2017 (2) TMI 646 - AT - Income Tax

Addition made on share application money u/s.68 - Held that - Respectfully following the order of the Tribunal in assessee s own case on the very same ground, we do not find any infirmity in the order of CIT(A) for deleting the addition made u/s.68 of the IT Act as the identity and creditworthiness of the creditor and genuineness of the transaction stood satisfactorily explained. In the absence of any credible material with the Revenue to disprove the findings of the CIT(A), we hereby affirm the same. TDS u/s 195 - Disallowance made u/s.40a(ia) - whether payments made to the overseas entities will be liable for withholding tax - Held that - AO was satisfied that these are pure reimbursements and therefore section 195 read with section 40(a)(i) of the Act does not apply and accordingly deleted the entire disallowance. In view of the above, Departments ground cannot survive since the Learned AO has already verified the details and has accepted that these are pure reimbursement, not attracting provisions of section 195 of the Act. Accordingly, we dismiss the ground raised by the Revenue. Disallowance on account of loss of stock - Held that - Tribunal in assessee s own case for the assessment year 2008-09 wherein assessee s claim for deduction u/s.36(1)(vii) r.w.s. 36 was allowed in favour of the assessee as held that the conditions laid down in section 36(1)(vii) r.w.s. 36(2) of the Act have been complied with. - Decided against revenue Disallowance on account of foreign exchange fluctuation loss - Held that - This issue was discussed in great detail in the recent landmark ruling of Supreme Court in the case of ClT vs Woodward Governor India P. Ltd (2009 (4) TMI 4 - SUPREME COURT ) wherein observed where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as port of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss Thus would be of capital nature. Thus in the interest of justice, we restore this ground back to the CIT(A) for deciding in terms of decision above.

Summary

Issues:
Cross appeals by assessee and revenue against CIT(A) order for assessment year 2009-10 under section 143(3) of the IT Act.

Analysis:

1. Issue of Addition u/s.68:
The CIT(A) deleted the addition made u/s.68 based on the Tribunal's earlier order in the assessee's favor for the assessment year 2007-08. The Tribunal affirmed that the sum received from the parent company through banking channels was genuine, and the identity and creditworthiness of the creditor were satisfactorily explained. As the facts were similar, the CIT(A)'s decision to delete the addition u/s.68 was upheld.

2. Issue of Disallowance u/s.40(a)(ia):
The CIT(A) restored the disallowance made u/s.40(a)(ia) back to the AO for verification. The AO verified the details and concluded that the reimbursements were pure reimbursements without any mark-up, not attracting section 195 of the Act. The Tribunal dismissed the Revenue's ground as the AO accepted that the reimbursements were not subject to section 195, affirming the CIT(A)'s decision.

3. Issue of Loss of Stock:
The assessee claimed deduction for loss of stock due to deductions made by customers for damages, shortages, and delays. The Tribunal, following a similar case for the assessment year 2008-09, allowed the deduction under section 36(1)(vii) as a bad debt written-off. The Tribunal affirmed that the losses were incidental to the transportation and warehousing business, and the conditions of section 36(1)(vii) were met, dismissing the Revenue's appeal.

4. Issue of Foreign Exchange Fluctuation Loss:
The CIT(A) did not address this issue, and the Tribunal referred to the Supreme Court's ruling in the case of ClT vs. Woodward Governor India P. Ltd. The Tribunal restored this ground back to the CIT(A) for decision in accordance with the Supreme Court's decision. The appeal of the revenue was dismissed, and the appeal of the assessee was allowed in part.

In conclusion, the Tribunal upheld the CIT(A)'s decision on the addition u/s.68 and loss of stock issues, dismissed the revenue's appeal on disallowance u/s.40(a)(ia), and directed the CIT(A) to decide on the foreign exchange fluctuation loss issue as per the Supreme Court's ruling. The appeals were disposed of accordingly on 24/01/2017.