Asst. CIT, Circle 11(1), Pune V. M/s. Kalyani Forge Ltd., Pune

ITA 1133/PUN/2013

• Counselvise Citation: 113324514 RSA 2013
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Earning of tax free income; Speculation loss
• Section: 43B; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1133/PN/2013 (ASSESSMENT YEAR : 2009-10) THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 11(1), PUNE. . APPELLANT VS. M/S KALYANI FORGE LTD., 1 ST 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., 1 ST 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 ASSE SSEE ARE AGAINST THE ORDER OF CIT(A)-I, PUNE, DATED 01.03.2013 RELAT ING TO ASSESSMENT YEAR 2009-10 PASSED UNDER SECTION 143(3) OF THE INCOME T AX ACT, 1961. 2. THE CROSS-APPEALS FILED BY THE REVENUE AND THE A SSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED-OFF BY THIS CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 3. FIRST, WE SHALL TAKE-UP THE APPEAL OF THE ASSESS EE. 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 D ELAY. THE CONTENTION OF THE ASSESSEE BEFORE US WAS THAT THE ORDER OF THE CI T(A) WAS MISPLACED AT THE FACTORY GATE DURING THE WORKERS STRIKE/DISTURBANCE AND THE COPY THEREOF WAS RECEIVED LATER AND HENCE THE DELAY IN FILING THE PR ESENT APPEAL BEFORE THE TRIBUNAL. THE ASSISTANT MANAGER OF THE ASSESSEE-CO MPANY 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 TH E WORKERS STRIKE/DISTURBANCE AND COULD GET THE COPY OF THE OR DER ONLY IN THE LAST WEEK. SINCE THERE WAS NO ORDER PASSED GIVING EFFECT BY TH E ASSESSING OFFICER DURING THIS PERIOD, THE SAID ORDER PASSED BY THE CIT(A) DI D NOT COME TO THE NOTICE OF THE ASSESSEE. IN THE TOTALITY OF THE ABOVE FACTS A ND CIRCUMSTANCES AND BECAUSE OF DISTURBANCES AT THE FACTORY OF THE ASSES SEE, 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 APPEA L 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 DISA LLOWING 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 H IGH 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 CI T(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 T HE ASSESSEES OWN CASE BEFORE THE HONBLE ITAT, PUNE BENCH FOR THE AY 2006 -07 AS A RESULT OF WHICH HE ACCEPTED TO THE ATTENTION OF RS.1,35,18,068/- MA DE BY THE LEARNED AO, BEING THE DIFFERENCE BETWEEN THE INVENTORIES APPEAR ING 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 REL ATION TO DISALLOWANCE OF RS.1,60,741/- UNDER SECTION 14A OF THE ACT. ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 6. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF FORGINGS MAINLY FOR AUTOMOBILE & AUTO P ARTS INDUSTRY, BUSINESS OF FINANCE, LEASING AND DEALING IN SECURITIES. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD CLAIMED EXEMPT INCOME O F 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 FILE D BY THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROVISIO NS 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 AC T CANNOT BE APPLIED TO THE TRADER IN SHARES, WAS NOT ACCEPTED BY THE CIT(A). 7. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT OUT OF TOTAL DIVIDEND INCOME OF RS.1,32,813/-, DIVI DEND TO THE TUNE OF RS.1,25,313/- WAS RELATABLE TO THE SHARES, WHICH WE RE PART OF STOCK-IN-TRADE OF THE ASSESSEE AND HENCE THERE IS NO MERIT IN ANY DIS ALLOWANCE UNDER SECTION 14A OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES 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 REVE NUE 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 D IVIDEND AGAINST WHICH ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 ASSESSEE CLAIMS TO HAVE INCURRED NO EXPENDITURE. H OWEVER, THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE UNDER SECTION 1 4A OF THE ACT R.W. RULE 8D OF THE RULES. THE PLEA OF THE ASSESSEE BEFORE US W AS THAT THE SAID SHARES WERE HELD AS STOCK-IN-TRADE AS IN THE PAST AND THER E WAS NO MERIT IN DISALLOWANCE OF ANY INTEREST EXPENDITURE AND ALSO A NY ADMINISTRATIVE EXPENDITURE. WE FIND THAT SIMILAR ISSUE AROSE BEFO RE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.783/PN/2012 RELATING TO ASSESSMENT YEAR 2008-09 WHEREIN BY CONSOLIDATED ORDER WITH LEAD ORD ER IN ITA NO.664/PN/2012 IN APPEAL FILED BY THE REVENUE, THE TRIBUNAL VIDE O RDER DATED 30.08.2014 SET- ASIDE THE ISSUE BACK TO THE FILE OF THE ASSESSING O FFICER 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 BEFO RE THE ASSESSING OFFICER THE ASSESSEE HAD SUBMITTED THAT IT HAS NOT INCURRED ANY EXPENDITURE ON ACCOUNT OF EARNING THE EXEMPTED INCOME WHICH WAS NO T ACCEPTED BY THE ASSESSING OFFICER WHO FOLLOWING THE PROVISIONS OF S ECTION 14A R.W. RULE 8D HAS DISALLOWED AN AMOUNT OF RS.2,19,321/-. THE DIS ALLOWANCE INCLUDES INTEREST OF RS.1,77,475/- AND ADMINISTRATIVE EXPENS ES 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 HONBLE KARNATAKA HIGH COURT IN THE CAS E OF M/S. CCI LTD. (SUPRA) WHICH HAS BEEN FOLLOWED IN THE CASE OF APPORVA PATN I AND OTHERS (SUPRA) NO DISALLOWANCE U/S.14A CAN BE MADE. IT IS THE ALTERN ATE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ONLY THE INTEREST EXP ENDITURE TO THE TUNE OF RS.1,77,475/- AT BEST CAN BE DISALLOWED AND NO DISA LLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES SHOULD BE MADE. WE FIND TH E 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, DE EM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A D IRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. CCI LTD. (SUPRA) AND IN ACCORDANCE WIT H LAW. THE ASSESSING OFFICER SHOULD ALSO EXAMINE THE ALTERNATE CONTENTIO N OF THE ASSESSEE THAT NO ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED AND IN TEREST EXPENDITURE TO THE TUNE OF RS.1,77,475/- AT BEST CAN BE DISALLOWED. W E HOLD AND DIRECT ACCORDINGLY. GROUND RAISED BY THE ASSESSEE IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSES. 10. FOLLOWING THE SAME PARITY OF REASONING, SINCE T HE SHARES HELD BY THE ASSESSEE WERE AS IN THE PAST YEARS, WE REMIT THE IS SUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ALTERNATE PLEA OF THE ASSESSEE AND RE-WORK ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 THE DISALLOWANCE, IF ANY, IN THE HANDS OF THE ASSES SEE 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 F OR STATISTICAL PURPOSES. 11. THE ISSUE IN GROUND OF APPEAL NO.2 IS WITH REGA RD TO ADDITION OF RS.1,35,18,068/- AS PER ENTRIES APPEARING IN THE ST OCK STATEMENT FURNISHED TO THE BANK AND THOSE STATED IN THE FINAL ACCOUNTS OF THE ASSESSEE. 12. THE ASSESSING OFFICER, DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAD DECLARED TOTAL CLOSING STOCK OF RS.22,87,81,932/- FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OF FICER REQUISITIONED THE ASSESSEE TO FURNISH THE DETAILS OF THE CLOSING STOC K AS WELL AS DETAILS OF THE STOCK STATEMENT SUBMITTED TO THE BANK ALONGWITH REC ONCILIATION, IF ANY. THE ASSESSEE FURNISHED THE RELEVANT DETAILS ALONGWITH C OPY OF STATEMENT OF STOCK GIVEN TO THE BANK OF MAHARASHTRA AGAINST HYPOTHECAT ION OF LOAN. ON VERIFICATION OF THE SAID DETAILS, THE ASSESSING OFF ICER 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 T HE STATEMENT GIVEN TO THE BANK, THAT THE SAID STOCK HAVE BEEN VALUED ON THE B ASIS OF QUANTITATIVE DETAILS GIVEN IN THE SAID STATEMENT, HOWEVER, THE ASSESSEE COULD NOT RECONCILE THE QUANTITATIVE DETAILS WITH RESPECT TO THE BOOKS OF A CCOUNT 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 ASSE SSING OFFICER REJECTING THE PLEA OF THE ASSESSEE THAT THE ISSUE WAS COVERED BY THE PUNE BENCH OF THE ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1130/PN/2 010 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 ASSE SSEE. THE ASSESSEE IS IN APPEAL AGAINST SUCH ACTION OF THE CIT(A). 14. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT DIFFERENCE BETWEEN THE STOCK REFLECTED IN THE BOOKS OF ACCOUNT AND THE QUANTITATIVE STOCK IN THE STATEMENT FURNISHED TO TH E 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 QUANTITATIV E FIGURES WERE GIVEN IN STOCK STATEMENT FURNISHED TO THE BANK AND ONLY VALU E WAS GIVEN TO THE BANK. THE MAJOR DIFFERENCE WAS IN WORK-IN-PROGRESS AND EV EN IN CONVERSION COST, VALUE WAS DIFFERENT. IN CASE THE DIFFERENCE IN WOR K-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 SUBMIT TED TO THE BANK. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE OF RECONCILIATION OF STOCK AROSE BEFORE THE TRIBUNAL I N ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09 WHEREIN THE TRIBUNAL (SUPRA ), IN TURN, FOLLOWING THE RATIO LAID DOWN IN ASSESSMENT YEAR 2006-07 HAD DELE TED THE SAID ADDITION. 15. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE POINTED OUT THAT THE TRIBUNAL WHILE DECIDING THE EARLIER APPEAL HAD HELD THAT THERE WAS NOT MUCH DIFFERENCE IN THE QUANTITATIVE DETAILS AND ONL Y DIFFERENCE WAS IN VALUE AND HENCE THE RATIO LAID DOWN IN THE EARLIER YEAR W AS NOT APPLICABLE. 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 DISCL OSED STOCK OF RS.22,87,81,932/-. THE ASSESSEE IN THE STOCK STATE MENT 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 GIVE N TO THE BANK. THE ASSESSEE HAS FILED ON RECORD A NOTE OF INVENTORY EX PLAINING THE DIFFERENCE AND ALSO HAS FURNISHED RECONCILIATION OF STOCK STATEMEN T I.E. AS REFLECTED IN THE STATEMENT SUBMITTED TO THE BANK AND AS PER THE FINA NCIAL 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 TH E DRAWING POWER (DP) OF THE COMPANY. SO WHATEVER IS IN SAP AT THAT MOMENT I S REPORTED TO THE BANK. HOWEVER THE FINAL ACCOUNTS CONTAIN THE TRUE AND FAI R VALUE OF STOCKS INCLUDING THE VALUATION OF WIP, WHICH IS THE RM VALUE PLUS TH E 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 BEFO RE THE ACCOUNTS ARE APPROVED. 1. THE CONSUMPTION IS BOOKED AFTER THE SALES INVOIC E IS CHECKED AND POSTED. PARTICULARLY AT YEAR END THERE ARE A NUMBER OF SALES INVOICES PENDING FOR POSTING AS GENERALLY AT YEAR E ND ALL THE SALES AND SUPPLIES KEPT PENDING FOR ONE REASON OR THE OTH ER (QUALITY OR DESIGN ISSUES INCLUDED} ARE CLEARED. IN THE PROCES S SOME ARE SCRAPPED WHILE SOME OTHERS ARE SUPPLIED AND SOLD. I N SAP THERE IS THE SYSTEM OF 'BACKFLASH' WHEREBY ONCE THE INVOICE IS MADE AND POSTED, THE CONSUMPTION GETS BOOKED AND THE STOCK M OVES OUT OF WIP. 2. ALSO CERTAIN RAW MATERIALS, AFTER PHYSICAL VERIF ICATION AND ON AUDITORS' INSISTENCE, ARE SCRAPPED; SOME ARE RECOGN IZED AS NON- MOVING, WHILE SOME OTHERS ARE RECOGNIZED AS OBSOLET E (DUE TO DESIGN CHANGE ETC). THIS INCREASES THE SCRAP / NON- MOVING STOCK AND REDUCES THE RAW MATERIAL OR THE WORK IN PROGRES S. 3. APART FROM THIS, THE DIE STEELS PURCHASED AND US ED FOR MAKING DIES ARE RECORDED AS CONSUMPTION AT THE END OF THE YEAR ONLY UNLIKE THE CONSUMPTION OF RAW MATERIAL WHICH IS USE D FOR MANUFACTURING THE FORGINGS. IT GETS RECORDED BY TH E BACK FLASH SYSTEM AS INVOICE IS ENTERED AND POSTED, BUT TH E DIES ARE NOT FOR SALE LIKE FORGINGS AND ITS' CONSUMPTION DOES N OT GET RECORDED AS IT IS NOT INVOICED AND THE DIE STEEL CONSUMPTION IS RECORDED ONLY AFTER THE PHYSICAL VERIFICATION OF STOCK OF DIE STE EL IS DONE. 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) MA NUFACTURED AND SUPPLIED BY US, WHICH ARE ALSO RECORDED AS INVENTOR Y (REFER DOC NO.5009012212 DT. 10.11.2008) IN OUR BOOKS FOR CONT ROL 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 BANK STOCK STATEMENT AMOUNT AS PER FINANCIAL STATEMENT DIFFERENCE 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 RE FLECT THAT THERE WAS DIFFERENCE IN THE STOCK ON ACCOUNT OF WORK-IN-PROGR ESS AND ON ACCOUNT OF PRODUCTION STEEL. HOWEVER, THE VALUE OF THE STORES , SPARES & TOOLS IS SIMILAR IN BOTH THE STATEMENTS. SIMILAR DIFFERENCES IN STO CK 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 TH E 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 CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THE PRIMARY BASIS FOR THE IMPUGNED ADDITION IS THE DIFF ERENCE IN THE VALUATION OF CLOSING STOCK AS SUBMITTED TO THE BANK ON 15-5-2006 AND THAT APPEARING AS PER THE AUDITED FINAL ACCOUNT S OF THE ASSESSEE. THE COMPARATIVE STATEMENT QUANTITY WIS E AND VALUE-WISE OF STOCK SUBMITTED TO THE BANK AND THE S TOCKS 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 C LEAR THAT THERE ARE NO QUANTITATIVE DIFFERENCE. IN THE CASE OF WOR K-IN-PROGRESS THE AMOUNT HAS BEEN REPORTED TO THE BANK AS RS. 714 .32 LAKHS ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 WHEREAS PER THE FINAL ACCOUNT IT IS RS. 659.42 LAKH S. SIMILARLY, IN THE CASE OF DIES RS. 7.34 LAKHS HAS BEEN REPORT ED TO THE BANK WHEREAS IT IS RS. 11.45 LAKHS AS PER THE FINAL ACCO UNTS. THE DIFFERENCE IN THE OTHER ITEMS IS QUITE NOMINAL EXCE PT IN THE CASE OF NON-MOVING STOCKS WHEREIN NIL HAS BEEN REPORTED TO THE BANK WHEREAS RS. 9.09 LAKHS HAS BEEN STATED IN THE FINAL ACCOUNTS. IN SO FAR AS NON-MOVING STOCKS IS CONCERNED, IT HAS BE EN EXPLAINED THAT NO SUCH REPORTING IS GIVEN TO THE BANK SINCE T HE BANK DOES NOT CONSIDER SUCH ITEMS FOR CALCULATING CREDIT FACI LITIES EXTENDED TO THE ASSESSEE. WITH REGARD TO THE DIFFERENCE IN THE VALUATION OF WORK-IN-PROGRESS IT IS SOUGHT TO BE CONTENDED THAT METHODOLOGY ADOPTED IS TO VALUE STOCK AT HAND OR MARKET VALUE W HICHEVER IS LOW. WHILE ARRIVING AT THE VALUE OF WORK-IN-PROGRE SS CONVERSION COST IS LOADED UNTO THE RAW MATERIALS. SUCH CONVER SION COST IS DETERMINED ON THE BASIS OF EXPENDITURE INCURRED DUR ING THE YEAR AND IS CALCULATED AND LOADED AT THE TIME OF FINALIZ ATION OF ACCOUNTS WHICH TAKES PLACE AFTER THE CLOSE OF THE Y EAR. IT IS CANVASSED THAT SUCH FINALIZATION AND AUDIT OF THE A CCOUNT TOOK PLACE SUBSEQUENT TO THE REPORTING OF CLOSING STOCK TO THE BANK AND SUCH AUDITED FINAL ACCOUNTS WERE ADOPTED IN THE BOARD OF DIRECTORS MEETING ON 30-6-2006. MEANWHILE, WHEN T HE STATEMENT OF CLOSING STOCK WAS SUBMITTED TO THE BAN K ON 155- 2006 THE CLOSING STOCK OF WORK-IN-PROGRESS WAS VAL UED AS PER THE CONVERSION COST CALCULATED ON THE BASIS OF LAST AUDITED FINAL STATEMENT I.E. 31-3-2005. THEREFORE, THERE REMAIN ED A DIFFERENCE IN THE VALUATION OF CLOSING WORK-IN-PROG RESS BETWEEN THE STOCK REPORTED TO THE BANK ON 15/5/2005 AND THE STOCK AS WAS FINALLY ARRIVED AT ON THE BASIS OF AUDITED ACCO UNTS FOR THIS YEAR ENDING ON 31-3-2006. IN OUR VIEW, THE BONAFID E OF SUCH AN EXPLANATION CANNOT BE DOUBTED INASMUCH AS THE ASSES SEE HAD ITSELF COMMUNICATED TO THE BANK SUBSEQUENTLY ON 7-7 -2006 AS EVIDENCED BY THE COMMUNICATION PLACED AT PAGE 13 OF THE PAPER BOOK THAT THE DIFFERENCE IN VALUATION OF STOCK WAS ON ACCOUNT OF ADOPTION OF A NEW CONVERSION COST FACTOR BASED ON T HE AUDITED FINAL RESULTS OF THIS YEAR. THE AFORESAID EXPLANAT ION HAS ALSO NOT BEEN FOUND TO BE FALLACIOUS BY EITHER OF THE LOWER AUTHORITIES BUT HAS MERELY BRUSHED ASIDE AND DISBELIEVED. AT THE S AME TIME, IT IS ALSO EMERGING FROM RECORD THAT THERE IS NO REPUD IATION OF ASSESSEES ASSERTION BEFORE THE LOWER AUTHORITIES T HAT THERE WAS ABSOLUTELY NO VARIATION IN THE STOCK QUANTITIES REP ORTED TO THE BANK AND THOSE SHOWN IN THE ANNUAL ACCOUNTS. IN TH ESE CIRCUMSTANCES, IN OUR VIEW, THE ASSESSEE HAS ADEQUA TELY EXPLAINED THE REASONS FOR THE DIFFERENCE IN VALUE O F CLOSING STOCK REPORTED TO THE BANK ON 15-5-2006 AND THAT ADOPTED IN ITS AUDITED FINAL ACCOUNTS SUBSEQUENTLY. THEREFORE, IN THE FACE OF SUCH EXPLANATION, THERE IS NO JUSTIFICATION TO INFE R ANY UNEXPLAINED INVESTMENT IN THE STOCKS SO AS TO JUSTI FY INVOKING SECTION 69-B OF THE ACT IN THE PRESENT CASE. THERE FORE, HAVING REGARD TO THE FACTS AND MATERIAL ON RECORD, THE ADD ITION IN QUESTION 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 (SU PRA) IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09 AND THE ADDITION MA DE IN THE HANDS OF THE ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 ASSESSEE WAS DELETED. THE DIFFERENCE IN THE VALUAT ION IN THE EARLIER YEARS WAS ON THE LOWER SCALE BUT THAT DOES NOT CHANGE THE BAS IC ASPECT THAT THE PRINCIPLES UNDERLINING THE DIFFERENCE IN STOCK VALU ATION 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 ASSESSEES 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 F OLLOWING 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 FLUCTUAT ION IN FOREIGN EXCHANGE INSPITE OF THE FACT THAT THE TRANSACTIONS IN DERIVA TIVE ARE SPECULATIVE IN NATURE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF COMMISSIONS PAID TO NON-EXECUTI VE 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 AMEN D ANY OR ALL THE GROUNDS OF APPEAL. 20. THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY TH E REVENUE IS AGAINST THE DELETION OF DISALLOWANCE MADE ON ACCOUNT OF LOS S DUE TO FLUCTUATION IN FOREIGN EXCHANGE OF TRANSACTIONS IN DERIVATIVE. DU RING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN GAIN DUE TO F LUCTUATION 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 BEFO RE 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 ASSESSME NT 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 FOREI GN EXCHANGE. THE ASSESSING OFFICER NOTED THAT THERE WAS A LOSS ON AC TUAL SETTLEMENT OF OPTION FOR RS.97,80,764/- AND LOSS ON ACTUAL SETTLEMENT OF OPT ION EURO FOR RS.47,36,210/- ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 TOTALING TO RS.1,45,16,974/-. THE ASSESSING OFFICE R 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 A SSESSMENT YEAR 2008-09. 21. THE CIT(A) NOTED THAT SINCE THE RATIONALE BEHIN D THE DISALLOWANCE RELATED TO ASSESSMENT YEAR 2008-09, WHEREIN SUCH LO SSES WERE HELD TO BE OF REVENUE ACCOUNT AND NOT SPECULATIVE LOSSES. BUT IN ASSESSMENT YEAR 2008-09 THE ASSESSING OFFICER WAS DIRECTED TO VERIFY WHETHE R 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 OBSERVE D AS UNDER :- 3.2.2 NEVERTHELESS, THE APPELLANT CONTENDS BO TH 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 LA ST YEAR AND WHICH WAS NOT CONTESTED/DISPUTED BY THE APPELLANT. THIS CONTENTIO N 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 DISA LLOWED BY THE ASSESSING OFFICER FOR THE AY 2008-09. IN EFFECT, THEREFORE, I T IS SEEN THAT BY DISALLOWING RS.1,45,16,974, WITHOUT GIVING CREDIT TO THE SET OF F OF LAST YEARS REVERSAL OF LOSS ON THE SAME OPTIONS, THE APPELLANT HAS BEEN TA XED 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 FLUCTUAT ION GROUND NO, 1 IS THUS, TREATED AS ALLOWED. 22. THE REVENUE IS IN APPEAL AGAINST THE SAID DIREC TION 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 ASSES SEE POINTED OUT THAT FROM THE DETAILS ITSELF, IT IS APPARENT THAT ASSESS EE HAS REVERSED LOSS OF OUTSTANDING OPTION OF MTM BASIS AS ON 31.03.2008 AM OUNTING TO 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 O PTION WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AND WAS DISALLOWED DURING THE ASSESSMENT PROCEEDINGS, THE CASE OF THE LD. AUTHORIZED REPRESE NTATIVE FOR THE ASSESSEE THAT SINCE THE SAID AMOUNT WHICH WAS CLAIMED AS EXP ENDITURE 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 OTHE RWISE AND DECIDE THE ISSUE. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE DISPUTE ARISING IN THE PRESENT APPEAL IS IN RELATIO N 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 CREDI TED TO THE PROFIT & LOSS ACCOUNT. THE WORKING OF THE GAINS AND LOSSES ON AC COUNT OF FOREIGN EXCHANGE FLUCTUATION AS SUBMITTED BY THE ASSESSEE AND AS REP RODUCED AT PAGE 3 OF THE ASSESSMENT ORDER REFLECTED THAT THERE WERE LOSSES T O 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, LO SS 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 ASSESS MENT YEAR 2008-09 HAD BEEN REVERSED. THE FIRST OBJECTION RAISED BY THE A SSESSEE THAT ON THE REVERSAL OF THE LOSS ON OUTSTANDING OPTION ON MTM BASIS AMOU NTING TO RS.1,49,73,143/, WHICH HAD BEEN OFFERED TO TAX IN THE CURRENT YEAR H AD 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. HO WEVER, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. AUTHORIZED REPR ESENTATIVE FOR THE ASSESSEE HAS FAIRLY POINTED OUT BEFORE US THAT THE FLUCTUATION IN FOREIGN ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 EXCHANGE LOSS HAD BEEN DIRECTED TO BE ALLOWED IN TH E 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 DEBTOR S AND HAD BEEN INCURRED ON ACTUAL SETTLEMENT, THEN THE SAME WAS ALLOWABLE AS B USINESS 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--VIS THE REVERSAL OF LOSS ON OUTSTANDING OPTION TO THAT EXTE NT. WE FIND THAT THE TRIBUNAL IN ITA NO.664/PN/2012 IN AN APPEAL FILED BY THE REV ENUE VIDE ORDER DATED 30.08.2013 HAD UPHELD THE ORDER OF THE CIT(A) IN AL LOWING THE CLAIM OF THE ASSESSEE THAT IF THE LOSS WAS ATTRIBUTABLE ON ACCOU NT OF DEBTORS AND WAS INCURRED ON ACTUAL SETTLEMENT THEN THE SAME TAKES T HE CHARACTER OF TRADING TRANSACTION AND THE EXPENSES ARE TO BE ALLOWED AS B USINESS EXPENDITURE. THE QUANTIFICATION EXERCISE IN SUCH CIRCUMSTANCES IN AS SESSMENT 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 ASSES SEE 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 L IMITED TO THE EXTENT OF THE LOSS WHICH IS NOT ALLOWED IN THE HANDS OF THE ASSES SEE IN ASSESSMENT YEAR 2008-09. WE REVERSE THE FINDING OF THE CIT(A) IN T HIS 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 ASSESSE E. 25. FURTHER, THE CLAIM OF THE ASSESSEE ON ACCOUNT O F LOSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE IS SQUARELY COVERED BY THE ORDE R OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 200 8-09. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING O FFICER TO VERIFY THE CLAIM OF THE ASSESSEE AND IN CASE IT RELATES TO EXPORTS/SUND RY DEBTORS, THEN THE SAME IS TO BE QUANTIFIED AND ALLOWED AS DEDUCTION. THE GRO UND OF APPEAL NO.1 RAISED BY THE REVENUE IS PARTLY ALLOWED. ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 26. THE ISSUE BY WAY OF GROUND OF APPEAL NO.2 IS WI TH REGARD TO THE DISALLOWANCE OF COMMISSION PAID TO NON-EXECUTIVE DI RECTORS BEING DISALLOWED AS THE AMOUNT WAS NOT PAID WITHIN THE DUE DATE OF F ILING 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 D IRECTORS. THE ASSESSING OFFICER NOTED THAT THE PAYMENT TO THE SAID NON-EXEC UTIVE DIRECTORS WAS MADE ON 3 RD AND 4 TH OCTOBER, 2009 I.E. AFTER THE DUE DATE OF FILING OF THE RETURN OF INCOME AND CONSEQUENTIAL DISALLOWANCE OF RS.2,16,00 0/- 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 EXPENDITU RE ON ACCOUNT OF COMMISSION PAID TO NON-EXECUTIVE DIRECTORS BY HOLDI NG THAT THE SAID EXPENDITURE ARE NOT COVERED UNDER SECTION 43B OF TH E ACT, AFTER HOLDING THAT THE NON-EXECUTIVE DIRECTORS WERE NOT EMPLOYEES OF T HE COMPANY. THE RELEVANT FINDINGS OF THE TRIBUNAL IN THIS REGARD AR E AS UNDER :- 12. AFTER HEARING BOTH THE SIDES WE FIND NO INFIRM ITY IN THE ORDER OF THE LD.CIT(A). THE LD. DEPARTMENTAL REPRESENTATIVE COU LD NOT CONTROVERT THE FINDING OF THE LD.CIT(A) THAT THE NON-EXECUTIVE DIR ECTORS ARE NOT THE EMPLOYEES OF THE COMPANY AND THEREFORE THE PRIMARY FACTS RELATING TO APPLICABILITY OF SECTION 36(1)(II) HAS NOT BEEN FUL FILLED. SINCE THE NON-EXECUTIVE DIRECTORS ARE NOT THE EMPLOYEES OF THE COMPANY, THE REFORE, WE UPHOLD THE ORDER OF THE LD.CIT(A) IN HOLDING THAT THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER U/S.43B(C) R.W.S.36(1)(II) CANNOT BE SUSTAI NED. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 29. FOLLOWING THE SAME PARITY OF REASONING, WE UPHO LD THE ORDER OF THE CIT(A) AND THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE ARE DISMISSED. ITA NO.1133/PN/2013 ITA NO.1925/PN/2013 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY 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