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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 ..... management perception resulting in depletion of stock value of Rs. 27.18 crores. In this regard, the assessee company was called upon by the AO to offer its explanation during the course of assessment proceedings. It was explained on behalf of the assessee company that there was no change in the method of valuation of closing stock and the valuation of stock was made by applying either the cost or the net realizable value whichever is lower. It was pointed out that a decision was taken by the Govt. of India in the budget of 2011-12 placed 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as written, in the backdrop of the assessment order as well as the materials on record along with the judicial decisions as cited by the AR. After due examination of the issue at hand in this regard, my findings and decision are as follows: i) The comments of the Auditor as appearing at Point No. 2(f) of Audit Report dated 24.08.2011 as reproduced by AO at Page 2 of assessment order are examined. I am unable to concur with the AO that comments of the auditor are against the appellant. The auditor thought it proper 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 Rs. 27,18,66,432/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as on 31.03.2011, which you will observe is much higher than what we could realize.' In view of the totality of facts in the matter, I am of the considered opinion that the statement showing depleted value of raw materials & finished goods which forms part of assessment order is treated as not tenable on the ground of misconception or confusion. iv) The contention of the appellant that the company had been valuing its inventories since its inception at cost price or net realizable 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted by AO while making assessment year for 20l2-13 as per notes appearing at the end of order u/s 143(3) dated 26 03.2015 vide paper book page 14 to 20. vii) The AR draws my attention to the judgement of the Hon'ble ITAT, Mumbai Bench dated 05.11.2012 in the case of Deptt. vs. Yash Safely Products (India) Ltd. and has furnished a copy thereof at page 21 to 25 of the paper book. I have gone through the said judgement which supports valuation of stock 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od 20.05.2011 to 31.12.2011 raised in the subsequent year which clearly established that the actual sale value realized of the concerned items was even less than the valuation adopted by the assessee as on 31.03.2011. He contended that even if the said sample bills were raised by the assessee company on the related parties, the sale of the concerned attempts was regularly made by the assessee company to the same related parties and the same 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 Rs. 27.18 crores. The said method adopted by the assessee company for valuation of closing stock was consistently being followe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the main items lying in the closing stock viz. yarn and fabrics and notwithstanding the classification of closing stock as made by the assessee company into different categories, the same was fair and reasonable keeping in view the reduction in import duty by 25% and the other consequential aspects having a cascading effect on the net realizable value of yarn and fabrics in the market. Moreover, the sample invoice copies issued by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Rs. 2,10,415/-. The remaining expenses of Rs. 5,95,754/- i.e. (8,06,169/- - 2,10,415/-) is outside the purview of section 40(a)(ia). Hence, the disallowance u/s 40(a)(ia) is restricted to Rs. 2,10,415/- only. So far as service charges of Rs. 90,000/-, TDS @ 10% was deducted and paid in time, hence, the disallowance of Rs. 90,000/- is also deleted. The factual position does not also suggest any disallowance u/s 37 of the Act. Hence, the appellant gets relief of Rs. 5,95,754/- & Rs. 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 Rs. 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 Rs. 8,06,169/- incurred by the assessee company for the maintenance of flats at Kolkata, Bangalore and Rashi, it is observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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