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Issues Involved:
1. Deletion of amounts disallowed by the ITO on account of obsolete stocks written off by the assessee. 2. Method of valuing stocks at cost or net realizable value. 3. Whether the value of obsolete stock written off could be considered a loss incidental to the business. 4. Timing and method of writing off obsolete stocks. 5. Examination of whether the entire claim of loss was allowable in the assessment year 1973-74. Summary: Issue 1: Deletion of Amounts Disallowed by the ITO The revenue objected to the Commissioner (Appeals) deleting the amounts disallowed by the ITO for obsolete stocks written off by the assessee for the assessment years 1973-74, 1974-75, and 1975-76. The Tribunal had previously remanded the case for fresh disposal, allowing both parties to present appropriate material. Issue 2: Method of Valuing Stocks The Commissioner (Appeals) found that the assessee consistently followed the method of valuing stocks at cost or net realizable value. The method was continued except for obsolete stock, which was identified due to design modifications, quality improvements, discontinuation of products, and cost reduction. The Commissioner noted that the assessee had been making a reserve for obsolescence since 1968-69 and that the components and spare parts manufactured for one model might not be useful for subsequent models due to technological advancements. Issue 3: Loss Incidental to Business The Commissioner (Appeals) held that the value of obsolete stock written off could be considered a loss incidental to the business. The method followed by the assessee was deemed scientific and rational, not distorting profit figures. The Commissioner noted that the method involved identifying stocks of little or no use and writing off their value in the books, which was a bona fide change consistently followed thereafter. Issue 4: Timing and Method of Writing Off Obsolete Stocks The Commissioner (Appeals) accepted the assessee's explanation that inventorizing obsolete stock was a time-consuming job, starting in September but written off at the end of the accounting year. The method was found satisfactory, and the Commissioner deleted the additions for all three years under appeal. Issue 5: Entire Claim of Loss Allowable in Assessment Year 1973-74 The Tribunal found that the Commissioner (Appeals) had applied his mind to every aspect pointed out by the Tribunal in the earlier order. The Commissioner relied on decisions of the Madras High Court, which supported the assessee's case. The Tribunal held that the method of valuing obsolete stocks and writing them off was bona fide and consistently followed in subsequent years. The orders of the Commissioner (Appeals) were confirmed, and the appeals were dismissed.
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