1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. INCOME TAX APPEAL NO.4105 OF 2009 The Commissioner of Income Tax-VI ..Appellant. Vs. M/s. Cebon Apparels Pvt. Ltd. ..Respondent. .... Mr. Suresh Kumar for the Appellant. Mr. Nishant Thakkar with Mr. Atul K. Jasani for the Respondent. ..... CORAM : DR. D.Y.CHANDRACHUD & J.P. DEVADHAR, JJ. 22 April, 2010. P.C.: 1. In this appeal by the Revenue under Section 260-A of the Income Tax Act, 1961 the following questions of law have been formulated : “(a) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the expenditure on stamp duty for the purchase of flat is allowable as revenue expenditure; b) Whether on the facts and in the circumstances of the case, the Tribunal, in law, was justified in law in holding that 90% of the receipts from job work charges, gains on cancellation of forward covers, sundry credit balance written back, exchange rate fluctuation, and excess 2 provision of earlier year written back, are not to be reduced from profits of the business in terms of explanation (baa) to Section 80HHC while computing deduction under section 80HHC of the Income Tax Act, 1961;” 2. As regards question 1, from the observations of the Tribunal in paragraph 7 of its order the statement of facts is that the assessee had entered into an agreement for the purchase of a residential flat at Mahalaxmi in which the amount paid was shown as an advance for the flat in the books of account. Subsequently, the agreement was cancelled. The assessee had debited expenses of Rs. 17,31,500/- towards stamp duty. The assessee had debited this amount as expenditure in the earlier year but, in the course of Assessment Year 2001-02 the assessee offered the amount to tax in terms of Section 41(1). The Tribunal has in these circumstances held that since no capital asset was actually acquired, the amount would have to be treated as a revenue expenditure. The finding recorded by the Tribunal does not raise any substantial question of law. 3. The second question relates to (i) job work charges; (ii) gains on cancellation of forward covers; (iii) exchange rate fluctuation 3 and (iv) sundry credit balances and excess provisions of an earlier year written back. The question is as to whether these items were to be reduced from the profits of business under explanation (baa) to Section 80HHC. Insofar as receipts from job work charges are concerned, the issue raised therein is covered in favour of the Revenue by the judgment of this Court in Commissioner of Income Tax v. Dresser Rand India Pvt. Ltd. (ITA 2186 of 2009 decided on 8 April 2010). This Court has held following the judgment of the Supreme Court in Commissioner of Income Tax v. K. Ravindranathan Nair1 that independent incomes unrelated to exports are liable to be excluded in the computation of business profits by virtue of explanation (baa) to section 80HHC. In the circumstances, the issue would stand covered in favour of the Revenue on merits. However, it has been urged on behalf of the assessee that the Tribunal has in paragraph 13 of its order, relied on the circumstance that the issue was decided in favour of the assessee for Assessment Year 1997-98. Learned counsel submitted that since the Revenue has accepted the decision, it ought not to be permitted to 1 (2007) 295 ITR 228 (SC). 4 raise the issue in these proceedings. Reliance was placed on an order passed by the Supreme Court in Southern Sea Foods Ltd. v. Jt. CIT (Special Leave Petition (Civil) No.17150 of 2008 decided on 2 nd March, 2009). In paragraph 4 of the order passed by the Supreme Court it has been observed that on the question as to whether the assessee was entitled to a deduction under Section 80HHC in respect of the processing / fabrication charges on goods which were ultimately exported by other exporters for whom processing was undertaken by the assessee, the High Court had relied upon its earlier decision. In that decision, the High Court had held that processing charges would form part of one of the components of business profits. Before the Supreme Court in Southern Foods (supra) counsel appearing on behalf of the Revenue stated that the earlier decision of the High Court had attained finality. In these circumstances, the Supreme Court declined to entertain the Special Leave Petition. Apart from the fact that the order of 2 March 2009 passed by the Supreme Court proceeds on the basis of a concession made by counsel appearing on behalf of the Revenue, it is also clear from a reading of 5 the order that the Supreme Court has declined to exercise its jurisdiction in a special leave petition under Article 136 of the Constitution. In these circumstances, particularly in view of the fact that the aforesaid issue is covered by the judgment of this Court in Dresser Rand (supra) which in turn follows the judgment of the Supreme Court in Ravindranathan Nair (supra), the submission which has been urged on behalf of the assessee cannot be accepted. The issue is accordingly answered in favour of the Revenue and against the assessee. 4. As regards cancellation of forward covers, it has not been disputed that both the cancellation forward cover and the sale of quota licence constitute independent incomes which are unrelated to export activity. Hence, in terms of the judgment of the Ravindranathan Nair (supra), 90% of such incomes would have to be excluded from the profits of business for the purpose of computing the deduction under section 80HHC. Hence, the issue shall stand answered in favour of the Revenue and against the assessee. 6 5. As regards exchange rate fluctuation, the issue is covered in favour of the Revenue and against the assessee by the judgment of this Court in Commissioner of Income Tax v. Shah Originals (ITA 431 of 2008 decided on 22 April 2010). 6. As regards sundry credit balances and excess provisions of the earlier year written back, the submission which has been urged on behalf of the assessee is that an excess provision written back from the profits of business does not constitute a receipt for the purposes of explanation (baa) to Section 80HHC. On a perusal of the record, it is common ground between the learned counsel that this issue has not been enquired into by the authorities below. In the circumstances, it would be appropriate for this Court to remand the proceedings back to the Tribunal for a fresh determination of the question. For the reasons indicated earlier, the judgment of the Tribunal on this issue is set aside and the Tribunal is directed to decide the issue afresh. 7 7. The questions of law shall accordingly stand answered in the aforesaid terms. The Appeal is accordingly disposed of. There shall be no order as to costs. (Dr. D.Y.Chandrachud, J.) (J.P. Devadhar, J.)