Dy. CIT, Pune V. Crane Proxess Flow Technologies [I] Ltd., Pune

ITA 107/PUN/2013

• Counselvise Citation: 10724514 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 10-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2570/PN/2012 (ASSESSMENT YEAR 2008-09) CRANE PROCESS FLOW TECHNOLOGIES (INDIA) LTD., 5 TH & 6 TH FLOOR, S.NO.131/1 & 2, SOLITAIRE, ITI ROAD, OPP : RELIANCE FOOT PRINT, PUNE 411007 .. APPELLANT PAN NO.AABCA4702H VS. ACIT, CIRCLE-8, PUNE .. RESPONDENT ITA NO. 107/PN/2013 (ASSESSMENT YEAR 2008-09) DCIT, CIRCLE-8, PUNE .. APPELLANT VS. CRANE PROCESS FLOW TECHNOLOGIES (INDIA) LTD., 5 TH & 6 TH FLOOR, S.NO.131/1 & 2, SOLITAIRE, ITI ROAD, OPP : RELIANCE FOOT PRINT, PUNE 411007 .. RESPONDENT PAN NO.AABCA4702H ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI P.S. NAIK DATE OF HEARING : 16-10-2014 DATE OF PRONOUNCEMENT : 27-10-2014 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED B Y THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIR ECTED AGAINST THE ORDER DATED 11-10-2012 OF THE CIT(A)-V, PUNE RELATI NG TO ASSESSMENT YEAR 2008-09. FOR THE SAKE OF CONVENIENCE, THESE W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF DIAPHRAGM VALVES, BUTTERFLY VALVES AND RUBBER DIAPHRAGMS. IT IS THE SUBSIDIARY OF CRANE PROCESS FLOW TECHNOLOGIES LTD. OF UK. IT FILED ITS RETURN OF INCOME ON 29-03-2010 DECLARING TOTAL INCOME OF RS.2,09,73,370 /-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTED FROM THE PROFIT AND LOSS ACCOUNT, THAT THE ASSESSEE HAS CLAI MED PROVISION FOR OBSOLETE, SLOW MOVING INVENTORY AND SHRINKAGE OF RS .1,92,63,086/-. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE LIST OF SUCH OBSOLETE AND SLOW MOVING INVENTORY AND ASKED HIM TO PROVIDE THE ARTICLES FOR TREATING THEM AS OBSOLETE AND SLOW MOV ING INVENTORY. THE ASSESSEE IN RESPONSE TO THE SAME FILED THE LIST OF SUCH OBSOLETE AND SLOW MOVING INVENTORY. IT WAS SUBMITTED THAT THE COMPAN Y MADE PROVISION IN RESPECT OF THE ENTIRE COST OF OBSOLETE AND SLOW MOVING ITEMS IF THE SAID ITEMS WERE NOT CONSUMED WITHIN 18 MONTHS FROM THE DATE ON WHICH IT WAS PURCHASED. THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF ALFA LAVAL INDIA LTD. VS. DCIT REPORTED IN 186 CTR 390 WHICH HAS BEEN UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALFA LAVAL INDIA LTD. REPORTED IN 295 ITR 4 51 WAS RELIED UPON. 2.1 HOWEVER, ACCORDING TO THE ASSESSING OFFICER, NO REASON FOR TREATING THOSE ITEMS BEING OBSOLETE AND SLOW MOVING WAS FURNISHED. THE ASSESSING OFFICER DISTINGUISHED THE DECISIONS C ITED BEFORE HIM AND ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF PROVISIO N OF OBSOLETE AND SLOW MOVING INVENTORY BY FURNISHING OUTWARD AND USAGE WI SE DETAILS OF ITEMS WHICH HAVE BEEN CONSIDERED IN PROVISION OF OB SOLETE AND SLOW MOVING INVENTORY. HE ALSO ASKED THE ASSESSEE TO EX PLAIN AS TO HOW 3 THESE ITEMS WERE TREATED OUTDATED AND CONSIDERED FO R WRITING OFF. 2.2 IT WAS ARGUED BY THE ASSESSEE THAT IF THE RAW MATERIAL HAS NOT BEEN CONSUMED WITHIN 18 MONTHS, THE SAME WAS WRITTE N DOWN AS OBSOLETE INVENTORY. IT WAS FURTHER ARGUED THAT EXC ESS RAW MATERIAL ALSO QUALIFIES FOR OBSOLETE INVENTORY AFTER 18 MONTHS. IT WAS ARGUED THAT ITEMS WHICH WERE USED FOR MANUFACTURING AND SOLD SU BSEQUENTLY HAVE BEEN WRITTEN BACK AND OFFERED TO TAX. IT WAS SUBMI TTED THAT THE ASSESSEE COMPANY HAS ADDED BACK THE PART PROVISION OF RS.23. 23 LAKHS IN A.Y. 2009-10 AND PART PROVISION OF RS.39.25 LAKHS IN A.Y . 2010-11. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. SO FAR AS THE A RGUMENT OF THE ASSESSEE THAT THE RAW MATERIAL WHICH HAS NOT BEEN C ONSUMED WITHIN 18 MONTHS HAS BEEN WRITTEN DOWN AS OBSOLETE INVENTORY, HE NOTED THAT THE PERIOD OF 18 MONTHS SOLELY CANNOT DECIDE THAT THE P ARTICULAR ITEM IS OBSOLETE AND SLOW MOVING. THERE MUST BE SOME REASO N FOR NON-MOVING OF PARTICULAR ITEM OTHER THAN THE PERIOD DECIDED BY THE COMPANY. HE FURTHER NOTED THAT THE PERIOD ASPECT HAS NOT BEEN F OLLOWED CONSISTENTLY BY THE COMPANY. HE, THEREFORE, REJECTED THE FIRST ARGUMENT. 3.1 SO FAR AS THE ARGUMENT OF THE ASSESSEE THAT EXC ESS RAW MATERIAL HAS BEEN CLAIMED AS OBSOLETE AND SLOW MOVING, HE RE JECTED THE SAME ON THE GROUND THAT CONTROL OVER PURCHASE AND CONSUMPTI ON OF PARTICULAR RAW MATERIAL RESTS WITH THE COMPANY. THE QUESTIO N OF PURCHASE OF EXCESS RAW MATERIAL CANNOT BE CONSIDERED AS OBSOLET E AND SLOW MOVING. AS REGARDS THE ARGUMENT OF THE ASSESSEE THAT ITEMS WHICH WERE USED FOR MANUFACTURING OR SOLD SUBSEQUENTLY HAVE BEEN WRITTE N BACK AND 4 OFFERED TO TAX, HE HELD THAT THE WRITTEN BACK OF TH E PROVISION ITSELF PROVES THAT THE CLAIM OF PROVISION FOR OBSOLETE AND SLOW MOVING INVENTORY WAS NOT CORRECT, SCIENTIFIC AND AS PER LA W. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COULD NOT JUSTIFY A NY CLAIM OF PROVISION OF EXPENDITURE IN A PARTICULAR YEAR BECAUSE THE SAM E HAS BEEN SUBSEQUENTLY OFFERED FOR TAX. SINCE THE INCOME OF A PARTICULAR YEAR HAS TO BE CORRECTLY DETERMINED AND SHOWN IN THE PARTICU LAR YEAR, THEREFORE, HE REJECTED THE ABOVE CLAIM OF THE ASSESSEE. DISTI NGUISHING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALFA LA VAL INDIA LTD.,(SUPRA) THE ASSESSING OFFICER DISALLOWED THE P ROVISION FOR OBSOLETE AND SLOW MOVING INVENTORY OF RS.1,92,63,086/-. 4. BEFORE CIT(A) THE ASSESSEE REITERATED THE SAME S UBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTE D THAT THE COMPANY HAS 37,715 ITEM CODES OF RAW MATERIAL, STORES AND S PARES AND BOUGHT OUT COMPONENTS. EXPLAINING THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR MAKING PROVISION FOR SLOW MOVING AND OBSOLETE ITEMS , IT WAS ARGUED THAT IF A PARTICULAR RAW MATERIAL HAS NOT BEEN CON SUMED AT ALL IN 6 TO 12 MONTHS FROM THE DATE ON WHICH IT IS PURCHASED THEN IT BECOMES OBSOLETE IS AN ACCEPTED ACCOUNTING PRINCIPLE. THE DECISION O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF INDIA MOTOR PARTS AND ACCESSORIES PVT. LTD. VS. CIT REPORTED IN 60 ITR 531 WAS BROUGH T TO THE NOTICE OF THE CIT(A). RELYING ON VARIOUS DECISIONS IT WAS SU BMITTED THAT THE METHOD ADOPTED BY THE ASSESSEE BEING JUSTIFIED, THE PROVISION FOR SLOW MOVING INVENTORY AMOUNTING TO RS.1,92,63,086/- HAS TO BE ALLOWED AS DEDUCTION. 5 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, THE LD.CIT(A) DIRECTED TO ASSESSING OFFICER TO RESTRICT THE ADDIT ION TO RS.28,89,463/-. THE RELEVANT OBSERVATION OF THE CIT(A) AT PARA 7 OF THE ORDER READS AS UNDER : 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IN A MERCANTILE SYSTEM OF ACCOUNTIN G, THE CLOSING STOCK HAS TO BE VALUED AT THE COST OR MARKET PRICE WHICHEVE R IS LOWER. IF AN ITEM IS NOT SOLD FOR A PARTICULAR TIME IT BECOME OBSOL ETE AND SLOW MOVING. ONE WAY OF SHOWING THE SAME IN BOOKS OF ACCOU NTS IS TO REDUCE THE COST OF SUCH ITEMS FROM THE VALUATION OF INVENTORY ITSELF. WHILE OTHER WAY OF SHOWING IS MAKING A PROVISION FOR OBSOLETE AND SL OW MOVING ITEMS WHICH THE APPELLANT HAS DONE IN THIS CASE. THERE FORE, NO FAULT CAN BE FOUND IN THE SYSTEM FOLLOWED BY THE APPELLANT. HOW EVER, VALUING THE OBSOLETE AS WELL AS SLOW MOVING ITEMS AT NIL IS NOT JUSTIF IED AS EVERY ITEM HAS SOME VALUE. THE APPELLANT HAS PLACED RELIANCE ON THE DECISION OF ALFA LAVAL INDIA LTD. IN THAT CASE, IT IS SEEN THAT THE ASSESSEE ITSELF HAS SHOWN VALUE AT 10% OF THE COST. IN THIS CASE, IT IS SEEN THAT RS. 23.23 LACS WAS WRITTEN BACK IN A.Y. 2009-10 AND PART OF THE PRO VISION AMOUNTING TO RS.39.25 LACS WAS RETURN BACK IN 2010-11. THE AMOU NT OF RS. 23.23 LACS, WRITTEN BACK IN A.Y. 2009-10 ENTIRELY PERTAINS TO PROVISION MADE IN A.Y.2008-09. WHILE THE WRITE BACK IN A.Y. 2010-11 P ERTAINS TO PROVISION MADE IN A.Y. 2008-09 AS WELL AS A.Y. 2009-10. THEREFO RE, CONSIDERING THE WRITE BACK MADE IN SUBSEQUENT YEARS, THE ENDS OF JU STICE WILL MEET IF THE VALUE OF SLOW MOVING AND OBSOLETE INVENTORY IS TAK EN AT 15% OF THE TOTAL COST WHICH COMES TO RS. 28,89,463/-. ACCORDINGL Y, THE ADDITION IS RESTRICTED TO RS.28,89,463/- AND THE APPELLANT GETS RE LIEF OF RS.1,63,73,623/- (1,92,63,086 -28,89,463). ACCORDING LY, THE GROUND IS PARTLY ALLOWED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US WITH THE FOLLOW ING GROUNDS : GROUNDS BY ASSESSEE : THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE T O EACH OTHER - ON FACTS AND IN LAW, 1 THE LEARNED CIT APPEAL ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR SLOW MOVING AND OBSOLETE INVENTORY TO T HE EXTENT OF RS.28,89,463/- 2 THE LEARNED CIT APPEAL ERRED IN NOT APPRECIATIN G THAT AS PER CONSISTENT ACCOUNTING POLICIES AND METHOD OF ACCOUNTIN G FOLLOWED BY THE COMPANY, THE OBSOLETE AND SLOW MOVING INVENTOR Y WERE VALUED AT RS. NIL AND THAT THE STATUTORY AUDITORS OF THE COMPANY HAD APPROVED THE ABOVE BASIS OF VALUATION OF SLOW MOVING A ND OBSOLETE INVENTORY. 6 3 WITHOUT PREJUDICE TO ABOVE, THE DISALLOWANCE OF PROVISION FOR SLOW MOVING AND OBSOLETE INVENTORY OF RS. 28,89,463/- BY ASSUMING THE NET REALIZABLE VALUE OF THE AFORESAID IN VENTORY @ 15% OF THE ACTUAL COST IS VERY HIGH AND NEEDS TO BE REDUCE D SUBSTANTIALLY. 4. THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE R ATIO OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF ALF A LAVAL INDIA LTD. V DCIT (2004) 186 CTR 390 (MUM.) AND OF THE SU PREME COURT IN THE CASE OF CIT V ALFA LAVAL INDIA LTD. (2007) 29 5 ITR 451 (SC). 5. THE APPELLANT COMPANY CRAVES LEAVE TO ADD TO, AL TER, AMEND, MODIFY AND /OR DELETE ANY OR ALL OF THE ABOVE GROU NDS OF APPEAL. GROUNDS BY REVENUE : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.1,92,63,086/- TO CLOSING STOCK BEING PROVISION FOR OBSOLETE, SLOW MOVING AND SHRINKAGE OF INVENTORY WHEN THE PROVISION HAS BEEN MADE ON THE BASIS OF INTERNAL GUIDELINES AND NOT AS PER PROVISION IS OF INCOME TAX AC T WHICH PROVIDES FOR VALUATION OF CLOSING STOCK EITHER AT COST OR AT M ARKET PRICE, WHICHEVER IS LESS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) WAS JUSTIFIED IN ESTIMATING THE VALUE OF SLO W MOVING AND OBSOLETE INVENTORY WITHOUT PROVIDING ANY LOGICAL OR SCIENTIFIC BASIS FOR SUCH VALUATION. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER AN D THE CIT(A). HE SUBMITTED THAT THE METHOD ADOPTED BY THE ASSESSEE I S AN ACCEPTED METHOD OF ACCOUNTING FOR TREATING OBSOLETE STOCK. FURTHER, THE ASSESSEE IS ALSO CONSISTENTLY FOLLOWING THE SAME METHOD. RE FERRING TO PAGES 11 TO 32 OF THE PAPER BOOK, HE DREW THE ATTENTION OF T HE BENCH TO THE DETAILS OF EXCESS/OBSOLETE AND SLOW MOVING INVENTOR Y. REFERRING TO PAGE 4 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER JUSTI FYING THE BASIS ADOPTED BY THE ASSESSEE FOR MAKING THE PROVISION. REFERRING TO PAGE 41 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BEN CH TO SCHEDULE 15, 7 I.E. MANUFACTURING AND OTHER EXPENSES WHEREIN THE AMOUNT OF RS.1,92,63,086/- HAS BEEN SHOWN UNDER THE HEAD PRO VISION FOR OBSOLETE, SLOW MOVING AND SHRINKAGE. HE SUBMITTED THAT THERE IS NO DISPUTE REGARDING THE AMOUNT OF RS.1,92,63,086/- AS PROVISION MADE AND THE DETAILS OF WHICH WERE SUBMITTED TO THE ASSE SSING OFFICER. 7.1 REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ALFA LAVAL INDIA LTD., (SUPRA) HE SUBMI TTED THAT IN THE SAID CASE THE ASSESSEE HAD VALUED THE CLOSING STOCK OF O BSOLETE ITEMS AT 10% OF THE COST AND THE REPORT OF THE AUDITORS HAD JUST IFIED SUCH VALUATION. THESE ITEMS WERE SOLD IN SUBSEQUENT YEAR AT A PRICE LESS THAN 10% OF THE COST. IT WAS ACCORDINGLY HELD THAT THE SAID VA LUATION OF OBSOLETE ITEMS MADE BY THE ASSESSEE COULD NOT BE SAID TO BE NOT PROPER OR ARBITRARY. THE VALUATION OF SUCH ITEMS BY THE ASSE SSING OFFICER AT 50% OF THE COST WITHOUT DISCLOSING THE BASIS OF SUCH VA LUATION WAS ARBITRARY AND IT WAS ACCORDINGLY HELD THAT THE TRIBUNAL WAS N OT JUSTIFIED IN UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER. R EFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. ALFA LAVAL INDIA LTD. (SUPRA) HE SUBMITTED THAT THE DECI SION OF THE HONBLE BOMBAY HIGH COURT WAS AFFIRMED BY THE HONBLE SUPRE ME COURT. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. HINDUSTAN AERONAUTICS LTD. REPORTED IN 3 1 TTJ (DELHI) 95 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT WHEN AN ASSESSEE RE-VALUES HIS STOCK ON ACCOUNT OF SOME OF THEM HAVING NO MARKETABILITY THAT MUST BE ACCEPTED AS A FACT. IN THAT CASE, THE COMPANY USED TO UNDERTAKE PERIODIC REVIEW OF INVENTORY HOLD ING IN ORDER TO IDENTIFY THE SURPLUS STOCK HAVING NO MARKETABILITY. SUCH STOCK WAS 8 DECLARED AS REDUNDANT AND WAS CHARGED TO THE PROFIT AND LOSS ACCOUNT. IT WAS HELD THAT SUCH RE-VALUATION WAS NOT AN ADHOC RE VALUATION AND ACCORDINGLY THE ORDER OF THE COMMISSIONER (APPEALS) ALLOWING DEDUCTION ON ACCOUNT OF LOSS ON SUCH RE-VALUATION W AS UPHELD. HE ALSO RELIED ON THE DECISION OF HONBLE RAJASTHAN HIGH CO URT IN THE CASE OF CIT VS. WOLKEM INDIA LTD. REPORTED IN 315 ITR 211. HE ACCORDINGLY SUBMITTED THAT SINCE THE METHOD ADOPTED BY THE ASSE SSEE IS AN ACCEPTED METHOD OF ACCOUNTING AND IS BEING CONSISTENTLY FOLL OWED, THEREFORE, THE PROVISION FOR SLOW MOVING AND OBSOLETE INVENTORY SH OULD BE ALLOWED IN FULL AS A DEDUCTION. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE S UBMITTED THAT THE METHOD FOLLOWED BY THE ASSESSEE IS A FAULTY METHOD AND IS NOT A SCIENTIFIC ONE. HE SUBMITTED THAT THE MARKET VALUE OF THE ITEMS WRITTEN OFF BY THE ASSESSEE AS OBSOLETE CANNOT BE ZERO SINC E MOST OF THE ITEMS ARE RAW MATERIALS. THIS CAN BE USED SUBSEQUENTLY B Y THE ASSESSEE OR MAY BE SOLD TO OUTSIDERS AT A LATER DATE. THEREFOR E, WRITING OFF THE ENTIRE AMOUNT IS NOT AT ALL JUSTIFIED. HE ACCORDINGLY SUB MITTED THAT THE ORDER OF THE ASSESSING OFFICER BE UPHELD. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTANT CASE HAS DEBITED AN AMOUNT OF RS.1,92,63,08 6/- UNDER THE HEAD PROVISION FOR OBSOLETE, SLOW MOVING INVENTORY AND SHRINKAGE. THE 9 BASIS OF SUCH PROVISION WAS THAT IF A PARTICULAR IT EM OF RAW MATERIAL IS NOT CONSUMED WITHIN 18 MONTHS FROM THE DATE OF ITS PURCHASE, THEN THE ASSESSEE MAKES A PROVISION FOR WRITING OFF OF THE S AME AS OBSOLETE INVENTORY. FURTHER, IF A PARTICULAR RAW MATERIAL I S IN STOCK FOR MORE THAN CONSUMPTION IN LAST 18 MONTHS, THEN IN SUCH CASE RA W MATERIAL ALSO IS PROVIDED FOR WRITE OFF AS SLOW MOVING/EXCESS INVENT ORY. ACCORDING TO THE ASSESSING OFFICER, THE METHOD ADOPTED BY THE AS SESSEE IS NOT SCIENTIFIC. ACCORDING TO HIM, THE CONTROL OVER PUR CHASE AND CONSUMPTION OF A PARTICULAR RAW MATERIAL RESTS WITH THE COMPANY. HE ACCORDINGLY DISALLOWED THE CLAIM OF THE PROVISION. WE FIND THE LD.CIT(A) WHILE PARTLY ALLOWING THE APPEAL OF THE A SSESSEE HELD THAT THE SYSTEM FOLLOWED BY THE ASSESSEE CANNOT BE FAULTED W ITH. HOWEVER, ACCORDING TO HIM, THE VALUE OF OBSOLETE AND SLOW MO VING ITEMS AT NIL IS NOT JUSTIFIED AS EVERY ITEM HAS SOME VALUE. HE ACCORDINGLY RESTRICTED THE DISALLOWANCE TO 15% OF SUCH PROVISION. FROM TH E VARIOUS DETAILS FURNISHED BY THE ASSESSEE WE FIND AN AMOUNT OF RS.2 3.23 LAKHS WAS WRITTEN BACK BY THE ASSESSEE IN A.Y. 2009-10 AND AN AMOUNT OF RS.39.25 LAKHS WAS WRITTEN BACK IN A.Y. 2010-11. W E FIND IN THE CASE OF ALFA LAVAL INDIA LTD. (SUPRA) THE ASSESSEE ITSEL F HAS SHOWN VALUE AT 10% OF THE COST. HOWEVER, IN THE INSTANT CASE THE ASSESSEE HAS VALUED SUCH SLOW MOVING/OBSOLETE ITEMS AT NIL. UNDER TH ESE CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER OF LD.CIT(A) VALU ING THE SLOW MOVING AND OBSOLETE INVENTORY AT 15% OF THE TOTAL COST WHI CH COMES TO RS.28,89,463/-. 9.1 IN OUR OPINION, WHEN THE ASSESSEE USED STORES A ND RAW MATERIALS NUMBERING TO MORE THAN 37000 ITEMS AND THE VALUE OF SUCH ITEMS VARIES 10 FROM RS.1/- TO RS.15000/-, THERE IS EVERY POSSIBILI TY OF SOME OF THE ITEMS BEING OBSOLETE AND SLOW MOVING. THE ASSESSEE CAN EITHER VALUE SUCH STOCK AT COST OR MARKET PRICE WHICHEVER IS LOW ER. SIMILARLY, THE ASSESSEE CAN ALSO MAKE PROVISION FOR OBSOLETE AND S LOW MOVING ITEMS. HOWEVER, IT CANNOT BE SAID THAT THE VALUE OF SUCH I TEM IS NIL ESPECIALLY WHEN THE ASSESSEE ITSELF HAS WRITTEN BACK AN AMOUNT OF RS.39.25 LAKHS DURING A.Y. 2009-10 WHICH ENTIRELY PERTAINS TO THE ITEMS WRITTEN BACK IN A.Y. 2008-09. SIMILARLY, THE AMOUNT OF RS.39.25 LAKHS WRITTEN BACK IN A.Y. 2010-11 PERTAINS PARTLY TO THE PROVISION MA DE IN A.Y. 2008-09 AND PARTLY FOR A.Y. 2009-10. SUCH WRITTEN BACK IN THE ACCOUNTS IN SUBSEQUENT YEARS SHOW THAT THE VALUE OF THE RAW MA TERIAL WRITTEN OFF BY THE ASSESSEE DURING A.Y. 2008-09 HAS SOME VALUE AND NOT ZERO VALUE. 9.2 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF ALFA LAVAL INDIA LTD. (SUPRA) HAS HELD AS UNDER : (SHORT NOTES) : FOR THE ASSESSMENT YEAR 1989-90, THE ASSESSEE HAD VALUED T HE CLOSING STOCK OF OBSOLETE ITEMS AT 10 PER CENT OF THE COST. TH E ASSESSING OFFICER HELD THAT THE ASSESSEE HAD NEITHER FURNISHED THE LIST OF OBSOLETE ITEMS NOR PRODUCED ANY RECORDS TO SHOW THAT THE ITEMS WERE N OT MOVING. THE ASSESSING OFFICER TOOK THE REALISABLE VALUE OF OBSOLETE I TEMS AT 50 PER CENT OF THE COST AND ACCORDINGLY ADDED BACK RS.15,15 ,656/-. ON APPEAL FILED BY THE ASSESSEE, THE COMMISSIONER OF INCOME-TAX (AP PEALS) DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER BY T AKING INTO ACCOUNT THE FACT THAT THE ACTUAL REALISATION OF THE OBSOLETE ITEMS IN THE SUBSEQUENT YEAR WAS LESS THAN 10 PER CENT OF THE COST. O N FURTHER APPEAL FILED BY THE REVENUE, THE TRIBUNAL SET ASIDE T HE ORDER OF THE COMMISSIONER (APPEALS) AND RESTORED THE ORDER OF THE A SSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAD FAILED TO PRODUCE T HE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM. HELD (I) THAT THE DULY CERTIFIED AUDITORS REPORT PL ACED BEFORE THE ASSESSING OFFICER CLEARLY JUSTIFIED VALUATION OF OBSOLETE ITEMS AT 10 PER CENT OF COST. THERE WAS NO DISPUTE THAT THE ASSESSEE IS ENTITLED TO VALUE THE CLOSING STOCK AT MARKET VALUE OR AT COST WHICHEVER IS LOWER. IT WAS ALSO NOT IN DISPUTE THAT THE VALUE OF THE CLOSING STOCK HAD BEEN TAKEN AS THE VALUE OF THE OPENING STOCK IN SUBSEQUENT YEAR. M OREOVER, IT WAS ALSO NOT DISPUTED THAT THE OBSOLETE ITEMS WERE IN FACT SOLD IN THE SUBSEQUENT YEAR AT A PRICE LESS THAN 10 PER CENT OF THE COST. IN THE ABSENCE OF ANY BASIS FOR VALUING THE OBSOLETE ITEMS AT 50 PER CENT OF THE COST, THE TRIBUNAL COULD NOT HAVE UPHELD THE FINDING S OF THE ASSESSING OFFICER. 11 9.3 WE FIND THE HONBLE SUPREME COURT HAS UPHELD TH E ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT REPORTED IN 295 ITR 451. SINCE IN THE INSTANT CASE, THE LD.CIT(A) WHILE DECI DING THE ISSUE HAS BASICALLY FOLLOWED THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF ALFA LAVAL INDIA LTD., AND CONSIDERED T HE WRITTEN BACK OF AMOUNT OF RS.23.23 LAKHS DURING A.Y. 2009-10 WHICH PERTAIN TO THE PROVISIONS MADE DURING A.Y. 2008-09, THEREFORE, CON SIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURE BROUGHT BEFORE US BY THE LD. COUNSEL FOR TH E ASSESSEE AS WELL AS THE LD. DEPARTMENTAL REPRESENTATIVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A). THE GROUNDS RAISED BY THE REVENUE AS WELL AS THE ASSESSEE ARE ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27-10-2014. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTAN T MEMBER PUNE DATED: 27 TH OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-II, PUNE 4. THE CIT-II, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE