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TMI Blog2014 (11) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be–(a) in accordance with the method of accounting regularly employed by the assessee. Therefore, what is to be seen is how the assessee is maintaining the accounts regularly in the course of his business and the accounting treatment and presentation of financial statement of transactions should be covered by the substance and not merely by the legal form. It is the principle which is to be kept in mind by both the appellate authorities. The aforesaid material clearly demonstrate instead of showing cost price as nil in the profit and loss account, cost price of the items are given in profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had become obsolete due to changed technology. Aggrieved by the said order, the revenue preferred an appeal to the Tribunal. The Tribunal upheld that order of the first Appellate Authority. Aggrieved by the same, the revenue is in appeal before this Court. 3. The appeal was admitted to consider the following substantial questions of law:- "(1) Whether the Appellate Authorities were correct in holding that the provision for obsolescence in inventory of a sum of ₹ 5,79,77,000/- is an allowable deduction on account of the up gradation of technology by ignoring the fact that these items continued with the assessee and it would be an allowable deduction in the year when these items were actually disposed of? (2) Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d explain its basis and justify its deductibility. In response, the assessee has given complete details of provision for obsolescence specifying items, quantity, rates/value and the percentage at which the provision has been made in respect of various products/spares. The said provision is created in accordance with the method of accounting regularly employed by the assessee and has been created in respect of (a) Products which had lost their market value on account of being obsolete; (b) Products which are damaged and which could not be sold to customers and (c) Products which were returned by customers and could not be re-sold. 7. The said provision is created essentially in a situation, where the market value of the stock and spar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be-(a) in accordance with the method of accounting regularly employed by the assessee. 10. Therefore, what is to be seen is how the assessee is maintaining the accounts regularly in the course of his business and the accounting treatment and presentation of financial statement of transactions should be covered by the substance and not merely by the legal form. It is the principle which is to be kept in mind by both the appellate authorities. The aforesaid material clearly demonstrate instead of showing cost price as nil in the profit and loss account, cost price of the items are given in profit and loss account and a provision is made for obsolescence in inventory showing that the market value is nil and that is the mode in which the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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