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2010 (4) TMI 876 - AT - Income TaxDisallowance of provisions of contingencies inventory - assessee s claim that the Assessing Officer may be directed that the reversal of said provision in subsequent years by the assessee should not be taxed and should be allowed as deduction - HELD THAT - Since, the amount of provision has already been subjected to tax then in our view if the amount is credited in subsequent years out of the said provision and has been shown and taxed as income for that assessment year then that amount cannot be taxed twice over. Since this issue has been raised by the assessee for the first time before the Tribunal therefore, we after admitting the same, are of the view that in the interest of justice the matter to this extent should go back to the file of the Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and restore the issue; to file of the Assessing Officer who shall decide the same afresh, according, to law after providing reasonable opportunity of being heard to the assessee. The additional ground taken by the assessee is therefore partly allowed for statistical purposes. Disallowance of addition of provision for sales return - AO was of the view that such a provision is contingent in nature and not allowable as deduction and it has neither arisen nor accrued during the year under consideration nor has it made self apparent by the time of filing return of income and accordingly he added the same, to the income of the assessee - only claim of the assessee is that the reversal of provision of sales return made by the assessee and offered as income should not be taxed as it amounts to double taxation - HELD THAT - Since the provision of sales return has not been allowed and has been taxed, therefore, we are of the view that if any amount is received in subsequent years out of the said provision for sales return, that amount cannot be taxed again if already taxed in the year in which the provision for sales return was made. Since this requires verification at the end of Assessing Officer, therefore, we consider it fair and reasonable that in the interest of justice the matter should go back to the file of the Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and restore the issue to file of the Assessing Officer who shall decide the same afresh. Levy of interest charged u/s 234D - Applying the ratio of the decision in Ekta Promoters (P.) Ltd. 2008 (7) TMI 452 - ITAT DELHI-E we find that the assessment order for the year under consideration i.e. assessment year 2003-04 was passed on 29-3-2004 i.e., after June 1, 2003, the interest u/s 234D is not chargeable as the same is chargeable from the assessment year 2004-05 and accordingly the ground taken by the assessee is allowed. Levy of interest u/s 234B and 234C - HELD THAT - There is no dispute that in terms of section 195 of the Act the entire income of the assessee is subject to deduction of tax at source. Accordingly the assessee was not liable to pay advance tax . As relying on Ngc Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee and accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the interest charged under section 234B. TP Adjustment - international transactions with its associated enterprises - Payment to BSFE - receipt of marketing support payment and the commission on direct sales - HELD THAT - Transaction of the receipt of marketing support and commission on direct sales cannot be de-linked separately from the business of purchase and sale of BSFE products by the appellant under the distributorship agreement. It is therefore held that the Assessing Officer has wrongly concluded that these transactions can be separated. The AR has filed chart of month-wise position of amounts payable by the appellant to BSFE showing the receivable and payment. The examination of the distributorship agreement clearly provides that there is no provision of charge of interest on any outstanding of payments. Neither the quantum nor the schedule of the payment of marketing support has been mentioned in the agreement. The commission on sales made directly by BSFE has also been allowed by BSFE to the appellant for which efforts, commission is not clearly spelt out in the distributorship agreement. It is therefore held that the Assessing Officer has wrongly held that the receipt of marketing support payment and the commission on direct sales has to be separately examined devoid of its inter se relationship with the liability of the appellant for the payment of purchases made from BSFE - Thus assessee was required to make the payment to BSFE throughout the year and not otherwise, we are of the view that the order passed by the ld. CIT(A) in this regard does not require any interference. Under valuation of closing stock - HELD THAT - We find that there is no dispute that the assessee is consistently following the same method of valuation of closing stock i.e. cost or market price whichever is lower. However, in practice it is only at cost it has been valued. Further the assessee is following FIFO method and as a result recent purchases go into the closing stock. AO in place of examining the valuation of different qualities of stents has applied average purchase rate of stents. Since the quality of stents varies significantly and when each stent can be identified quality-wise and amount-wise, there is no basis to apply average purchase rate. The assessee in arriving at the closing stock for the year valued the closing stock by multiplying the quantity of each type of stent with the respective value of such stent. The said working of valuation of closing stock of stent has not been controverted by the revenue even at this stage. In this view of the matter, we, are of the view that the AO was not justified in applying the average purchase price method for valuation of closing stock of stent when the assessee has identified the closing stock of stent with the corresponding purchase price of such stent. Accordingly we are inclined to uphold the finding of the ld. CIT(A) in deleting the addition made by the Assessing Officer in this regard. The grounds taken by the revenue are therefore, rejected.
Issues Involved:
1. Disallowance of provisions for contingencies inventory. 2. Disallowance of provision for sales returns. 3. Levy of interest under section 234D. 4. Deletion of levy of interest under sections 234B and 234C. 5. Deletion of adjustment made by the Assessing Officer as per the order of the Transfer Pricing Officer. 6. Deletion of addition made on account of undervaluation of closing stock. Issue-wise Detailed Analysis: 1. Disallowance of Provisions for Contingencies Inventory: The assessee, a non-resident foreign company, claimed deductions for provisions related to expired, consignment, excess, and Nir Stents inventory totaling Rs. 3,08,49,516. The Assessing Officer (AO) disallowed these provisions, arguing they were contingent and not allowable under section 145A of the Income-tax Act. The CIT(A) upheld the AO's decision but allowed the actual write-off of inventory destroyed during the year. The Tribunal found no merit in the revenue's objection to the CIT(A)'s directions and upheld the CIT(A)'s order, noting consistent treatment in subsequent assessment years. The Tribunal also directed the AO to ensure that any reversal of the provision in subsequent years should not be taxed again. 2. Disallowance of Provision for Sales Returns: The AO disallowed the provision for sales returns of Rs. 2,53,63,360, considering it contingent. The CIT(A) upheld this disallowance but directed the AO to allow deductions for actual sales returns in subsequent years. The Tribunal agreed with the CIT(A) and directed the AO to ensure that any reversal of the provision for sales returns should not be taxed again if already taxed in the year of provision. 3. Levy of Interest Under Section 234D: The Tribunal found that interest under section 234D is chargeable from the assessment year 2004-05, as per the Special Bench decision in ITO v. Ekta Promoters (P.) Ltd. Since the assessment order for the year under consideration was passed after June 1, 2003, the Tribunal held that interest under section 234D was not chargeable and allowed the assessee's ground. 4. Deletion of Levy of Interest Under Sections 234B and 234C: The Tribunal upheld the CIT(A)'s decision to delete the interest charged under sections 234B and 234C, following the jurisdictional High Court's decision in DIT v. Ngc Network Asia LLC. It was held that when the payer is responsible for deducting tax at source, no interest can be imposed on the payee-assessee for the payer's failure. 5. Deletion of Adjustment Made by the Assessing Officer as Per the Order of the Transfer Pricing Officer: The AO made an adjustment of Rs. 24,32,924 for the assessee's failure to charge interest on outstanding amounts. The CIT(A) deleted the adjustment, noting that the assessee was always in a payable position to its associated enterprise, and there was no provision for interest in the agreement. The Tribunal upheld the CIT(A)'s decision, finding no contrary material from the revenue. 6. Deletion of Addition Made on Account of Undervaluation of Closing Stock: The AO added Rs. 37,08,470 for undervaluation of closing stock of stents, applying an average purchase price method. The CIT(A) deleted the addition, accepting the assessee's method of identifying and valuing each type of stent. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's method was consistent and justified. Conclusion: The Tribunal's judgment addressed multiple issues related to disallowances of provisions, interest levies, and adjustments. The Tribunal upheld the CIT(A)'s decisions in most cases, ensuring that provisions and their reversals were treated consistently and fairly, and interest levies were applied correctly as per legal precedents. The appeals by the assessee were partly allowed, and those by the revenue were dismissed.
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