TMI Blog2016 (2) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... w moving or as old stock. Therefore, the CIT(A) has rightly held in favour of the assessee. - I.T.A. No.-3922/DEL/2011 - - - Dated:- 26-2-2016 - SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE, JUDICIAL MEMBER For the Appellant : Sh.Hemant Gupta, Sr. DR For the Respondent : Sh. Ajay Vohra, Sr. Adv Sh. Neeraj Jain, Adv. ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the Revenue against the order dated 08/08/2011 passed by CIT (A)-XX, New Delhi. 2. The grounds of appeal are as follows:- 1. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 2,87,51,769/- made on account of adjustment proposed by TPO in order u/s 92CA(3) of the I.T. Act, as: a) The Ld. CIT(A) has not been able to substantiate that the goods so exported were part of the slow moving old stock, whereas the TPO has clearly held that the assessee company could not produce anything on record which could substantiate that the goods so exported were part of the slow moving old goods. b) Having held that the rejection of Quotes of the other companies by the TPO to be reasonable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich mentioned that they have been purchased in 2004 and earlier years. This would result in an obvious argument as to what would constitute the old stock. In this regard, the representative of the assessee has submitted that the fashion trend of the assessee company changes every six months. As such there is a fresh stock arrival after every six months and the ones that are replaced are termed old. These stocks are then tried and sold at the factory outlets at discounted price and the ones that still remain unsold are consigned to the warehouse and dumped. It is this inventory that is termed as old and slow moving. One thing that clearly emerges from the limitations contained in the policy note is that under no conditions the assessee could have sold in the open market since it was barred by the policy to do so. In light of the same, the two quotations that have been submitted on record can in no way show the intention of selling to any party other than the associated enterprise. In view of this, the submission of the assessee that the quotes were invited for the purported sale on the highest quote principle basis defies logic. Moreover, there is no submission on record to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inventory. Therefore, the market price of the inventory reportedly sold to the overseas AE is determined at ₹ 5,73,67,313 (4,67,77,000 x 1,2264.) 5. The Ld. DR submitted that in the manner discussed above, the value of stock sold by the assessee to aSIS is determined at ₹ 5,73,67,313. The same is held to be the price which the stock would have fetched in realization by application of Comparable Uncontrolled Price method. Moreover, when the audited figures are available and the assessee has chosen an equivalent platform in its TP study, the alternate recourse to a different geographical terrain is neither correct nor would lead to any credible determination of Arm s Length Price. In light of the above observations of the TPO, the arm s length price of sale of goods to aSIS is determined at ₹ 5,73,67,313 in place of ₹ 2,86,15,544 which is the book value of the international transactions. The adjustment on this account therefore was correctly calculated to ₹ 2,87,51.769 . 6. The Ld. AR submitted that a Group Manual which summarizes that the inventory provisions has to be made in respect of goods which can no longer be sold for thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been discussed in the discussion above. In view of the foregoing, there is absolutely no doubt that the toning down of inventory which was written down in valuation of stock has been based on the retail pricing method. The above was demonstrated by the Note 13 of the Schedule 19 of the notes to accounts. Note 13 of Schedule 19 of notes to accounts of the assessee company values the stock of the goods and in the footnote to the same it reads as under:- Closing stock is a derived figure, based on book records of the company and is net of ₹ 46,777 thousands (previous year ₹ 77,784 thousands) written down from the earning value of inventories, to bring them to net realizable value in accordance with laid down policy of the Company.'1 7. Further, the Ld. AR submitted that the Net Realizable Value was as per AS-2 of the Accounting Standards. The net realizable value means the estimated selling price in ordinary course of business, less estimated cost of completion and estimated cost necessary to make the sale. Net realizable value is estimated on the basis of most reliable evidence at the time of valuation. Such net realizable valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these goods are sold to foreign entity. Therefore, even on this ground to expect the assessee to earn the same margin as in Indian market is also an unacceptable logic. Thirdly, the calculation of GP at 22.64% includes the transaction with related party. It is tainted transactions, because this GP of 22.64% is not the result of transactions with independent parties alone, but with related parties as well. It was the duty of the TPO to arrive at the ALP of this international transaction. TPO cannot use this figure of 22.64% itself as at arm s length. In effect, the sale invoices of the assessee to its AE can be compared with the sale of invoices of the AE to the independent party. The goods sold are exactly the same, as the goods were dispatched from the warehouse of the assessee to the ultimate buyer who is an independent entity. The time gap between the sale of the assessee and the sale of the AE are negligible because it has happened within the same month. Therefore, this is a fit case to use CUP as a most appropriate method. Thus the CIT(A) has rightly allowed the appeal of the assessee. 10. We have perused all the records and heard both the parties. The contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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