2014 (11) TMI 1125

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

...., which accepted the case of the assessee regarding creation of provision of obsolescence in inventories. 2. The assessee is carrying on the business in the manufacture and trading of computer hardware. In respect of the assessment year 2001-02, the assessee had filed a return of income. The assessee had debited Profit and Loss Account of a sum of Rs. 5,79,77,000/- under the head "Provision for obsolescence in inventory". The Assessing Officer rejected the said claim on the ground that the provision for obsolescence in inventory was a contingent claim and the same cannot be allowed as an expenditure during the current assessment year. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... and reduced the value of the inventory, instead in the inventory, value of these obsolete items are shown and provision for obsolescence is made and benefit is claimed, which is not permissible in law. 5. Per contra, the learned Counsel for the assessee supported the impugned order. 6. The facts are not in dispute. The assessee carries a large number of computer parts, accessories, etc., in its inventory. Due to rapid technological changes that the computer industry has been facing in the last decade, the assessee periodically undertakes the exercise of reviewing its inventory items. The value of the inventory items found obsolete on such review is debited to the scrap account. The amount debited to scrap account during the year incl....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... not taken into account. On the contrary, the cost price of obsolete item is taken and in the provision made for obsolescence, net realizable value is given which finds a place in the balance sheet and therefore, it was contended that though the net result is the same, the way accounts are reflected is not proper. 9. We do not see any substance in the said contention. Accounting Standards notified under Section 145(2) in particular Accounting Standard-I categorically states that the accounting treatment and presentation in financial statements of transactions should be covered by a substance and not merely by legal form. Further Section 145(A) provides notwithstanding anything to the contrary contained in section 145, the valuation of pu....