TaxTMI 
TaxTMI 
2017 (8) TMI 324
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....that the assessee has treated the entire material as obsolete and value it at NIL as on 31.03.2009 and again used the same material in the immediately next year." 3. The brief facts of the case is that the assessee is a company carrying on business of manufacturer and supplier of various types of auto electric parts for vehicles who filed its return of income on 29.09.2009 showing total income of Rs. 115012110/-. The assessment u/s 143(3) was made on 30.12.20011 wherein, the assessment was framed at Rs. 131093573/-. The assessee preferred an appeal before the ld CIT(A) who deleted the disallowance made vide his order dated 10.03.2014. The revenue aggrieved with the order of the ld CIT(A), has preferred an appeal before us. 4. The first ground of appeal is against the deletion of disallowance of Rs. 430148/- u/s 14A of the Income Tax Act, 1961 applying the provisions of Rule 8D of the Income Tax Rules. During the year dividend of Rs. 3462184/- was received and the assessee did not disallow any sum u/s 14A and therefore, the assessee was asked to clarify. The assessee submitted that there is no nexus between the interest bearing funds and the investment made and therefore, expe....
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....Assessment Year in the appeal AY 2009-10, therefore the provisions of Rule 8D are applicable. The assessee has not made any disallowance on his own and submitted that it has not incurred any expenditure for the purposes of earning exempt income. The ld Assessing Officer for the purpose of recording a satisfaction he ld that as the assessee is maintaining composite account and therefore the common faculties and resources have been used, it cannot be said that the assessee has not incurred any expenditure for earning exempt income. This is what the satisfaction therefore he recorded that he is satisfied that explanation given by the assessee is not correct and then proceeded to apply the provisions of Rule 8D of the IT Rules. The provisions of section 14A(2) provides that AO must test the correctness of the claim of the assessee that it has not incurred any expenditure in relation to exempt income with regard to the accounts of the assessee and then only he can determine the amount of disallowance applying the prescribed Rule. The satisfaction of the assessee has to be based on conclusive finding or scrutiny of the accounts pointing out the fact that the expenditure as been incurred ....
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....n it has been held that to perpetuate an error is heroism to rectify it is the compulsion of judicial conscience. However, as on the issue of improper satisfaction recorded by the Assessing Officer we direct the ld Assessing Officer to delete the disallowance of Rs. 430148/- u/s 14A of the Act. in the result ground No. 1 of the appeal of the revenue is dismissed. 8. Ground No. 2 of the appeal of the revenue is against the order of the ld CIT(A) in deleting the addition of Rs. 14665041/- on account of valuation of closing stock. During the year the assessee has valued the raw material of above sum in the closing stock at nil value stating that the raw material had become trustee and was not up to the mark. It was further stated that material was to fulfill export orders, which stop after September 2008, and such material was not usable. The same material was reused in subsequent years after rework. Hence, the valuation was correctly made. The ld Assessing Officer rejected the contention of the assessee as obsolete item has been used in a very short time therefore, according to him it cannot be said that such material was correctly valued at nil. The ld CIT(A) deleted the disallow....
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....nufacturers) which are supplied to reputed vehicle manufacturers and exporters outside India, therefore, the assessee cannot afford to use raw material of such nature which is of discarded nature as being non - useable because by use of such raw material, the finished products will become liable to be rejected. The AO, hence, formed a opinion that since these obsoletejtems have_Jagen used in a short period, therefore it cannot be said that these items were worthless as on 31.03.2009. The AO also held that these items were neither sold as a scrap nor were thrown away but were re - used. Under these circumstances, he held that the releasable value for these items as on 31.03.2009 cannot be considered as NIL. Hence, accordingly, he adopted the valuation of these items for the purposes of closing stock valuation at Rs. 1,46,65,041/-. 5.1 Before me, the Ld. AR submitted that there were such 7 items in the stock, the costing of which was of Rs. 1,46,65,0417-. These items were used as a raw material for manufacturing auto part which was exported only to one party in Spain namely Valeo Termico Motor. These items were found to be not in proper condition to be used for manufacturing....
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....cted below for ready reference:- "The AO noticed that raw material costing at Rs. 1,46,65,041/-, part of which was purchased during the year and part was coming as opening balances was taken at NIL value in the closing stock inventory as on 31.03.2009. These were the items of raw material used for manufacturing automobile parts for export to Spain to M/s. Valeo Termico Motor, as an input for manufacturing of vehicles by the Spain company. It is also un - disputed and admitted that part of this stock was utilized in manufacturing in A.Y. 2010 -2011, part in A.Y. 2011 - 2012, the balance which was very nominal was used in A.Y. 2012 - 2013. The AO held that it is very strange that an item which became obsolete during a short period and valued at NIL was again found to be of the same value in subsequent years and since these items were not sold as scrap nor was thrown away, therefore, the AO rejected the closing valuation of these items at NIL and adopted the same at it's cost value at Rs. 1,46,65,041/-. Consequently, he increased the valuation of closing stock by this amount, which resulted into increase in the assessable profits by Rs. 1,46,65,041/-. The findings of the ....
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....stock as regularly adopted. The copy of Board resolution and engineers certificate to this effect is attached. C. That the said material was got corrected by getting the necessary job -work of polishing etc. being re - done from July 2009 onwards after which it became reuseable. The said raw material, thereafter, was used for manufacturing of the same item partly in A.Y. 2010 - 2011, 2011 - 2012 and 2012 - 2013 after the assessee received the first export order from the said company in the month of June 2009. These facts as well as the fact that the said item had become un - useable as on 31.03.2009 stands clear from the following documents attached:- * Evidence showing the receipt of export order after a long gap. * Invoices for rectifying the defect and polishing of the said articles from 06.07.2009 onwards incurring job - work expenses of Rs. 20,11,200/- in A.Y. 2010-2011. * Details of items of raw material alongwith details of opening quantity, purchases during the year and closing quantity. * Details of these items being used in manufacturing, year wise, i.e. in A. Y. 2010- 11, 2011 -12& 2012- 13. * Stock ledger a/c. of all....
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.... accepted, although u/s. 143 (1) and further the sales of the items manufactured by re -use of these raw material has also been assessed in subsequent years also proves the correctness and genuinity of the claim. F. That further, even otherwise also, in case, the closing stock valuation of one year increases, correspondingly the opening stock valuation of the next year will stands increased by the same amount. This consequential change will automatically reduce the profits of next year by the same amount. The point to be made by this contention is that, there cannot be any reason for any assessee to value its stock at a lesser value, since, he is not going to be financially benefited by that treatment. In other words, the result of the findings of the AO is absolutely tax neutral. G. That the Asstt. for A.Y. 2010 - 2011 stood completed u/s. 143 (1) by adopting the opening stock at the same value as was declared by the assessee as on 31.03.2009. This proves that since, the pending stock of A.Y. 2010 -2011 stands accepted, therefore, the closing stock of A.Y. 2009 - 2010 cannot be disturbed since these are corresponding figures which are taken as it is. H. Further, ....
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....and can be properly followed in India too." In the case of the assessee also there is no dispute that the method of valuation of stock is consistent. There is also no finding in the Asstt. Order that the true profits of the business cannot be determined having regard to the method of valuation of stock employed by the assessee. The ratio of this decision squarely applies to the facts of present case. Further, some more relevant authorities on the issue under consideration are as under- CIT VS. Hotline Teletube & COomponents Ltd 175 TAXMAN 286 (DELHI) Section 28(i), read with section 145, of the Income-tax Act, 1961 - Business loss/deductions - Allowable as - Whether provision made by assesses for diminution in value of stock available with it on account of stock having become obsolete and old could be allowed as business loss - Held, yes. Kopran Drugs LtdVS. ACIT 35 DTR (MUMJ(TRIB) 380 Held that - Value of inventories was required to be shown at 'net realisable value' as on the close of the financial year same being less than actual cost and, therefore, claim for write off is allowable in the relevant year. J. Without prejudice, alternatively, in case, the....
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....ng the relevant automobile part. The appellant has also supported his contentions by furnishing various documents like evidence showing the receipt of export order in the month of June 2009 after a long gap, the evidence of job - work expenses of Rs. 20,11,2007- in A.Y. 2010 - 2011 on those items, the details showing the issuance of said raw material for manufacturing in A.Y. / 2010-2011, 2011 - 2012 & 2012-2013, stock ledger a/c. of these individual items for A.Y. 2009 - 2010, 2010 - 2011, 2011 - 2012 & 2012 - 2013 showing use of these items for manufacturing in these years, evidence of reversal of CENVAT credit, the evidence showing the benefit of CENVAT credit being taken subsequently in the years of re -use of manufacturing, audit report by excise Deptt., the letter sent by the Excise Deptt. to AO dtd. 22.12.2011 confirming the reversal of CENVAT credit. The AO has doubted the genuineness of the claim for the reason that these items have been used in subsequent years. This factor has been considered adversely by him in the sense that if the items could had been used in subsequent period, there was no reason for valuing the same at NIL. However, under the facts, I am of the cons....