Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (11) TMI 385 - ITAT BANGALOREProvision for obsolete stock - AO observed that this expenditure cannot be allowed since the assessee has not proved with the reasonable certainty as given in the provisions of section 37(1) of the Act and not provided documentary evidence in this regard - Assessee is a manufacturing company engaged in manufacturing of heavy earth moving equipment and railway rolling stock having plants all over the country - HELD THAT:- The contention of ld. A.R. is that the assessee has debited the net provision for obsolescence of stock to the P&L account and same has been claimed as a deduction. However, it was not demonstrated before us that there was no under- valuation of this inventory and the excess provision, if any, was written back in the succeeding year or in year of sale of obsolete stock, etc. nor was it demonstrated that obsolete stock was valued at lower of cost or net realizable value. In principle, we hold that the provision for obsolete stock is allowable but it requires to be satisfied that the value of obsolete items of inventory is valued on the cost or market price, whichever is less. In the circumstances, we remit the matter back to the file of AO with a direction that the provision for obsolete stock be allowed as a deduction subject to satisfying himself that the valuation is done based on the principle that at cost or market price or not realizable value, whichever is less. Further, there cannot be double deduction in one assessment year when the provision is made and another time when it was actually written off in its books of accounts of assessee. Decided partly in favour of assessee for statistical purposes. Expenditure on scientific research u/s 35(2AB) - Department of Scientific & Industrial Research (“DSIR”) has not quantified the same in that certificate - HELD THAT:- Admittedly, there was no dispute that the assessee has incurred capital expenditure of Rs. 7.98 crores on scientific research which is entitled for weighted deduction u/s 35(2AB) of the Act and the balance amount of Rs. 46.56 crores, which was revenue expenditure spent on scientific research. Out of this, assessee claimed only a sum of Rs. 38.62 crores u/s 35(2AB) of the Act and the balance amount of Rs. 7.94 crores cannot be claimed u/s 35(2AB) of the Act on the reason that it was not certified by DSIR. However, this expenditure of Rs. 7.94 crores has been incurred by the assessee for the purpose of business and this fact is not disputed by the AO and in our opinion, assessee is entitled for deduction on this amount u/s 37 of the Act. This view of ours is fortified by the judgement of order of the Tribunal in the case of Auto Ignition Ltd [2022 (1) TMI 327 - ITAT DELHI] Allowability of liquidity damages for delay in supply of goods - Claim disallowed by AO on account of non- compliance of terms & conditions of the contract u/s 37(1) - HELD THAT:- As seen from the facts of the issue, the above expenditure has been incurred as a compensation for breach of contractual obligation. In our opinion, there is a difference between penalty for infraction of law and damages for breach of contract in the context of deduction u/s 37(1) of the Act and this issue was considered by Hon’ble Gujarat High Court in the case of Principal CIT Vs. Mazda Ltd. [2017 (9) TMI 1038 - GUJARAT HIGH COURT] wherein held that whenever damages are to be paid by an assessee for a breach of contract, such damages are treated to be normal expenses of business. It was further held that where an assessee has to pay damages to other party to fulfill the contract entered into by him in the ordinary course of his business, the amount of damages to be paid is allowable deduction if it is in the ordinary course of business and is not opposed to public policy - CIT(A) is justified in allowing the claim of the assessee in respect of compensation paid for breach of contractual obligation.
|