2018 (4) TMI 1724 - AT - Income Tax

Addition being provision of inventory written off - CIT(A) held that the assessee duly followed AS-2 on valuation inventory and valued the stores on the basis of cost or net realisable value whichever is lower - HELD THAT - It is found that the assessee had taken three ATP Air Crafts in FY 2005-06 and it grounded the Air Craft Operation in the FY 2007-08. However some spares remained unused and kept in the stock. The opening value of the stock as on 01.04.2010 was 1, 13, 33, 793/- and during the year the assessee had made efforts to dispose off the stocks and in response received quotation from third party of USD 100, 000 ( 49, 50, 000/-). Based on AS-2 the assessee has valued the stores on the basis of cost or net realisable value whichever is lower. Therefore the assessee has written down the value of stocks to 49, 50, 000/-. We find that the assessee has to value inventory as per AS-2 and on that basis it has valued the cost of spare parts which has become obsolete and non-moving. Addition as employee s contribution to PF and ESIC - amount as paid after due date of payment and was not allowable as per section 36(1)(va) r.w.s. 2 (24)(x) - HELD THAT - CIT(A) in assessee s own case for AY 2010-11 had allowed the deduction of delay in payment of Employees contribution to ESIC and PF. The Revenue filed appeal before the ITAT against the said order of the Ld. CIT(A). The Tribunal upheld the order of the Ld. CIT(A) following the decision in CIT v. M/s Alom Etrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT and CIT v. M/s Hindustan Organics Chemicals Ltd 2014 (7) TMI 477 - BOMBAY HIGH COURT - Facts being identical we follow the said order of the Co-ordinate Bench in assessee s own case for the AY 2011-12 and uphold the order of the Ld. CIT(A). Unrealized foreign exchange loss disallowed being loss due to foreign exchange fluctuation - Treating provision for earlier termination of lease in the same ground along the line of unrealized Foreign Loss - HELD THAT - As decided in own case 2016 (8) TMI 1443 - ITAT MUMBAI entire amount has already been paid by the assessee to the Lessor and in this respect a compromise was entered into between the parties before the Indian Court and the entire decree passed by the UK Court was satisfied. It is important to mention here that it was the decree of the Queen s Bench Division of the High Court of Justice UK which was fully satisfied from which it can be gathered that the liability of the assessee was crystallized in view of the order dated 14-05-2010 of the High Court of Justice UK which was ultimately satisfied by the assessee by making payment to the lessor. Therefore once the liability for making payment was crystallized by the High Court Order then question of contingent liability does not arise. Therefore both the AO and the learned CIT (A) was wrong in treating the liability as contingent liability of the assessee MAT Computation - adjustment made u/s 115JB - HELD THAT - Adjustments were made by the AO without any discussion in the assessment order. In Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT it has been held that where the profit and loss account has been prepared in accordance with Part II and III of Schedule VI to the Companies Act and which has been scrutinized and certified by the statutory auditor and relevant authorities the Assessing Officer has no power to scrutinize net profit in profit and loss account except to the extent provided in Explanation to 115J. Revenue appeal dismissed.

Summary

Issues Involved:
1. Deletion of addition for provision of inventory written off.
2. Deletion of addition for employee’s contribution to PF and ESIC paid after due date.
3. Treatment of provision for earlier termination of lease and unrealized foreign exchange loss.
4. Adjustment made under section 115JB for computing book profit.

Issue-wise Detailed Analysis:

1. Deletion of Addition for Provision of Inventory Written Off:
The primary issue was whether the CIT(A) was justified in deleting the addition of ?63,83,793 for the provision of inventory written off. The assessee had grounded aircraft operations in FY 2007-08, and some spares remained unused. The AO noted that the assessee had written off stock based on a third-party quotation and concluded that the revaluation was not justifiable without considering factors like wear and tear or obsolescence. The CIT(A) held that the assessee duly followed AS-2 on valuation inventory and valued the stores based on cost or net realizable value, whichever was lower. The Tribunal upheld the CIT(A)’s order, finding that the assessee had valued the inventory as per AS-2 and had written down the value of obsolete and non-moving spare parts.

2. Deletion of Addition for Employee’s Contribution to PF and ESIC Paid After Due Date:
The second issue was whether the CIT(A) was justified in deleting the addition of ?67,97,382 for employee’s contribution to PF and ESIC paid after the due date. The AO disallowed the deduction, but the CIT(A) allowed it, noting that the payments were made before the due date of filing the return of income. The Tribunal upheld the CIT(A)’s order, referencing the decisions in CIT v. M/s Alom Extrusions Ltd. and CIT v. M/s Hindustan Organics Chemicals Ltd., which allowed such deductions if paid before the due date of filing the return.

3. Treatment of Provision for Earlier Termination of Lease and Unrealized Foreign Exchange Loss:
For the AY 2012-13, the issue involved the disallowance of unrealized foreign exchange loss of ?2,61,260 and a provision for liability of ?1,50,00,000 due to early termination of lease. The CIT(A) directed the AO to delete these disallowances, citing the Supreme Court decision in Woodward Governor and the ITAT Special Bench judgment in DCIT v. Bank of Bahrain and Kuwait. The Tribunal upheld the CIT(A)’s order, noting that the liability was crystallized and not contingent, referencing the assessee’s own case for AY 2010-11.

4. Adjustment Made Under Section 115JB for Computing Book Profit:
The final issue was whether the CIT(A) was justified in deleting the adjustment of ?3,74,59,683 made under section 115JB for computing book profit. The AO had made adjustments including provisions for earlier termination of leases, disallowance under section 14A, provision for inventory written off, and provision for foreign exchange loss. The CIT(A) held that the AO’s adjustments were not permissible as they were ascertained liabilities and outside the scope of clause (c) of Explanation 1 of section 115JB. The Tribunal upheld the CIT(A)’s order, referencing the Supreme Court decision in Apollo Tyres Ltd., which limited the AO’s power to make adjustments in book profit.

Conclusion:
The appeals for AY 2011-12 and AY 2012-13 were dismissed, upholding the CIT(A)’s decisions on all grounds. The Tribunal found that the CIT(A) correctly applied relevant accounting standards and legal precedents in deleting the additions and adjustments made by the AO.