TMI Blog2021 (10) TMI 1202X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee. Finished goods written off - HELD THAT:- In order to bring out the effect of the change in the method of accounting the assessee had reduced the effect which is ₹ 37.41 cores from the consumption which would decrease valuation of opening stock and increase the profit. Further in order to negate this effect the assessee had debited the same amount to the profit and loss account as exceptional items written off. Thus there is no effect on the profit and loss account and the assessee has not tinkered with the opening stock. To recapitulate, the assessee has reduced the value of opening stock by a sum of ₹ 37.41 crores which is a credit effect increasing the income and has simultaneously debited the profit and loss account by the same amount as exceptional items written off to nutralize the effect. Thus actually there is no effect and this has also been detailed in Note No. 4 given by the auditors in the notes to accounts. In this view of the matter in our considered opinion, we do not find any infirmity in the order of learned CIT(A). We note that in the present case before us aforesaid amount added by the AO is erroneous as assessee s adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, as against the adjustment of ₹ 28,68,408/- on the basis of first TPO order dated 31.05.2010. In this regard, it is observed from the assessment record that a report has been sent by the Assessing Officer to the Addl. CIT, TP-I(3) on 21.1.2014 stating that there were no search documents which have bearing on transfer pricing proceedings pending for A.Y. 2007-08 to A.Y. 2012-13. Thus, it is apparent that the above said addition of ₹ 22,80,195/- is not based on any incriminating material found as a result of search. (ii) The addition on account of disallowance of deduction u/s.10B of ₹ 3,07,34,644/-has been discussed in para 5 to 5.6 of the assessment order. The disallowance has been made on the ground that the appellant has not allocated all the expenses relating to the EOU unit and has claimed higher depletion u/s.10B of the Act. I find that an addition of ₹ 70,13,776/- was made by the A.O. by disallowing deduction u/s.10B in the first assessment order u/s.143(3) dated 08.02.2011 by reallocating a part of expenses under certain heads like Directors Remuneration, R D Clinical Expenses, Expenses in Foreign Currency. In the assessment order u/s.153A, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is not an abated assessment. In case of an unabated assessment the Hon'ble ITAT Special Bench, Mumbai in the case of All Cargo Global Logistics Ltd. Vs. DCIT 33 CHH 0294 (Mum) held in respect of non-abated assessment the assessment will be made on the basis of books of accounts or other documents not produced in the case of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. In affect it means the additions have to be based on the incriminating material found during the search''. This view was confirmed by the Hon'ble Bombay High Court in the case of CIT Vs. Continental Warehousing Ltd. 279 CTR 0389. 7.4 In view of the above judgments and judgments relied upon by the Learned Counsel for the assessee it is clear that in case of an unabated assessment the additions made without any incriminating material cannot be sustained. (1) In this case the addition of ₹ 19,53,522/- has been made on the basis of ALP adjustments made by the Addl. CIT(TP), no reference of any incriminating material has been made by the AO in the assessment order. Further in the Remand Report s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment the Hon'ble ITAT Special Bench, Mumbai in the case of All Cargo Global Logistics Ltd. Vs DCIT 33 CHH 0294 (Mum) held in respect of non-abated assessment the assessment will be made on the basis of books of accounts or other documents not produced in the case of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. In affect it means the additions have to be based on the incriminating material found during the search . This view was confirmed by the Hon'ble Bombay High Court in the case of CIT Vs. Continental Warehousing Ltd. 279 CTR 0389. 7.4 In view of the above judgments and judgments relied upon by the Learned Counsel for the assessee it is clear that in case of an unabated assessment the additions made without any incriminating material cannot be sustained. (1) In this case the addition of ₹ 5,60,427/- has been made on the basis of ALP adjustments made by the Addl. CIT(TP), no reference of any incriminating material has been made by the AO in the assessment order, Further in the Remand Report submitted by the AO he has clearly mentioned that the seized materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial was found during search. Assessment order under section 143(3) was already passed for assessment year 2007-08 prior to the search and notice. The period for issuing notice under section 143(2) was also over for assessment year 2008-09 and 2009-10 by the time of search and notice. In such circumstances it is evident that these are not abated assessments. In such circumstances the decision of honourable Bombay High Court in the case of All Cargo Global Logistics Ltd. (supra) and Continental Warehousing Ltd. (supra) clearly mandate that the addition cannot be done under section 153A without any incrementing material found during search. The Revenue submits in grounds of appeal that they have not accepted the Hon'ble Bombay High Court decision and SLP has been filed before Hon'ble Supreme Court. This is no reason for us to not follow Hon'ble Jurisdictional High Court exposition. Hence in our considered opinion there is no infirmity in the order of learned CIT(appeals). 6. The Revenue has challenged other aspects of the merits of the case. These have not been adjudicated by the learned CIT(A) as he has deleted the addition on the reasoning that no incriminating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion is considered but found to be not acceptable because there is no clarity in the explanation regarding the impact on revenue or profitability. It is inferred from the assessee's submission that due to the change of valuation of Stock during the year the value of opening stock had increased by ₹ 3741.29 lacs and the same was reduced from the current year's consumption. Further debiting the same amount in the P L account under exceptional item has resulted in excess claim of expenses, thereby reducing the taxable profit to that extent. Moreover, except for the above explanation and statement, the assessee has submitted the item wise/quantity wise list, the year of purchase, the basis of valuing the stock of raw material and finished goods along with facts and figures to prove the over valuation of the opening stock in the earlier years. The adjustments made in the consumption during the year under consideration has also not been explained. The contention of the assessee that the change in the method of accounting does not affect the profit of the year is not at all clear as discussed above. In view of the above, assessee's claim of write off cannot be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts outstanding against these debtors. In absence of these basic details the assessee's claim of bad debt is not allowable as per Section 36(l)(vii) subject to section 36(2) of the I.T. Act. The relevant portion of the Section is as under: The deduction provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 -Subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year] Section 36(2)(i) says : In making any deduction for a bad debt or part thereof, the following provisions shall apply - No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. The explanation given by the assessee is considered but is not acceptabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demonstration. It is for the assessee to decide whether that debt has become bad or not. The only condition is that the debt which was being written off should have been taken into account in computing the income of the assessee for any previous year. The CBDT circular No. 12/2016 dated 30.05.2016 states that the legislative intention behind the amendment was to eliminate litigation on the issue of the allow ability of the bad debts by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, disputes on the issue of allowability continuously for the reason that the debt has not been established to be irrecoverable. The Hon'ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010, has stated that the position of law is well settled, After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1)(vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock by a sum of ₹ 3741.29 Lakhs (which is a credit effect increasing the income) and has simultaneously debited the P L account by the same amount as exceptional items written off to neutralize the effect. Therefore, there is no effect to the P L account as could be seen from the Note No.4 given by the auditors in the Notes to accounts. The AO has not understood this working and for the reason that there is no clarity in the explanation, made the addition of ₹ 37.41 crores which cannot be sustained. The exceptional items written off to the tune of ₹ 37.41 crs has not affected the P L account of the assessee in any way. The AO is directed to delete the addition of ₹ 48,61,79,000/-. 10. We have heard both the parties and perused the records. Learned Counsel of the assessee has made a further written submission as under :- 1. The assessee was following method of valuation of inventory of finished goods lying at marketing unit at trade price i.e. transfer price less estimated margin and not at cost in accordance with AS-2 issued by the ICAI till Assessment Year 2009-10. 2. During the year the assessee decided to value the closing stock of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of stock as per AS-2 of ₹ 3741.29 lakhs has been shown under the head of exceptional items. 11. We have carefully heard both the parties and perused the records. Apropos issue of Sundry debtors written off :- 12. We note that learned CIT(A) has given a finding that the assessee has submitted additional evidence for which learned CIT(A) has duly asked for the remand report from Assessing Officer and assessee rejoinder also. Learned CIT(A) has noted that the names and addresses of the sundry debtors along with the details of the invoices raised, date wise, and copies of the ledger accounts of all the debtors were submitted. That despite all these submission in the remand report the AO stated that the assessee has not submitted ledger accounts of the entities and also that the assessee failed to demonstrate how the deduction claimed as bad debts has actually become bad. Learned CIT(A) has given finding that it is clear that the ledger accounts and sales invoices along with a detailed chart has been furnished by the assessee which demonstrates that the amount involved in the debts have been offered as income in the earlier years. Further learned CIT(A) has rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year, the value of opening stock had increased by ₹ 3741.29 lakhs and the same was reduced from the current year s consumption. Hence, as per the Assessing Officer further debiting the same amount in the profit and loss account under exceptional item has resulted in excess claim of expenses thereby reducing the taxable profit to that extent. Further Assessing Officer stated that the adjustment made in the consumption has also not been explained. However, as per the facts narrated by learned CIT(A) and explanation given by the assessee, the change in the method of accounting does not affect the profit by the amount of ₹ 3741.29 lacks. In order to bring out the effect of the change in the method of accounting the assessee had reduced the effect which is ₹ 37.41 cores from the consumption which would decrease valuation of opening stock and increase the profit. Further in order to negate this effect the assessee had debited the same amount of ₹ 37.41 crores to the profit and loss account as exceptional items written off. Thus there is no effect on the profit and loss account and the assessee has not tinkered with the opening stock. To recapitulate, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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