Tribunal decision: Deduction allowed for stock loss, appeal dismissed on disallowance.

The Tribunal upheld the CIT(A)'s decision to delete the addition u/s.68 and allowed the deduction for loss of stock under section 36(1)(vii). The Tribunal dismissed the revenue's appeal on disallowance u/s.40(a)(ia) as the reimbursements were not subject to section 195. The issue of foreign exchange fluctuation loss was referred back to the CIT(A) for decision following the Supreme Court's ruling. The appeals were disposed of on 24/01/2017 with the revenue's appeal dismissed and the assessee's appeal partially allowed.

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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.

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