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2011 (8) TMI 427 - AT - Income TaxObsolete inventory - write off is justified on the basis of application of a uniform criterion which has been applied consistently over the years, is done in an objective manner and the bona fides of the manner of provisioning is not called into question and the same has not been objected to by the revenue authorities. - Held that:- the obsolete inventory is to be destroyed as selling the same even as scrap will adversely affect the commercial interests, and the value realized thus may not be significant at all, or be even negative value. - Claim of deduction allowed. Arm's length price (ALP) - Held that:- the working capital adjustment should have been taken at 1.55 per cent, as was claimed by the assessee and which has not been specifically rejected by the TPO, as against 0.66 per cent made by the TPO. Regarding comparable - Held that:- Aplab Limited and Ashco Industries Limited cannot be included in the list of comparables for the purposes of benchmarking - first, because, two new companies have merged into this company and there is nothing on record to show that these companies were engaged in the same or materially similar activity; and, second, because, the business activity of this company is significantly different from the business activity of the assessee. Exclusion on commission income from profitability - Held that:- as related costs have not been segregated even on estimation basis which such an allocation essentially involves, we consider it appropriate that commission income on direct sales should not be excluded from the profitability of the assessee. Disallowance u/s 40A(2) - excessive or unreasonable payment - Held that:- A disallowance under section 40A(2)(b) on ad hoc basis, as a percentage of total expenditure incurred, is inherently bad in law because such a disallowance can never have reasonable nexus with the market price of services for which payment is made. - There is nothing on record to even suggest that the service charges are in excess of its fair market value. - Appeal allowed partly and remitted for statistical purposes.
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