ACIT, Cir-11 (1) Pune, Pune V. Kalyani Forge Ltd., Pune

ITA 664/PUN/2012

• Counselvise Citation: 66424514 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNITA RAO
• Keywords: Unexplained investment; Depreciation; Business expenditure; Earning of tax free income; Question of law; Revenue expenditure; Capital expenditure
• Section: 14A; 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 664/PN/2012 (ASSTT.YEAR : 2008-09) ACIT CIRCLE-11(1), PUNE .. APPELLANT VS. KALYANI FORGE LTD., SHANGRILA GARDEN, IST FLOOR, BUND GARDEN ROAD, PUNE - 411001 .. RESPONDENT PAN NO.AAACK 7311H ITA NO. 783/PN/2012 (ASSTT.YEAR : 2008-09) KALYANI FORGE LTD., SHANGRILA GARDENS, IST FLOOR, C-WING, OPP :BUND GARDEN, PUNE - 411001 .. CROSS OBJECTOR PAN NO.AAACK 7311H VS. DCIT, RANGE-11(1), PUNE .. APPELLANT IN THE APPEAL ASSESSEE BY : SHRI CH. NANIWADEKAR REVENUE BY : SMT. SUNITA RAO DATE OF HEARING : 29-08-2013 DATE OF PRONOUNCEMENT : 30-08-2013 ORDER PER BENCH : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE REVENUE AND THE SECOND ONE FILED BY THE ASSESSEE AND ARE DIRECT ED AGAINST THE ORDER DATED 21-10-2011 OF THE CIT(A)-I, PUNE RELATING TO ASSESS MENT YEAR 2008-09. FOR THE SAKE OF CONVENIENCE THE CROSS APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.783/PN/2012 (BY ASSESSEE) : 2. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE DID NOT PRESS GROUND OF APPEAL NO.1 FOR WHICH THE LD. DEPAR TMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 3. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN DISALLO WING RS.2,19,321/- U/S.14A READ WITH RULE-8D OF THE ACT. IN ANY CASE HE OUGHT TO HAVE APPRECIATED THAT THE EXEMPTED INCOME WAS ONLY RS.1,32,777/-. 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND FORGINGS, BUSINE SS OF FINANCE, LEASING AND DEALING IN SECURITIES. DURING THE COURSE OF AS SESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE, IN THE C OMPUTATION OF INCOME, HAS CLAIMED EXEMPTED INCOME OF RS.1,32,777/- ON ACC OUNT OF DIVIDEND. HOWEVER, NO EXPENSES HAVE BEEN DEBITED IN THE BOOKS OF ACCOUNTS AGAINST THE SAID EXEMPT INCOME. HE, THEREFORE, ASKED THE A SSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8D OF THE INCOME TAX RULES, 1962 SHOULD NOT BE INVO KED. IT WAS EXPLAINED BY THE ASSESSEE THAT THEY HAVE NOT INCURRED ANY EXP ENDITURE FOR EARNING THE EXEMPT INCOME WHICH COMPRISE OF DIVIDEND ON SHARES AND INCOME FROM MUTUAL FUNDS. IT WAS FURTHER SUBMITTED THAT THE IN COME FROM MUTUAL FUND IS CREDITED DIRECTLY AND THERE IS NO BROKERAGE IN THE CASE OF MUTUAL FUNDS. 3.2 AS REGARDS DIVIDEND ON SHARES IS CONCERNED, IT WAS SUBMITTED THAT THE ASSESSEE IS TRADING IN EQUITY SHARES WHICH FORMS PA RT OF ITS INVENTORY AND HENCE THE INCOME IS INCLUDED IN SALES. IT WAS FURT HER SUBMITTED THAT IN 3 COMPARISON WITH SALES, THE MUTUAL FUND SALES/PROFIT ARE A VERY SMALL PORTION AND HENCE THE PROVISION OF RULE 8D MAY NOT BE ATTRI BUTABLE TO THE INCOME FROM MUTUAL FUNDS. VARIOUS DECISIONS WERE ALSO REL IED UPON. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. RELYING ON THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ & BOYCE VS. CIT HE DISALLOWED AN AMO UNT OF RS.2,19,321/- U/S.14A R.W. RULE 8D OF THE INCOME TAX RULES. 4. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. WHILE DOING SO, HE REJECTED THE CONTENTION OF THE A SSESSEE THAT THE DISALLOWANCE SHOULD NOT EXCEED THE INCOME AS PER TH E DECISION OF THE ITAT, CHANDIGARH BENCH IN THE CASE OF ACIT VS. PANJAB STA TE COOPERATIVE AND MARKETING ON THE GROUND THAT THE SAME IS NOT OF TH E JURISDICTIONAL ITAT. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS HOLDING THE SHARES AS STOCK IN TRADE FOR LAST 20 YE ARS. REFERRING TO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF M/S. CCI LTD. VS. JCIT VIDE ITA NO.359/2011 ORDER DATED 28-02-2012 HE SUBMITTED THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN REL ATION TO DIVIDEND INCOME EARNED IN THE COURSE OF BUSINESS ACTIVITY. REFERRI NG TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF APOORVA P ATNI AND OTHERS VIDE ITA NO.239/PN/2011 AND BATCH OF OTHER APPEALS ORDER DATED 21-06-2012 HE SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL, FOLL OWING THE AFORESAID DECISION, HAS HELD THAT WHERE NO EXPENDITURE IS CAN VASSED TO HAVE BEEN INCURRED BY THE ASSESSEE IN EARNING DIVIDEND INCOME , NO NOTIONAL EXPENDITURE CAN BE DEDUCTED BY INVOKING PROVISIONS OF SECTION 14A. HE, 4 HOWEVER, SUBMITTED THAT WHETHER THE SHARES ARE HELD AS STOCK IN TRADE WAS NEITHER BEFORE THE ASSESSING OFFICER OR THE CIT(A). THEREFORE, THE ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICE R TO DECIDE THE ISSUE AFRESH. IN HIS ALTERNATE CONTENTION HE SUBMITTED T HAT THE DISALLOWANCE AT BEST CAN BE RESTRICTED TO THE INTEREST EXPENDITURE OF RS.1,77,475/- AND NOT TO THE ADMINISTRATIVE EXPENSES OF RS.41,846/-. 5.1 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH 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 DISALLOWANCE 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 APPO RVA 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 I NTEREST 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 5 RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFI CER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISIO N OF THE HONBLE 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/- A T BEST CAN BE DISALLOWED. WE HOLD AND DIRECT ACCORDINGLY. GROUND RAISED BY T HE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND OF APPEAL NO.3 BY THE ASSESSEE READS AS U NDER : THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDI NG ADDITION OF RS.16,02,954/- BEING THE DIFFERENCE BETWEEN THE INV ENTORIES AS APPEARING IN THE AUDITED BOOKS OF ACCOUNT AND THE S TATEMENT GIVEN TO THE BANK. 7.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE IN THE RETURN OF INCOME HAS DISCLOSED CLOSING STOCK OF RS.31,08,97,0 46/-. FROM THE STOCK STATEMENT GIVEN TO THE BANK HE NOTED THAT THE SAME WAS GIVEN AT RS.31,25,00,000/-. THUS, THERE IS A DIFFERENCE OF R S.16,02,954/- BETWEEN THE STOCK DISCLOSED IN THE BALANCE AS ON 31-03-2008 AND THE STOCK STATEMENT GIVEN TO THE BANK. HE, THEREFORE, ASKED THE ASSESS EE TO EXPLAIN THE DISCREPANCIES. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND RELYING ON VARIOUS DECISIONS THE ASSESSING OFFI CER DISALLOWED AN AMOUNT OF RS.16,02,954/- ON ACCOUNT OF UNDER-VALUAT ION OF CLOSING STOCK BEING THE DIFFERENCE BETWEEN THE STOCK FIGURE GIVEN TO BANK AND THE STOCK AS PER THE AUDITED ACCOUNTS. IN APPEAL THE LD. CIT(A ) FOLLOWING HIS ORDER FOR A.Y. 2006-07 IN ASSESSEES OWN CASE UPHELD THE ADDI TION MADE BY THE ASSESSING OFFICER. 6 7.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 8. AFTER HEARING BOTH THE SIDES WE FIND THAT IDENTI CAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 AND THE TRIBUNAL VIDE ITA NO.1130 AND 1203/PN/2010 ORDER DA TED 25-05-2012 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSE RVING AS UNDER : 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THE PRIMARY BASIS FOR THE IMPUGNED ADDITION IS THE DIFFERENCE IN THE VALUATION OF CLOSING STOCK AS SUB MITTED TO THE BANK ON 15-5-2006 AND THAT APPEARING AS PER THE AUDITED FINAL ACCOUNTS OF THE ASSESSEE. THE COMPAR ATIVE STATEMENT QUANTITY WISE AND VALUE-WISE OF STOCK SUBMITTED TO THE BANK AND THE STOCKS APPEARING IN T HE FINAL ACCOUNTS HAVE BEEN TABULATED IN PARA 4.2.5 OF THE O RDER OF THE CIT(A). THE SAME IS NOT BEING REPEATED HERE FO R THE SAKE OF BREVITY. SO HOWEVER, IT IS QUITE CLEAR THA T THERE ARE NO QUANTITATIVE DIFFERENCE. IN THE CASE OF WORK-IN -PROGRESS THE AMOUNT HAS BEEN REPORTED TO THE BANK AS RS. 714 .32 LAKHS WHEREAS PER THE FINAL ACCOUNT IT IS RS. 659.4 2 LAKHS. SIMILARLY, IN THE CASE OF DIES RS. 7.34 LAKHS HAS BEEN REPORTED TO THE BANK WHEREAS IT IS RS. 11.45 LAKHS AS PER THE FINAL ACCOUNTS. THE DIFFERENCE IN THE OTHER ITE MS IS QUITE NOMINAL EXCEPT IN THE CASE OF NON-MOVING STOC KS WHEREIN NIL HAS BEEN REPORTED TO THE BANK WHEREAS R S. 9.09 LAKHS HAS BEEN STATED IN THE FINAL ACCOUNTS. IN SO FAR AS NON-MOVING STOCKS IS CONCERNED, IT HAS BEEN EXPL AINED THAT NO SUCH REPORTING IS GIVEN TO THE BANK SINCE T HE BANK DOES NOT CONSIDER SUCH ITEMS FOR CALCULATING CREDIT FACILITIES EXTENDED TO THE ASSESSEE. WITH REGARD T O THE DIFFERENCE IN THE VALUATION OF WORK-IN-PROGRESS IT IS SOUGHT TO BE CONTENDED THAT METHODOLOGY ADOPTED IS TO VALU E STOCK AT HAND OR MARKET VALUE WHICHEVER IS LOW. WHILE AR RIVING AT THE VALUE OF WORK-IN-PROGRESS CONVERSION COST IS LOADED UNTO THE RAW MATERIALS. SUCH CONVERSION COST IS DETERMINED ON THE BASIS OF EXPENDITURE INCURRED DUR ING THE YEAR AND IS CALCULATED AND LOADED AT THE TIME OF FINALIZATION OF ACCOUNTS WHICH TAKES PLACE AFTER TH E CLOSE OF THE YEAR. IT IS CANVASSED THAT SUCH FINALIZATIO N AND AUDIT OF THE ACCOUNT TOOK PLACE SUBSEQUENT TO THE REPORTING OF CLOSING STOCK TO THE BANK AND SUCH AUD ITED FINAL ACCOUNTS WERE ADOPTED IN THE BOARD OF DIRECTO RS MEETING ON 30-6-2006. MEANWHILE, WHEN THE STATEMEN T OF CLOSING STOCK WAS SUBMITTED TO THE BANK ON 155-2006 THE CLOSING STOCK OF WORK-IN-PROGRESS WAS VALUED AS PE R THE CONVERSION COST CALCULATED ON THE BASIS OF LAST AUD ITED FINAL STATEMENT I.E. 31-3-2005. THEREFORE, THERE REMAINED 7 A DIFFERENCE IN THE VALUATION OF CLOSING WORK-IN-PR OGRESS BETWEEN THE STOCK REPORTED TO THE BANK ON 15/5/2005 AND THE STOCK AS WAS FINALLY ARRIVED AT ON THE BASIS OF AUDITED ACCOUNTS FOR THIS YEAR ENDING ON 31-3-2006. IN OUR VIEW, THE BONAFIDE OF SUCH AN EXPLANATION CANNOT BE DOUBT ED INASMUCH AS THE ASSESSEE HAD ITSELF COMMUNICATED TO THE BANK SUBSEQUENTLY ON 7-7-2006 AS EVIDENCED BY THE COMMUNICATION PLACED AT PAGE 13 OF THE PAPER BOOK T HAT 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 EXPLANATION HAS ALSO NOT BEEN FOUND TO BE FALLACIOU S BY EITHER OF THE LOWER AUTHORITIES BUT HAS MERELY BRUS HED ASIDE AND DISBELIEVED. AT THE SAME TIME, IT IS ALS O EMERGING FROM RECORD THAT THERE IS NO REPUDIATION O F ASSESSEES ASSERTION BEFORE THE LOWER AUTHORITIES T HAT THERE WAS ABSOLUTELY NO VARIATION IN THE STOCK QUANTITIES 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 T HE DIFFERENCE IN VALUE OF CLOSING STOCK REPORTED TO TH E BANK ON 15-5-2006 AND THAT ADOPTED IN ITS AUDITED FINAL ACC OUNTS SUBSEQUENTLY. THEREFORE, IN THE FACE OF SUCH EXPLA NATION, THERE IS NO JUSTIFICATION TO INFER ANY UNEXPLAINED INVESTMENT IN THE STOCKS SO AS TO JUSTIFY INVOKING SECTION 69-B OF THE ACT IN THE PRESENT CASE. THEREFORE, HA VING 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. 8.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRE CT THE ASSESSING OFFICER TO DELETE THE ADDITION. IT MAY BE PERTINENT TO NOT E HERE THAT ON A POINTED QUERY BY THE BENCH THE LD. COUNSEL FOR THE ASSESSEE CONCEDED THAT THE ASSESSEE HAS NOT COMMUNICATED TO THE BANK REGARDING THE DIFFERENCE IN THE STOCK BECAUSE OF SMALLNESS OF THE AMOUNT. HOWEVER, THIS IN OUR OPINION, WILL NOT MATERIALLY AFFECT THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR. IN THIS VIE W OF THE MATTER, WE SET- ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESS ING OFFICER TO DELETE THE ADDITION. 8 ITA NO.664/PN/2012 (BY REVENUE) : 9. GROUND OF APPEAL NO.1 BY THE REVENUE READS AS UN DER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD .CIT(A) ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF LOSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE LOSS INSPITE OF THE FACT THAT THE TRANSACTIONS IN DERIVATIVE ARE SPECULATIVE IN NATURE 9.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE HAS DEBITED AN AMOUNT OF RS.1,71,61,459/- ON ACCOUNT OF LOSS DUE TO FLUC TUATION IN FOREIGN EXCHANGE RATES IN THE PROFIT AND LOSS ACCOUNT. ON BEING QUESTIONED BY THE ASSESSING OFFICER THE ASSESSEE FURNISHED THE DETAIL S ALONG WITH JUSTIFICATION OF THE SAID CLAIM. FROM THE DETAILS FURNISHED BY T HE ASSESSEE THE ASSESSING OFFICER NOTED THAT ASSESSEE ITSELF HAS WORKED OUT A N AMOUNT OF RS.21,99,363/- AS NOT AN ALLOWABLE EXPENDITURE WHIC H HE DISALLOWED. ON FURTHER VERIFICATION OF THE DETAILS OF FOREIGN EXCH ANGE FLUCTUATION LOSS HE NOTED THAT ASSESSEE HAS ALSO INCURRED A LOSS OF RS. 53,48,057/- ON ACCOUNT OF ACTUAL SETTLEMENT OF OPTION. APPLYING THE PROVIS O (D) TO SECTION 43(5) WHICH HAS BEEN INSERTED W.E.F. 01-04-2006 AND WHICH EXCLUDES CERTAIN DERIVATIVE TRANSACTIONS, THE ASSESSING OFFICER DISA LLOWED AN AMOUNT OF RS.53,48,057/- INCURRED BY THE ASSESSEE ON ACCOUNT OF SETTLEMENT OF OPTIONS TREATING THE SAME AS SPECULATIVE IN NATURE . 9.2 BEFORE CIT(A) IT WAS SUBMITTED THAT THE LOSS IS ON ACTUAL SETTLEMENT OF OPTIONS AND THEREFORE THE ASSESSING OFFICER HAS COMMITTED ERROR IN NOT APPRECIATING THE FACTS AND THE APPLICABLE LAW. IT WAS SUBMITTED THAT THE OPTIONS IN RESPECT OF WHICH THE LOSSES WERE INCURRE D WERE NECESSARILY RELATING TO THE EXPORT DEBTORS OF THE COMPANY. REL YING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ONGC VS. CIT R EPORTED IN 322 ITR 180 AND THE DECISION OF THE DELHI BENCH OF THE TRIB UNAL IN THE CASE OF 9 MUNJAL SHOWA LTD. VS. DCIT REPORTED IN 94 TTJ 227 I T WAS SUBMITTED THAT THE SAID LOSS IS ALLOWABLE AND PROVISIONS OF SECTIO N 43(5) ARE NOT APPLICABLE. 9.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) NOTED THAT IN THE DECISION OF THE HONBLE SUPREME C OURT CITED (SUPRA) IT HAS BEEN HELD THAT THE LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATIONS IN THE RATE OF FOREIGN EXCHANGE IN RESPECT OF LOANS TA KEN FOR REVENUE PURPOSE IS ALLOWABLE U/S.37(1). THEREFORE, THE SAID DECISI ON IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. IN THE CASE OF ONGC (SUPRA) THE LOSS WAS INCURRED DUE TO FLUCTUATION OF LOAN. THEREFORE, TH E SAME IS ALSO NOT APPLICABLE. HE OBSERVED THAT IN THE PRESENT CASE T HE LOSS IS DUE TO SETTLEMENT OF OPTION INSTRUMENTS CLAIMED TO HAVE BEEN PURCHASED TO SAFEGUARD THE CURRENCY FLUCTUATION LOSS. HOWEVER, THE ASSESSING OFFICER HAS NOT DEALT IN DETAIL REGARDING THE ISSUE. HE OB SERVED THAT IT HAS BEEN JUDICIALLY SETTLED THAT THE ACTUAL LOSS INCURRED IS ALLOWABLE IF THE SAME IS ON THE REVENUE ACCOUNT. HE HELD THAT THE TRANSACTION OF THE ASSESSEE IS REVENUE IN NATURE WHICH THE ASSESSING OFFICER HAS NOT DISPU TED. THEREFORE, THE ONLY QUESTION WHICH REQUIRES TO BE DECIDED IS WHETHER LO SS INCURRED BY THE ASSESSEE ON SETTLEMENT OF OPTION IS SPECULATIVE I N NATURE OR NOT. HE CONCURRED WITH THE ASSESSEE THAT IF THE LOSS IS ON ACCOUNT OF DEBTORS AND HAS BEEN INCURRED ON ACTUAL SETTLEMENT THEN THE SAME SH OULD TAKE THE CHARACTER OF HEDGING TRANSACTION AND THE EXPENSES BECOME ALLO WABLE AS BUSINESS EXPENDITURE. HOWEVER, SINCE THIS ASPECT, I.E. THAT THE OPTIONS WERE FOR EXPORT DEBTORS EXCLUSIVELY WAS NOT VERIFIED BY THE ASSESSING OFFICER WHICH HAS A MATERIAL BEARING ON THE ALLOWABILITY AND QUAN TIFICATION OF THE LOSS. HE, THEREFORE, DIRECTED THE ASSESSING OFFICER TO VE RIFY THIS ASPECT AND ALLOW THE CLAIM TO THE EXTENT THE SAME IS RELATING TO THE EXPORT DEBTORS. 10 9.4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 10. AFTER HEARING BOTH THE SIDES WE FIND NO INFIRMI TY IN THE ORDER OF THE LD.CIT(A). IN OUR OPINION, IF THE ENTIRE LOSS IS O N ACCOUNT OF DEBTORS AND HAS BEEN INCURRED ON ACTUAL SETTLEMENT THEN THE SAM E SHOULD TAKE THE CHARACTER OF HEDGING TRANSACTION AND IN THAT CASE T HE EXPENSES BECOME ALLOWABLE AS BUSINESS EXPENDITURE. SINCE THE LD.CI T(A) HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A D IRECTION TO VERIFY THAT OPTIONS ARE FOR EXPORT DEBTORS EXCLUSIVELY AND ALLO W THE CLAIM IF FOUND TO BE CORRECT, THEREFORE, WE FIND NO INFIRMITY IN THE ORD ER OF THE LD.CIT(A) ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE SAME AND THE GRO UND RAISED BY THE REVENUE IS DISMISSED. 11. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS U NDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD .CIT(A) ERRED IN DELETING THE DISALLOWANCE OF COMMISSION PAID TO NON -EXECUTIVE DIRECTORS DESPITE THE FACT THAT THE SAID PAYMENT WA S NOT PAID WITHIN THE DUE DATE OF FILING OF RETURN. 11.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED FROM THE BAL ANCE SHEET THAT THE ASSESSEE COMPANY HAS SHOWN AN AMOUNT OF RS.4,75,000 /- AS PAYABLE ON ACCOUNT OF COMMISSION TO NON-EXECUTIVE DIRECTORS. FROM THE DETAILS FURNISHED BY THE ASSESSEE THE ASSESSING OFFICER NOT ED THAT THE PAYMENTS HAVE BEEN MADE ON 3/4-10-2008, I.E. AFTER THE DUE D ATE OF FILING OF RETURN OF INCOME FOR A.Y. 2008-09 WHICH WAS 30-09-2008 FOR TH E IMPUGNED ASSESSMENT YEAR. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 43B(C) R.W.S.36(1)(II) OF THE INCOME TAX ACT SHALL NOT BE APPLICABLE TO THE ABOVE AMOUNT OF RS.4,75,00 0/-. REJECTING THE 11 EXPLANATION GIVEN BY THE ASSESSEE AND APPLYING THE PROVISIONS OF SECTION 43B(C) R.W.S. 36(1)(II) THE ASSESSING OFFICER DISAL LOWED AN AMOUNT OF RS.4,75,000/-. 11.2 IN APPEAL THE LD.CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER : 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS ARE APPARENT FROM THE RECORDS. THERE IS NO DISPUTE ON THE ISSUE THAT THE AMOUNT OF RS.4,75,000/- DISALLOWED UNDER SUBSEC TION OF 43B(C) R.W.S.36(1)(II) ELATES TO PAYMENT MADE TO NON-EXECU TIVE DIRECTORS. THE ASSESSING OFFICER HAS EXAMINED AND HELD THAT TH E TDS IS DEDUCTIBLE AND FOR THE FAILURE TO DO SO THE AFORESA ID AMOUNT IS NOT ALLOWABLE U/S.43B(C). THE APPELLANT HAS CONTENDED THAT THE AFORESAID PAYMENT IS NOT COVERED BY THE ABOVE PROVI SIONS OF LAW. IN THIS RESPECT IT HAS BEEN STATED THAT SEC.36(1)(II) RELATES TO ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERV ICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE BEEN PAYABLE AS PROFI T OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION. IT HA S BEEN CONTENDED THAT THE NON-EXECUTIVE DIRECTORS ARE NOT THE EMPLOY EES OF THE COMPANY AND THEREFORE THE PRIMARY FACTS RELATING TO APPLICABILITY OF SECTION 36(1)(II) HAS NOT BEEN FULFILLED. ON CAREF UL CONSIDERATION OF MATERIALS AVAILABLE ON RECORD, I AM OF THE CONSIDER ED OPINION, IN VIEW OF THE UNDISPUTED FACT THAT THE IMPUGNED PAYME NT RELATES TO NON-EXECUTIVE DIRECTORS, WHO CANNOT BE CONSIDERED A S EMPLOYEES OF THE COMPANY, THAT THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER U/S.43B(C) R.W.S.36(1)(II) CANNOT BE SUSTAINED. GR OUND NO.2 THEREFORE, IS ALLOWED. 11.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 11.4 THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSE E ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) REITERATED THAT THE NON-EXECUTIVE DIRECTORS ARE NOT EMPLOYEES OF THE COMPANY AND THER EFORE THE PROVISIONS OF SECTION 43B(C) R.W.S. 36(1)(II) ARE NOT APPLICABLE. 12. AFTER HEARING BOTH THE SIDES WE FIND NO INFIRMI TY 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 12 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 CO MPANY, THEREFORE, WE UPHOLD THE ORDER OF THE LD.CIT(A) IN HOLDING THAT T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S.43B(C) R.W.S.36(1)(II) CA NNOT BE SUSTAINED. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISS ED. 13. GROUNDS OF APPEAL NO. 3, 4 AND 5 BY THE REVENUE ARE AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE EXPENDITURE ON DIES TREATING IT AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)GROSSLY ERRED IN NOT CONSIDERING THE FACT THAT FOR EARLIER 25 YEARS THE ASSESSEE CLAIMED EXPENDITURE ON DIES AS C APITAL EXPENDITURE. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)GROSSLY ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE HAS CHANGED METHOD OF ACCOUNTING WITHOUT ANY BONAFI DE REASON. 13.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIMED EXPENDITURE IN RESPECT OF DIES AMOUNTING T O RS.1,70,40,380/- UNDER THE HEAD MATERIAL CONSUMED WHICH HAS BEEN CLAIMED AS REVENUE EXPENDITURE. RELYING ON THE ORDER OF THE EARLIER Y EARS IN ASSESSEES OWN CASE THE ASSESSING OFFICER DISALLOWED THE CLAIM TRE ATING THE SAME AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION. IN APPEAL TH E LD.CIT(A) FOLLOWING THE ORDERS OF HIS PREDECESSORS WHICH HAS BEEN UPHEL D BY THE TRIBUNAL AND THE DECISION OF THE HONBLE HIGH COURT IN ASSESSEE S OWN CASE ALLOWED THE CLAIM OF THE ASSESSEE. 13.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 13 14. WE HAVE HEARD THE RIVAL ARGUMENTS. WE FIND THE ISSUE HAS BEEN DIRECTLY DECIDED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE VI DE ITA NO.4733/2010 ORDER DATED 05-09-2011. THE RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT READS AS UNDER ; P.C. 1. WHETHER THE ITAT WAS JUSTIFIED IN HOLDING THAT T HE EXPENDITURE ON DIES INCURRED BY THE ASSESSEE WAS ALLOWABLE AS R EVENUE EXPENDITURE, IS THE QUESTION RAISED IN THESE APPEAL S 2. THE GRIEVANCE OF THE REVENUE IS THAT IN ALL THE EARLIER ASSESSMENT YEARS, THE EXPENDITURE ON DIES WERE CONS IDERED AS CAPITAL EXPENDITURE AND THE SAME HAS BEEN ACCEPTED BY THE A SSESSEE. HOWEVER, IN THE ASSESSMENT YEAR IN QUESTION FOR THE FIRST TIME, THE ASSESSEE CONTENDED THAT THE SAID EXPENDITURE MUST B E ALLOWED AS REVENUE EXPENDITURE. THE TRIBUNAL IN PARA 5 OF ITS JUDGMENT HAS RECORDED THE FINDING AS FOLLOWS : WE FIND THAT, IN THE PRESENT CASE, THE ASSESSEE HA S GIVEN EVIDENCE OF THE FACT THAT THE ACTUAL USEFUL LIFE OF THE DIES IS LESS THAN 12 MONTHS, AND NO DEFECTS HAVE BEEN FILED IN T HE CERTIFICATE TO THAT EFFECT ISSUED BY THE ASSESSEES AUDITOR. THE NATURE OF ASSESSEES WORK, I.E. MANUFACTURER VARIOU S TYPES OF SMALL FORGINGS, IS SUCH THAT DIES, WHICH ARE MADE A S PER CUSTOMER SPECIFICATIONS, ARE REQUIRED TO BE MADE WH ICH HAVE LIMITED LIFE. AS TO THAT IS THE ACTUAL LIFE OF DIE S IS ESSENTIALLY A QUESTION OF FACT AND MERELY BECAUSE THE ASSESSEE HA S AMORTISED THE SAME FOR A PERIOD OF THREE YEARS IN P AST, IT CANNOT BE SAID THAT THE LIFE OF THE DIES IS LESS TH AN A YEAR EVEN AT PRESENT. WE HAVE ALSO TAKEN NOTE OF THE DETAILS FILED BY THE ASSESSEE IN THE PAPER BOOK WHICH SHOWS THAT 90% OF THE DIES ARE WORN OUT, EVEN AFTER CARRYING OUT RESINKING T O ADD TO THE LIFE OF THE DIES, WITHIN ONE YEAR. IN THESE CIRCUM STANCES, CLAIM OF THE ASSESSEE CANNOT BE SIMPLY BRUSHED ASIDE, AS WAS DONE BY THE AUTHORITIES BELOW. AS LONG AS THE CHANGE IN ACCOUNT METHOD IS BONAFIDE AND IS FOLLOWED REGULARLY IN THE SUCCEEDING YEARS, CHANGE OF METHOD OF ACCOUNT CANNOT BE DECLIN ED. 3. IN OUR OPINION, THE DECISION OF THE ITAT IS BASE D ON FINDING OF FACT, NO QUESTION OF LAW ARISES FROM THE ORDER OF T HE TRIBUNAL. THE FACT THAT IN THE PAST THE EXPENDITURE ON DIES WERE CONSIDERED AS CAPITAL EXPENDITURE CANNOT BE A GROUND TO DISALLOW THE SAME AS BUSINESS EXPENDITURE IN THE ASSESSMENT YEAR IN QUES TION, ESPECIALLY WHEN THE FRESH MATERIALS BROUGHT ON RECORD ESTABLIS H TO THE CONTRARY. 14 IN THE RESULT, BOTH THE APPEALS ARE DISMISSED WITH NO ORDER AS TO COSTS. 14.1 RESPECTFULLY FOLLOWING THE DECISION OF THE JUR ISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRA RY MATERIAL BROUGHT TO OUR NOTICE WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 15. GROUNDS OF APPEAL NO.6 AND 7 BEING GENERAL IN N ATURE ARE DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE RE VENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF AUGUST 2013. SD/- SD/- (R.S.PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 30 TH AUGUST 2013 SATISH 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. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE