2017 (12) TMI 1815 - AT - Income Tax

Mark to market losses on account of diminution in the value of outstanding equity derivatives - diminution in the value of stock-in-trade - HELD THAT - Neither the AO nor CIT(A) has discussed the facts but we find from the details that the assessee has valued outstanding equity derivative transactions at lower of cost or market value in the balance sheet as on 31-03-2010. Admittedly, the assessee has debited mark to market losses on account of diminution in the value of outstanding equity derivatives. This issue has been settled by Hon ble Supreme Court in the case of Woodward Governor India P. Ltd 2009 (4) TMI 4 - SUPREME COURT wherein, it is clearly held that losses suffered by the assessee on account of fluctuation in the rate of foreign exchange has on the date of balance sheet is item of expense under section 37(1) - For valuing closing stock at the end of the year, the value prevailing on the last date is relevant because profit and loss is embedded in the closing stock. While anticipated loss is taken into account and the anticipated profit in the shape of appreciation of value of the closing stock is to be brought into accounts. In view of the principle laid down by the Hon ble Supreme Court, we are of the view that the assessee is entitled to this loss and he has rightly claim so. Accordingly, we reverse the orders of the lower authorities and allow this claim of the assessee. TDS u/s 192/194H - disallowance of commission payment for non-deduction of TDS invoking the provisions of section 40(a)(ia) - HELD THAT - Respectfully following the assessee s own case for AY 2005-06 2016 (6) TMI 1431 - ITAT MUMBAI it is that to held the commission paid to the directors in the nature of salary and hence, no disallowance can be made by invoking the provisions of section 40a(ia) of the Act because there is no provision for disallowance of salary under the provisions of section 40a(ia) of the Act.. Accordingly, we dismiss the appeals of Revenue.

Summary

Issues involved:
1. Disallowance of mark to market losses on equity derivatives.
2. Disallowance of commission payment for non-deduction of TDS under section 192/194H of the Act.

Detailed Analysis:

Issue 1: Disallowance of mark to market losses on equity derivatives
The appeals arose from orders of the Commissioner of Income Tax (Appeals) regarding disallowance of mark to market losses on equity derivatives. The Assessing Officer disallowed these losses as contingent liabilities, which were not known as of the balance sheet date. The Commissioner (Appeals) upheld this disallowance, considering it as a provision and not an ascertained liability. However, the Tribunal reversed the lower authorities' orders, citing a Supreme Court judgment that losses due to fluctuations in foreign exchange rates are allowable expenses under section 37(1) of the Income Tax Act. The Tribunal emphasized the importance of valuing closing stock at the end of the year based on the prevailing value on the last date. Consequently, the Tribunal allowed the claim of the assessee, overturning the earlier disallowance.

Issue 2: Disallowance of commission payment for non-deduction of TDS
The Revenue's appeal centered on the disallowance of commission payment for non-deduction of TDS under sections 192/194H of the Act. The Revenue contended that the commission payment should have been subject to TDS, invoking section 40a(ia) of the Act. However, the CIT(A) allowed the claim based on the assessee's case for the previous year. The Tribunal, following the assessee's precedent case, held that the commission paid to directors was part of their salary and not subject to disallowance under section 40a(ia) of the Act. The Tribunal emphasized the need for proper compliance with TDS provisions and upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the Tribunal allowed the appeals of the assessee and dismissed the appeals of the Revenue, providing detailed reasoning and legal interpretations for each issue involved in the judgment.