TaxTMI 
TaxTMI 
2013 (6) TMI 431
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....the same is in accordance with consistent accounting policy of valuing the inventory at year end at cost or realizable value whichever is lower. 2. The Ld CIT(A) erred in facts and in law in disallowing the said provision for obsolete stock on erroneous assumption that on account of reversal of such provision in subsequent years makes the same adhoc and contingent in nature. 2. The brief facts of the case are that the assessee company is a wholly owned subsidiary of M/s Tupperware Asia Pacific Holdings Pvt. Ltd. Mauritius. The group as a whole owns the brand name "Tupperware" and carries out its business activities through its various subsidiaries in various parts of the world. The return of income for Indian operations was filed on 3....
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....thus profit of next year take care of the impact of the provision in the opening stock. Secondly, the provision so created is sometimes reversed in the next year and is offered for taxation. In this respect a complete detail of movement of obsolete stock for the year under consideration was submitted as under:- Opening stock of obsolete stock. Rs. 1,40,83,604/- Add: Provision created during the year. Rs. 65,11,174/- Add: Actual write off. Rs. 41,54,711/- Total: Rs. 2,47,49,489/- From the above, the Assessing Officer held that provision of obsolete stock of Rs. 65,11,174/- was an adhoc provision and was not ascertained liability and therefore he disallowed the same. 3. Dissatisfied with the order, the assessee f....
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....obsolete stock:- Obsolete stock - opening Rs. 1,40,83,604/- Provision created during the year. Rs. 65,1,174/- Actual write off. Rs. 41,54,711/- Total Obsolete stock. Rs. 2,47,49,489/- It was submitted before the Assessing Officer that the provision was created on the basis of reasonable estimates and policy of the company which is based on unsaleable quantities lying in the stock and for which it is not possible to formulate a sales plan. It is further submitted that the assessee has created a provision towards obsolete stock as per the practice followed by the assessee company. The provision was not allowed by the Assessing Officer on the ground that the provision is an adhoc and contingent one. The AR coul....
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....ifference in cost price and market price is debited to P&L A/c as provision for obsolete stock and in another method the net realizable value of stock is taken for valuation of closing stock. He further submitted that assessee was following the first method by which it used to value the closing stock under the head normal stock and obsolete stock and in respect of obsolete stock, the provision was provided for diminution in value of stock and instead of reducing from value of stock was shown on liabilities side of Balance sheet. Our attention was invited to paper book pages 61 to 65 wherein break up of opening stock of obsolete stock amounting to Rs. .1,40,83,603.91 was placed. Our attention was also invited to paper book pages 66 to 75 whe....
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....rd. We find that the assessee is continuously following the policy of valuation of closing stock on the basis of net realizable value which is in accordance with accounting principle. The fact becomes clear by the tax audit report placed at paper book page 3 wherein it at 12(b) the auditors have written that there is no deviation from the method of valuation prescribed under section 145A of the Act. 12(a) of the same audit report refers to A-4 attached with Schedule-13 of audited accounts which reads as under:- Inventories Finished goods are valued at lower o cost and net realizable value. Cost is determined on weighted average base cost includes all the incidental charges which are necessary to bring inventories to its present locati....