IN THE HIGH COURT OF DELHI AT NEW DELHI 
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   ITA 72/2012  
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 CIT             ..... Appellant 
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 Through Mr. Abhishek Maratha, sr. standing 
 counsel 
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 versus 
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 RAMSONS ORGANICS LTD       ..... Respondent 
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 Through 
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 CORAM: 
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 HON'BLE MR. JUSTICE SANJIV KHANNA 
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 HON'BLE MR. JUSTICE R.V.EASWAR 
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 O R D E R 
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       07.02.2012 
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 Ld. counsel for the Revenue in this appeal, which pertains to 
 assessment year 2007-08, submits that the exchange rate fluctuation had 
 resulted in enhanced income and the Assessing Officer was right in 
 holding that the income arising from the aforesaid fluctuation is 
 assessable under the head ?income from other sources? and not as income 
 from manufacturing or processing activity. 
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 2. To understand the controversy we may reproduce the stand of the 
 assessee before the Assessing Officer and the findings recorded by the 
 Assessing Officer : 
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 ?  The assessee company has shown income from Foreign Exchange 
 Fluctuation of Rs.49,86,549/- and Misc. Income of Rs.10,060/-.  Vide 
 order sheet entry dated 10/09/2009, the AR of the assessee was asked as 
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 to why income from Foreign Exchange Fluctuation and Misc. Income should not be treated as income not from manufacturing activity claimed as 
 exempt u/s 10B.  The AR vide letter dated 20/10/2009 replied as under : 
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 ?Assessee is a 100% Export oriented unit.  Export sales are 
 credited in books on date of sending the consignment to Buyers on the 
 basis of exchange rate prevailing at that time.  How ever export 
 realization is received in foreign exchange after some time.  Difference 
 of Actual proceeds realized and credited in books has been declared as 
 foreign exchange fluctuation as declared as income if proceeds are more, 
 and loss if proceeds are lower.  In both cases, actual foreign exchange 
 proceeds realization gets reflected.  There is no issue that this foreign 
 exchange fluctuation declared in profit and loss account is income from 
 other sources, other than as part of Export proceeds realized out of 
 export sales and eligible for deduction u/s 10 B of Income Tax Act. 
 Foreign Exchange fluctuation is part and parcel of Export proceeds 
 received by Assessee out of export sales made during the year.? 
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 The explanation of the assessee is not acceptable since income from 
 foreign exchange fluctuation is income of the assessee from other sources 
 and not from manufacturing of processing activity as claimed by it.  The 
 assessee is not entitled to adjust business expenses from this income 
 i.e. foreign exchange fluctuation particularly considering the fact that 
 there are no expenses which appears to have been incurred for earning 
 this income.  According the amounts of Rs.49,86,549/- and Rs.10,060/- are 
 treated as income of the assessee from other sources and added to the 
 total income of the assessee.? 
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 3. CIT(Appeals) examined the said contention in detail and has 
 recorded the finding that the respondent-assessee was a 100% export 
 oriented unit.  The export sales were recorded in the books of accounts 
 on the date of sending of consignment.  As the amount though payable in 
 foreign currency was to be written in Indian Rupees, the exchange rate at 
 that time was taken. The export proceeds in foreign currency were 
 received after some time.  The difference between the actual proceeds 
 received on conversion into Indian rupees was debited/credited in the 
 books of accounts and shown as foreign exchange fluctuation.  This is 
 added to the business income if proceeds were more or alternatively 
 reduced/subtracted if the proceeds were lower. 
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 4. We fail to understand as to why the aforesaid amount either as 
 addition or subtraction cannot be assessed as business income/loss as it 
 directly arises from the business transaction.  We do not agree with the 
 contention of the Revenue that the aforesaid income/loss is not 
 income/loss derived from exports.  The assessee was required and has made 
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 book entries.  The book entries have to be in Indian Rupees.  For this purpose the foreign currency was converted into Indian Rupees.  The 
 export transaction was complete and fruitified when the remittance of 
 sale proceeds in foreign exchange was received and then converted into 
 Indian Rupees.  Accordingly necessary entries at that time were made to 
 regularize and show the actual and true income.  The aforesaid book 
 entries cannot be compared to deposit of money in banks/FDRs and earning 
 of interests.  Examining the said aspect Bombay High Court in 
 Commissioner of Income Tax Vs. Gem Plus Jewellery India Ltd. (2010) 194 
 Taxman 192 (Bom.) has held that the aforesaid amount is entitled to 
 exemption/ deduction under Section 10A of the Act and is a part of 
 profits derived from exports.  It is an amount received in course of 
 export transaction. 
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 5. Ld. counsel for the appellant Revenue submitted that export 
 transaction was complete when the invoice was raised and the goods were 
 dispatched to the exporter and the entry was made to the books of 
 account.  The submission has to be rejected.  The transaction is complete 
 when the sale proceeds in foreign exchange were received by the Indian 
 assessee.  In fact, the section requires actual receipt of money. 
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 6. Accordingly, we do not find any merit in the present appeal and the 
 same is dismissed. 
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 SANJIV KHANNA, J 
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 R.V.EASWAR, J 
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 FEBRUARY 07, 2012 
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 vld 
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 $ 25 
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