Assistant Commissioner of Income-tax, Circle 16(1), Mumbai v. Prakash L. Shah

ORDER

Per R.S. Syal, Accountant Member. - The Hon'ble President of the Tribunal has constituted the Special Bench and referred the following question for our consideration and decision:—

"On the facts and circumstances of the case and in law the learned CIT(A) erred in directing the Assessing Officer to include the exchange rate gain difference of Rs. 8,15,744 pertaining to the exports of earlier years in the export turnover for arriving at the allowable deduction under section 80HHC without appreciating the facts of the case including nature of receipt and treatment of the same in the books of account."

2. The factual matrix of the case is that the assessee carried on the business of export of diamond in the relevant year. While computing deduction under section 80HHC, it included foreign exchange rate difference of Rs. 14,06,355 in the export turnover of this year and deduction was claimed accordingly. On being show caused as to why the foreign exchange difference of the earlier year's export be not excluded from the export turnover and benefit of deduction be accordingly lowered, the assessee stated that the difference between the year-end rate and the rate of actual realization would appear in the following assessment year. It was further explained that due to the accounting policies followed by it, all the current assets relating to debtors on account of export were translated at the relevant rate of exchange prevalent at the year-end. This accounting policy was stated to be consistently followed from year to year. As this amount was actually received and accounted for in the year following the exports, it was stated that the claim of deduction was as per law. Not convinced, the Assessing Officer observed that the said receipt cannot be considered as derived from the export activity of the assessee for the current year but was merely an income on account of exchange rate fluctuation on delayed payment received on the export of earlier year and the said export has already been credited to the Profit & Loss Account. By taking note of rule 115 it was opined that the gain/loss if any arising on account of fluctuation in the rate of foreign exchange with reference to the exports made during the year had already been considered while computing the profits and gains for the year and hence there was no reason for considering the exchange rate difference for the earlier year's exports in the current year for the grant of deduction under this section. Resultantly, the said receipt as relatable to earlier year's exports was excluded from the export turnover and the deduction was re-computed. However the claim of deduction on the foreign exchange difference of the current year was not disputed by the Assessing Officer and accepted in toto. In the first appeal, the learned CIT(A) by mainly relying on the order passed by the Delhi Bench of the Tribunal in the case of Smt. Sujata Grover v. Dy. CIT [2002] 74 TTJ (Delhi) 347 , came to hold that the foreign exchange fluctuation gain relatable to the preceding year's exports was part of total turnover of the current year. He also held that the 'export turnover' as per section 80HHC(4B)(b) has been defined to mean sale proceeds brought in India within the prescribed time and hence the exchange rate gain difference was rightly considered by the assessee in computing of deduction in the year in which it was actually received. The action of the Assessing Officer on this count was, therefore, overruled.

3. Before us Sh. Ravi Kiran, the learned Senior Departmental Representative, made two fold submissions. Firstly it was contended that the act of the assessee in making exports in the preceding year was an independent transaction and when that was so accounted for in the books of account of such year, the said transaction was concluded. The receipt of difference in foreign currency in the subsequent year as relatable to the earlier year's exports, was stated to be an entirely different transaction. It was, therefore, put forth that this portion of income relatable to difference in foreign currency of the last year's exports could not be regarded as "derived from the export of such goods or merchandise" and, hence, was ineligible for the purpose of deduction under this section. It was, therefore, submitted that the such income fell under the head 'Income from other sources' and the question of allowing any deduction on this amount was out of place. The second and alternative leg of his submission was that such difference was concerned with the exports made in the preceding year and, hence, cannot be considered for deduction in the subsequent year. He relied on the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Amba Impex [2006] 282 ITR 144 to contend that the amount received in a year subsequent to the year of export by way of exchange rate difference was relatable to the exports of the earlier year. He also relied on the order passed by the Mumbai Bench of the Tribunal in the case of Asstt. CIT v. Kiran Exports [2006] 10 SOT 148 , in which similar view has been canvassed. He further argued that the contrary view 'expressed' by some other Benches of the Tribunal was not in accordance with the mandate of the provision and hence not acceptable. The sum and substance of his submissions was that the assessee cannot be allowed deduction under section 80HHC on the amount of foreign exchange difference in the year of receipt, if it is received in the succeeding year.

4. Per contra, Shri Deepak Tralshawala, the learned counsel for the assessee heavily relied on the impugned order. His submissions were mainly the reiteration of reasons recorded by the learned CIT(A) for granting the relief. In particular it was submitted that the definition of the 'export turnover' as given in Explanation (b) below section 80HHC(4B), prior to its substitution by the Finance Act, 1990 with effect from 1-4-1991, had employed the words 'the sale proceeds receivable by the assessee', which were later substituted with the 'sale proceeds received in or brought into India by the assessee'. It was emphasized that the underlining idea of bringing change in the language of the provision was to grant deduction in the year of receipt after the amendment, whereas the earlier provision entitled the assessee to deduction on the amount receivable in the year of export, irrespective of the fact that whether it was received in India in the year of export or later on. He submitted that the language of section, as applicable to the year in question, clearly demonstrated that the deduction was to be allowed in the year of receipt of convertible foreign exchange into India. Since the event of receiving the foreign exchange difference in India occurred in the instant year, it was contended that the same was rightly included by the assessee in the computation of deduction. He also drew strength from the order of Sujata Grover (Delhi) (supra). Further, the judgment of the Hon'ble Gujarat High Court in the case of Amba Impex (supra) was distinguished by stating that no universal formula has been laid down in that case as was evident from the fact that the matter was eventually restored to the Tribunal for deciding the question of allowability of deduction under section 80HHC in respect of the exchange rate difference pertaining to the export made in the earlier year. He relied on the order passed by the Mumbai Bench of the Tribunal in the case of ITO v. Neeral Prakash Shah in IT Appeal No. 2868/Mum./2004 in which it has been held that exchange rate difference realised in the subsequent year pertaining to the export made in the earlier year, is eligible for deduction in the later year. He further contended that the Assessing Officer had not disputed the nature of receipt being exchange rate difference as part of export turnover and the contention of the learned D.R. that it should be taxed under the head "Income from other sources" was beyond the purview of the assessment order. However, he relied on the case of Smt. Sujata Grover (supra) and Priyanka Gems v. Asstt. CIT [2005] 3 SOT 817 (Ahd.) for submitting that this amount was a part of export turnover. Distinguishing the case of Kiran Exports (supra) relied on behalf of the Revenue, the learned A.R. submitted that the conclusion drawn by the Bench was nothing but the mandate of section 155(13) which was inserted by the Finance Act, 1999 with effect from 1-6-1999. On a specific query from the Bench, the learned A.R. stated that the entire amount in controversy relates to the exports made in the preceding year and the convertible foreign exchange received within a period of six months from the end of the previous year. It was, therefore, stated that the assessee had rightly claimed deduction on the foreign exchange rate difference in the year of receipt and the ld. CIT(A) had correctly adjudicated the matter.

5. Shri Rajan Vora, the learned Counsel appearing for intervener, M/s. Classic Diamonds India Limited, pleaded that the exchange rate difference in his case also related to the exports made up to 31st March and the convertible foreign exchange received within the stipulated period of six months from the end of the previous year. It was submitted that the deduction was allowable in the year in which the foreign exchange rate difference was realized. He also made submissions similar to those of Sh. Tralshawala. It was further submitted in the alternative that if the Bench takes a view that the deduction on this amount is allowable in the year of export, then the Assessing Officer should be directed to consider the exchange rate gain in the assessment of that earlier year in which exports were made and exclude the same from the assessment of the succeeding year in which the assessee had shown. In the support of this submission he stated that the deduction can be allowed only if the eligible income is included in the gross total income. If the income is shifted to the year of export without allowing deduction on that amount in such earlier year, then a piquant situation would arise inasmuch as there would be duplication of income. For this proposition, he placed reliance on the order of the Mumbai Bench of the Tribunal in the case of Asstt. CIT v. Mahendra Exports dated 30-4-2007 (sic).

6. We have considered the rival submissions at length in the light of material placed before us and the precedents relied upon. There is no dispute on the fact that the assessee is an exporter of trading goods and is entitled to deduction under section 80HHC. The Assessing Officer, in the Annexure to the assessment order, has computed the deduction under section 80HHC by considering foreign exchange rate difference of this year as part of export turnover but excluded the foreign exchange difference of the preceding year's sales realized in the current year from its purview. Thereafter direct and indirect costs have been excluded for working out the amount of deduction under this section at Rs. 37.94 lakhs. It is further not disputed that the exchange rate difference, considered by the Assessing Officer as ineligible for deduction under section 80HHC in this year, relates to the exports made in the immediately preceding year and the amount has been received within six months from the end of the relevant previous year.

7. In order to examine and evaluate the rival submissions, we illustrate the controversy as under:—

(i) The assessee made exports to a US party on 31-1-2001 for 1000 US$.
(ii) Rate of US$ for Indian rupee on different dates is as under:—

(iii) The assessee would record export at Rs. 40,000 on 31-1-2001 i.e., @ Rs. 40 per dollar.
(iv) On 31-3-2001, exchange rate gain would be accounted for at Rs. 1,000 as per the mandate of rule 115 i.e., @ Re. 1 (Rs. 41- Rs. 40 per dollar)
(v) On 30-6-2001, exchange rate gain would be further increased by Rs. 2,000 i.e., @ Rs. 2 (Rs. 43 - Rs. 41 per dollar).

8. The Assessing Officer has accepted the export turnover at Rs. 41,000 and the remaining amount of Rs. 2,000 has been left out from the figure of export turnover for the purpose of computing deduction under section 80HHC.

9. We will now deal with various issues raised before us one by one.

A. Whether the exchange rate gain is part of export turnover or income from other sources?

10. The learned D.R. has contended that the exchange rate difference pertaining to the exports made in the earlier year is to be categorized under the head "Income from other sources" and hence no deduction can be allowed on this amount. We are not convinced with the view canvassed on behalf of the Revenue for the obvious reason that the gain due to fluctuation in the foreign exchange rate emanating from export is its integral part and cannot be differentiated from the export proceeds simply on the ground that the rate has increased subsequent to sale but prior to realization. When goods are exported, the invoice is raised in the currency of the country from where the goods are sold. Subsequently, when the amount is realized in that foreign currency and then converted into Indian rupee, the entire amount is relatable to the exports made. In fact it is only the translation of invoice value from the foreign currency to the Indian rupees. Irrespective of the fact that the Indian currency has assumed northward or southward sojourn vis-a-vis the other foreign currency, the amount realized in Indian rupees remains attribute- able to the exports made in foreign currency. There is total fallacy in the submission made on behalf of the Revenue that the exchange rate difference should be detached from the exports and be considered as an independent transaction. It is beyond our comprehension as to how the exchange rate gain or loss can have a different character than the transaction to which it relates. Adverting to the facts of the case, it is palpable that such exchange rate gain arose only from export invoice value and hence cannot be viewed in a different shade. It is simple and plain that there cannot be any question of earning exchange rate gain in the present circumstances unless there is realization of invoice value in Indian rupees. This issue also needs consideration from another angle. The Assessing Officer accepted the exchange rate gain of Rs. 1,000 (in our above example) as part of export turnover but denied similar treatment to Rs. 2,000. If the exchange rate gain from the date of sale to the date of year-end is part of export turnover, how there can be assigned a different character to the similar exchange rate gain from the date of year-end to the actual date of realization. The character of both the receipts is identical and hence cannot be distinguished on the score that it was accounted for in the books of account in the year of export or in the year of realisation. What is material is the nature of receipt and not the year in which it finds place in the books of account.

11. The question raised before the Delhi Bench of the Tribunal in the case of Smt. Sujata Grover (supra) and the Ahmedabad Bench in the case of Priyanka Gems ( supra) was about the nature of foreign exchange difference. Whereas the assessee included it in the 'export turnover' for the purpose of claiming deduction under section 80HHC, the Revenue authorities opined that 90 per cent of this amount was liable to be deducted from the 'Profits of the business' in terms of Explanation (baa ) below section 80HHC(4B), as it was in the nature of 'Income from the other sources'. The Tribunal in these cases did not accept the viewpoint of the Department and held that the foreign exchange difference is part of 'export turnover'. As is evident from the grounds of appeal in the case of Sujata Grover (supra), the dispute was only qua the nature of income and not the year in which the assessee was entitled to deduction. On the other hand in the instant case there is no controversy about the nature of income, but is only about the year in which the deduction is permissible. In our considered opinion the view taken by the Tribunal in these cases, insofar as the nature of exchange rate gain is concerned, is unimpeachable.

12. The contention raised by the ld. DR that such foreign exchange difference be treated as 'Income from other sources' and, hence, no deduction be allowed is sans merits for more than one reason. Firstly, the Assessing Officer has not disturbed the nature of foreign exchange gain as part of 'export turnover' as claimed by the assessee. He has nowhere held that it be treated as 'Income from other sources' on that 90 per cent of the same warrants deduction from the profits of the business as per Explanation ( baa) below sub-section (4C) to section 80HHC. His area of dispute is that since the amount has been realized in the subsequent year, hence, the deduction cannot be allowed. In our opinion the ld. DR cannot go beyond the assessment order and bring an altogether different case, thereby undoing what has been done by the Assessing Officer. The power to modify the assessment order to the advantage of the Revenue, apart from suo motu action by the Assessing Officer under sections 147 or 154, lies only with CIT under section 263, which cannot be usurped by the ld. DR while arguing the appeal. The scope of the arguments of the ld. DR is restricted to support the view taken by the Assessing Officer. He can strengthen the view taken by the Assessing Officer from any angle, he likes, but cannot bring out an altogether different case de hors the view of the Assessing Officer. His area of arguments is unlimited but within the boundary limit marked by the Assessing Officer. We are equally not persuaded to fall in line with this view on merits also in the light of the discussion made in the foregoing paras.

13. It is, therefore, held that the foreign exchange fluctuation gain is part of export turnover.

B. Year in which deduction is admissible

14. The next and the main question which falls for our consideration is about the determination of the year in which foreign exchange rate difference is liable to be included in the export turnover for the purpose of deduction under this section, that is, the year in which realization was made subsequently or in the earlier year when export was effected. There is cleavage of judicial opinion on this aspect of the matter. Whereas the Mumbai Bench of the Tribunal in the cases of Neeral Prakash Shah ( supra) and Dy. CIT v. Laxmi Diamond [IT Appeal No. 4936/(Mum.)/2005] has taken the view that the exchange rate gain pertaining to export made in the earlier year is eligible for deduction under section 80HHC in the year of receipt the Mumbai Bench in the case of Kiran Exports (supra) has taken a contrary view by holding that this would relate to the earlier year when the exports were made. Apart from these cases, there are good number of decisions supporting the either view. However the common fabric running through all such cases, is that the exchange rate difference definitely merits inclusion in the export turnover. The centre of dispute is only about the year.

15. Section 80HHC(1) provides that where an assessee is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall be allowed deduction to the extent of profits derived from the export of such goods or merchandise in accordance with and subject to the provisions of this section. Sub-section (3) prescribes the method for computing the profits derived from export of eligible goods. This sub-section has been, chiefly, divided into three segments, dealing with three different situations, viz., where the export out of India is of goods or merchandise manufactured or processed by the assessee; where the export out of India is of trading goods and; where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods. In this appeal we are concerned with clause (b) of sub-section (3) as the assessee has exported trading goods out of India. The Assessing Officer has also recomputed deduction under section 80HHC as per Annexure in accordance with this clause, which provides as under:—

"(b)where the export out of India is of trading goods the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export."

16. On a bare perusal of this clause, it emerges that the profits derived from export of trading goods is the difference between the export turnover in respect of such trading goods and the direct and indirect costs attributable to such export. Thus, there are three components of this clause. There is no quarrel regarding the second and third, being the direct costs and indirect costs attributable to the export of trading goods. Hence, the controversy before us relates to the calculation of export turnover in respect of such trading goods. The Assessing Officer has opined that the export turnover shall include the foreign exchange difference recognised in the current year's books of account, but shall exclude the amount as is relatable to exports made in the preceding year. In the opposition the case of the assessee is that such foreign exchange gain, as ignored by the Assessing Officer for the purpose of deduction, is also includible in the export turnover. In order to resolve this controversy, we will have to look at the definition of the 'export turnover' as provided in Explanation (b) below section 80HHC(4C). It runs as under :—

"(b)"export turnover" means the sale proceeds [, received in, or brought into, India] by the assessee in convertible foreign exchange [in accordance with clause (a) of sub-section (2)] of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962)"

17. On a cursory glance at the definition of export turnover, as enshrined in this Explanation, we observe that it has been defined to mean the sale proceeds received in or brought into India by the assessee in convertible foreign exchange as per clause (a) of sub-section (2) of this section. It is, therefore, imperative to go through clause (a) of sub-section (2), which reads as under :—

"(2)(a) This section implies 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 [(other than the supporting manufacturer)] in convertible foreign exchange [, within a period of six months from the end of the previous year or, [within such further period as the competent authority may allow in this behalf].]"

18. On a conjoint reading of the above extracted relevant provisions it clearly transpires that the export turnover refers to the sale proceeds of the eligible goods or merchandise exported out of India and received in or brought into India by the assessee in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. Our case squarely falls under the first category, that is, the sale proceeds are received in India in convertible foreign exchange within a period of six months from the end of the previous year. As such, the natural corollary which follows is that the amount of "export turnover" of the year in which exports are made shall mean the total amount realized by the assessee in convertible foreign exchange in India within the relevant year and also within a further period of six months from the end of the year or such further period as extended by the competent authority. So the amount qualifying for 'export turnover' shall be the amount realized during the financial year ending on 31-3-2001 and part thereof as relates to exports made before 31-3-2001, but realized in period up to 30-9-2001. There is no provision for splitting up of the amount so realized in two parts, viz., the part as recorded in the books of account on 31-3-2001 and the other part and for allowing deduction on the former part and denying the benefit on the later part. The export turnover refers to the entire amount as so realized in convertible foreign exchange in India within the prescribed period of six months from the close of the previous year. Both the components of the export turnover, i.e., the amount recorded in the books of account up to 31st March and the subsequent portion coming to surface on the realization of the export invoice would constitute 'export turnover'. If that be the position, there is hardly any difficulty in coming to the conclusion that the exchange rate difference pertaining to the exports made in the earlier year shall be part of the export turnover of the year in which such export is made provided such sale proceeds of the eligible goods are realized in India within the period of six months from the end of the previous year or within such further period as allowed by the competent authority. The year of realization is immaterial, so long as the amount is received in India in convertible foreign exchange within the period of six months from the end of the previous year or within such period as the competent authority may allow in this behalf. Our view is fortified by the judgment of the Hon'ble Gujarat High Court in the case of Amba Impex (supra) in which it has been held as under:—

"Under sub-section (2) of section 80HHC, sale proceeds of goods or merchandise exported out of India and received in convertible foreign exchange become entitled to the deduction subject to fulfilment of other requisite conditions. Clause (a) of sub-section (2) of section 80HHC provides that such sale proceeds have to be received in convertible foreign exchange within a period of six months from the end of previous year or, within such further period as the competent authority may allow in this behalf. Thus, a plain reading of the provision makes it clear that once the competent authority has extended the time, in a case where it is necessary, or, where the sale proceeds have been received within a period of six months from the end of the previous year, such sale proceeds are directly relatable to the parts made and no further inquiry is necessary. Once Legislature has provided for treating a receipt within a period of six months after the end of the previous year, or within further extended period, as sale proceeds relatable to exports, it would not be open to Revenue to raise such a controversy. The Legislature in its wisdom has taken into consideration the fact that in case of exports made, sale proceeds are not necessarily realisable immediately within the accounting period in which exports have been made. 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 a 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."

19. The learned A.R. Shri Deepak Tralshawala has referred to the definition of 'export turnover' in Explanation below section 80HHC(4B) to submit that the Legislature has substituted the word "receivable" by the Finance Act, 1990 with effect from 1-4-1991 with the expression "received in or brought into India", which conveys the intention that as against the eligibility of deduction in the year of export notwithstanding the realization in the subsequent year in the pre-amendment era, it is now available only on the amount actually received in the post-amendment era. The main thrust of his submission was that if we go by the difference in the language deployed in defining 'export turnover', that would show that in the period prior to assessment year 1991-92, the deduction was required to be calculated only in the year of export on the amount of export realization received in the year of export as also the amount receivable, which was received in the later year. The amendment in his opinion, has opened a two way channel for the grant of deduction, inasmuch as the amount recorded in the books of account qualifies for deduction in the year of export on the basis of book entries and the part of the amount traceable to the difference in foreign exchange rate would be eligible for deduction in the year of realization, as has been held by the ld. CIT(A). We are not convinced with this submission made on behalf of the assessee. Primarily we are dealing with the year after the amendment and the ambit of the provision is crystal clear by its language without leaving any room for doubt. Secondly, and more importantly, this provision has been read partly by the ld. AR, as the subsequent portion of the definition of export turnover has escaped his attention, which qualifies the expression "received in or brought into India by the assessee in convertible foreign exchange" with "in accordance with clause (a) of sub-section (2)." When we go back to clause (a) of sub-section (2), it is observed that the expression "received in or brought into India" has to be read along with "within the period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf" the words "received in" do not refer only to the receipt in convertible foreign exchange within the year of export only but also the amount as is so received within the period of six months from the end of the previous year or within such further period as the competent authority may allow. In our considered opinion there is no effect on the computation of deduction in the year of export, whether the difference in export realisation due to fluctuation in the foreign currency rate is received in the same year or within six months from the end of the previous year or within such further period as may be allowed by the competent authority. Once the amount is found to be so received, it would relate to export turnover of the year in which the export was actually made. We further note that when the definition of "export turnover" was amended by the Finance Act, 1990, by which the words "received in or brought into India" were substituted for the word "receivable", identical amendment was also carried out in clause (a) of sub-section (2) of section 80HHC. So this argument advanced on behalf of the assessee does not bring his case any further.

C. Effect of section 155(13)

20. The learned Counsel for the assessee has invited our attention towards the insertion of sub-section (13) to section 155 by the Finance Act, 1999 with effect from 1-6-1999. It was submitted that by virtue of this insertion, there was a need to bifurcate the year into two parties, viz., the first period from the beginning of the year and upto the date of insertion of this sub-section and the second, period after that. In his opinion, the assessee would be entitled to deduction in the former period in the year in which foreign exchange gain is received and for the later period the benefit would be allowed in the year in which export is made. We are not convinced with this submission as we do not find any overlapping of section 80HHC coming by the insertion of sub-section (13) of section 155. Before to proceed further, it would be relevant to note the provisions of sub-section (13) as under :—

"(13) Where in the assessment for any year, the deduction under section 80HHB or section 80HHC or section 80HHD or section 80HHE or section 80-O or section 80R or section 80RR or section 80RRA has not been allowed on the ground that such income has not been received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, has not been brought into India, by or on behalf of the assessee with the approval of the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange and subsequently such income or part thereof has been or is received in, or brought into, India in the manner aforesaid, the Assessing Officer shall amend the order of assessment so as to allow deduction under section 80HHB or section 80HHC or section 80HHD or section 80HHE or section 80-O or section 80R or section 80RR or section 80RRA, as the case may be, in respect of such income or part thereof as is so received in, or brought into, India; and the provisions of section 154 shall, so far as may be, apply thereto, and the period of four years shall be reckoned from the end of the previous year in which such income is so received in, or brought into, India."

21. On its dissection, we note the following elements of this sub-section :—

(i) Deduction has not been allowed in the assessment under these sections including section 80HHC.
(ii) Reason for not allowing deduction is that such income was not received in convertible foreign exchange in India etc. with the approval of RBI or any competent authority.
(iii) And subsequently such income or its part is received in India.
(iv) Then the Assessing Officer shall amend the original order of assessment allowing deduction in respect of such income.
(v) Period for rectification is 4 years from the end of the financial year in which such income is so received in or brought into India.

22. Thus, it refers to carrying out rectification where deduction under section 80HHC. etc., was not allowed to the assessee in the assessment on the ground that such income was not received in convertible foreign exchange in or brought into India by the assessee with the approval of the Reserve Bank of India or other competent authority and it is only subsequently that such income or part thereof is received or brought into India. It is under these circumstances and subject to the time-limit as provided that the Assessing Officer has been empowered to amend the order of the assessment so as to allow deduction under section 80HHC, etc., in respect of such income as is so received or brought into India subsequently. We observe that sub-section (13) deals with the cases in which the deduction was earlier denied due to reason that the assessee could not bring the convertible foreign exchange into India "with the approval of the Reserve Bank of India or such other authority as is authorized under the law for the time being in force" for regulating payment of dealing for foreign exchange. If, however, the amount is realized within the statutory permissible period of six months from the end of the previous year for which there is no requirement of having any permission from competent authority, or it is received in or brought into India beyond the statutory prescribed of six months but with in the time as allowed by the Reserve Bank of India or such other competent authority, then sub-section (13) would not have any application. It shows that there would be two distinct situations, viz., firstly in which the amount is so received in or brought into India within the period of six months from the close of the previous year or within such period as the competent authority may allow and secondly, in which the amount is realized beyond the period of six months from the end of the previous year or the time period as allowed by the competent authority. In the first situation, the assessee would be entitled to deduction in the year in which export is made by virtue of the definition of 'export turnover' read with sub-section (2)(a) of section 80HHC and it is in later situation that sub-section (13) of section 155 would have application and the assessment of the year of export would require rectification. Prior to the insertion of sub-section (13), the deduction was sometimes denied only for the reason that the assessee was not in position to receive in or bring into India the foreign exchange within time as prescribed in sub-section (2)(a) of section 80HHC despite complying with all the relevant conditions of sections 80HHC. To allow parity with the assessees who receive the foreign exchange in India, with in the time allowed under section 80HHC(2)(a) and get deduction, the Legislature thought it prudent to insert section 155(13) for giving similar treatment to the other category of the assessees who were deprived of the benefit of deduction because of late realization of export proceeds in India. But for this, section 155(13) has no other purpose to serve. The facts with which we are confronted in the present appeal are already governed by the definition of 'export turnover' read with sub-section (2)(a) be- cause the exchange rate difference was realized within the stipulated statutory permissible period of six months from the end of the previous year. We, therefore, hold that this contention raised on behalf of the assessee, is bereft of any force.

23. We, therefore, hold that the view of the ld. CIT(A) in directing the inclusion of the gain due to exchange rate difference in the year of receipt and allowing deduction under section 80HHC in such later year, is not sustainable. The impugned order is, therefore, overturned pro tanto.

D. Computation of deduction

24. There is another interesting aspect of the present issue. The assessee included the foreign exchange fluctuation gain in his income for the year in question on the ground that it was realized in this year and claimed deduction accordingly. On the contrary, the Assessing Officer held that the deduction cannot be allowed on this amount as it does not relate to export turnover of this year and to that extent, the deduction is not permissible. In the foregoing paras, we have held that the foreign exchange fluctuation gain is part of export turnover of the year in which export is made and not the year of realization. The effect of our decision is that the assessee can claim deduction on the foreign exchange fluctuation gain in the year of export and not the subsequent year in which the income has been realized and recognized in the books of account.

25. Section 80AB provides that where any deduction is required to be made or allowed under any section included in this Chapter under the heading "C-Deduction in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. The Finance Act, 1999 has inserted sub-section (4B) to section 80HHC with retrospective effect from 1-4-1992 to provide that "For the purposes of computing the total income under sub-section (1) or sub-section (1A), any income not charged to tax under this Act shall be excluded". This sub-section has been inserted to clarify beyond doubt that the amount of income not chargeable to tax under the Act shall be excluded from the total income for deduction under this section. When we read section 80AB in juxtaposition to section 80HHC(4B), it divulges that in order to qualify for any of the deductions under the heading "C-Deduction in respect of certain income including section 80HHC, it is sine qua non that the qualifying income must be included in the gross total income. The question of deduction would arise only when such income is included in the gross total income. If there is exclusion of such income from the gross total income by one reason or the other, there will not be any benefit of deduction under this Chapter. Conversely if deduction is to be allowed under section 80HHC in any year then the qualifying income must form part of the gross total income of that year. If the income is included in a later year and deduction is allowed in a former year, that would not be in accordance with the principles of taxation but would frustrate the sprit of the Act. Adverting to the facts of the instant case we observe that the assessee included the amount of foreign exchange difference in the current year's income and claimed deduction accordingly. Now we have set aside impugned order upholding the assessee's action and held in the earlier part of this order that the deduction is permissible in the preceding year when export was made and not in the current year. In that view of the matter, the impugned order granting deduction in the current year would stand reversed and the earlier year's order would require modification. Accordingly we direct the Assessing Officer to consequently exclude the disputed amount of foreign exchange fluctuation difference from the income of the current year and include it in the income of the immediately preceding year in which the exports were made by the assessee and allow deduction accordingly in accordance with and subject to the provisions of this section in such earlier year.

26. In result, the question posed before the Special Bench is replied in affirmative and the appeal of the Revenue is allowed for statistical purposes.

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