Kalyani Forge Ltd.,, Pune vs Assessee

The Asstt. Commissioner of Income Tax, Circle 11(1), Pune. .... Appellant

Vs.

M/s Kalyani Forge Ltd., 1st Floor, B&C Wing, Shangrila Garden, Bund Garden Road, Pune - 411 001. PAN : AAACK7311H .... Respondent

ITA No.1925/PN/2013 (Assessment Year : 2009-10)

M/s Kalyani Forge Ltd., 1st Floor, B&C Wing, Shangrila Garden, Bund Garden Road, Pune - 411 001. PAN : AAACK7311H .... Appellant

Vs.

The Asstt. Commissioner of Income Tax, Circle 11(1), Pune. .... Respondent

Department by : Mr. Rajesh Damor Assessee by : Mr. C. H. Naniwadekar Date of hearing : 11-03-2015 Date of pronouncement : 27-05-2015

ORDER

PER SUSHMA CHOWLA, JM:

The cross-appeals filed by the Revenue and the assessee are against

the order of CIT(A)-I, Pune, dated 01.03.2013 relating to assessment year

2009-10 passed under section 143(3) of the Income Tax Act, 1961.

2. The cross-appeals filed by the Revenue and the assessee were heard

together and are being disposed-off by this consolidated order for the sake of

convenience.

2 ITA No.1133/PN/2013 ITA No.1925/PN/2013

3. First, we shall take-up the appeal of the assessee. The appeal of the

assessee was filed after a delay of about 150 days. An application was

moved by the assessee for condonation of the said delay. The contention of

the assessee before us was that the order of the CIT(A) was misplaced at the

factory gate during the worker's strike/disturbance and the copy thereof was

received later and hence the delay in filing the present appeal before the

Tribunal. The Assistant Manager of the assessee-company has also filed an

affidavit to the extent that the CIT(A)'s order in respect of assessment year

2009-10 was misplaced at the factory gate during the worker's

strike/disturbance and could get the copy of the order only in the last week.

Since there was no order passed giving effect by the Assessing Officer during

this period, the said order passed by the CIT(A) did not come to the notice of

the assessee. In the totality of the above facts and circumstances and

because of disturbances at the factory of the assessee, we find merit in the

plea of the assessee and we condone delay in filing of the present appeal late

by 150 days and proceed to decide the present appeal filed by the assessee.

4. The assessee has raised the following grounds of appeal :-

"Ground No.-1 : Disallowance under section 14A read with rule 8D. The learned CIT(A) erred on fact and in law in disallowing of Rs.1,60,741/- under section 14A of the Income Tax Act.

Section 14A and Rule 8D cannot be applied when the assessee is a trader in shares. In this regard, we rely on the Karnataka High Court decision in CCI Ltd. vs. JCIT (250 CTR 291) which has been followed by the Jurisdictional Pune Tribunal in a number of cases. The learned CIT(A) ought to have taken this decision in the instance case.

Ground No.-2 : Addition in respect of stock The learned CIT(A) has not considered in totality the Assessee's own case before the Hon'ble ITAT, Pune Bench for the AY 2006-07 as a result of which he accepted to the attention of Rs.1,35,18,068/- made by the learned AO, being the difference between the inventories appearing in the stock statement furnished to the Bank and those stated in the final accounts."

5. The first issue raised by the assessee is in relation to disallowance of

Rs.1,60,741/- under section 14A of the Act.

3 ITA No.1133/PN/2013 ITA No.1925/PN/2013

6. Briefly, the facts of the case are that the assessee was engaged in the

business of forgings mainly for Automobile & Auto Parts Industry, business of

finance, leasing and dealing in securities. During the year under

consideration, assessee had claimed exempt income of Rs.1,32,813/- on

account of dividend income. Since no expenses were debited against the said

exempt income, show-cause notice was issued by the Assessing Officer. In

the absence of any documentary evidences being filed by the assessee, the

Assessing Officer was of the view that the provisions of section 14A(3) of the

Act r.w. rule 8D of the Income Tax Rules, 1962 were clearly attracted and the

Assessing Officer computed the disallowance at Rs.1,60,741/-. The CIT(A)

upheld the order of the Assessing Officer, against which the assessee is in

appeal before us. The contention of the assessee, that the investment in

shares and mutual funds were classified as stock-in-trade in the Balance

Sheet and hence provisions of section 14A of the Act cannot be applied to the

trader in shares, was not accepted by the CIT(A).

7. The Ld. Authorized Representative for the assessee pointed out that

out of total dividend income of Rs.1,32,813/-, dividend to the tune of

Rs.1,25,313/- was relatable to the shares, which were part of stock-in-trade of

the assessee and hence there is no merit in any disallowance under section

14A of the Act. The Ld. Authorized Representative for the assessee pointed

out that similar issue arose before the Tribunal in assessee's own case

relating to assessment year 2008-09 and the matter was set-aside to the file of

the Assessing Officer for adjudication.

8. The Ld. Departmental Representative for the Revenue placed reliance

on the order of the CIT(A).

9. We have heard the rival contentions and perused the record. The

assessee had received exempt income on account of dividend against which 4 ITA No.1133/PN/2013 ITA No.1925/PN/2013

assessee claims to have incurred no expenditure. However, the Assessing

Officer worked out the disallowance under section 14A of the Act r.w. rule 8D

of the Rules. The plea of the assessee before us was that the said shares

were held as stock-in-trade as in the past and there was no merit in

disallowance of any interest expenditure and also any administrative

expenditure. We find that similar issue arose before the Tribunal in

assessee's own case in ITA No.783/PN/2012 relating to assessment year

2008-09 wherein by consolidated order with lead order in ITA No.664/PN/2012

in appeal filed by the Revenue, the Tribunal vide order dated 30.08.2014 set-

aside the issue back to the file of the Assessing Officer and findings of the

Tribunal are as under :-

"6. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find before the Assessing Officer the assessee had submitted that it has not incurred any expenditure on account of earning the exempted income which was not accepted by the Assessing Officer who following the provisions of section 14A r.w. Rule 8D has disallowed an amount of Rs.2,19,321/-. The disallowance includes interest of Rs.1,77,475/- and administrative expenses of Rs.41,846/-. 6.1 It is the submission of the Ld. Counsel for the assessee that the shares are held as stock in trade since last 20 years and therefore in view of the decision of Hon'ble Karnataka High Court in the case of M/s. CCI Ltd. (Supra) which has been followed in the case of Apporva Patni and others (Supra) no disallowance u/s.14A can be made. It is the alternate contention of the Ld. Counsel for the assessee that only the interest expenditure to the tune of Rs.1,77,475/- at best can be disallowed and no disallowance on account of administrative expenses should be made. We find the issue relating to holding of the shares as stock in trade in the past was not before the Assessing Officer or the CIT(A). We, therefore, deem it proper to restore the issue to the file of the Assessing Officer with a direction to decide the issue afresh in the light of the decision of the Hon'ble Karnataka High Court in the case of M/s. CCI Ltd. (Supra) and in accordance with law. The Assessing Officer should also examine the alternate contention of the assessee that no administrative expenditure has been incurred and interest expenditure to the tune of Rs.1,77,475/- at best can be disallowed. We hold and direct accordingly. Ground raised by the assessee is accordingly allowed for statistical purposes."

10. Following the same parity of reasoning, since the shares held by the

assessee were as in the past years, we remit the issue back to the file of the

Assessing Officer to examine the alternate plea of the assessee and re-work 5 ITA No.1133/PN/2013 ITA No.1925/PN/2013

the disallowance, if any, in the hands of the assessee in line with the direction

of the Tribunal (supra) in assessment year 2008-09. The ground of appeal

No.1 raised by the assessee is treated as allowed for statistical purposes.

11. The issue in ground of appeal No.2 is with regard to addition of

Rs.1,35,18,068/- as per entries appearing in the stock statement furnished to

the bank and those stated in the final accounts of the assessee.

12. The Assessing Officer, during the course of assessment proceedings,

noted that the assessee had declared total closing stock of Rs.22,87,81,932/-

for the year under consideration. The Assessing Officer requisitioned the

assessee to furnish the details of the closing stock as well as details of the

stock statement submitted to the bank alongwith reconciliation, if any. The

assessee furnished the relevant details alongwith copy of statement of stock

given to the Bank of Maharashtra against hypothecation of loan. On

verification of the said details, the Assessing Officer noted that the assessee

had claimed excess stock of Rs.1,35,18,068/- in the stock statement given to

the bank and the assessee was asked to explain the difference. The

Assessing Officer further noted on the perusal of the statement given to the

bank, that the said stock have been valued on the basis of quantitative details

given in the said statement, however, the assessee could not reconcile the

quantitative details with respect to the books of account maintained, for the

reason that the said quantitative details were not maintained in the same

format as given to the bank. The Assessing Officer in the absence of such re-

conciliation and assessee having not discharged the onus, treated the

difference as income of the assessee, resulting in an addition of

Rs.1,35,18,068/-.

13. The CIT(A) upheld the addition made by the Assessing Officer rejecting

the plea of the assessee that the issue was covered by the Pune Bench of the 6 ITA No.1133/PN/2013 ITA No.1925/PN/2013

Tribunal in assessee's own case in ITA No.1130/PN/2010 relating to

assessment year 2006-07 vide order dated 25.05.2012. The CIT(A) was of

the view that the variation in the closing stock as declared in the books of

account and as shown in the statement given to the bank, as compared to

assessment year 2006-07 was huge and to the tune of Rs.1,35,18,068/-,

which had not been correctly reconciled by the assessee. The assessee is in

appeal against such action of the CIT(A).

14. The Ld. Authorized Representative for the assessee pointed out that

difference between the stock reflected in the books of account and the

quantitative stock in the statement furnished to the bank is reconcilable and

such reconciliation statement alongwith explanation has been placed at pages

15 to 17 of the Paper Book. It was further pointed out by the Ld. Authorized

Representative for the assessee that no quantitative figures were given in

stock statement furnished to the bank and only value was given to the bank.

The major difference was in work-in-progress and even in conversion cost,

value was different. In case the difference in work-in-progress was kept aside,

then there was not much difference in the value of the stock as per the

financial statement and as per the statement submitted to the bank. The Ld.

Authorized Representative for the assessee pointed out that similar issue of

reconciliation of stock arose before the Tribunal in assessee's own case in

assessment year 2008-09 wherein the Tribunal (supra), in turn, following the

ratio laid down in assessment year 2006-07 had deleted the said addition.

15. The Ld. Departmental Representative for the Revenue pointed out that

the Tribunal while deciding the earlier appeal had held that there was not

much difference in the quantitative details and only difference was in value

and hence the ratio laid down in the earlier year was not applicable. 7 ITA No.1133/PN/2013 ITA No.1925/PN/2013

16. We have heard the rival contentions and perused the record. The

assessee for the year under consideration had disclosed stock of

Rs.22,87,81,932/-. The assessee in the stock statement submitted to the

bank had given the value of stock as on 31.03.2008 at Rs.24,23,00,000/- and

hence there was a difference of Rs.1,35,18,068/- in the stock statement as per

the financial account and as per the statement given to the bank. The

assessee has filed on record a Note of Inventory explaining the difference and

also has furnished reconciliation of stock statement i.e. as reflected in the

statement submitted to the bank and as per the financial statement which is

placed at pages 15 to 17 of the Paper Book and read as under :-

KALYANI FORGE LTD Note on Inventory Every month the stock value statement, Debtors and creditors amounts are to be provided to the Banks to ensure that the actual Cash credit together with the other working Capital loans drawn are within the Drawing Power (DP) of the company. So whatever is in SAP at that moment is reported to the Bank. However the Final accounts contain the true and fair value of stocks including the valuation of WIP, which is the RM value plus the overheads till the stage of completion. In the process of year end scrutiny due to following reasons the value of inventory changes and it is rectified before the accounts are approved.

1. The consumption is booked after the Sales Invoice is checked and posted. Particularly at year end there are a number of Sales Invoices pending for posting as generally at year end all the sales and supplies kept pending for one reason or the other (quality or design issues included} are cleared. In the process some are scrapped while some others are supplied and sold. In SAP there is the system of "backflash" whereby once the Invoice is made and posted, the consumption gets booked and the stock moves out of WIP.

2. Also certain raw materials, after physical verification and on auditors' insistence, are scrapped; some are recognized as non-

moving, while some others are recognized as obsolete (due to design change etc). This increases the scrap / non-moving stock and reduces the raw material or the work in progress.

3. Apart from this, the Die Steels purchased and used for making Dies are recorded as consumption at the end of the year only unlike the consumption of Raw material which is used for manufacturing the forgings. It gets recorded by the Back flash system as invoice is entered and posted, but the Dies are not for sale like forgings and its' consumption does not get recorded as it is not invoiced and the Die steel consumption is recorded only after the physical verification of stock of Die steel is done. 8 ITA No.1133/PN/2013 ITA No.1925/PN/2013

4. We identify the parts (known as Child parts such as caps, screw bolt, bush) which are supplied by the customers for mounting or fitting on the products (such as connecting rod) manufactured and supplied by us, which are also recorded as inventory (refer Doc No.5009012212 dt. 10.11.2008) in our books for control purpose. These are not our purchases and hence the value of unused stock of these items is removed from our inventory before finalizing the Profit and Loss A/c and the Balance Sheet."

KALYANI FORGE LIMITED.

Reconciliation of Stock Statement (Bank stock statement Vs. Financial Statement) A. V. 2009-10

Sr. No Particulars Amount as per Amount as per Difference Bank Stock Financial Statement Statement 1 Stores, Spares & Tools 300.00 301.10 (1.10) 2 Production Steel 914.00 795.33 118.67 3 W.I.P. 931.00 826.48 104.52 4 Non Moving unfinished goods 11.00 - 11.00 5 Scrap - 160.70 (160.70) 6 Dies and Die Block & Die Steel 267.00 204.21 62.79 Total 2,423.00 2,287.82 135.18

17. The perusal of the aforesaid statement would reflect that there was

difference in the stock on account of work-in-progress and on account of

Production Steel. However, the value of the Stores, Spares & Tools is similar

in both the statements. Similar differences in stock in the valuation of closing

stock i.e. as appearing in the financial statement and as appearing in the

statement submitted to be bank was also there in the earlier years and issue

of addition if any in this regard arose before the Tribunal. The Tribunal in

assessment year 2006-07 vide order dated 25.05.2012 (supra) held as

under :-

"10. We have car efully considered the rival submissions. The primary basis for the impugned addition is the difference in the valuation of closing stock as submitted t o the bank on 15- 5-2006 and that appear ing as per the audited final accounts of the assessee. The comparative statement - quant ity wise and value-wise of stock submitted to the bank and the st ocks appearing in the final accounts have been tabulated in para 4.2.5 of the order of the CIT(A). The same is not being repeated here for the sake of brevity. So however, it is quite clear that there are no quantitat ive difference. In t he case of work- in-progr ess the amount has been reported to the bank as Rs. 714.32 lakhs 9 ITA No.1133/PN/2013 ITA No.1925/PN/2013

whereas per the f inal account it is Rs. 659.42 lakhs. Similarly, in the case of dies Rs. 7.34 lakhs has been reported t o the bank whereas it is Rs. 11.45 lakhs as per the final accounts. The difference in the other items is quit e nominal except in the case of non-moving stocks wherein NI L has been reported t o the bank whereas Rs. 9. 09 lakhs has been stated in t he f inal accounts. In so far as non-moving stocks is concerned, it has been explained that no such reporting is given to the bank since the bank does not consider such it ems for calculating credit facilit ies extended to the assessee. With regard to the difference in the valuat ion of work-in-progr ess it is sought to be cont ended that methodology adopted is to value stock at hand or market value whichever is low. While arr iving at the value of work-in-progress conversion cost is loaded unto the raw mater ials. Such conversion cost is determined on the basis of expenditure incurred dur ing the year and is calculated and loaded at the time of finali zat ion of accounts which takes place after the close of the year. It is canvassed that such finali zat ion and audit of the account took place subsequent t o the r eport ing of closing stock to the bank and such audited f inal accounts were adopted in the Board of Directors' meeting on 30-6- 2006. Meanwhile, when the statement of closing stock was submitted to the bank on 155- 2006 the closing st ock of work- in-pr ogr ess was valued as per the conversion cost calculated on the basis of last audit ed final statement i.e. 31-3-2005.

Theref ore, there remained a difference in the valuation of closing work-in-progress between the stock reported t o the bank on 15/5/ 2005 and the st ock as was finally arrived at on the basis of audited accounts for this year ending on 31-3-2006. In our view, the bonaf ide of such an explanat ion cannot be doubted inasmuch as the assessee had itself communicated to the bank subsequent ly on 7- 7-2006 as evidenced by the communicat ion placed at page 13 of the paper book t hat the difference in valuat ion of stock was on account of adopt ion of a new conversion cost factor based on the audited final results of this year. The aforesaid explanat ion has also not been found to be fallacious by either of the lower author ities but has merely brushed aside and disbelieved. At the same time, it is also emer ging fr om record that there is no repudiation of assessee 's assertion before the lower authorit ies that ther e was absolutely no var iat ion in the stock quantit ies reported to the bank and those shown in the annual accounts. In these circumstances, in our view, the assessee has adequately explained the reasons for the difference in value of closing st ock reported to the bank on 15-5-2006 and that adopted in its audited final accounts subsequent ly.

Therefore, in the face of such explanation, there is no justification to infer any unexplained investment in the stocks so as to just ify invoking section 69-B of the Act in the present case. Theref ore, having regard to the facts and material on record, the addition in quest ion is untenable and is directed to be deleted. This ground of the assessee is thus allowed. "

18. The said ratio was followed by the Tribunal (supra) in assessee's own

case in assessment year 2008-09 and the addition made in the hands of the 10 ITA No.1133/PN/2013 ITA No.1925/PN/2013

assessee was deleted. The difference in the valuation in the earlier years was

on the lower scale but that does not change the basic aspect that the

principles underlining the difference in stock valuation as per the books and as

submitted to the bank are similar. In view thereof and following the ratio laid

down by the Tribunal in assessee's own case in the preceding year, we find no

merit in the said addition and direct the Assessing Officer to delete the same.

19. Now, coming to the appeal of the Revenue, the following grounds of

appeal are raised by the Revenue :-

"1. The learned Commissioner of Income-tax (Appeals) erred in deleting the disallowance on account of loss due to fluctuation in foreign exchange inspite of the fact that the transactions in derivative are speculative in nature.

2. The learned Commissioner of Income-tax (Appeals) erred in deleting the disallowance of commissions paid to non-executive Directors despite the fact that the said payment was not paid within the due date of filing of return.

3. The appellant craves leave to add, alter or amend any or all the grounds of appeal."

20. The issue in ground of appeal No.1 raised by the Revenue is against

the deletion of disallowance made on account of loss due to fluctuation in

foreign exchange of transactions in derivative. During the year under

consideration, the assessee had shown gain due to fluctuation in foreign

exchange represented at Rs.3,70,500/-. The breakup of foreign exchange

fluctuation gain of Rs.3,70,500/- is reproduced at page 3 of the assessment

order. The assessee furnished the explanation before the Assessing Officer in

respect of each of the transaction as tabulated at page 3 of the assessment

order which is reproduced at page 4 of the assessment order. The Assessing

Officer noted that during assessment year 2008-09, there was a loss due to

fluctuation in foreign exchange but during the year under consideration, the

assessee has shown gain due to fluctuation in foreign exchange. The

Assessing Officer noted that there was a loss on actual settlement of option for

Rs.97,80,764/- and loss on actual settlement of option Euro for Rs.47,36,210/- 11 ITA No.1133/PN/2013 ITA No.1925/PN/2013

totaling to Rs.1,45,16,974/-. The Assessing Officer was of the view that the

settlement of option was speculative in nature and the same could not be set-

off against business income. The Assessing Officer, in turn, relied upon the

disallowance made in the earlier year relating to assessment year 2008-09.

21. The CIT(A) noted that since the rationale behind the disallowance

related to assessment year 2008-09, wherein such losses were held to be of

revenue account and not speculative losses. But in assessment year 2008-09

the Assessing Officer was directed to verify whether the amount actually

represented loss against export debtors exclusively and allow the same to that

extent. The CIT(A) vide para 3.2.2 further observed as under :-

"3.2.2 Nevertheless, the appellant contends both in grounds of appeal and written submission that, in any case, credit may be given for the reversal of loss on outstanding option on market to market (MTM) basis pertaining to FY 2007-08 for Rs.1,49,73,143 that stood disallowed last year and which was not contested/disputed by the appellant. This contention of the appellant has been examined. In the working sheet, furnishing details of foreign exchange losses and gains for the year, it is seen at sl.no.8, the appellant has reversed Rs.1,49,73,143 on account of foreign exchange loss on outstanding option on MTM basis (2007-08). This amount already stood disallowed by the Assessing Officer for the AY 2008-09. In effect, therefore, it is seen that by disallowing Rs.1,45,16,974, without giving credit to the set off of last year's reversal of loss on the same options, the appellant has been taxed twice. The Assessing Officer is therefore directed to give credit to the sum of Rs.1,49,73,143 while disallowing the claim of Rs 1,45,16,974 and thereby reworking the net profit/loss on account of foreign exchange fluctuation Ground no, 1 is thus, treated as allowed."

22. The Revenue is in appeal against the said direction of the CIT(A). The

Ld. Departmental Representative placed reliance on the order of the

Assessing Officer and pointed out that the Tribunal had set-aside the matter

back to the file of the Assessing Officer.

23. The Ld. Authorized Representative for the assessee pointed out that

from the details itself, it is apparent that assessee has reversed loss of

outstanding option of MTM basis as on 31.03.2008 amounting to 12 ITA No.1133/PN/2013 ITA No.1925/PN/2013

Rs.1,49,73,143/-, which has been offered to tax in the current year. As in the

assessment year 2008-09, this loss on outstanding option was debited to the

Profit & Loss Account and was disallowed during the assessment

proceedings, the case of the Ld. Authorized Representative for the assessee

that since the said amount which was claimed as expenditure in the earlier

years was disallowed, then on its reversal the same being taxed in the hands

of the assessee amounts to double taxation. The Ld. Authorized

Representative for the assessee further pointed out that the Tribunal in

assessment year 2008-09 had directed the Assessing Officer to verify whether

the option were in respect of export debtor or otherwise and decide the issue.

24. We have heard the rival contentions and perused the record. The

dispute arising in the present appeal is in relation to the foreign exchange

fluctuation loss credited to the gain from foreign exchange fluctuation resulting

in a net gain of Rs.3,70,500/- which has been credited to the Profit & Loss

Account. The working of the gains and losses on account of foreign exchange

fluctuation as submitted by the assessee and as reproduced at page 3 of the

assessment order reflected that there were losses to the extent of

Rs.97,80,764/- and Rs.47,36,219/- had been claimed on account of actual

settlement of foreign exchange option. Further, loss of Rs.1,49,73,143/-

pertaining to loss on outstanding options of market to market basis which was

debited to the Profit & Loss Account for the assessment year 2008-09 had

been reversed. The first objection raised by the assessee that on the reversal

of the loss on outstanding option on MTM basis amounting to Rs.1,49,73,143/,

which had been offered to tax in the current year had in actual fact resulted in

double addition as loss claimed in the earlier year i.e. A.Y. 2008-09 was

disallowed during the assessment proceedings. The Assessing Officer did not

accept the plea of the assessee in this regard. However, the CIT(A) allowed

the claim of the assessee. The Ld. Authorized Representative for the

assessee has fairly pointed out before us that the fluctuation in foreign 13 ITA No.1133/PN/2013 ITA No.1925/PN/2013

exchange loss had been directed to be allowed in the hands of the assessee

by the Tribunal and the issue was set-aside to the file of the Assessing Officer

to verify whether the loss was on account of debtors and had been incurred on

actual settlement, then the same was allowable as business expenditure.

Once the expenditure is allowed in the hands of the assessee in assessment

year 2008-09 then we find no merit in the claim of the assessee vis-à-vis the

reversal of loss on outstanding option to that extent. We find that the Tribunal

in ITA No.664/PN/2012 in an appeal filed by the Revenue vide order dated

30.08.2013 had upheld the order of the CIT(A) in allowing the claim of the

assessee that if the loss was attributable on account of debtors and was

incurred on actual settlement then the same takes the character of trading

transaction and the expenses are to be allowed as business expenditure. The

quantification exercise in such circumstances in assessment year 2008-09

was set-aside to the file of the Assessing Officer and hence to the extent of the

expenditure being allowed in the hands of the assessee in assessment year

2008-09, the total reversal of loss claimed at Rs.1,49,73,143/- is not to be

allowed in the hands of the assessee but is to be limited to the extent of the

loss which is not allowed in the hands of the assessee in assessment year

2008-09. We reverse the finding of the CIT(A) in this regard and direct the

Assessing Officer to allow the reversal of loss as deduction pertaining to

assessment year 2008-09 in the hands of the assessee.

25. Further, the claim of the assessee on account of loss due to fluctuation

in foreign exchange is squarely covered by the order of the Tribunal in

assessee's own case relating to assessment year 2008-09. Following the

same parity of reasoning, we direct the Assessing Officer to verify the claim of

the assessee and in case it relates to exports/sundry debtors, then the same is

to be quantified and allowed as deduction. The ground of appeal No.1 raised

by the Revenue is partly allowed.

14 ITA No.1133/PN/2013 ITA No.1925/PN/2013

26. The issue by way of ground of appeal No.2 is with regard to the

disallowance of commission paid to non-executive Directors being disallowed

as the amount was not paid within the due date of filing the return of income.

27. The Assessing Officer had disallowed sum of Rs.2,16,000/- which was

payable on account of commission to non-executive Directors. The Assessing

Officer noted that the payment to the said non-executive Directors was made

on 3rd and 4th October, 2009 i.e. after the due date of filing of the return of

income and consequential disallowance of Rs.2,16,000/- was made invoking

the provisions of section 36(1)(ii) of the Act.

28. The CIT(A) allowed the claim of the assessee as the Tribunal had

allowed similar claim of deduction of the expenditure on account of

commission paid to non-executive Directors by holding that the said

expenditure are not covered under section 43B of the Act, after holding that

the non-executive Directors were not employees of the company. The

relevant findings of the Tribunal in this regard are as under :-

"12. After hearing both the sides we find no infirmity in the order of the Ld.CIT(A). The Ld. Departmental Representative could not controvert the finding of the Ld.CIT(A) that the non-executive directors are not the employees of the company and therefore the primary facts relating to applicability of section 36(1)(ii) has not been fulfilled. Since the non-executive directors are not the employees of the company, therefore, we uphold the order of the Ld.CIT(A) in holding that the disallowance made by the Assessing Officer u/s.43B(c) r.w.s.36(1)(ii) cannot be sustained. The ground raised by the Revenue is accordingly dismissed."

29. Following the same parity of reasoning, we uphold the order of the

CIT(A) and the ground of appeal No.2 raised by the Revenue are dismissed. 15 ITA No.1133/PN/2013 ITA No.1925/PN/2013

30. In the result, the appeal of the assessee is partly allowed and that of the

Revenue is also partly allowed.

Order pronounced in the open Court on 27 th May, 2015.

Sd/- Sd/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 27 th May, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-I, Pune; 4) The CIT-I, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy// Assistant Registrar I.T.A.T., Pune