UNIVERSAL MUSIC INDIA P. LTD., MUMBAI V. NATIONAL FACELESS APEAL CENTRE (NFAC), DEHI

ITA 945/MUM/2021

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Universal Music India Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, which confirmed the disallowances made by the Assessing Officer for the Assessment Year 2011-12. The disallowances pertained to the provision for slow moving and obsolete stock amounting to Rs. 96,07,495 and publicity expenses wrongly considered as bad debts and advances written off amounting to Rs.5,97,35,213. The Tribunal found that the method of accounting for provisions for slow moving and obsolete inventories consistently followed by the assessee and accepted in previous years should not be disturbed without valid reasons. Additionally, the Tribunal noted that the Assessing Officer had erred in categorizing publicity expenses as bad debts and advances written off.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 127134 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 01-12-2022
• Assessment Year: misc
• Appeal Filed On: 26-02-2012
• Other Referred Cases: United Commercial Bank vs. CIT, 240 ITR 355(SC), CIT vs. Woodward Governor India Pvt. Ltd., 312 ITR 254(SC), CIT vs. Santram Mangatram, 275 ITR 312 (P&H)
• Laws Referred To: Accounting Standard -2
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule of consistency; Bad and doubtful debts

Judgement Text

आयकर अपील य अ धकरण म ु ंबई पीठ “एफ़”,म ु ंबई ी वकास अव थी, या यक सद य एवं ी एस. रफौररहमान, लेखा सद यके सम IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “ F”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER& SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER आअसं.945/म ु ं/20 21 ( न.व. 2011-12) ITA NO.945/MUM/2021(A.Y.2011-12) Universal Music India Pvt. Ltd. 201, 2 nd Floor, Vibgyor Towers, Plot No.6-62, Block G, BKC (Opp. Trident Hotel) Bandra (E), Mumbai 400 051. PAN: AAACP-1985-C ...... अपीलाथ /Appellant बनाम Vs. National Faceless Appeal Centre(NFAC), Delhi. ..... तवाद /Respondent अपीलाथ वारा/ Appellant by : Shri Ruturaj H. Gurjar तवाद वारा/Respondent by : Ms. Richa Gulati स ु नवाई क त थ/ Date of hearing : 02/12/2022 घोषणा क त थ/ Date of pronouncement : 13/12/2022 आदेश/ORDER PER VIKASH AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘ the CIT(A) ] dated 25/03/2021, for the Assessment Year 2011-12. 2 ITA NO.945/MUM/2021(A.Y.2011-12) 2. The assessee in appeal has raised four grounds. Grounds of appeal No.1 and 2 are general in nature. The grievance of assessee in ground No. 3 and 4 of appeal is: (i) Disallowance of provision for slow moving obsolete stock : Rs. 96,07,495/- (ii) Disallowance of publicity expenses, wrongly considered as bad debts and advances written off by the Assessing Officer. : Rs.5,97,35,213/- 3. Shri Ruturaj H. Gurjar appearing on behalf of the assessee submits that the assessee is engaged in the business of producing, acquiring, marketing and distribution of music cassettes & compact discs in India and overseas. The recorded music and compact discs are held as stock-in-trade. Since, the shelf life of cassettes and compact discs is very short, they become obsolete very fast. Accordingly, a provision for slow and obsolete moving items is made at the closing of the accounting year to bring closing stock-in-trade at par with cost or net realizable value, whichever is less. The assessee is consistently following this method of accounting since its inception. The same has been accepted by the Department in assessment made over the last twenty years. The method of accounting followed by the assessee is in conformity with Accounting Standard -2. Even in the subsequent assessment years the provision for slow moving and obsolete stocks made by the assessee was never disturbed in the assessment proceedings. The ld. Authorized Representative of the assessee submits that it is a well settled law that method of accounting consistently followed could not be rejected, unless it does not reflect true 3 ITA NO.945/MUM/2021(A.Y.2011-12) profit. In support of his submissions the ld. Authorized Representative of the assessee placed reliance on the following decisions: (i) United Commercial Bank vs. CIT, 240 ITR 355(SC) (ii) CIT vs. Woodward Governor India Pvt. Ltd., 312 ITR 254(SC) (iii) CIT vs. Santram Mangatram, 275 ITR 312 (P&H) 3.1 In respect of ground No.4 of appeal, the ld. Authorized Representative of the assessee submits that for the period relevant to assessment year under appeal, the assessee in Profit and Loss Account has not claimed any write off of bad debts/advances. The ld. Authorized Representative of the assessee referred to Schedule-17 to the Profit and Loss Account at page-15 of the Paper Book. The ld. Authorized Representative of the assessee points that the Assessing Officer has erred in holding that the assessee has written off bad debts and advances Rs.5,97,35,213/-. The amount mentioned by the Assessing Officer in the assessment order pertains to publicity expenses claimed by the assessee. During assessment proceedings the assessee had categorically explained that there are no bad debts written off during the year. The ld. Authorized Representative of the assessee referred to the submissions dated 20/01/2014 made by the assessee before the Assessing Officer at page 24 to 26 of the Paper Book. The ld. Authorized Representative of the assessee pointed that at Sl.No.22 of the reply against details of bad debts and advances written off the assessee has mentioned “Nil”. 3.2 Aggrieved against the aforesaid disallowances made by Assessing Officer, the assessee carried the issue in appeal before CIT(A). Initially, the first appeal was fixed for hearing before the CIT(A) in physical mode. Subsequently, the appeal was transferred to National Faceless Appeal Centre, Delhi. No 4 ITA NO.945/MUM/2021(A.Y.2011-12) opportunity was afforded to the assessee for making submissions before the CIT(A), NFAC, hence, the CIT(A) without appreciating the facts on record and submissions made before CIT(A) in physical mode confirmed the additions. 4. Per contra, Ms. Richa Gulati representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. 5. Both sides heard, orders of authorities below examined. 6. The first issue raised by the assessee in ground No.3 of appeal is with regard to disallowance of provision for slow moving and obsolete inventories. The assessee is making provision in respect of unsold stock of cassettes and compact discs. The assessee has made provision in accordance with AS-2. The assessee is consistently following the same method of accounting since its inception and the same has been accepted by the Department for the last two decades. Even in subsequent assessment years the assessee’s method of creating provision for slow moving and obsolete inventories has not been disturbed by the Assessing Officer. This fact has not been disputed by the Revenue. The assessment year under appeal is the only assessment year when disallowance has been made in respect of provision for slow moving and obsolete inventories. It is true that the principle of resjudicata does not apply in Income Tax proceedings, but at the same time rule of consistency cannot be ignored especially when the accounting method followed by assessee is in accordance with approved Accounting Standards. The Revenue has not brought on record any material to show the reasons for deviation in not accepting provision for slow moving and obsolete inventories in the impugned assessment year. In the case of CIT vs. Santram Mangatram (supra) the Hon’ble High Court has held that where from the inception of its business, the assessee had continuously adopted the same method of valuation of closing stock and no objection was raised by the Department in any of the previous years, there was no valid 5 ITA NO.945/MUM/2021(A.Y.2011-12) ground to hold that method adopted by the assessee for valuation of stock was legally impermissible. The Hon’ble Apex Court in the case of United Commercial Bank vs. CIT (supra) has held that where the assessee bank was valuing stock-in-trade at cost for the purpose of statutory balance sheet and for the Income Tax purpose valuation was at cost or market value, whichever is lower and that was accepted by the Department in the preceding assessment years, there is no justifiable reason for the Revenue for not accepting same in the impugned assessment year. 7. In the aforesaid decisions Hon’ble Apex Court and the Hon’ble High Court has held that if the provision is accounted in accordance with the statutory requirements and the method of accounting has been consistently followed by the assessee over a period of time and accepted by the Department, the same should not be disturbed. In the instant case no contrary material has been brought on record by the Department to show that the assessee was not consistently following accounting policy and provision for slow moving and obsolete inventory in preceding or succeeding assessment years. We find no valid reason to uphold the findings of the CIT(A) confirming the addition. Consequently, findings of CIT(A) are reversed and ground No.3 of appeal is allowed. 8. In ground of appeal No.4, the assessee has assailed disallowance of bad debts written off. A perusal of Schedule-17 at page 15 of the paper book shows that against bad debts and advances written off no amount is mentioned either in the year ended 31/03/2011 or for the year ended 31/03/2010. The Assessing Officer has disallowed bad debts and advances written off to the extent of Rs.5,97,35,213/-. The aforesaid amount is 6 ITA NO.945/MUM/2021(A.Y.2011-12) mentioned in Schedule -17 against the “Publicity Expenses”. The Assessing Officer patently erred in mentioning the amount of “Publicity Expenses” against “Bad Debts and advances written off ”. The disallowance has been made by the Assessing Officer on wrong appreciation of facts. We further observe that the assessee’s submissions dated 20/01/2014 made before the Assessing Officer had categorically mentioned “Nil” against Details of Bad Debts and Advances written off during the year. After examining the facts and documents on record, we find merit in ground No.4 of the appeal. Hence, the assessee succeeds on same. The Assessing Officer is directed to delete the disallowance made in respect of Bad Debts and Advances written off. The ground of appeal No.4 is thus, allowed. 9. The ground No.1 & 2 of the appeal are general in nature hence, require no specific adjudication. 10. In the result, appeal of assessee is partly allowed in the terms aforesaid. Order pronounced in the open court on Tuesday the 13 th day of December, 2022. Sd/- Sd/- (SHRI S.RIFAUR RAHMA) (VIKAS AWASTHY) लेखा सद य/ACCOUNTANT MEMBER या यक सद य/JUDICIAL MEMBER म ु ंबई/ Mumbai, दनांक/Dated 13/12/2022 Vm, Sr. PS(O/S) 7 ITA NO.945/MUM/2021(A.Y.2011-12) त ल प अ े षतCopy of the Order forwarded to : 1. अपीलाथ /The Appellant , 2. तवाद / The Respondent. 3. आयकर आय ु त(अ)/The CIT(A)- 4. आयकर आय ु तCIT 5. वभागीय त न ध, आय.अपी.अ ध., म ु बंई/DR, ITAT, Mumbai 6. गाड फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt.Registrar)/Sr. Private Secretary ITAT, Mumbai