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2018 (3) TMI 525 - AT - Income TaxAllowing the claim of pre-operative expenses - Held that:- The assessee having found that it had committed an error by wrongly capitalizing the employee cost for February and March, 2009 in the books of accounts and also not claiming deduction for the same in the original return of income, later on proceeded to file a revised return for assessment year 2009-10 and claimed the same as deduction and correspondingly debiting prior period expenses for the very same amount in assessment year 2010-11 in the books and fairly disallowing the same voluntarily in the memo of income filed for the assessment year 2010-11. We hold that the Ld. CIT(A) had rightly deleted the disallowance of ₹ 3,01,21,223/- for the assessment year 2009-10. Accordingly ground no. 1 raised by the Revenue is dismissed. Disallowance on account of leave encashment - Held that:- Similarly the assessee had also made provision for leave encashment in the earlier years and had also made payments during the year on account of such pre-existing liability i.e. payments made during the year on account of earlier year provisions. We find that the ld. AO and the Ld. CIT(A) had not looked into this issue in the proper perspective by linking the same with the tax audit report filed by the assessee wherein all these details are duly mentioned. Hence, we deem it fit and appropriate to remand this issue to the file of the ld. AO for de novo adjudication and decided the same in accordance with the law. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly, ground no. 2 raised by the revenue is allowed for statistical purposes. Disallowance towards provision for warranty - Held that:- We find that the provision has been made during this year based on the transaction carried out in the last preceding three years on a scientific basis and this method has been consistently followed by the assessee in the past. In view of these facts and findings and respectfully following the decision of this Tribunal in the assessee’s own case for the earlier years, we hold that the Ld. CIT(A) had rightly deleted this disallowance and granted relief to the assessee. Disallowance towards provision for non-moving inventory - Held that:- Consistent treatment given by the assessee from year to year with regard to treatment of provision for non-moving inventory in the return of income, we hold that the Ld. CIT(A) had rightly deleted the disallowance made in this regard by the ld. AO . Accordingly, ground no. 5 raised by the revenue is dismissed. Addition on account of valuation of closing stock - Held that:- We find from the said workings that there are innumerable number of items comprising both low and high value items. Hence, the action of the ld. AO in averaging all the items put together cannot be accepted. The assessee also indeed filed complete details with regard to material code, product description, quantity, unit of measurement, corresponding price and value thereon in the said workings. In view of these facts and findings of the Ld. CIT(A) that the books of accounts of the assessee had not been rejected by the ld. AO, and in view of the fact that this method of valuation has been consistently employed by the assessee from year to year, there is no case to make any addition towards closing stock in the facts of the instant case. CIT(A) had rightly deleted this addition appreciating this fact and contentions of the assessee. Provision of written back - Held that:- From the computation of income for the assessment year 2007-08 the assessee had voluntarily disallowed the provision for sales incentives payable to its employees amounting to ₹ 40 lacs. during the assessment year 2007-08. There is no dispute that out of such sum of ₹ 40 lacs, a sum of ₹ 20,02,667/- representing the provision for sales incentives is no longer required to be paid. Accordingly, the assessee credited the same in its profit and loss account by reflecting as ‘excess provision written back’ and claimed the same as deduction in the return of income for the assessment year 2009-10. If the action of the is to be sustained , then this sum of ₹ 20,02,667/- would get invited with double addition. Hence, in the interest of justice, it has to be rightly allowed as deduction in the year of write back, which has been rightly done by the Ld. CIT(A).
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