2018 (8) TMI 1943 - AT - Income Tax

ITAT decision on international transactions, provisions, and deductions under Section 115JB

Hitachi Home & Life Solutions (India) Ltd. Ahmedabad Versus The DCIT, Circle-4, Ahmedabad And Vice-Versa.

Hitachi Home & Life Solutions (India) Ltd. Ahmedabad Versus The DCIT, Circle-4, Ahmedabad And Vice-Versa. - TMI Issues Involved:1. Deletion of addition on account of upward adjustment of international transaction in respect of royalty payment.2. Deletion of addition on account of provision for slow moving/obsolete stock.3. Deletion of disallowance made on account of provision for warranties.4. Allowance of deduction on which TDS was deducted and provision was reversed.5. Validity of the assessment order.6. Deduction of provision for bad debts written back and provision for advances written back while computing book profit under section 115JB.7. Addition of provision for slow-moving/obsolete stock while computing book profit under section 115JB.Detailed Analysis:1. Deletion of Addition on Account of Upward Adjustment of International Transaction in Respect of Royalty Payment:The assessing officer made an upward adjustment of Rs. 22,90,495/- concerning international transactions for royalty payments to associated enterprises, applying a royalty rate of 3% against the 3.75% adopted by the assessee. The CIT(A) deleted this addition, referencing similar decisions for previous assessment years (2005-06 and 2006-07). The ITAT upheld this deletion, noting that the effective royalty rate was less than the stated rate when considering various deductions, and hence, no interference was warranted.2. Deletion of Addition on Account of Provision for Slow Moving/Obsolete Stock:The assessing officer disallowed Rs. 31,91,000/- for provision of slow-moving/obsolete stock, deeming it unascertainable and contingent. The CIT(A) deleted this addition, noting it was a loss determined by the assessee in the stock value. The ITAT upheld this deletion, directing the AO to allow the claim subject to the assessee furnishing complete particulars and adequate proof, following the decision of the Co-ordinate Bench for earlier years.3. Deletion of Disallowance Made on Account of Provision for Warranties:The assessing officer disallowed Rs. 1,81,10,000/- for warranty provisions, considering it a contingent liability. The CIT(A) allowed the appeal, stating that the warranty expenses were based on units sold and similar issues had been decided in favor of the assessee in previous years. The ITAT upheld this decision, noting the consistent method followed by the assessee and the scientific basis for computing warranty provisions.4. Allowance of Deduction on Which TDS Was Deducted and Provision Was Reversed:The assessing officer disallowed deductions of Rs. 7,35,640/- (TDS paid) and Rs. 52,40,669/- (provision reversed), referencing the Supreme Court decision in Goetze India Pvt. Ltd. The CIT(A) allowed these deductions, citing the ITAT decision in Shalby Hospital Ltd., which allows such claims if they pertain to basic legal issues. The ITAT upheld this decision, noting the retrospective nature of the amendments and the consistent practice followed by the assessee.5. Validity of the Assessment Order:The assessee's ground challenging the validity of the assessment order was dismissed as not pressed during the hearing.6. Deduction of Provision for Bad Debts Written Back and Provision for Advances Written Back While Computing Book Profit under Section 115JB:The assessing officer did not allow deductions for provisions written back, citing retrospective amendments. The CIT(A) upheld this, noting the assessee failed to demonstrate any adjustments in past book profits. The ITAT agreed, directing the assessee to approach the AO if such amounts were added back in past book profit calculations.7. Addition of Provision for Slow-Moving/Obsolete Stock While Computing Book Profit under Section 115JB:The assessing officer added Rs. 31,91,000/- for provision of slow-moving/obsolete stock to the book profit under section 115JB, which the CIT(A) sustained. The ITAT upheld this, noting the provision was created without reducing the actual inventory value in the balance sheet, thus not reflecting an actual reduction. The ITAT also rejected the assessee's claim for deduction of Rs. 93,11,850/- for the same reason.Conclusion:The ITAT dismissed most of the revenue's grounds, except for ground number 2, which was allowed for statistical purposes. The assessee's appeal was largely dismissed, with specific directions provided for certain claims. The judgment emphasized adherence to consistent accounting practices and the importance of providing adequate proof for claims.