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2020 (1) TMI 122 - AT - Income TaxRevision u/s 263 by CIT - Write-Off of capital work in progress claimed as deduction by the assessee while computing income under normal provisions of the Act - HELD THAT:- All the expenditure incurred relating to import in counter components were written-off by debiting to profit and loss account and crediting capital work in progress in the books of accounts of the assessee company. Accordingly, deduction was claimed for the same in the return of income under normal provisions of the Act. From the list of expenses incurred it could be seen that some items would certainly carry enduring benefit to the assessee in the capital field in as much as those items could be certainly utilised by the assessee in its regular course of business or in the alternative would have clear saleable value thereon. Hence, it cannot be said that since the advertisement campaign plan was dropped by the assessee after import of certain items as listed above, the items do not have any value at all for the assessee company warranting its write-off. But at the same time some of the items listed would also have to be absorbed as revenue expenditure as one time cost in respect of abondoned project which requires to be charged off as revenue. Hence, we hold that the finding of the ld. CIT that the entire expenditure would be treated as capital loss is incorrect. We hold that some part of these expenses would be capital in nature and part would be revenue in nature. Since the ld. AO has been directed to frame the assessment afresh pursuant to the directions of the 263 order by the ld. CIT, the assessee would be at liberty to make out its case before the ld. AO in the light of the aforesaid directions. Provision for Doubtful Debts - HELD THAT:- We find from the schedule-14 of the financial statements as on 31/03/2007 of the assessee company, which is enclosed in page 8 of the paper book, the assessee has debited a sum of ₹ 16,07,000/- towards provision for doubtful debts (net) and sum of ₹ 4,70,000/- towards bad debts and advances written off. This clearly goes to prove that a sum of ₹ 16,07,149/- purely represents only provision for doubtful debts and not write-off of bad debts in the books of accounts of the assessee by corresponding credit to concerned debtor’s account. We also find that the very same sum (i.e provision for doubtful debts) has already been added back by the assessee voluntarily in the return of income while computing income under normal provisions of the Act which goes to strengthen our finding that this sum represents only provision for doubtful debts and not bad debts actually written off in the books. Hence, the applicability of provision of Clause (i) of Explanation – 1 to Section 115JB(2) of the Act would directly come into operation wherein this amount requires to be added back while computing book profits u/s.115JB of the Act. Hence, we do not find any infirmity in the action of the ld. CIT invoking revisionary jurisdiction in respect of this issue. Provision for obsolescence / Slow Moving Stock - HELD THAT:- We find that assessee had reduced the value of inventories by using the accounting terminology “provision towards obsolescence / slow moving stock”. In other words, we find that the value of closing stock of inventories had been duly reduced by the provision amount of obsolescence / slow moving stock to the extent of ₹ 3,42,82,000/- in the books itself. It is not mere provision for obsolescence as understood by the ld. CIT. It is effectively reducing the value of stock which tantamount to write off of the same. Hence, the same would not fall within the ambit of Clause (i) of Explanation -1 to Section 115JB(2) of the Act. It is also pertinent to note that very same sum of ₹ 3,42,82,000/- has been allowed as deduction i.e in the form of reduced value of closing stock of inventories by the ld. AO while computing income under normal provisions of the Act. Hence, the action of the ld. CIT in invoking revisionary jurisdiction u/s.263 of the Act in respect of this issue is dismissed.
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