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TMI Blog2015 (2) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... n - Held that:- The Ld. A.R. though invited our attention to minutes of Board Meeting and details of inventory loss but did not bring to our notice as to how sum of total loss written off during this year and how only this amount was determined to be written off during this year, was arrived at. On the one hand, Ld. A.R. argued that total loss on account of reconciliation was about ₹ 2 crores out of which ₹ 1.51 crores was written off in the year under consideration and ₹ 49 lacs was written off in the succeeding year but the facts noted in the P & L account reveal that in earlier year also, a similar loss was written off to the extent of ₹ 2.13 crores. Therefore, the matter needs to be readjudicated by Ld. CIT(A) who on the basis of total amount of loss determined on account of reconciliation will determine the actual amount of total inventory loss to be written off in the year under consideration. The Ld. CIT(A) will also examine as to when settlement took place between the parties and when the loss was determined and was required to be written off. - Decided in favour of revenue for statistical purposes. - I.T.A. No. 418/Del/2011 - - - Dated:- 6-2-2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther examination of the profit and loss account revealed that the assessee had claimed inventory write off to the extent of ₹ 1,51 ,55,330/-. The assessee was asked to give details and the basis on which the aforementioned write off was made. The assessee also asked to give details of the closing stock to which the aforementioned write off pertained. The assessee vide its letter dated 23rd February, 2005 submitted as under :- Basis of writing off of finished goods of ₹ 151.55 lakhs EMLPL (formerly Indo Mobil Limited) was a joint venture between 10Cl and Mobil Oil Petroleum, with both the joint venture partners holding equal number of shares. With effect from December 12, 2001, Mobil Oil Petroleum acquired the 50% share of 10Cl, thereby making the Company a 100% subsidiary of Mobil Oil Petroleum. The Company during the relevant financial year availed the services of various toll blenders to manufacture its products. 10Cl was one of the toll blenders. EMLPL purchased raw materials from JOCL and at the same time also sold some finished goods to JOCL. EMLPL's account was settled by IOCL by netting off purchase and sale transactions. The plant used by IOCL to manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts. The provision was created on the basis of estimates received from the vendors / creditors and on the basis of past experience. The creation of the provision on the above mentioned basis is in my opinion rational and scientific. The appellant has enclosed two spread sheets in respect of each of the C F agents. The first spread sheet provides details of the name of the party, location of the party, nature of payment and the amount of provision made in respect of each party. The second spread sheet depicts the month wise details with regard to the provision made in respect of each party. The details contained in the spread sheet comprises of the date of making provision, payments made consequently to such C F agents, date of receipt of statements from the C F agents and the reason for which the payments were received. The spread sheet reconcile each entry of provision made in respect of every month with the corresponding payments made for those months. Thus, a correlation is established between the amount of provision created month wise and the subsequent payments made to the parties. The spread sheets are attached at page 8 to 41 of the revised paper book. The statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accompanying documents depicting the negotiations in Sept. October 2001, prior to the final settlement, I am of the view that the said write-off of inventory has been made on the basis of the physical difference between the closing stock in the appellant's depots and closing stock as per the books of accounts. The appellant has also submitted the consolidated item wise quantity as per books as per physical verification which has resulted in the shortage of stocks worth ₹ 1,51,55,336/- at pages 131 and 132 of revised paper book. Further, I have perused the illustrative details of ledger accounts showing he write-off of inventory by the appellant. This write-off was cross-checked with write-off of inventory submitted by the appellant in the paper book filed along with the submissions (page no 131 and 132 of the revised paper book). Also, the financial statements reveal that the value of write-off of inventory was arrived at on a reasonable and adequate basis, which has been certified by the auditors. Accordingly, the claim of the appellant is tenable and therefore Inventory write off for ₹ 1,51,55,330/- is allowable as deduction. Further no evidence has been b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was not sent to A.O. for examination, therefore, the same also needs to be sent back for readjudication. It was submitted that in the subsequent year, a similar addition was decided by ITAT in favour of the assessee but the facts of the present case are distinguishable as in this year, the losses relate to earlier years which has been written off as reconciliation of stock was going on for more than 5 years and in the succeeding year the loss was relating to only that year was considered. 7. Ld. A.R. on the other hand submitted that grounds No.1 and 3 are interconnected and Ld. CIT(A) has held that the liability was ascertained liability so he deleted the addition under the normal provisions and under the provisions of Section 115JB. It was submitted that the A.O. did not raise the query regarding additions and he made the addition and that is why, the additional evidence was filed and in this respect our attention was invited to paper book pages 98-104 where a copy of application for additional evidence was placed. Referring to remand report, placed at paper book pages 105-106, Ld. A.R. submitted that the A.O. did not evaluate the additional evidence despite given a chance to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced at paper book pages 117-118. Similarly, the item-wise details of provisions along with payments made to CFA in succeeding year are placed at paper book pages 119-152. From the nature of details of provisions and the evidence of having made payments of the same in subsequent year clearly establish that the provisions were ascertained liability and therefore, Ld. CIT(A) has rightly deleted the disallowance. We find that the details were submitted to Ld. CIT(A) as an additional evidence as placed at paper book pages 98-104 and these were duly forwarded to A.O. who in his remand report had replied as under: Grounds No.2 - regarding provision for storage and handling charges ₹ 62,26,347/- The AR of the assessee during the course of remand proceedings submitted that the commission and handing charges are paid at fixed rates on the sales made while for the expenses of transportation and telephone, stationery etc. provision is made on estimate basis on the basis of volume of sales. As the AR has stated that the provision is made on estimate basis i..e the liability is un ascertained, the provision made for reimbursement of transportation and telephone, stationery etc. is not al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s business. 14. Hence, ground No.2 is found to the sans sub stratum and is rejected. 11. From the findings of ITAT we find that the Tribunal had allowed relief on the basis that auditors of the company had certified the loss and nowhere in the order, ITAT has mentioned that it was a part of total loss of about ₹ 2 crores. The Ld. A.R. though invited our attention to minutes of Board Meeting and details of inventory loss but did not bring to our notice as to how sum of total loss written off during this year and how only this amount was determined to be written off during this year, was arrived at. We further find from the copy of P L account placed at paper book page 242 that in earlier year also, the assessee had written off similar inventory loss amounting to ₹ 2.13 crores. On the one hand, Ld. A.R. argued that total loss on account of reconciliation was about ₹ 2 crores out of which ₹ 1.51 crores was written off in the year under consideration and ₹ 49 lacs was written off in the succeeding year but the facts noted in the P L account reveal that in earlier year also, a similar loss was written off to the extent of ₹ 2.13 crores. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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