TaxTMI 
TaxTMI 
2010 (4) TMI 876
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....ton Scientific International B.V. (Indian Branch) [in short BSII] is a non-resident foreign company organised in the Netherlands and has a Branch Office in India, which is engaged in the trading and distribution of medical consumables and equipments mainly stents, catheters, balloons, ' tubes of various sizes and dimensions etc. It procures its trading goods from other Boston Scientific Group entities. The goods are sold either directly to institutions or to distributors/stockists. The return was filed declaring a total income of Rs. 2,06,240. After processing of the return under section 143(1)(a) of the Income-tax Act, 1961, (the Act) the Assessing Officer selected the case for scrutiny and accordingly issued statutory notices under sections 143(2) and 142(1) of the Act. The Assessing Officer completed the assessment at an income of Rs. 8,88,84,000 including the disallowance of provisions for contingencies inventory aggregating to Rs. 3,08,49)616 and provision for sales returns Rs. 2,53,63,360, vide order dated 29-3-2004 passed under section 143(3) of the Act. On appeal, the ld. CIT(A) partly allowed the appeal. 3. Being aggrieved by the order of the ld. CIT(A) the assessee and r....
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....he actual write- off, of the inventory during the year ended 31-3-2001 from the provisions created in respect of the said inventory which was worked out by the assessee at Rs. 2,11,48,427. The Assessing Officer examined the issue in the light of the provisions of sections 145A of the Act and was of the view that the contingencies cannot be alibwed as deduction as approved by the Hon'ble Apex Court in the case of Metal Box Co. of India Ltd. (supra) the assessee. He further observed that the assessee's method of valuation of stock i.e. method of arriving at the net realisable value is not standard accounting practice and such practice cannot be accepted for taxation purposes in the light of House of Lords' decision in the case of B.S.C. Footwear Ltd. v. Ridgway (Inspector of Taxes) [1972] 83 ITR 269. Accordingly he added all the four provisions of contingencies inventory aggregating to Rs. 3,08,49,616 in the income of the assessee. 6. On appeal, the ld. CIT(A) while observing that the Assessing Officer has rightly rejected the system of valuation of stock adopted by the appellant, held, that the appellant is not entitled to reduce value of inventory by creating provisions and accord....
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....tion certificates and 90 per cent of inventory and written off but not fully linked with destruction certificates for assessment years 2005-06 and 2006-07, therefore, he is not pressing the above grounds. In support, he also placed on record the copy of relevant assessment orders passed by the Assessing Officer following the direction of the ld. CIT(A) in this regard. At this stage the ld. Counsel for tne assessee vide his application for admission of additional ground of appeal submits that if disallowance for such provision is confirmed then the reversal of the said provision, if any, in subsequent years should not be taxed and the Assessing Officer may be directed to allow the same as deduction. 8. On the other hand, the ld. DR while objecting to the directions of the ld. CIT(A) to allow the actual destruction and write-off of the stock during the year after verification, supports the order of the Assessing Officer. 9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. We further find that it is also not in dispute that the Assessing Officer following the direction of the ld....
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.... law after providing reasonable opportunity of being heard to the assessee. The additional ground taken by the assessee is therefore partly allowed for statistical purposes. 12. Ground No. 5 in assessee's appeal is against the sustenance of disallowance of addition of provision for sales return. 13. The brief facts of the above issue are that it was observed by the Assessing Officer that the assessee has claimed1'deduction of Rs. 2,53,63,360 on account of provision for sales return. As per note 2 to computation of total income, this provision is against sales return from distributors and has been made by working out the anticipated liabilities on the basis of past experience. However, the Assessing Officer was of the view that such a provision is contingent in nature and not allowable as deduction. It has neither arisen nor accrued during the year under consideration nor has it made self apparent by the time of filing return of income and accordingly he added the same, to the income of the assessee. On appeal, the ld. CIT(A) in view of the ratio of the decision of Hon'ble Apex Court in CIT v. British Paints India [1991] 188 ITR 44 held "that the Assessing Officer was justified in....
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....ee and if he finds that the claim of the assessee is in order then he should allow the claim of the assessee. For this limited purpose the ground taken by the assessee is partly allowed for statistical purposes. 17. Ground No. 6 in assessee's appeal is against the levy of interest charged under section 234D. 18. At the time of hearing the ld. Counsel of the assessee submits that this issue is covered in favour of the assessee by the decision of the Special Bench of the Tribunal in ITO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719 (Delhi). 19. On the other hand ld. DR supports the order of the Assessing Officer and ld. CIT(A). 20. After hearing the rival parties and perusing the material available on record we find merit in the plea of the ld. Counsel for the assessee that the issue of levy of interest under section 234D of the Act is covered in favour of the assessee by the decision of the Special Bench of the Tribunal in Ekta Promoters (P.) Ltd. case (supra), wherein it has been held (page-33) : "In view of the above discussion our answer to question referred to us is that interest under section 234D is chargeable from the assessment year 2004-05 and it could not be charged ....
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....e reversal of the said amount. 24. At the time of hearing both parties have agreed that the facts of the above issues are the same as the facts for the assessment year 2001-02. Therefore, the plea taken by them for the assessment year 2001-02 may be considered while deciding the above grounds for the assessment year 2002-03. 25. That being so, and in the absence of any distinguishing feature brought on record by the parties we direct the Assessing Officer to follow our finding recorded in paras 9, 10, 11 and 16 of this order. We hold and order accordingly. The grounds taken by the assessee are therefore partly allowed. 26. Ground No. 6 is against the levy of interest charged under section 234D. 27. After hearing the rival parties and perusing the material available on record we find that the impugned issue stands covered in favour of the assessee by the decision of the Special Bench of the Tribunal in Ekta Promoters (P.) Ltd.'s case (supra). This being so, and in the absence of any other contrary material placed on record by the ld. DR we respectfully following the order of the Special Bench of the Tribunal delete the interest charged under section 234D of the Act and according....
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....e to BSFE. The said chart has been reproduced by the ld. CIT(A) in para 5.8 appearing at page-10 of his order which for ready reference is reproduced hereunder: Month Total Receivables Total Payable Difference 1-4-2001 33,55,08,501.10 42,80,47,645.87 (9,25,39,144.77) 30-4-2001 33,86,12,167.45 46,83,45,674.77 (12,97,33,507.32) 31-5-2001 34,20,75,276.80 46,58,07,798.49 (12,37,32,521.69) 30-6-2001 32,70,18,588.38 47,60,91,223.30 (14,90,72,634.92) 31-7-2001 32,77,32,018.38 46,43,92,760.24 (13,66,60,741.86) 31-8-2001 41,08,69,479.18 48,88,61,838.76 (7,79,92,359.58) 30-9-2001 41,08,94,013.43 49,40,07,652.41 (8,31,13,638.98) 31-10-2001 41,17,48,054.73 47,18,02,845.43 (6,00,54,790.70) 30-11-2001 41,16,57,515.73 50,01,35,959.01 (8,84,78,443.28) 31-12-2001 44,71,84,327.73 47,90,80,426.65 (3,18,96,098.92) 31-1-2002 44,97,94,890.73 48,13,10,251.46 (3,15,15,360.73) 28-2-2002 45,18,26.950.73 47,64,56,717.62 (2,46,23,766.89) 31-3-2002 45,25,85,881.73 49,62,81,674.80 (4,37,15,793.07) Average 39,36,52,897.39 47,62,01,266.83 (8,25,48,369,44) The ld. CIT(A) after examining the above chart and the distributorship agreement has held vide para....
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....llant for the payment of purchases made from BSFE. 5.12 I, therefore hold that the Assessing Officer has wrongly made adjustments of Rs. 24,33,924. Addition made is accordingly deleted. Appeal on ground Nos. 5 and 6 is allowed." In the absence of any contrary material placed on record by the revenue against the finding of the ld. CIT(A) and keeping in view that the assessee was required to make the payment to BSFE throughout the year and not otherwise, we are of the view that the order passed by the ld. CIT(A) in this regard does not require any interference and accordingly the same is upheld. The- ground taken by the revenue is therefore, rejected. 33. Ground No. 2 is against levy of interest under sections 234B and 234C. 34. After hearing the rival parties and perusing the material available on record we are of the view that in view of our finding recorded in para 22 of this order, the assessee is not liable to interest under sections 234B and 234C and accordingly the same is deleted. The ground taken by the revenue is therefore rejected. ITA No. 5482/M/07 (assessment year 2003-04 ) (Assessee's Appeal) 35. Ground Nos. 1 to 4 in assessee's appeal are against the sustenance o....
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....sessee while reiterating the same submissions as submitted before the ld. CIT(A) further submits that since the assessee was able to identify 743 stents of various quality which are in the closing stock and also identified the purchases of that quality of the stent made in the quarter ending March 2003 and based on that the assessee has made the valuation of closing stock, therefore, the Assessing Officer was not justified in taking the valuation of closing stock on average purchase price. He therefore, submits that the order passed by the ld. CIT(A) in deleting the addition be upheld. 42. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that there is no dispute that the assessee is consistently following the same method of valuation of closing stock i.e. cost or market price whichever is lower. However, in practice it is only at cost it has been valued. Further the assessee is following FIFO method and as a result recent purchases go into the closing stock. The Assessing Officer in place of examining the valuation of different qualities of stents has applied average purchase rate of stents. Since the quality of sten....