9911796707
TMI Blog2012 (8) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... ly assessment was reopened u/s 147 on the reason that the assessee had deducted an amount of Rs.80,97,004/- under the head 'provision for obsolete stock written back' from the total income which is not an allowable deduction. In course of reassessment proceedings, the assessee explained before the AO that for the assessment year 2001-02 though the assessee has made provision for obsolete stock amounting to Rs.1,98,96,833/- but, while computing total income, no deduction under obsolete stock was claimed. Out of the aforesaid amount of obsolete stock an amount of Rs.80,97,004/- was written back and credited to the Profit & Loss A/c for the assessment year 2002-03. The assessee claimed that since obsolete stock of Rs.1,98,96,833/- was offered as income for the assessment year 2001-02, assessee is entitled to claim deduction of the obsolete stock credited to Profit & Loss A/c for the assessment year 2002-03. The AO rejected assessee's explanation by observing that there is no provision under the Act to allow deduction for obsolete stock. The AO has observed that the assessee has not produced necessary proof to show the procedure adopted to evaluate the closing stock. With the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned AR appearing for the assessee, at the outset, submitted that he does not want to press the legal issue raised in ground Nos. 1 and 2 relating to reopening of assessment. Hence, ground Nos. 1 and 2 are dismissed as not pressed. The learned AR contended before us that the CIT (A) is totally wrong in observing that the assessee had claimed deduction of an amount of Rs.1,98,96,833/- in the assessment year 2001-02. The learned counsel for the assessee submitted before us Profit & Loss A/c for the assessment years 2001-02, 2002-03 and 2003-04 and demonstrated that though in the Profit & Loss for assessment year 2001-02 closing stock was shown at Rs.105,056,230 after reducing the provision for obsolete stock amounting to Rs.1,98,96,883/- but while computing the income for income-tax purpose. The assessee has not taken the aforesaid deduction and has arrived at profit by taking the closing stock at Rs.124,953,153.50. The learned AR contended that for the assessment year 2002-03, the assessee added back Rs.80,97,004/- to the closing stock as provision no longer required and shown the closing stock in the books of accounts at Rs.9,87,33,398/-. However, while calculating IT liability, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the closing stock towards provision for obsolete/slow moving stock no longer required and shown the closing stock at Rs. 10,59,02,021/- (i.e. Rs. 10,14,58,242/- plus provision no longer written back of Rs. 44,43,779/-). For the purpose of computing income tax liability for AY 2003-04, the valuation of closing stock has been taken without considering the provisions i.e. the above sum of Rs. 44,43,779/- was reduced from the closing stock since this provision was also reversed out of the provision created during the financial year relevant to AY 2001-02 (i.e. out of Rs. 1,98,96,833/-), that has already been offered to tax in AY 2001-02. In the books of accounts stock is valued by deducting or adding the provisions for value of obsolete/slow moving items (as the case may be). But for the purpose of income tax, the value of closing stock has to be taken ignoring the provisions made or written back for obsolete/ slow moving item as done by the assessee. In the instant case. the learned assessing officer and Commissioner of Income Tax (Appeals) has misunderstood that the assessee had claimed deduction of Rs.1.98.96.833/- in the AY 2001-02. This is not correct as for the purpose of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee are treated as allowed for statistical purpose. ITA No.1088/Hyd/2010 (departmental appeal): 9. The department has raised the following effective ground:- "Whether CIT (A) is correct on the facts and circumstances that the assessee has correctly reduced Rs.24,55,321 from total income on account of provision of doubtful debts written back" 10. In course of assessment proceedings, t he AO found that the assessee company has claimed deduction of an amount of Rs.24,55,321 being provision for bad debts. The assessee explained that for the assessment year 2001-02 the assessee had made a provision for bad debt but the same was not claimed as deduction while computing the income-tax liability for the said assessment year. For the assessment year 2003- 04, a part of the provision for bad debt amounting to Rs.24,55,321 was reversed and credited to the Profit & Loss A/c. Since the provision for bad debt debited to the Profit & Loss A/c in the assessment year 2001-02 was not claimed as deduction, the withdrawal from such provision and credit to Profit & Loss A/c was therefore deducted while computing the income-tax liability for the assessment year 2003-04. The AO rejected the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the carried forward provision, an amount of Rs.47,49,633/- was written back by reducing the provision and increasing the income by the aforementioned amount as per the entries above. It is very clear from the above accounting entries that when the appellant debited the profit and loss account by creating the provision for doubtful debts, for computation of taxable income, it added back the debited amount. Therefore, during the current year when it wrote back Rs.47,49,633/-, thereby increasing the income by this amount, actually it could have reduced Rs.47,49,633/- from the profits determined for the purposes of Income Tax Act because as per the Income Tax Act, there should not have been any carry forward of the provision for doubtful debts. In the revised return of income, instead of reducing Rs.47,49,633/- from the profit and loss a/c, the appellant reduced only Rs.24,55,321/- thereby showing an additional income of Rs.22,94,312/- as per the Income Tax Act. 6.3 With this background, it is clearly seen that the assessing officer is not correct in his arguments. It is not a question of disallowing provision for doubtful debts under the Income Tax Act. As has been discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s below:- "Similarly, the assessee has made a provision for bad debts i.e., detailed to its profit and loss account in earlier years. However, as it is only a provision (and not allowable under Explanation to section 36(1)(vii) of the Income-tax Act, 1961), the same was not claimed as deduction while computing the income tax liability for respective asst. Years. For asst. Year 2003-04, Rs.24,55,321/- constituting a part of the provision for bad debts made in the earlier years, were reversed and credited to the profit and loss account as the provision debited to profit and loss account earlier were not allowed as a deduction, the withdrawal from such provision and credited to profit and loss account cannot also be taxed. Hence this amount was reduced while computing the income-tax liability for asst. Years 2003- 04 to avoid taxing the same income twice." 13. We have heard rival contentions and perused the materials on record. It is seen from the statements submitted before us that for the assessment year 2001-02, the assessee was having an opening balance of provision for doubtful debt amounting to Rs.66,53,317/- .For the assessment year 2001-02, the assessee created a provision f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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