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2022 (3) TMI 1518 - AT - Income TaxDisallowance of provision for warranty - Methodology of the appellant company for the computation of provision of warranty - HELD THAT:- We have gone through the orders of lower authorities and find that though the lower authorities had considered the decision in the case of Rotork Controls India (P.) Ltd. [2009 (5) TMI 16 - SUPREME COURT] had not applied the ratio of the said decision in right perspective. The appellant company also has failed to demonstrate before us as to how the methodology adopted by it for computation of provision for warranty satisfies the parameters laid down (supra). Accordingly, this ground of appeal is remitted back to the file of AO for de novo consideration and decide this issue in accordance with ratio of decision in the case of Rotork Controls India (P.) Ltd. vs. CIT (supra) after providing a reasonable opportunity of hearing to the assessee. Thus, ground of appeal No.1 filed by the assessee stands partly allowed for statistical purposes. Provision for obsolete stock - allowance of provision for obsolescence of finished goods and spares - HELD THAT:- There can be no dispute that inventory should be valued either at cost or market price, whichever is lower. In the present case, the appellant company followed inventory valuation policy, based on which item-wise analysis was carried out to determine whether a particular item or a part of finished goods has become obsolete or not and it also adopted a methodology for identification of obsolete finished goods, etc. Thus, the provision for obsolete items is clearly allowable, in view of the settled position of law that inventory should be valued at cost or market price whichever is lower in view of decision of Alfa Laval India [2003 (9) TMI 43 - BOMBAY HIGH COURT] is clearly applicable. Provision for obsolete stock is allowable but it requires to be satisfied that the value of obsolete items of finished goods is valued on the cost or market price whichever is less. In the circumstances, we remand the matter back to the file of AO with a direction that the provision for obsolete stock be allowed as deduction subject to satisfying himself that the valuation is done based on the principle that at cost or market price or net realizable value, whichever is less. Thus, this ground of appeal is allowed for statistical purposes. CIT(A) not admitting the ground of appeal challenging the denial of claim for allowance of difference between net present value of deferred sales tax and the deferred sales tax liability - HELD THAT:- CIT(A) had clearly fell in error in not admitting and adjudicating this ground of appeal, since this ground of appeal is purely legal in nature and requires no verification of facts, we admit this ground of appeal for adjudication. The issue in this ground of appeal is decided in CIT Vs. Sulzer India Ltd. [2014 (12) TMI 267 - BOMBAY HIGH COURT] wherein the Hon’ble High Court upheld the decision of Special Bench of Tribunal. Respectfully following this decision of the Hon’ble High Court, we direct the AO to reduce the sum from the taxable income on account of difference between the net present value of deferred sales tax and deferred sales tax liability. Thus, this ground of appeal filed by the assessee shall stands allowed.
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