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v. Shah Originals DR. D.Y. CHADRACHUD AND J.P. DEVADHAR, JJ. IT APPEAL NO. 431 OF 2008 APRIL 22, 2010 Section 80HHC of the Income-tax Act, 1961 - Deduction - Exporters - Assessment year 2000-01 to 2004-05 - Whether exchange fluctuation in Exchange Earners Foreign Currency (EEFC) Account arises after completion of export activity and does not bear a proximate and direct nexus with export transaction so as to fall within expression 'derived' by assessee in sub-section (1) of section 80HHC - Held, yes - Whether, therefore, receipts on account of foreign exchange fluctuation on EEFC Account and interest on EEFC Account cannot be included in profits of business while calculating deduction under section 80HHC - Held, yes FACTS The assessee was engaged in the business of manufacture and export of garments. It claimed deduction under section 80HHC. During the assessment proceeding, the Assessing Officer noted that the export turnover shown by the assessee included the gains arising out of foreign currency fluctuation. The Assessing Officer noted that the assessee had realized the full amount on account of export and the fluctuation was as a result of the assessee keeping a portion of the receipts of the export in the EEFC Account, and it was not a case where there was a delayed realization of export proceeds consequent upon which an exchange fluctuation arose. Consequently, he treated entire receipt on account of exchange fluctuation as income from other sources and excluded same from the export turnover for computing deduction under section 80HHC. The Commissioner (Appeals) affirmed the order of the Assessing Officer. The Tribunal, however, allowed the assessee's appeal by reversing the order of the Commissioner (Appeals). On the revenue's appeal : HELD The statute contemplates a deduction under section 80HHC(1) where an assessee, being an Indian company or a person resident in India, is engaged in the business of export out of India of any goods or merchandise to which the section applies. In such a case, the assessee is allowed, in computing the total income, a deduction to the extent of profits derived by the assessee from the export of goods or merchandise. The…

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