2017 (8) TMI 369 - AT - Income Tax

Tribunal Decision: Assessee's Appeal Partially Allowed, Revenue's Appeal Dismissed

The Tribunal allowed the assessee's appeal on the addition of slow moving, non-moving, and obsolete stores written off, as the valuation method used was ... Addition on account of slow moving, non-moving and obsolete stores written off - Held that:- We find that the issue in dispute is squarely covered by the decision of Hon’ble Jurisdictional High Court in the assessee’s own case Once the engineering expert examined all the heads of stock valued them, to the best of his judgment, and in the absence of any finding that the 5% was not relatable to such valuation without an alternative valuation or that it is a flawed method of valuation, the AO could not have rejected what was offered as the reduced value of the Slow- Moving Stock. There is nothing on the record to doubt the bonafides of the valuation. In the event of likelihood of the stocks realizing a higher amount than the value shown, the same would be reflected in the subsequent year in the income or profit of the assessee, the Revenue’s contention is without any merit. Addition on account of defined contribution to Pension Scheme - Held that:- We find that the issue in dispute is squarely covered by the decision of Hon’ble Jurisdictional High Court in the assessee’s own case held that making of a provision to meet a contingent liability need not be in order to meet such liability entirely in the year of its creation. The provision having been made on the basis of an actuarial report, which is not shown by the Revenue to be unacceptable on the ground that it is not based on known accounting of financial principles, the mere fact that the actual pay out in a particular AY may be far less than the provision cannot provide a justification to deny the deduction. The Court concurs with the view of the CIT(A) and ITAT that the provisions does not attract Section 43B of the Act. The concurrent finding of the CIT(A) and the ITAT on the above issue does not give rise to any substantial question of law. Interest accrued on advance given to M/s. Karsan - Held that:- We find that the issue in dispute is squarely covered by the decision of Hon’ble Jurisdictional High Court in the assessee’s own case as held there is no dispute that the ICA has awarded interest to the assessee @5% p.a. on the advance made to M/s. Karsan. It is also not disputed that the assessee could not make recovery against the advance (principal amount) of ₹ 130.69 crores, an amount of ₹ 1.05 crores only could be recovered leaving balance advance of ₹ 129.64 crores which could not be recovered till date. The notational interest awarded by the International Court of Arbitration, which has now attained finality is a hypothetical income which cannot be subjected to tax. Merely because the saie amount has been awarded by way of an order, does not mean that the assessee has received such income. The assessee followed mercantile system of accounting where there cannot be a situation of hypothetical income being taxed. Appeal of the Revenue is dismissed. Issues Involved:1. Addition on account of slow moving, non-moving, and obsolete stores written off.2. Addition on account of defined contribution to Pension Scheme.3. Interest accrued on advance given to M/s. Karsan.4. Disallowance of demurrage and wharfage expenses.5. Provision of post-retirement benefits.Issue-Wise Detailed Analysis:1. Addition on account of slow moving, non-moving, and obsolete stores written off:The assessee challenged the addition of Rs. 4,20,00,000 made by the Assessing Officer (AO) on account of slow moving, non-moving, and obsolete stores written off. The CIT(A) confirmed the addition. The assessee argued that the issue is covered by the jurisdictional High Court's decision in its own case for previous assessment years. The Tribunal found that the High Court had held that the valuation method used by the assessee, which was based on engineering expert judgment, was acceptable. There was no alternative valuation provided by the AO, and the valuation method was not found to be flawed. Thus, the Tribunal deleted the addition of Rs. 4,20,00,000, allowing the assessee's appeal on this ground.2. Addition on account of defined contribution to Pension Scheme:The assessee disputed the addition of Rs. 14,02,00,000 made by the AO for the defined contribution to the Pension Scheme. The CIT(A) confirmed this addition. The assessee argued that this issue is also covered by the jurisdictional High Court's decision in its own case and relied on the High Court's decision in CIT vs. Ranbaxy Laboratories Ltd. The Tribunal found that the High Court had held that the provision made on the basis of an actuarial report is acceptable and does not attract Section 43B of the Act. Consequently, the Tribunal upheld the addition of Rs. 14,02,00,000, dismissing the assessee's appeal on this ground.3. Interest accrued on advance given to M/s. Karsan:The Revenue appealed against the CIT(A)'s decision to delete the addition of interest accrued on advance given to M/s. Karsan. The Tribunal noted that the issue is covered by the jurisdictional High Court's decision in the assessee's own case for previous assessment years. The High Court had held that since no part of the advance was recovered, the interest awarded by the International Court of Arbitration was hypothetical and not real income. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.4. Disallowance of demurrage and wharfage expenses:The Revenue challenged the deletion of the addition made on account of demurrage and wharfage expenses. The CIT(A) had deleted the addition, and the Tribunal noted that the issue is covered by the jurisdictional High Court's decision in the assessee's own case. The High Court had held that demurrage and wharfage charges are not in the nature of penalty and are deductible under Section 37(1) of the Income Tax Act. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.5. Provision of post-retirement benefits:The Revenue appealed against the deletion of the addition made on account of the provision of post-retirement benefits. The CIT(A) had deleted the addition, and the Tribunal found that the issue is covered by the jurisdictional High Court's decision in the assessee's own case. The High Court had held that the provision made on the basis of an actuarial report is acceptable and does not attract Section 43B of the Act. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.Conclusion:The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The Tribunal followed the jurisdictional High Court's decisions in the assessee's own case for all the issues involved.