TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 140
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....hed the Dispute Resolution Panel (DRP), which found the Notes on financial statements that the assessee wrote off inventory of Rs. 2312.46 lakh. After comparing the figure of inventory given in the balance sheet at Rs. 138.72 crore with that given to the bank, for availing credit facilities, at Rs. 185.43 crore, the DRP called upon the assessee to explain the difference. The assessee tendered a reconciliation explaining that a sum of Rs. 23.58 crore was reduced from the value of stock given to bank on account of Excise duty and another sum of Rs. 23.12 crore was reduced towards obsolete and non-moving inventory written off as extraordinary item so as to reach the figure of inventory in the balance sheet. To justify the write off of obsolete and non-moving inventory, the assessee stated that it was valuing the stock as per the method 'Cost or Net realizable value, whichever is less'. The value of obsolescence of stock to the above tune was reflected in the balance sheet, signed on 28-05-2013. The ld. DRP observed that since the write off actually happened in the F.Y. 2013-14, there was no justification in allowing claim of write off in the F.Y. 2012-13 relevant to the assess....
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....inter-alia in respect of addition on account of obsolete and slow moving inventory items written off, and that the ld. D.R.P. has no power to make any addition which is not a part of any variations proposed by the Assessing Officer in the draft assessment order. In this connection, he relied on the decision in the case of Sava Healthcare Ltd., Vs. ACIT (ITA Nos. 1062 to 1068/PUN/2017) reported in (2019) 107 taxmann.com 226 wherein it was held as under: "114........... But where the TPO has not exercised his jurisdiction, the DRP in exercise of his powers cannot benchmark new transaction though reported by the assessee, in the hands of assessee." 6. It is also brought to our notice that the Co-ordinate Bench of Delhi Tribunal in the case of Bausch & Lomb India Pvt Ltd., Vs. ACIT (ITA No. 1399/Del/2017 dt. 25.08.2017) reported in (2017) 85 taxmann. Com 163(Delhi - Trib) upheld of power of DRP to make addition even in respect of items which is not subject matter of variations proposed by the Assessing Officer by holding as under: "10. It is clear from the mandate of sub-section (8) that the DRP is empowered, inter alia, to enhance the variations proposed in the draft order. The ....
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....ons have come up before the Hon'ble Delhi High Court in the case of Lahmeyer Holding GMBH Vs. DDIT reported in 376 ITR 0070 (supra) for interpretation wherein the Hon'ble High Court held as follows: "24.... Reading the Explanation with sub-section 144C(8), it is evident that the Dispute Resolution Panel could examine the issues arising out of the assessment proceedings even though such issues were not part of the subject matter of the variations suggested by the Assessing Officer." 9. It must be noted that the explanation was inserted to provisions of sub-section (8) of Sec. 144C to over-rule the decision of Hon'ble Karnataka High Court in the case of G.E. Electricals Ltd., Vs. CIT reported in 338 ITR 416 wherein the Hon'ble High Court held that the jurisdiction of the DRP would be confined to decide the variations that have been proposed in the draft assessment order and contested before it. Thus, it is clear that the Explanation was inserted by the Finance Act 2012 with retrospect effect from 01.04.2009 so as to empower the ld. D.R.P. to consider any issue arising out of the draft assessment order even if it is not in dispute. It is also equally settled positi....
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....e-agitate the same issue before the DB in the proceedings for final disposal of the appeal u/s. 254(1) of the Act. 5. Notwithstanding the foregoing, we consider it our duty to record the submission of the ld. AR that the issue has been decided by the Hon'ble Madras High Court in M/s. Delphi-TVS Diesel Systems Ltd. VS., ITO (OSD)/Secretary, DRP (W.P. No. 26313 of 2017), which judgment dated 17.8.2021 was delivered after the passing of the interim order by the DB of the Tribunal. Relying on this judgment, he contended that the DRP was wholly unjustified in making the enhancement on account of stock written off which issue was not subject matter of the draft order. 6. We have perused the judgment of the Hon'ble Madras High Court. In that case, the draft order was notified on certain other issues but without any disallowance of expenditure u/s. 40(a)(i) of the Act on Employees Secondment charges and Reimbursement of expenses. The assessee challenged the draft order before the DRP. The DRP issued enhancement notice in respect of disallowance u/s. 40(a)(i) on Employees Secondment charges and Reimbursement of expenses. After entertaining the objections, the DRP directed the AO t....
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....or the year contained Note No. 43 with the caption Extraordinary items reading: "During the year, the Company has written off obsolete (sic absolute) and non-moving inventory to the extent of Rs. 2312.46 lakh". The figure of inventory given in the balance sheet at Rs. 13872.53 lakh was determined after reducing, inter alia, Rs. 23.12 core on account of write off of obsolete and non-moving inventory. The DRP, after entertaining objections from the assessee, decided the issue by giving following direction in para 9.3, as under: "9.3 From the above, we find that in the audited accounts the assessee has under reported the value of closing stock vis-a-vis. the statement filed before the bank as on 31/3/2013. The difference between the two has been explained to be on account of considering the excise duty also as part of closing stock which was shown separately in the balance sheet and the difference on account of obsolete and non-moving inventory of Rs. 23.12 crs. The assessee has explained that this slow moving inventory was informed to the bank in the month of April to June, 2013 and as the audited account were signed on 28-05-2013 (sic 2017), the assessee had considered the write....
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..... Net realizable value is determined by ascertaining the amount that the inventory will fetch if sold in the open market on the balance sheet date. If the inventory has become obsolete or has ceased to be marketable, fully or partly, the extent of such obsolescence needs to be reflected in the inventory value by appropriately reducing the cost price so as to bring it to the net realizable value. It is this diminution in the value of inventory due to obsolescence as on 31.3.2013, which has been quantified by the auditor at Rs. 23,12,46,650/- by means of a certificate dated 02-04-2013, a copy of which has been placed at pages 203 onwards of the paper book. The auditor has certified: "that the value of total obsolete and non-moving inventory, which needs to be written off as on 31-03-2013, is to the tune of Rs. 23,12,45,650/- as detailed out in the annexure enclosed". Then, there is the annexure running into few pages giving item-wise write off in quantity as well as value. It is on the basis of this certificate issued by the auditor on 02-04-2013 that the assessee, while finalizing its balance sheet on 28.5.2013, gave effect to the method of stock valuation consistently followed and ....
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....ise, which was albeit reported in Form No. 3CEB but neither any details were provided nor the benchmarking was done. On being called upon to furnish the details, the assessee gave requisite information in respect of Corporate Guarantee given to certain banks in respect of its AEs for a total sum of Rs. 1,06,270.04 lakhs. In respect of the first transaction of Guarantee to SBIIFB, Pune for 5,50,00,000 Euros in favour of Bilcare AG, the assessee incurred a sum of Rs. 291.93 lakhs, which was recovered from its AE. However, no guarantee fees was recovered for any of the five transactions. The TPO benchmarked these transactions by adopting Arm's Length rate at 1.75% as Corporate Guarantee fee and worked out the net transfer pricing adjustment at Rs. 12,81,40,000/-, after reducing Rs. 291.93 lakhs incurred in extending guarantee and recovered by the assessee from its AE. The assessee remained unsuccessful before the DRP, as a result of which the AO made the addition of Rs. 12.81 crore in the final assessment order. The assessee has come up in appeal before the Tribunal on this issue. 13. We have heard both the sides and gone through the relevant material on record. At the outset, th....