ACIT, New Delhi V. M/s Gillette Diversified Operations Pvt. Ltd., New Delhi

ITA 2049/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2716 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-05-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 25-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S NEGI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER & SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.2049/DEL/2011 ASSESSMENT YEAR: 2004-05 ACIT, CIRCLE 12(1), NEW DELHI. VS. GILLETTE DIVERSIFIED OPERATIONS PVT. LTD., 34, OKHLA INDUSTRIAL ESTATE, NEW DELHI. AAACG2469C (APPELLANT) (RESPONDENT) APPELLANT BY: SH. R.S. NEGI, SR. DR RESPONDENT BY: SH. PRADEEP DINODIA, CA O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL, FILED BY THE DEPARTMENT, IS DIRECTED AGAINST THE ORDER DATED 12/01/2011 OF CIT(A)-XII, NEW DELHI FOR A.Y. 2004-05. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WAS INCORPORATED ON 02.12.1994 AS A SUBSIDIARY OF GILLE TTE GROUP INDIA PVT. LTD. THE ASSESSEE WAS IN THE BUSINESS OF TRADING AND EXP ORT OF BLADES, RAZORS, KITCHEN MACHINES & ACCESSORIES, SMALL ELECTRICAL AP PLIANCES, DRYERS, HAND BLENDERS, MIXER GRINDER, SHAVER, TOOTHPASTE, MOUTHW ASH AND TOOTH BRUSHES. FURTHER IT WAS ALSO ENGAGED IN EQUIPMENT LEASING BU SINESS. 2.1 THE ASSESSEE FILED ITS RETURN DECLARING LOSS OF RS. 2,72,53,701/-. THE ASSESSMENT WAS COMPLETED AT A LOSS OF RS. 1,26,91,8 54/-, INTER-ALIA, ITA NO. 2049/DEL/2011- GILLETTE DIVERSIFIE D OPERATIONS P. LTD. 2 MAKING DISALLOWANCE OF RS. 1,16,43,211/- IN REGARD TO INVENTORIES WRITTEN OFF. 3. LD. CIT(A), WHILE PARTLY ALLOWING THE ASSESSEES APPEAL, DELETED THE DISALLOWANCE IN REGARD TO INVENTORIES WRITTEN OFF. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE DEPARTMENT IS IN APPEAL BE FORE US AND HAS TAKEN FOLLOWING GROUND OF APPEAL: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS . 1,16,43,211/- ON ACCOUNT OF INVENTORY WRITTEN OFF M ADE BY THE AO. 4. BRIEF FACTS APROPOS THIS ISSUE ARE THAT ASSESSEE HAD DEBITED AN AMOUNT OF RS. 1,16,43,211/- UNDER THE HEAD INVENTO RIES WRITTEN OFF ON THE GROUND THAT THE GOODS WERE DAMAGED AND UNSERVICEABL E. THE ASSESSING OFFICER DISALLOWED THE ASSESSEES CLAIM, INTER-ALIA , OBSERVING THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM OF LIMITE D SHELF LIFE AS ALSO GOODS BEING DAMAGED. HE, THEREFORE, MADE A DISALLOWANCE OF RS. 1,16,43,211/-. THE AO, FURTHER, POINTED OUT THAT THIS KIND OF DISA LLOWANCE WAS ALSO MADE IN THE PRECEDING ASSESSMENT YEAR I.E. 2003-04, SINCE T HE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM DURING THE COURSE OF ASSESSM ENT PROCEEDINGS FOR THAT ASSESSMENT YEAR. 5. LD. CIT(A) DELETED THE DISALLOWANCE OBSERVING IN PARA 6.4 AS UNDER: 6.4 I HAVE GONE THROUGH THE SUBMISSION FILED BY TH E APPELLANT AND IT IS OBSERVED THAT THE APPELLANT HAS GIVEN COMPLETE DETAILS OF INVENTORY WHICH HAVE BEEN WRITT EN OFF ITA NO. 2049/DEL/2011- GILLETTE DIVERSIFIE D OPERATIONS P. LTD. 3 AS WELL AS EVIDENCE IN THE FORM OF PERSONS BEFORE W HOM THE SAID ITEM WERE DISPOSED OFF. THE APPELLANT HAS POINTED OUT THAT IT BEING A MULTI NATIONAL COMPANY THE COMPANY HAS TO BE MAINTAIN HIGHER STANDARD OF QUALI TY AND THESE ITEMS ARE NOT SOLD IN THE SECOND SALE AS DONE BY MANY OTHER FIRMS. AS THE APPELLANT HAS FURNISHED T HE COMPLETE DETAILS THEREFORE, DISALLOWANCE OF RS. 1,16,43,211/- IS HEREBY DELETED AND THIS ISSUE IS D ECIDED IN FAVOUR OF THE APPELLANT. 6. LD. DR SUBMITTED THAT ASSESSEE HAD NOT SUBSTANTI ATED ITS CLAIM BEFORE THE ASSESSING OFFICER BUT BEFORE LD. CIT(A) HAD GIVEN COMPLETE DETAILS OF INVENTORIES WHICH HAD BEEN WRITTEN OFF A S WELL AS EVIDENCE IN THE FORM OF PERSONS BEFORE WHOM THE SAID ITEM WAS DISPO SED OFF AND, THEREFORE, THE MATTER SHOULD BE RESTORED BACK TO TH E AO. 7. LD. COUNSEL SUBMITTED THAT LD. CIT(A) HAS FOLLOW ED THE ORDER FOR A.Y. 2004-05 WHILE DECIDING THE APPEAL FOR A.Y. 2003-04 AND, THEREFORE, THE APPEAL FOR A.Y. 2004-05 HAS FIRST COME UP FOR HEARI NG. LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE IS A MULTI-NATIONAL COM PANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING OF ITEMS WHICH CARRY A LIMITED SHELF LIFE (AS IS COMMON IN ANY FMCG INDUSTRY) AND ANY UNSERVI CEABLE, DAMAGED AND OBSOLETE INVENTORY ITEMS HAS TO BE TAKEN OFF FR OM THE REGULAR STOCK ITEMS. LD. COUNSEL FURTHER POINTED OUT THAT SUCH S TOCKS ARE NOT RESOLD AND ARE COMPLETELY DESTROYED, AS A MATTER OF POLICY BEC AUSE ASSESSEE HAS TO SAFEGUARD ITS REPUTATION AND IMAGE IN THE MARKET. HE HAS RELIED ON ITA NO. 2049/DEL/2011- GILLETTE DIVERSIFIE D OPERATIONS P. LTD. 4 FOLLOWING CASE LAWS IN SUPPORT OF HIS CONTENTION TH AT THE LOSS OR EXPENSES INCURRED BY THE COMPANY BY FOLLOWING A PARTICULAR A CCOUNTING SYSTEM AND METHODS ON YEAR TO YEAR BASIS, WHICH ARE IN ACCORDA NCE WITH THE ACCOUNTING STANDARDS, ARE ALLOWABLE EXPENSES: I. INDIA MOTOR PARTS & ACCESSORIES P. LTD. VS. CIT, MA DRAS, (1966) 60 ITR 531; II. ONGC VS. DCIT, 83 ITDS 151 = 261 ITR 1 (AT). 7.1 HE HAS ALSO RELIED ON FOLLOWING CASE LAWS FOR T HE PROPOSITION THAT PROFITS FOR TAX PURPOSES HAVE TO BE COMPUTED HAVING REGARD TO THE COMMERCIAL ACCOUNTING PRINCIPLES: A) CHALLAPALLI SUGAR LTD. VS. CIT, 98 ITR 167 (SC); B) CIT VS. U.P. STATE INDUSTRIAL DEVELOPMENT CORP. (22 5 ITR 703) (SC). 7.2 LD. COUNSEL FURTHER SUBMITTED THAT THESE STOCKS ARE WRITTEN OFF IN ACCORDANCE WITH ACOUNTING STANDARD 2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. AS REGARDS, THE PRO CEDURE FOR WRITE OFF, IT WAS STATED BEFORE LD. CIT(A) AS UNDER: WITH REGARD TO PROCEDURE FOR WRITE OFF, IT IS WORTHWHILE TO MENTION THE PHYSICAL VERIFICATION OF INVENTORY ITEMS IS CARRIED OUT AT REGULAR PERIODS A S PER THE LAID DOWN PROCEDURE OF THE COMPANY AND AFTER DU E DILIGENCE AND NECESSARY APPROVALS THE IDENTIFIED IT EMS OF INVENTORIES ARE WRITTEN OFF FROM THE BOOKS OF ACCOUNTS. THE DETAILED SOX MANUAL FOLLOWED WITH ORIGINAL APPROVALS AND PHOTOGRAPHS AND DESTRUCTION ITA NO. 2049/DEL/2011- GILLETTE DIVERSIFIE D OPERATIONS P. LTD. 5 CERTIFICATES IN THIS REGARD ARE PRODUCED FOR YOUR VERIFICATION. THE PROCEDURE FOLLOWED FOR IDENTIFICATION AND DESTRUCTION OF INVENTORY ITEMS IS SUMMARIZED BELOW: 1. DESCRIPTION OF ITEMS TO BE DISPOSED/WRITTEN OFF IS PREPARED. THIS KIND OF A NOTE HAS FOLLOWING DETAILS: A) DESCRIPTION OF ITEMS WITH QUANTITY, RATE AND VALUE WITH MATERIAL CODE; B) REASONS FOR DISPOSAL; C) RECOMMENDATION DISPOSAL PLAN; D) STATUS OF RECORDS. 2. THE SAID DISPOSAL NOTE IS APPROVED BY FINANCIAL CONTROLLER, PLANNING MANAGER, SUPPLY CHAIN MANAGER, BUSINESS ;DIRECTORS AND CONCERNED BRAND MANAGER. 3. BASIS SUCH APPROVALS THE IDENTIFIED INVENTORIES ARE DESTROYED/WRITTEN OFF BY THE CONCERNED CFA IN THE PRESENCE OF SENIOR COMPANY OFFICIALS. 4. DESTRUCTION CERTIFICATES ARE PREPARED BY THE COMPANYS AUTHORIZED CFAS UNDER THEIR SIGNATURES ALONG WITH RELEVANT PHOTOGRAPHS. THE ORIGINAL SET OF DOCUMENTS IS PRODUCED HEREWITH FOR YOUR NECESSARY VERIFICATION OF SYSTEMS. ALSO ATTACHED PLEASE FIND THE COPY OF ABOVE STATED DOCUMENT. 7.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. WE FIND FROM THE SUBMISSIONS M ADE BEFORE LD.CIT(A) ITA NO. 2049/DEL/2011- GILLETTE DIVERSIFIE D OPERATIONS P. LTD. 6 THAT COMPLETE DETAILS REGARDING WRITE OFF OF INVENT ORIES WERE PRODUCED BEFORE HIM AND AFTER CONSIDERING THEM HE HAS DELETE D THE ADDITION. IN PRINCIPLE WE ARE IN AGREEMENT WITH LD. COUNSEL FOR THE ASSESSEE THAT THE INVENTORIES COULD NOT BE KEPT IN STOCK AFTER EXPIRY DATE AND AS PER REGULAR ACCOUNTING PRACTICE FOLLOWED BY ASSESSEE, THE SAME HAD TO BE WRITTEN OFF. HOWEVER, ASSESSEE HAD TO SUBSTANTIATE ITS CLAIM BEF ORE AO. ADMITTEDLY THESE DETAILS WERE NOT FILED BEFORE AO, AS IS EVIDE NT FROM FOLLOWING OBSERVATIONS OF AO: IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT W RITE OFF HAS BEEN MADE AS THE GOODS WERE DAMAGED AND UNSERVICEABLE. THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE WITH REGARD TO LIABILITY OF LOSS ON SUCH B OUGHT OTHER THAN STATING COMPANY POLICY AND SUCH KINDS OF DAMAGED/UNUSABLE WRITE OFFS OF INVENTORY IS A REGU LAR PRACTICE, THE ASSESSEE HAS NOT FURNISHED ANY SUBSTA NTIAL INFORMATION. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF AO FOR VERIFICATION OF DETAILS. 8. IN THE RESULT, THE DEPARTMENTS APPEAL IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31/07/2013 SD/- SD/- (A.D. JAIN) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 31.07.2013 *KAVITA ITA NO. 2049/DEL/2011- GILLETTE DIVERSIFIE D OPERATIONS P. LTD. 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR