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TMI Blog2010 (4) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... rities on this account and restore the issue; to file of the Assessing Officer who shall decide the same afresh, according, to law after providing reasonable opportunity of being heard to the assessee. The additional ground taken by the assessee is therefore partly allowed for statistical purposes. Disallowance of addition of provision for sales return - AO was of the view that such a provision is contingent in nature and not allowable as deduction and it has neither arisen nor accrued during the year under consideration nor has it made self apparent by the time of filing return of income and accordingly he added the same, to the income of the assessee - only claim of the assessee is that the reversal of provision of sales return made by the assessee and offered as income should not be taxed as it amounts to double taxation - HELD THAT:- Since the provision of sales return has not been allowed and has been taxed, therefore, we are of the view that if any amount is received in subsequent years out of the said provision for sales return, that amount cannot be taxed again if already taxed in the year in which the provision for sales return was made. Since this requires verificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clearly spelt out in the distributorship agreement. It is therefore held that the Assessing Officer has wrongly held that the receipt of marketing support payment and the commission on direct sales has to be separately examined devoid of its inter se relationship with the liability of the appellant for the payment of purchases made from BSFE - Thus assessee was required to make the payment to BSFE throughout the year and not otherwise, we are of the view that the order passed by the ld. CIT(A) in this regard does not require any interference. Under valuation of closing stock - HELD THAT:- We find that there is no dispute that the assessee is consistently following the same method of valuation of closing stock i.e. cost or market price whichever is lower. However, in practice it is only at cost it has been valued. Further the assessee is following FIFO method and as a result recent purchases go into the closing stock. AO in place of examining the valuation of different qualities of stents has applied average purchase rate of stents. Since the quality of stents varies significantly and when each stent can be identified quality-wise and amount-wise, there is no basis to app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 143(2) and 142(1) of the Act. The Assessing Officer completed the assessment at an income of Rs. 8,88,84,000 including the disallowance of provisions for contingencies inventory aggregating to Rs. 3,08,49)616 and provision for sales returns Rs. 2,53,63,360, vide order dated 29-3-2004 passed under section 143(3) of the Act. On appeal, the ld. CIT(A) partly allowed the appeal. 3. Being aggrieved by the order of the ld. CIT(A) the assessee and revenue both are in appeal before us. 4. Ground No. 1 to 4 in assessee s appeal are against the sustenance of disallowance of provisions of contingencies inventory aggregating to Rs. 3,08,49,616. 5. The brief facts of the above issue are that during the course of assessment it was inter alia observed by the Assessing Officer from note (1) to the computation of income filed along with return of income, the assessee claimed deduction for the following: ( i ) Provision for expired inventory Rs. 52,85,141 ( ii ) Provision for consignment inventory Rs. 33,56,518 ( iii ) Provision for excess inventory Rs. 1,85,57,815 ( iv ) Provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not standard accounting practice and such practice cannot be accepted for taxation purposes in the light of House of Lords decision in the case of B.S.C. Footwear Ltd. v. Ridgway (Inspector of Taxes) [1972] 83 ITR 269. Accordingly he added all the four provisions of contingencies inventory aggregating to Rs. 3,08,49,616 in the income of the assessee. 6. On appeal, the ld. CIT(A) while observing that the Assessing Officer has rightly rejected the system of valuation of stock adopted by the appellant, held, that the appellant is not entitled to reduce value of inventory by creating provisions and accordingly upheld the disallowance made by the Assessing Officer. However, on the alternative plea of the assessee that the assessee may be allowed the claim of write off of the actual inventory destroyed in the year, the ld. CIT(A) observed that the Assessing Officer has not dealt with the issue in the assessment order. The appellant company is following the system of valuation of stock at cost or market price whichever is lower. He further observed that claim of the provisions of reduction in inventory has been disallowed by him, the appellant is entitled to claim of write-off of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision, if any, in subsequent years should not be taxed and the Assessing Officer may be directed to allow the same as deduction. 8. On the other hand, the ld. DR while objecting to the directions of the ld. CIT(A) to allow the actual destruction and write-off of the stock during the year after verification, supports the order of the Assessing Officer. 9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. We further find that it is also not in dispute that the Assessing Officer following the direction of the ld. CIT(A) has passed assessment orders under section 143(3) read with section 147/3 50 of the Act for the assessment years 1998-99, 1999-00 and 2000-01 and the same view has been taken consistently for the assessment years 2004-05, 2005-06 and 2006-07. The ld. DR has placed no material on ?record to show that the said assessment orders have been set aside by the revenue authorities or the said assessment orders are not valid in law. In this view of the matter, we are of the view that the objection raised by the id. DR that the directions of ld. CIT(A) are not valid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sales return from distributors and has been made by working out the anticipated liabilities on the basis of past experience. However, the Assessing Officer was of the view that such a provision is contingent in nature and not allowable as deduction. It has neither arisen nor accrued during the year under consideration nor has it made self apparent by the time of filing return of income and accordingly he added the same, to the income of the assessee. On appeal, the ld. CIT(A) in view of the ratio of the decision of Hon ble Apex Court in CIT v. British Paints India [1991] 188 ITR 44 held "that the Assessing Officer was justified in making addition of sales returns of Rs. 2,24,68,929 (this is the correct amount)". However, he directed the Assessing Officer to allow the deduction of Rs. 2,16,59,100 being the provision for sales return added back in the sales in assessment year 2001-02. 14. At the time of hearing, the ld. Counsel for the assessee submits that he does not want to press the above ground subject to the direction that the reversal of the provision for sales return should not be taxed as income. He further submits that it may be noted that the ld. CIT(A) has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 719 (Delhi). 19. On the other hand ld. DR supports the order of the Assessing Officer and ld. CIT(A). 20. After hearing the rival parties and perusing the material available on record we find merit in the plea of the ld. Counsel for the assessee that the issue of levy of interest under section 234D of the Act is covered in favour of the assessee by the decision of the Special Bench of the Tribunal in Ekta Promoters (P.) Ltd. case ( supra ), wherein it has been held (page-33) : "In view of the above discussion our answer to question referred to us is that interest under section 234D is chargeable from the assessment year 2004-05 and it could not be charged for earlier years even though regular assessment for these years are framed after June 1, 2003, or the refund was granted for those years after the said date." Applying the ratio of the above decision to the facts of the present case we find that the assessment order for the year under consideration i.e. assessment year 2003-04 was passed on 29-3-2004 i.e., after June 1, 2003, the interest under section 234D is not chargeable as the same is chargeable from the assessment year 2004-05 and accordingly the ground ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded in paras 9, 10, 11 and 16 of this order. We hold and order accordingly. The grounds taken by the assessee are therefore partly allowed. 26. Ground No. 6 is against the levy of interest charged under section 234D. 27. After hearing the rival parties and perusing the material available on record we find that the impugned issue stands covered in favour of the assessee by the decision of the Special Bench of the Tribunal in Ekta Promoters (P.) Ltd. s case ( supra ). This being so, and in the absence of any other contrary material placed on record by the ld. DR we respectfully following the order of the Special Bench of the Tribunal delete the interest charged under section 234D of the Act and accordingly the ground taken by the assessee is allowed. ITA NO. 5917/M/2006 (assessment year 2002-03) (Revenue s Appeal) 28. Ground No. 1 in revenue s appeal is against the deletion of adjustment made by the Assessing Officer as per order of the Transfer Pricing Officer Rs. 24,32,924. 29. The brief facts of the above issue are; that it was inter alia observed by the Assessing Officer that the assessee has international transactions with its associated enterprises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,75,276.80 46,58,07,798.49 (12,37,32,521.69) 30-6-2001 32,70,18,588.38 47,60,91,223.30 (14,90,72,634.92) 31-7-2001 32,77,32,018.38 46,43,92,760.24 (13,66,60,741.86) 31-8-2001 41,08,69,479.18 48,88,61,838.76 (7,79,92,359.58) 30-9-2001 41,08,94,013.43 49,40,07,652.41 (8,31,13,638.98) 31-10-2001 41,17,48,054.73 47,18,02,845.43 (6,00,54,790.70) 30-11-2001 41,16,57,515.73 50,01,35,959.01 (8,84,78,443.28) 31-12-2001 44,71,84,327.73 47,90,80,426.65 (3,18,96,098.92) 31-1-2002 44,97,94,890.73 48,13,10,251.46 (3,15,15,360.73) 28-2-2002 45,18,26.950.73 47,64,56,717.62 (2,46,23,766.89) 31-3-2002 45,25,85,881.73 49,62,81,674.80 (4,37,15,793.07) Average 39,36,52,897.39 47,62,01,266.83 (8,25,48,369,44) The ld. CIT(A) after examining the above chart and the distributorship agreement has held vide para-5.11 and 5.12 of his order as under : "5.11 Regarding the commission income, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Assessing Officer has wrongly made adjustments of Rs. 24,33,924. Addition made is accordingly deleted. Appeal on ground Nos. 5 and 6 is allowed." In the absence of any contrary material placed on record by the revenue against the finding of the ld. CIT(A) and keeping in view that the assessee was required to make the payment to BSFE throughout the year and not otherwise, we are of the view that the order passed by the ld. CIT(A) in this regard does not require any interference and accordingly the same is upheld. The- ground taken by the revenue is therefore, rejected. 33. Ground No. 2 is against levy of interest under sections 234B and 234C. 34. After hearing the rival parties and perusing the material available on record we are of the view that in view of our finding recorded in para 22 of this order, the assessee is not liable to interest under sections 234B and 234C and accordingly the same is deleted. The ground taken by the revenue is therefore rejected. ITA No. 5482/M/07 (assessment year 2003-04 ) (Assessee s Appeal) 35. Ground Nos. 1 to 4 in assessee s appeal are against the sustenance of disallowance of provision of contingencies inventory and Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as submitted before the ld. CIT(A) further submits that since the assessee was able to identify 743 stents of various quality which are in the closing stock and also identified the purchases of that quality of the stent made in the quarter ending March 2003 and based on that the assessee has made the valuation of closing stock, therefore, the Assessing Officer was not justified in taking the valuation of closing stock on average purchase price. He therefore, submits that the order passed by the ld. CIT(A) in deleting the addition be upheld. 42. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that there is no dispute that the assessee is consistently following the same method of valuation of closing stock i.e. cost or market price whichever is lower. However, in practice it is only at cost it has been valued. Further the assessee is following FIFO method and as a result recent purchases go into the closing stock. The Assessing Officer in place of examining the valuation of different qualities of stents has applied average purchase rate of stents. Since the quality of stents varies significantly and when each ..... X X X X Extracts X X X X X X X X Extracts X X X X
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