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TMI Blog2016 (4) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) failed to appreciate that the exports of goods was required to be determined at the Arm's Length Price. (c) The Ld. CIT(A) has not provided any cogent explanation to adopt the rate of 8.25% while rejecting the GP of 22.64% adopted by the TPO to determine Arm's Length Price." 3. The assessee company was set up to engage in sourcing distribution and marketing of sportswear, sports footwear and sports equipment appearing the brand name 'Adidas'. M/s Adidas A G Germany has set up on the subsidiary company in the name and style of M/s Adidas India Pvt. Ltd after obtaining due approval. M/s Adidas India Pvt. Ltd. provided license technology to the assessee company i.e. M/s Adidas India Trading Pvt. Ltd. As per the agreement M/s Adidas India Pvt. Ltd. was to provide exclusive non-transferable rights to manufacture distribute and sale the license products in India, Nepal and Bhutan on payment of royalty at 5% of the sales effected. As per the agreement M/s Adidas India Pvt. Ltd was not to manufacture or distribute or sale the license products within the license territory so as to compete with the assessee company. The assessee company had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the two quotes were even used to end up in a negotiation process. However, it is seen that the inventory exported to the overseas AE is not the same that has been further sold to SIMO. This is established from the contents of the articles recorded in the invoice of sale to the AE and the invoice of sale to SIMO. This proves that the same articles have not been sold to any third party as claimed by assessee by filing invoice of sale to SIMO. If the assessee is to be believed then as per claim it has exported a part of its old goods to its AE in Singapore in the month of June, 2004 and these goods were sold to third party i.e. SIMO only in the month of February, 2005 i.e. after a gap of eight months. Taking into account the fact that goods were kept in warehouse in Singapore for a long period of eight months and huge warehousing cost at Singapore it would further increase the cost of these alleged rejected goods and this will not make any business sense. The claim of sale of rejected goods Ex-Singapore which has a high cost of inventory holding, cannot be believed for the following reasons 1. The sale invoice did not contain sale or resale of rejected goods. 2. It is agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at the lower of their cost or net realizable value. The provisions are to be calculated monthly based on standard cost; however for practical purposes, the calculation may be based on the actual cost of the inventory as it approximates to the standard cost. The value of the inventory is to be depreciated at variable rates over a one year period. A closer look shows that there exists a close out date for an inventory and it starts getting depreciated even before the close out date and continues progressively at regular intervals of three months. The Ld. AR further stated that the inventory was valued at standard cost. In this light the provisions of AS-2 which defines the valuation of inventories was required to be visited. The Accounting Standard (AS-2) stipulated that when it was impractical to calculate at cost, the following methods may be followed to ascertain cost. > Standard Cost > Retail Cost The accounting standard stipulates that these methods may be used for convenience if the results approximate actual cost. > The standard cost takes into account normal level of consumption of material and supplies, labour, efficiency and capacity utilization. It may be regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso takes into account the purpose for which the inventory is held. Estimation of net realizable value is made at each balance sheet date. 8. The Ld. AR further submitted that to bring the inventory to its net realizable value stock of valuation of Rs. 46,777,000/- has to be toned down. This is indication enough that the toned down value of stock is the least value that has to be netted off from the closing value of stock and that the same is congruent to the market value without the gross margin. During the course of discussion, the assessee has further confirmed that the stock pertains to this block. The assessee was also specifically asked as to what amount out of this stock pertained to its sale to its overseas Associated Enterprise. The assessee has not been able to submit any detail. However, the figurative details furnished on record shows that the assessee has sold the stock which totally pertains to the toned downed value. It was contended that the assessee submitted before the Assessing Officer that the overseas subsidiary has further sold the stock to an independent third party SIMO. The margin of profit earned is less than 8.25% which has been reportedly paid by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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