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TMI Blog2018 (11) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... n of closing stock was not sustainable and the Ld. CIT(A) was fully justified in deleting the same. CIT(A) giving relief to the assessee on this issue and dismiss ground no 1 of the revenue’s appeal. Disallowance u/s 40(a)(ia) as well as section 37 - expenses on service charges for computer installed in its Kolkata office and maintenance of flats - Held that:- The said expenditure thus was incurred by the assessee company wholly and exclusively for the purpose of its business and the same was not liable to be disallowed u/s 37 as rightly held by the CIT(A). As regards the disallowance of the said expenditure u/s 40(a)(ia), it is observed that the expenditure on account of maintenance of flats to the extent of ₹ 5,95,754/- was made by the assessee company on account of payment to Cooperative Housing Society for regular maintenance and for purchase of certain attempts and since no tax at source was deductable from the said payments, the same were outside the purview of section 40(a)(ia) as rightly held by the CIT(a) while restricting the disallowance of ₹ 8,96,169/- made by the AO to the extent of ₹ 2,10,415/- thereby allowing the relief of ₹ 6,85,754/-. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Parliament on 28.02.2011 to reduce the basic custom duty on raw silk from 30% to 5% and keeping in view this drastic reduction, the net realisable value of the products held by the company in stock as on 31st March, 2011 was worked out. It was submitted that a scientific approach was adopted while determining the net realisable value of the closing stock by categorising the stock into moving, non-moving, slow-moving and rejected items. Some sample copies of invoices raised by the assessee company in the subsequent year were also produced to show that the actual price realised for the attempts in closing stock was actually lower than the prices adopted by the assessee company for valuation of closing stock. The Assessing Officer did not find merit in this explanation offered on behalf of the assessee company. According to him, the budget presented by the Govt. of India in the Parliament on 28.02.2011 was for the F.Y. 2011-12 and the same, therefore, was not applicable for the F.Y. 2010-11 relevant to A.Y. 2011-12 under consideration. As regards the invoices of the subsequent year produced by the assessee company to justify the depletion of closing stock, the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to refer this point as technical in nature and refrained from making comments so far as adequacy of the valuation made for diminution in value of inventories. The auditor therefore left the matter to be decided by appropriate authority and as per legal position on this issue. In my opinion such comment of the auditor cannot be construed as an adverse one particularly when there is no adverse finding regarding purchase, sale, opening stock etc. Consequently, similar comments of the auditor appearing at Point 2(g) and Point 3 cannot have any adverse impact as far as assessment is concerned. ii) As regards valuation of depletion of closing stock of ₹ 27,18,66,432/- and allowability of such claim, the AR has drawn my attention to guidelines issued by ICAI through Accounting Standard 2 which authorises valuation of inventories at lower of cost or net realizable value (NRV). NRV as defined means the estimated selling price in the ordinary course of business. It is also stated that the practice of inventorisation below cost to NRV is consistent with the view that assets should not be carried in excess of amounts expected to be realized from their sale. AS-2 formulated by ICA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lizable value whichever is lower and the same had been accepted by the tax authorities since the past so many years u/s 143(3) is examined. The principle of res judicata is not applicable in Income Tax proceedings but the principle of 'Consistency' has to be maintained when there is no material change in the facts of the matter. Hence, I agree with the view of the AR that there should not be any departure from such practice in the present year particularly when no defect has been pointed out in the books of accounts of the appellant. v) The AR has contested the AO's view that the Budget Speech dated 28.02.2011 proposing reduction of import duty from 30% to 5% has no relevance in the present assessment year. In this context, the AR has argued as follows: Since the price of raw material was to come down heavily due to budget proposal the stock that the company had in hand would not fetch the same price at which they were purchased. The reduction in the value of the products was so substantial that there was major glut in the market look a long time to recover from the stock. The above contention is examined with reference to unaudited subsequent period an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck on net realizable value as a reasonable basis. The relevant finding reads as follows: In our view, the value of stock on cost price or net realizable value is an accepted method and therefore CIT (A) has rightly rejected the view taken by the A.O. that the stock cannot be valued at net realizable value . viii) I also find the relevancy of the judgement of Madras High Court in the case of India Motor Parts Accessories Pvt. Ltd. reported at 60 ITR 5310, wherein, it was held that the method of valuing slow moving and obsolete stock at a price below cost price is a recognized method in other countries. The same method should be logistically applicable in the appellant's case as well. ix) Considering the entire gamut of the issue as well as the legal position in this regard as discussed supra, I have no hesitation in holding that the disallowance of the claim in respect of depletion of stock based on net realizable value is not sustainable on merits in the absence of any cogent and tenable premise presented by the AO. In view of this, the addition made on this count by the AO is directed to be deleted amounting to ₹ 27,18,66,432/-. In view of this, Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was accepted by the AO even in the A.Y. 2012-13. He contended that the depletion of closing stock in any case was revenue neutral in as much as any higher realisation on actual sale in subsequent year would have suffered tax in that year. 7. We have considered the rival submissions on this issue and also perused the relevant material available on record. It observed that its closing stock as on 31.03.2011 was valued by the assessee company by following the method of cost or net realizable value whichever is lower and this valuation made by the assessee company had resulted in depletion of closing stock to the extent of ₹ 27.18 crores. The said method adopted by the assessee company for valuation of closing stock was consistently being followed by it and there is no dispute about the same. The dispute raised by the AO was in respect of net realizable value of closing stock as determined by the assessee company. As claimed on behalf of the assessee company before the authorities below as well as before us, the net realizable value of the items such as yarn and fabrics was determined by taking into consideration the change in the government policy whereby import duty on raw s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company during the subsequent year clearly established that the actual sale price realised by the assessee company of the said products was even lower than the net realizable value adopted by the assessee for the purpose of valuation of closing stock and the same produced by the assessee before the AO were sufficient to support and substantiate the net realizable value of the items lying in closing stock as determined by the assessee company as on 31st March, 2011. It is observed that the AO however did not accept the said evidence as reliable on the ground that the sample invoice copies produced by the assessee were mainly raised on the related parties. As submitted on behalf of the assessee company before the authorities below as well as before us, the sale of these products was mainly made by the assessee company always to the related parties and therefore, there was no justifiable reason for the AO to reject the said evidence and as unreliable merely on the ground that the invoices were raised by the assessee company on the related parties. It is pertinent to note here that the said invoices raised by the assessee mainly on the related parties in the subsequent yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not also suggest any disallowance u/s 37 of the Act. Hence, the appellant gets relief of ₹ 5,95,754/- ₹ 90,000/-. These grounds of appeal are partly allowed. 11. We have considered the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the expenditure of ₹ 90,000/- was incurred by the assessee on service charges for computer installed in its Kolkata office and since the payment of the said expenditure was made by the assessee company after deducting tax at source @ 10%, the same was not liable to the disallowed either u/s 37 or u/s 40(a)(ia) as rightly held by the Ld. CIT(A). As regards the expenditure of ₹ 8,06,169/- incurred by the assessee company for the maintenance of flats at Kolkata, Bangalore and Rashi, it is observed that the said flats were used by the assessee company for storing/display of goods for sale or for stay of its employees. The said expenditure thus was incurred by the assessee company wholly and exclusively for the purpose of its business and the same was not liable to be disallowed u/s 37 as rightly held by the Ld. CIT(A). As regards the disallowance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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