TaxTMI 
TaxTMI 
2013 (8) TMI 830
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade a reference under section 92CA of the Act to the Transfer Pricing Officer, who had duly accepted the value of international transactions reported by the company and had passed transfer pricing order under section 92CA (3) of the Act. Thereafter, the AO issued a notice dated 02.02.2010 under section 148 of the Act proposing to re-assess the income for the year under consideration and asking the appellant to file its return of income for the year under consideration. The reasons recorded for issue of notice u/s 148 to the company is reproduced hereunder: "Assessment in this case was completed under section 143(3) on 18.12.2008 at an income of Rs.12,54,72,650/- at the returned income of Rs.12,54,72,650/-. Scrutiny of income tax assessment records revealed that in the computation of income the assessee had deducted Rs.2,00,84,000 on account of stock written off in earlier years, sold during the year. As the said amount has already been written off in accounts in earlier years the same should not be deducted from the net income of the year. The mistake resulted in under assessment of income of Rs.2,00,84,000. In view of the above, I have reasons to believe that the income of R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e taxable income of that year and that during the year under consideration, the assessee had sold slow moving/obsolete inventory of raw materials, finished goods and residues amounting to Rs.2,00,84,000/- which is shown as sales and, as the provision created in earlier years, to the tune of Rs.2,76,86,849/- has been added back to the taxable income by the assessee in those years, the reversal of provision during the year cannot be once again added to the income. He granted relief. 8. Aggrieved the revenue is in appeal. 9. The ld. DR Mr. D.K. Mishra vehemently submitted that the first appellate authority has committed an error in deleting the said addition. He submitted as following written submission to explain his point. "The tabular presentation of the provision made and written back, as submitted by assessee (kindly Refer pg 10 of CIT (A) order) is made/given below. AY Stock w/o, provision created /provision written back in year of sale Amount(Rs.) 02-03 Provision for reduction in value of stock 78,30,881 03-04 Provision for reduction in value of stock 1,59,46,778 04-05 Provision for reduction in value of stock 39,09,190 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the obsolete stock is not sold this year) arising out of making of provision, the same is added back to loss to arrive at the correct figure of NIL income. Now this obsolete stock is sold for Rs.3000/- next year. The P & L a/c looks as under: YEAR 2 P & L A/C OP STOCK OF OBSOLETE UNITS NIL SALE 3000 PURCHASE 5000 CLOSING STOCK OF ONE UNIT (NOW CONSIDERED OBSOLETE) NIL LOSS 2000 TOTAL 3000 TOTAL 3000 The loss is 2,000 and can be claimed correctly as such. However the assessee in the computation further reduces the sale value of 3,000/- from 8 ITA No. 4397/Del/2011 this loss, returning a net loss of Rs.5,000/-. The overall loss from this obsolete unit is Rs.2,000/- only (Cost 5,000 less realizable / sale value of Rs.3,000/-) and not Rs.5,000/- as is wrongly done by assessee. In the event, it is requested that the CIT (A) order needs to be reversed and AO's order restored." 10. He submitted a note as to what the term "Provision" stands for and referred to accounting standard AS 29 and submitted that income arising out of higher valuation is notional. Similarly the expenditure....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ealizable 3000) and does not debit to P & L a/c any other figure. Profit as per P & L before provision is same but after provision is 14000. He has added 2000 provision in computation. And offers 16000/- Result No effect. Next year on sale he is not showing this 3000/- in effect. This gives a distorted picture as sales is suppressed to that extent. The logic that he has not debited the loss (notional on such stock) to P & L a/c is misplaced since this has already been debited to P & L a/c as purchase earlier. This purchase has only appeared as stock in the Right side." 11. The ld. counsel for the assessee, relied on the order of the CIT (A). He filed a paper book 119 pages and sought to demonstrate before this bench that the order of the first appellate authority is correct and that the AO has not understood the accounting entries properly. He disputed the contentions raised by the ld. CIT. DR and that the same are not borne out of record and are against the facts of the case. 12. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, as well as the case l....