9911796707
TMI Blog2015 (2) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) has erred in deleting the adjustment of book profit on account of addition of provision for storage and handling charges of Rs. 62,26,347/- ignoring the fact that assessee was unable to give any substantiate proof of doing it." 2. The brief facts of the case as noted in the assessment order are that Assessee Company is engaged in the business of marketing, manufacturing and distribution of diesel and mobile lubricants. The company has filed its return of income on 31.10.2002 declaring loss of Rs. 3,65,30,752/-. The case of the assessee was selected for scrutiny. During assessment proceedings, the A.O. made following two additions besides making other additions. The extract from assessment order is reproduced below: "i) Provision for storage & handling charges - Rs. 62,26,347/- : Similarly the assessee claimed provision of expenses for storage and handling charges amounting to Rs. 62,26,347/-. In spite of opportunities provided to the assessee to give specific details in respect of which the aforementioned provision was made. The assessee merely gave the dates on which the provisions were made without giving specific details of the bills for which the aforementioned pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 10Cl and the assessee. The assessee was unable to give any basis of agreement and also failed to substantiate its claim that the said amount was reflected in the closing stock of inventory. In view of this and in the absence of any reconciliation figures between 10el and the assessee, the aforementioned claim of the assessee is disallowed." 3. The A.O. while computing profits as per Section 115JB, disallowed provisions for cartage and handling charges by holding that provision for cartage and handling charges was not ascertained liability. Aggrieved, the assessee filed appeal before Ld. CIT(A) and Ld. CIT(A) allowed relief to the assessee by holding as under: "(b) Storage and handling charges amounting to Rs. 62,26,347/-: The provision for storage and handling charges disallowed by the AO is the year-end provision and relate to the expenses which have accrued / arisen during the relevant previous year. As per the mercantile system of accounting, the income and expenses relating to a financial year are required to be accounted for in the same financial year. Therefore, in order to account for such expenses in the financial year to which they relate to, the appellant in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C at its plant on behalf of the appellant. For undertaking the blending activities, IOC utilized the raw materials of the appellant. Also, the finished goods belonging to IOC and the appellant were placed at the IOC's plant and it was not possible to made a distinction between the stock of the appellant and the IOC. Further, the joint venture broke-off pursuant to which the process of reconciliation of inventory between the appellant and IOC commenced, since the inventory belonging to the appellant and IOC was lying at the same premises. Subsequent to the reconciliation activity, there was a difference amounting to Rs. 1.5 crores (approximately) between the actual physical inventory and the value of the inventory in the books of the appellant. IOC refused to compensate the appellant for this difference in the inventory. Also, no documentary evidence could be obtained from IOC in relation to the difference in the inventory. In view of this, the difference was written off in the books of accounts of the appellant. From the perusal of the minutes of the meetings of the Directors of IOC & the appellant dated 10.11.01 wherein the final value of inventory write off was determined bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional and scientific basis. Accordingly, the provision for storage and handling charges and provision for royalty is not required to be added back for the purpose of computing the book profits under section 115JB of the Act, as these are in the nature of ascertained liabilities." 4. Aggrieved, the revenue is in appeal before us. 5. Ld. D.R. at the outset argued upon ground No.1 & 3 and submitted that no details were provided to A.O. regarding provision for cartage and handling charges and only date of creating provisions were provided and therefore, A.O. had rightly made addition. It was submitted that Ld. CIT(A) has not given any reasoning for allowing relief to the assessee and instead he had given his opinion that the relief should be allowed. Ld. D.R. submitted that the A.O. was also not given chance to examine the revised paper book therefore, as per the provisions of Rule 46A, the matter needs to be remanded back to the office of A.O. Regarding ground No.3, Ld. D.R. submitted that diminishing in value of stock needs to be added back as per the provisions of Section 115JB, therefore, A.O. has rightly made the addition. 6. As regards ground No.2, regarding write off of inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of which an amount of approximately Rs. 1.51 crores was written off in the present year and remaining amount of Rs. 0.49 crores approximately was written off in the succeeding year. Ld. A.R. submitted that though reconciliation was made for 1998-99 to 2001-02 but the loss was determined in the year under consideration. Therefore, loss relates to this year only. It was submitted that assessee had taken over the business from IOC, therefore, the reconciliation was necessary. He further submitted that a part of loss has been allowed in favour of the assessee and Hon'ble High Court has already confirmed the same. Ld. A.R. also submitted that write off was duly reflected in the financial accounts and was duly considered by Board of Directors of the Company. As regards violation of Rule 46A, Ld. A.R. submitted that revised paper book containing particulars of item-wise write off was filed with Ld. CIT(A) on his direction only and it was not filed as additional evidence. 8. We have heard rival parties and have gone through the material placed on record. First of all, we take up grounds No.1 & 3 which are interconnected. We find that the provisions of Rs. 62.26 lacs consist of paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: "The Ld. CIT(A) while deleting the disallowance, took into account the assessee's explanation that the write off of the inventory was due to a genuine discrepancy between the actual stock found on physical verification and that shown in the books of account of the assessee. This remains undisputed besides the fact that the assessee's auditors had also verified the write off. It has been correctly held that the write off is a trading loss allowable u/s 28(1) of the Act. Undisputedly, nothing was brought on record by the A.O., the stablish that the assessee had made any sales out of its books. The CIT(A) cross checked the details of the assessee's ledger account showing the write of the inventory with the details shown in the item wise write off of inventory, as submitted by the assessee. The consolidated item wise quantity of the stock as per the assessee's books and as per physical verification had resulted in the shortage of stock of Rs. 49,47,794/-. The financial statement of the assessee revealed that the write off of the inventory was on a reasonable basis, as certified by the assessee's auditors. It was as such that the Ld. CIT(A) held the inventory write off to be a tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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