2017 (5) TMI 1592 - HC - Income Tax

Provision for diminution in value of stock - Held that In any case since stock are valued at cost or market price whichever is lower and these inventory has no value, the same is to be allowed to the assessee in view of the accounting principles and the ratio laid down in CIT Vs. Hotline Teletube and Components Ltd. 2008 (8) TMI 6 - HIGH COURT DELHI Provision for diminution in value of stock is allowable as business loss. TDS u/s 195 OR 194C - existence of TDS liability - Held that - This company is incorporated on 29.11.2001 having registered office at Mumbai. Therefore, it is an Indian Co. as defined u/s 2(26) and is a company resident in India u/s 6(3). All payment made to this company towards advertisement charges is in Indian currency. Tax is deducted at source on such payment u/s 194C. Sec. 195 is applicable when payment is made to a non resident. Admittedly, payment to Group M Media India Pvt. Ltd. is a payment to resident and not a non resident. Therefore, section 195 is not attracted. The AO has not disputed the genuineness of the payment and therefore only because there is no agreement for the advertisement work with this company cannot be viewed adversely. Thus disallowance made by the AO is incorrect, against law and the same is deleted. The order has admitted that bills and vouchers of expenses, as desired, were produced for verification which was test checked. The observation of AO that services has been received by the assessee against these payment and therefore he should have deducted tax at source on the value of the gift is ill founded in as much as the payment is not against the services but against the sale of goods to the distributors and therefore TDS provisions are not applicable. - Decided in favour of the assessee and against the department

Summary

Issues:
1. Challenge to Tribunal's judgment and order.
2. Deletion of addition on inventories written off.
3. Deletion of addition on advertisement expenses.
4. Deletion of addition on trade incentive expenses.

Analysis:
1. The appellant challenged the Tribunal's judgment regarding the addition of inventories written off and advertisement expenses. The Tribunal observed that the appellant had written off damaged/obsolete inventory, following regular practice, and as per accounting principles. The Tribunal cited relevant case laws to support the allowance of inventory write-offs as a business loss. The Tribunal also noted that the appellant's payment to a resident company for advertisement charges in Indian currency, with tax deducted at source under section 194C, did not attract section 195 for non-resident payments. The Tribunal found the AO's disallowance of expenses on trade incentives to be incorrect, as the payments were for goods sold to distributors, not services, and thus not subject to TDS. The Tribunal upheld the appellant's claims on these issues.

2. The Tribunal's decision on the deletion of the addition of advertisement expenses and trade incentive expenses was based on the appellant's compliance with tax deduction at source provisions for payments to resident companies and the nature of expenses incurred for goods sold. The Tribunal referred to relevant legal provisions and case laws to support its decision. The Tribunal found that the AO's disallowance of expenses lacked merit and was not in accordance with the law. Consequently, the Tribunal ruled in favor of the appellant on these issues, leading to the dismissal of the appeal by the department.

3. The Tribunal's decision to delete the addition of expenses on advertisement and trade incentives was upheld based on the appellant's adherence to tax deduction requirements for payments to resident companies and the nature of the expenses incurred. The Tribunal analyzed the facts and legal provisions, including relevant case laws, to support its ruling. The Tribunal found the AO's disallowance of expenses to be unfounded and contrary to the law. Therefore, the Tribunal sided with the appellant on these matters, resulting in the dismissal of the department's appeal.