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TMI Blog2013 (6) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting policy of valuing the inventory at year end at cost or realizable value whichever is lower. 2. The Ld CIT(A) erred in facts and in law in disallowing the said provision for obsolete stock on erroneous assumption that on account of reversal of such provision in subsequent years makes the same adhoc and contingent in nature. 2. The brief facts of the case are that the assessee company is a wholly owned subsidiary of M/s Tupperware Asia Pacific Holdings Pvt. Ltd. Mauritius. The group as a whole owns the brand name "Tupperware" and carries out its business activities through its various subsidiaries in various parts of the world. The return of income for Indian operations was filed on 30th October, 2005 declaring nil income. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the provision in the opening stock. Secondly, the provision so created is sometimes reversed in the next year and is offered for taxation. In this respect a complete detail of movement of obsolete stock for the year under consideration was submitted as under:- Opening stock of obsolete stock. Rs. 1,40,83,604/- Add: Provision created during the year. Rs. 65,11,174/- Add: Actual write off. Rs. 41,54,711/- Total: Rs. 2,47,49,489/- From the above, the Assessing Officer held that provision of obsolete stock of Rs. 65,11,174/- was an adhoc provision and was not ascertained liability and therefore he disallowed the same. 3. Dissatisfied with the order, the assessee filed appeal before Ld CIT(A) and reiterated its submissions It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on created during the year. Rs. 65,1,174/- Actual write off. Rs. 41,54,711/- Total Obsolete stock. Rs. 2,47,49,489/- It was submitted before the Assessing Officer that the provision was created on the basis of reasonable estimates and policy of the company which is based on unsaleable quantities lying in the stock and for which it is not possible to formulate a sales plan. It is further submitted that the assessee has created a provision towards obsolete stock as per the practice followed by the assessee company. The provision was not allowed by the Assessing Officer on the ground that the provision is an adhoc and contingent one. The AR could not explain as to how the value of stock is nil which is taken into consideration for maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other method the net realizable value of stock is taken for valuation of closing stock. He further submitted that assessee was following the first method by which it used to value the closing stock under the head normal stock and obsolete stock and in respect of obsolete stock, the provision was provided for diminution in value of stock and instead of reducing from value of stock was shown on liabilities side of Balance sheet. Our attention was invited to paper book pages 61 to 65 wherein break up of opening stock of obsolete stock amounting to Rs. .1,40,83,603.91 was placed. Our attention was also invited to paper book pages 66 to 75 wherein break up of obsolete stock declared during the year amounting to Rs. .65,11,174/- was placed. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et realizable value which is in accordance with accounting principle. The fact becomes clear by the tax audit report placed at paper book page 3 wherein it at 12(b) the auditors have written that there is no deviation from the method of valuation prescribed under section 145A of the Act. 12(a) of the same audit report refers to A-4 attached with Schedule-13 of audited accounts which reads as under:- Inventories Finished goods are valued at lower o cost and net realizable value. Cost is determined on weighted average base cost includes all the incidental charges which are necessary to bring inventories to its present location and condition. " From the above Notes to Accounts and Tax Audit report it can be said that valuation of inventorie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identified such stock and has also followed in accordance with commercially accepted accounting principles of valuation. In our view, the Ld CIT(A) was correct in law and on facts to have deleted the addition made by the Assessing Officer which was based not taking into consideration the hard realities of assessee's business. The addition in our view is properly deleted and we decline to interfere." 10. The Ld DR has mainly objected to the reliance of Ld AR on the case law because of the difference in items dealt by the assessee and in case law relied upon by Ld AR. Though there is difference in items but the principle of valuation of stock remains the same. The assessee instead of taking the net realizable value for valuation of closing s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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