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2018 (8) TMI 1943 - AT - Income TaxAddition on account of upward adjustment of international transaction in respect of royalty payment - HELD THAT - In respect of payment of royalty by the assess to the associate concerns the TPO has applied the rate of royalty payment 3% in respect of computation of royalty rate as against rate of 3.75% adopted by the assessee. We find that an identical issue in the case of the assessee itself was decided by the Co-ordinate Bench of 2014 (8) TMI 1159 - ITAT AHMEDABAD against the revenue pertaining to assessment year 2005-06 and 2006-07. Addition on account of provision for slow moving/absolute stock - HELD THAT - As directed the AO to allow the claim of the assessee subject to the assessee furnishing the complete particulars in this regard if necessary with adequate proof. Respectfully following the decision of the coordinate bench we direct the AO to allow the claim of the assessee subject to the furnishing of the information by the assessee as directed in the above cited decision of the coordinate bench. Therefore the appeal of the revenue is allowed for statistical purposes. Disallowance on account of provision for warranties - HELD THAT - We have noticed that the Co-ordinate Bench of the ITAT 2018 (4) TMI 1122 - ITAT AHMEDABAD for assessment year 2000-01 to 2001-02 has decided the identical issue in favour of the assessee. Deduction on which TDS deducted on which provision reversed - HELD THAT - The amount was disallowed in assessment year 2005-06 on account of non-deduction of tax but the same was deducted during the year under consideration and claimed as deduction u/s.40(a)(ia) of the act. The second amount represents the amount credited on account of reversal of expenditure debited in the account of earlier year the same was considered as part of profit loss in this year. After perusal of the detailed finding of ld. CIT(A) holding that the A.O. ought to have allowed deduction for the aforesaid amount u/s. 40(a)(ia)and further amount of 52, 40, 669/- which was credited to the Profit Loss Account for provision reversed but was not allowed deduction in the past after we do not find any infirmity in his decision. Accordingly the appeal of the revenue is dismissed. Claim for deduction of the provision of bad debt written back and provision for advances written back while computing the book profit u/s. 115JB - HELD THAT - After keeping in view the retrospective amendment made in the Finance Act w.e.f. assessment year 2000-01 we consider that as elaborated in the findings of the Ld.CIT(A) the assessee has failed to demonstrate that it has made any such adjustment in the book profit in the past therefore we do not find any error in the decision of ld. CIT(A) directing the assessee to approach the A.O. if such amounts are added back in calculation of book profit u/s. 115JA/JB in respective years.. Accordingly the appeal of the assessee is dismissed on this issue. Addition being provisions for slow moving/absolute stock - HELD THAT - It is undisputed facts that the assessee company has identified all those items whose value have reduced and created a provision for the same instead of adjusting the same against the value of inventory. It is clear from the above facts that the assessee company has created the aforesaid provision instead of reducing the amount of inventory shown in the assets of the company in the balance sheet. These facts demonstrate that it is not the actual reduction as the same has not been reduced from the actual value of the inventory reflecting in the asset of the assessee company. In this connection we have also perused the decision of the Hon ble High Court of Karnatka referred by the assessee in the case of CIT V. Yokogawa India Ltd. 2011 (8) TMI 766 - KARNATAKA HIGH COURT it was held in this case that if the debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to section 115JA or JB is not at all attracted.
Issues Involved:
1. Deletion of addition on account of upward adjustment of international transaction in respect of royalty payment. 2. Deletion of addition on account of provision for slow moving/obsolete stock. 3. Deletion of disallowance made on account of provision for warranties. 4. Allowance of deduction on which TDS was deducted and provision was reversed. 5. Validity of the assessment order. 6. Deduction of provision for bad debts written back and provision for advances written back while computing book profit under section 115JB. 7. Addition of provision for slow-moving/obsolete stock while computing book profit under section 115JB. Detailed Analysis: 1. Deletion of Addition on Account of Upward Adjustment of International Transaction in Respect of Royalty Payment: The assessing officer made an upward adjustment of ?22,90,495/- concerning international transactions for royalty payments to associated enterprises, applying a royalty rate of 3% against the 3.75% adopted by the assessee. The CIT(A) deleted this addition, referencing similar decisions for previous assessment years (2005-06 and 2006-07). The ITAT upheld this deletion, noting that the effective royalty rate was less than the stated rate when considering various deductions, and hence, no interference was warranted. 2. Deletion of Addition on Account of Provision for Slow Moving/Obsolete Stock: The assessing officer disallowed ?31,91,000/- for provision of slow-moving/obsolete stock, deeming it unascertainable and contingent. The CIT(A) deleted this addition, noting it was a loss determined by the assessee in the stock value. The ITAT upheld this deletion, directing the AO to allow the claim subject to the assessee furnishing complete particulars and adequate proof, following the decision of the Co-ordinate Bench for earlier years. 3. Deletion of Disallowance Made on Account of Provision for Warranties: The assessing officer disallowed ?1,81,10,000/- for warranty provisions, considering it a contingent liability. The CIT(A) allowed the appeal, stating that the warranty expenses were based on units sold and similar issues had been decided in favor of the assessee in previous years. The ITAT upheld this decision, noting the consistent method followed by the assessee and the scientific basis for computing warranty provisions. 4. Allowance of Deduction on Which TDS Was Deducted and Provision Was Reversed: The assessing officer disallowed deductions of ?7,35,640/- (TDS paid) and ?52,40,669/- (provision reversed), referencing the Supreme Court decision in Goetze India Pvt. Ltd. The CIT(A) allowed these deductions, citing the ITAT decision in Shalby Hospital Ltd., which allows such claims if they pertain to basic legal issues. The ITAT upheld this decision, noting the retrospective nature of the amendments and the consistent practice followed by the assessee. 5. Validity of the Assessment Order: The assessee's ground challenging the validity of the assessment order was dismissed as not pressed during the hearing. 6. Deduction of Provision for Bad Debts Written Back and Provision for Advances Written Back While Computing Book Profit under Section 115JB: The assessing officer did not allow deductions for provisions written back, citing retrospective amendments. The CIT(A) upheld this, noting the assessee failed to demonstrate any adjustments in past book profits. The ITAT agreed, directing the assessee to approach the AO if such amounts were added back in past book profit calculations. 7. Addition of Provision for Slow-Moving/Obsolete Stock While Computing Book Profit under Section 115JB: The assessing officer added ?31,91,000/- for provision of slow-moving/obsolete stock to the book profit under section 115JB, which the CIT(A) sustained. The ITAT upheld this, noting the provision was created without reducing the actual inventory value in the balance sheet, thus not reflecting an actual reduction. The ITAT also rejected the assessee's claim for deduction of ?93,11,850/- for the same reason. Conclusion: The ITAT dismissed most of the revenue's grounds, except for ground number 2, which was allowed for statistical purposes. The assessee's appeal was largely dismissed, with specific directions provided for certain claims. The judgment emphasized adherence to consistent accounting practices and the importance of providing adequate proof for claims.
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