,400, the exchange rate was Rs. 28.849 to the dollar. Accordingly, the assessee entered in its books of accounts in the Indian rupee.

The assessee filed an application for relief under Section 80-HHC (2) (a) of the Act. The Assessing Officer rejected the assessee’s claim for deduction under Section 80- HHC of the Act by treating the amount of as export turn over and treated the sum as business income of the assessee.

The issues raised in this case was 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 and 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.

The division bench headed by Chief Justice Thottathil B. Radhakrishnan and Justice Arijit Banerjee held 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 and export sale proceeds received in accordance with and in terms of the contract and with the approval of Reserve Bank of India (RBI) will be eligible for the purpose of relief under Section 80-HHC of the Income Tax Act, 1961.

“In our opinion, ends of justice will be served if the matter is remanded to the learned Tribunal for fresh consideration taking into account the subsequent development including the order of the RBI stated to have been passed on June 11, 2005, and also in light of the observations made in this judgment,” the bench said.