TMI Blog2018 (5) TMI 1599X X X X Extracts X X X X X X X X Extracts X X X X ..... hase order. However, the assessee has created provision of ₹ 30,00,000/- - issue is restored to AO for fresh adjudication - allowed for statistical purposes. - I.T.A. No.2479/Ahd/2016 - - - Dated:- 24-5-2018 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI MAHAVIR PRASAD, JUDICIAL MEMBER For The Appellant : Dr. Jayant Jhveri, Sr.D.R. For The Respondent : Shri S. N. Divatia (Adv.) ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the appellate order of the Commissioner of Income Tax(Appeals)-7, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-7/24/15-16 dated 04/07/2016 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 24/03/2015 relevant to Assessment Year (AY) 2012-13. 2. Revenue has raised following grounds of appeal : 1. That the Ld CIT(A) has erred in law and on facts in deleting the addition made by AO by ₹ 30,29,969/- u/s 145A of the Act. 2. That the Ld CIT(A) has erred in law and on facts in deleting the disallowance made by AO of ₹ 30,00,000/- towards Provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it consistently over the period of several years. The assessee also submitted that it has not included the VAT/Excise cost while recording the purchase, sale and inventory and further claimed that if the element of VAT/Excise is considered while recording the purchase, sale and inventory then the effect on the profitability of the assessee would remain nil. However, the AO disregarded the contention of the assessee and held that the assessee was under the obligation to include the amount of VAT/Excise, while valuing the closing stock as on 31-03-2012 as per the provisions of Section 145A of the Act. Accordingly, the AO added the sum of ₹ 30,29,969/- in the valuation of closing stock. 6. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the provisions of Section 145A of the Act requires the assessee to include the amount of taxes, duty, cess and fee actually paid or incurred in connection with the purchase, sale of goods and inventory for the determination of the profit under the head business and profession. Thus, the provision of Section 145A of the Act requires the assessee to use inclusive method of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same method must be adopted while valuing the unconsumed stock at the end of the year. Whichever method one adopts, the result would be the same..... 5.2.1 It is seen that the AO has only partially followed the provisions of Section 145A of the I.T. Act. I am inclined to agree with the contention of the appellant that it is not appropriate to include the amount of tax etc includible in the value of closing stock only without modifying the figures of purchases, sales and opening stock. Moreover, the appellant has been following this method of accounting for the past many years. The method of accounting regularly followed by the taxpayer which was accepted by the AO in the past cannot be rejected in future years without expressing a dissatisfaction about the correctness or completeness of the accounts of the taxpayer, which has not been done in this case, view of the facts of the case and the decision of the Hon'ble Supreme Court, the said addition of ₹ 30,29,969/- u/s. 145A made by the Assessing Officer is deleted. Ground of appeal Nos. 2.1 to 2.3 is allowed. Being aggrieved by the order of the Ld. CIT(A) Revenue preferred second appeal before us. The Ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Section 145A requires to include the amount of tax in the value of purchase, sale and inventory. But the AO erred in including the element of taxes only in the closing stock of inventories. The Ld. CIT(A) also observed that the assessee has been following its method of valuation for the inventory, purchase and sale consistently for the last several years and no defect in the method of accounting for the inventories was recorded by the AO in his assessment order. It is disputed fact that the assessee has been following exclusive method of accounting for recording transaction in relation to purchase, sale and inventory consistently. If the effect of the provisions of Section 145A needs to be given then it should have been given to the purchase, sale and inventory but the AO has not done so. Therefore, in our considered view, it will be inappropriate to value the inventory of closing stock after including the element of taxes but without including the same in purchase and sale of goods. Moreover, we also note that there is no impact on the taxable profit declared by the assessee in either case of the method of valuation of inventory adopted by the assessee. Thus, the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee deleted the addition made by the AO by observing as under: 6.4 I have considered the assessment order and the submissions made by the appellant. The AO disallowed the provision for warranty claimed by the appellant for the reason that the same was not an ascertained liability. The appellant has submitted that as per the agreement between it and Garden Silk Mills Ltd., (GSMLJ the terms of payment itself specified that 70% payment was to be made against delivery and 30% was to be retained by GSML. It was submitted that the appellant credited the entire amount of sales in its books of accounts as sale proceeds but debited the amount retained by GSML under the head provision for warranty account . It was stated that the same was actually retention money and could not be charged to tax since the same had not accrued to the appellant A perusal of the agreement signed between the appellant and GSML shows that the terms of payment are said to be as under: ( i) 10% advance against ABG; ( ii) 70% against delivery; ( iii) 10% against performance bank Guarantee; and ( iv) 10% against performance norms. 6.4.1 The submissions made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision for guarantee was created first time by the assessee during the year. The Ld. DR also submitted that the assessee during the year has supplied goods worth of ₹ 1,60,89,262/- to GSML as evident from the purchase order placed on Page 11 of the Paper book. Accordingly, the assessee at the most was required to create the provision of ₹ 16,08,926/- being 10% of total value of the purchase order. However, the assessee has created provision for ₹ 30,00,000/- exceeding 10% of the total value of purchase order. The Ld. AR in his rejoinder further submitted that the AO has allowed the deduction for the provivions of guarantee of ₹ 16,00,000/- in consequence to the direction of the CIT(A) order. The Ld.AR vehemently supported the order of the ld. CIT(A). 16. We have heard the rival contention and perused the material available on record. The issue in the instance case relates to the disallowance made by the AO on account of the provisions created by the assessee against the supply of the goods to GSML. The assessee, during the year has created a provision of ₹ 30,00,000/- on account of the money retained by M/s. GSML. It is settled law the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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