2013 (7) TMI 324 - HC - Income Tax

MAT - defective stock written off - Unascertained liability - adjustment to book profit u/s 115JA - Tribunal deleted addition on basis of previous decisions - Held that - No substantial question of law arises for consideration - Decided against Revenue.

Summary

Issues:
1. Deletion of addition of Rs.1,20,07,908/- on account of defective stock written off.
2. Addition of Rs.1,20,07,928/- on account of defective stock adjusted under Section 115 JA.
3. Disallowance of training expenses of Rs.14,41,947/-.

Issue 1: Deletion of addition of Rs.1,20,07,908/- on account of defective stock written off:
The High Court upheld the decision taken by the tribunal regarding the valuation of defective stock at the realizable market value, which was lower than the cost. The method of valuation was consistently followed, and the issue was decided against the Revenue based on a previous court decision. The deletion of the addition was justified, and the appeal on this issue was dismissed.

Issue 2: Addition of Rs.1,20,07,928/- under Section 115 JA for defective stock adjustment:
The Assessing Officer made an addition on account of defective stock, which was adjusted under Section 115 JA as an unascertained liability. However, the CIT (Appeals) deleted this addition, and the tribunal upheld the decision. The tribunal's finding was challenged by the Revenue, arguing that no such addition was made in previous years. The Court agreed that the adjustment for defective stock could not be considered a provision for unascertained liability under Section 115 JA. Closing stock should be valued at cost price or market price, not as a liability, and book profits cannot be increased based on this valuation method. The appeal on this issue was dismissed.

Issue 3: Disallowance of training expenses of Rs.14,41,947/-:
The Assessing Officer disallowed the training expenses, suggesting it should be amortized over six years. However, the CIT (Appeals) overturned this disallowance, stating that the expenses were revenue expenses incurred after the business setup and production commencement. The tribunal upheld this decision, noting that the business had commenced in the relevant assessment year. The Court found the tribunal's findings to be correct, and the appeal on this issue was dismissed.

In conclusion, the Court did not find any substantial question of law arising from the issues raised in the appeal, and accordingly dismissed the appeal.