2011 (12) TMI 710 - AT - Income Tax

Summary

Issues Involved:
1. Deletion and confirmation of 50% addition of Rs. 90,35,298/- on account of provision for impairment of stock.
2. Deletion of addition of Rs. 5,00,00,000/- made by the AO on account of sales of VSAT equipment.
3. Chargeability of interest u/s 234B of the Act.

Summary:

Issue 1: Provision for Impairment of Stock

Ground No.2 in the revenue's appeal and ground Nos.1 and 2 in assessee's appeal are inter-connected being directed against the CIT(A)'s order in deleting 50% addition of Rs. 90,35,298/- and in confirming the 50% addition of Rs. 90,35,298/- made by the Assessing Officer on account of provision for impairment of stock.

The assessee company, engaged in marketing VSATs and providing satellite communications services, valued its inventory at net realizable value, which was lower than the cost. The AO disallowed the adjustment of Rs. 90,35,298/- due to lack of evidence supporting the realizable value. The CIT(A) reduced the disallowance to 50%, citing incomplete details from the assessee.

The tribunal found that the assessee consistently valued closing stock at cost or net realizable value, whichever is lower, and provided detailed inventory valuations. The AO did not identify any defects in the details or conduct an inquiry to rebut the net realizable value. The CIT(A) restricted the disallowance on an ad hoc basis without considering the consistent method adopted by the assessee. Therefore, the tribunal deleted the disallowance in toto, allowing the assessee's claim and rejecting the revenue's appeal.

Issue 2: Addition on Account of Sales of VSAT Equipment

Ground No.3 in revenue's appeal is directed against the learned CIT(A)'s order in deleting the addition of Rs. 5,00,00,000/- made by the AO on account of sales of VSAT equipment.

The AO made the addition based on a Sales-tax Officer's order, which alleged unaccounted sales of Rs. 5 crore. The CIT(A) deleted the addition, noting that the Joint Commissioner of Sales Tax had exonerated the assessee, and the demand raised by the Sales Tax Officer no longer stood.

The tribunal upheld the CIT(A)'s order, noting that the AO did not contradict the assessee's stand and that the Joint Commissioner of Sales Tax had deleted the addition of sales, confirming that the impounded documents related to installation/de-installation of VSATs, not sales. Therefore, the tribunal found no reason to interfere with the CIT(A)'s order in deleting the addition.

Issue 3: Chargeability of Interest u/s 234B

The ground relating to chargeability of interest u/s 234B of the Act, raised by the assessee, is consequential in nature. The AO shall recalculate the interest chargeable u/s 234B, if any, on the income finally determined after giving appeal effect.

Conclusion:

In the result, the appeal filed by the assessee is allowed, and that of the revenue is dismissed in the manner as indicated above.