Asst. Commissioner of Income tax, Margao V. M/s. Gigabyte Technology (I) Ltd., Navi Mumbai

ITA 95/PAN/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5225 (ITAT-PANAJI)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 95/PNJ/2013 (ASSESSMENT YEAR-2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, MARGAO (APPELLANT) VS. M/S GIGABYTE TECHNOLOGY (INDIA) LTD. L-5, VERNA ELECTRONIC CITY, VERNA, GOA- 403 722. PAN: AABCD7556N (RESPONDENT) APPELLANT BY : AMRIT RAJ SINGH, DR RESPONDENT BY : VISHAL KALRA, ADV. DATE OF HEARING : 04/09/2013 DATE OF ORDER : 27/09/2013 O R D E R PER: D.T.GARASIA (JM) THIS APPEAL BY THE DEPARTMENT AGAINST THE ORDER OF CIT(A)-1, DATED 21.03.2013, FOR ASSESSMENT YEAR 2007-08. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE DEPARTMENT WHICH READ AS UNDER. ( I.) THE ORDER OF LD. CIT(A) IS OPPOSED TO LAW AND FACT OF THE CASE. (II) THE LD. CIT(A), PANAJI HAS ERRED IN DELETING ADDITION OF RS. 56,54,837/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF LOSS CLAIMED AS STOCK OBSOLESCENCE. (III) THE LD. CIT(A), PANAJI HAS ERRED IN ALLOWING THE METHOD OF VALUATION OF CLOSING STOCK WITH RESPECT TO UNSOLD COMPUTER PERIPHERALS ADOPTED BY THE ASSESSEE. 3. THE SHORT FACTS OF THE CASE ARE AS UNDER. 3.1 THE ASSESSEE HAS FILED E-RETURN OF INCOME ON 27.10.2007 DECLARING A TOTAL INCOME OF 10,510/-. THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND ASSESSMENT WAS MADE U/S 143(2) OF THE INCOME TAX ACT. THE ASSESSEE 2 ITA 95 PNJ 2013 ACIT VS. M/S. GIGABYTE TECHNOLOGY (INDIA) LTD. IS ENGAGED IN PURCHASE & SALE OF MOTHERBOARDS OF COMPUTERS AND OTHER PERIPHERALS. THE ASSESSEE COMPANY SHOWED MANY INTERNATIONAL TRANSACTIONS OF A COMPLEX NATURE. THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.56,54,837/- AS LOSS TOWARDS STOCK OBSOLESCENCE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FURNISHED THE DETAILS OF THE STOCK TREATED AS OBSOLETE. THE ITEMS TREATED AS OBSOLETE COMPRISE, AMONG OTHERS, THE FOLLOWING. S. NO. ITEM QUANTITY VALUE (IN RS.) 1. LAPTOP CELERON 1.4G 11 1,24,267/- 2. LAPTOP P-M 1.7 GHZ,1 72 21,12,552/- 3. LAPTOP M 1.4 GHZ 1M 5 1,09,390/- 4. LAPTOP P-M 1.7GHZ, 12 11 3,99,311/- 5. LAPTOP P-M 1.7 GHZ, 14 2 59,708/- 6. LAPTOP P-M 1.7 GHZ, 1 15 6,30,390/- TOTAL 34,35,618/- FROM THE ABOVE VIEW, IT HAS SEEN THAT THE STOCK TREATED AS OBSOLETE BY THE ASSESSEE WAS MAINLY LAPTOPS VALUING RS.34,35,618/-. THE OTHER MAJOR ITEM INCLUDED IN THIS LIST IS MOTHERBOARD CARRYING A VALUE OF RS.14,01,600/-.THE AFORESAID ITEMS HAVE A GOOD SALE VALUE AND DO NOT BECOME OBSOLETE IN A MATTER OF MONTHS OR A YEAR THEREFORE, ASSESSEE WAS GIVEN SHOW CAUSE NOTICE AND ASSESSEE HAS CLARIFIED BY HIS LETTER WHICH READS AS UNDER: THE COMPANY MANUFACTURES ELECTRONIC PRODUCTS MAINLY MOTHERBOARDS. AS YOU ARE AWARE THAT THE TECHNOLOGY EVOLVED IN THE MANUFACTURE OF ELECTRONIC/COMPUTER PERIPHERALS IS FAST CHANGING AND THE PRICES CONTINUOUSLY GET DROPPED DOWN. FURTHER THE MODELS MANUFACTURED HAVE A VERY SHORT LIFE AND THESE MODELS BECOME WORTHLESS IF THEY ARE NOT SOLD WITHIN A SHORT TIME. AS A GENERAL PRACTICE IN THE ELECTRONIC INDUSTRY ANY PRODUCT WHICH IS IN THE STOCK FROM MORE THAN A YEAR HAS TO BE DEPRECIATED IN VALUE BY 100% AND A PRODUCT WHICH IS IN INVENTORY FOR MORE THAN 180 DAYS AND UPTO 1 YEAR IS DEPRECIATED 50%. OUR ACCOUNTING POLICY HAS ALWAYS BEEN TO VALUE THE PRODUCT AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER. THIS METHOD OF ACCOUNTING HAS BEEN CONSISTENTLY FOLLOWED BY US. THE METHOD OF ACCOUNTING OF VALUATION OF STOCK AT COST OR NET REALIZABLE VALUE, WHICHEVER IS LESS IS AS PER THE STANDARDS ISSUED BY THE CENTRAL GOVERNMENT IN CONSULTATION WITH THE NATIONAL ADVISORY COMMITTEE ON ACCOUNTING STANDARDS. THE SAID STANDARDS HAS BEEN ISSUED VIDE 3 ITA 95 PNJ 2013 ACIT VS. M/S. GIGABYTE TECHNOLOGY (INDIA) LTD. NOTIFICATION NO. GSR-739(E) DATED 07.12.2006 (ACCOUNTING STANDARD AS2 PARA 5). FURTHER SECTION 145(A) OF THE INCOME TAX ACT ALSO STATES THAT VALUATION OF INVENTORY SHALL BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. TO SUMMARISE THE TREATMENT GIVEN BY US OF VALUATING THE INVENTORY AT COST OR NET REALIZABLE VALUE AND RECOGNIZING THE OBSOLESCENCE IS AS PER THE PROVISIONS CONTAINED IN INCOME TAX ACT, COMPANIES ACT AND AS WELL AS THE INDUSTRY STANDARDS. 3.2 AFTER CONSIDERING THE REPLY OF THE ASSESSEE THE ASSESSING OFFICER WAS OF A VIEW THAT THE ELECTRONICS PRODUCTS ESPECIALLY COMPUTERS DEPRECIATE FASTER, HOWEVER, THE SAME CANNOT HOLD TRUE FOR ALL THE PRODUCTS ESPECIALLY LAPTOPS ETC. WHICH NOT ONLY HAVE A LONG SHELF BUT ALSO COMMAND A GOOD RESALE VALUE IN THE INDIAN MARKET. 4. THE SECOND CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAS TAKEN THE VALUATION IN CONSONANCE WITH STANDARDS PRESCRIBED VIDE NOTIFICATION NO. GSR-739(E) DATED 07.12.2006 (ACCOUNTING STANDARD-AS2 PARA 5) IS ALSO NOT CORRECT AND AS PER THE PRESCRIBED NORMS THE ASSESSEE HAS TO ADOPT THE COST PRICE OR REALISABLE VALUE OF THE STOCK TREATED AS OBSOLETE. THE ASSESSING OFFICER WAS OF A VIEW THAT THE PERCEIVED LOSS ON ACCOUNT OF STOCK VALUE HAS NEITHER BEEN SUFFERED NOR INCURRED IN THE PREVIOUS YEAR RELEVANT TO THIS ASSESSMENT YEAR. THE ASSESSING OFFICER IN ORDER TO VERIFY WHETHER THE ASSESSEE HAD ACTUALLY DISPOSED OF THE AFORESAID STOCK AND HAD NOT RECEIVED ANY VALUE FROM SUCH SALE, THE INSPECTOR OF INCOME-TAX, SRI RAJESH WANJARI HAS CARRIED OUT THE SPOT INSPECTION AS PER THE REPORT OF THE OF MR. RAJESH WANJARI. HE HAS INSPECTED THE FACTORY PREMISES OF THE ASSESSEE AND THE MANAGER COMMERCIAL MR. S.N. MANERKAR, EXPLAINED THAT THE STOCK CONSISTING OF LAPTOP, MOTHERBOARD AND PERIPHERALS IS DEPRECIATED IN VALUE BY 100% WHERE THE STOCK IS IN INVENTORY FOR MORE THAN 1 YEAR AND BY 50% IN THE CASE OF STOCK WHICH IN IS IN INVENTORY FOR MORE THAN 180 DAYS. MR. S. N. MANERKAR ALSO CLARIFIED THAT STOCK TREATED AS OBSOLETE IS NOT SEGREGATED AND IS KEPT WITH THE CURRENT STOCK AND CAN BE SOLD IN SUCCEEDING YEARS AND 4 ITA 95 PNJ 2013 ACIT VS. M/S. GIGABYTE TECHNOLOGY (INDIA) LTD. IT WAS ALSO CLARIFIED THAT SALE OF SUCH OBSOLETE STOCK WAS NOT MADE OF SEGREGATED CONSIDERING THIS EXPLANATION OF THE ASSESSEE. THE ASSESSING OFFICER RELYING UPON THE DECISION OF VARIOUS HIGH COURTS, THE ASSESSING OFFICER WAS OF A VIEW THAT THE ASSESSEE WAS NOT ABLE TO PROVE THAT THE STOCK WAS DAMAGED AND THEREFORE VALUELESS, THEREFORE, THE ASSESSING OFFICER HAS DISALLOWED THE LOSS OF RS. 56,54,837/- 5. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER:- I HAVE GONE THROUGH THE ASSESSMENT ORDER, THE ARGUMENTS OF THE APPELLANT AND VARIOUS DECISIONS RELIED UPON BY THE ASSESSING OFFICER AND THE APPELLANT. THE APPELLANT HAS VALUED PART OF ITS STOCK AT LOWER THAN THE COST ON THE GROUND THAT IN THE BUSINESS OF COMPUTER, THE UNSOLD STOCK DEPRECIATES VERY FAST, AS NEWER VERSIONS BECOME AVAILABLE IN THE MARKET AND THE APPELLANT IS EITHER NOT ABLE TO SELL THE OLD AND OBSOLETE STOCK. AT ALL, OR IT HAS TO BE SOLD AT A HIGHLY REDUCED PRICE. THE APPELLANT HAS CONSISTENTLY BEEN FOLLOWING THIS METHOD ACCORDING TO THE ACCEPTED NORMS OF ACCOUNTING IN THE COMPUTER RELATED BUSINESS. WHENEVER THE APPELLANT IS ABLE OR SELL ANYTHING OUT OF OBSOLETE STOCK. WHENEVER THE APPELLANT IS ABLE OR SELL ANYTHING OUT OF OBSOLETE STOCK, THE SAME IS DECLARED AS INCOME AND THEREFORE, THERE IS NO LOSS TO THE REVENUE AS WELL. THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE APPELLANT ON CONSISTENT AND REGULAR BASIS IS ALSO SUPPORTED BY VARIOUS JUDICIAL DECISIONS. ON THE OTHER HAND, THE ASSESSING OFFICER RELIED ON THOSE JUDICIAL PRONOUNCEMENTS, WHICH DO NOT RELATE TO THE FACTS OF THE ASSESSEES CASE. IN THE CASE OF TEECEE PHARMA, THE ASSESSEE CLAIMED THAT GOODS WORTH RS. 1,56,174/- WERE DAMAGED AND THE TRIBUNAL HELD THAT THE CLAIM OF THE ASSESSEE WAS INCORRECT IN THE SENSE THAT THE ASSESSEE COULD NOT PROVE THAT THE GOODS WERE ACTUALLY DAMAGED. IN THE CASE OF NAMDUNG TEA COMPANY LTD. THE ASSESSEE WAS A NON-RESIDENT COMPANY AND BECAUSE OF DEVALUATION IN THE VALUE OF INDIAN CURRENCY COMPARED TO STERLING, THE ASSESSEE CLAIMED LOSS. THE ISSUE BEFORE THE HONBLE HIGH COURT WAS WHETHER THE LOSS ON ACCOUNT OF DEVALUATION OF THE RUPEE WAS ALLOWABLE LOSS. SIMILAR IS THE FACT IN THE CASE OF UNION CARBIDE, VIDES PRODUCTS AND ATTAREKHAT TEA CO. LTD. IN VIEW OF THE ABOVE DISCUSSION AND THE FACTS OF THE CASE, IN MY OPINION, THE LOSS CLAIMED ON ACCOUNT OF OBSOLETE AND OLD STOCK BY THE APPELLANT IS AN ALLOWABLE LOSS AND THE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS. 56,54,837/- ON THIS ACCOUNT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE IS IN COMPUTER INDUSTRIES AND IN COMPUTER INDUSTRIES THE TECHNOLOGY ARE CHANGED VERY FAST 5 ITA 95 PNJ 2013 ACIT VS. M/S. GIGABYTE TECHNOLOGY (INDIA) LTD. AND RISK OF INVENTORY OBSOLETES IS VERY HIGH LEVEL. IT IS OBVIOUS THAT INVENTORY THAT BECOMES OBSOLETE DID NOT COMMAND THE SAME VALUE OR SALE PRICE IN MARKET AS NEW PRODUCTS. THE ASSESSEE HAS SUBMITTED THE METHOD OF ACCOUNTING FOLLOWED IS IN ACCORDANCE WITH ACCEPTED ACCOUNTING PRINCIPLES AS WELL AS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE ACCOUNTING POLICY FROM YEAR TO YEAR AND IN VIEW OF SUCH FACT THERE IS NO ADVANTAGE GAINED BY THE ASSESSEE AS THE VALUE OF CLOSING STOCK AT THE END OF THE YEAR WOULD BECOME THE VALUE OF OPENING STOCK. THE ASSESSEE WAS VALUING THE STOCK WHICH IS LYING MORE THAN SIX MONTH BUT LESS THAN ONE YEAR VALUE WAS ESTIMATED AT 50% OF THE COSTS AND THE STOCK LYING FOR MORE THAN A YEAR VALUE ESTIMATED AS NIL. THE ABOVE ACCOUNTING POLICY FOR VALUING THE OBSOLETE INVENTORY HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE ON YEAR TO YEAR BASIS. THIS METHOD OF ACCOUNTING FOLLOWED IS IN ACCORDANCE WITH ACCEPTED ACCOUNTING PRINCIPLES AS WELL AS IN ACCORDANCE WITH THE PROVISION OF THE ACT. THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE ACCOUNTING POLICY FROM YEAR TO YEAR AND IN VIEW OF SUCH FACT, THERE IS NO ADVANTAGE GAINED BY THE ASSESSEE AS THE VALUE OF CLOSING STOCK AND END OF YEAR WOULD BECOME THE VALUE OF OPENING STOCK. WE FIND THAT AS PER SECTION 145 A WHICH DEALS WITH THE VALUATION OF INVENTORY AND PERMIT THE ASSESSEE TO VALUE THE INVENTORY AS PER THE METHOD OF ACCOUNTING REGULARLY EMPLOYED. WE FIND THAT IF THE ASSESSEE IS VALUING THE STOCK AS PER ACCOUNTING PRINCIPLES AND IF THE REVENUE AUTHORITIES HAS ACCEPTED THE VALUATION OF THE STOCK AS PER ACCOUNTING STANDARD IN YEAR TO YEAR BASIS AND ITS VALUATION POLICY HAS BEEN CONSISTENTLY FOLLOWED YEAR AFTER YEAR AND IS IN ACCORDANCE WITH THE APPLICABLE ACCOUNTING STANDARD IN VIEW OF PROVISIONS OF SECTION 145A VALUATION HAS TO BE ACCEPTED FOR TAX PURPOSE. WE FIND THAT IN THIS CASE THE ASSESSEE HAS FOLLOWED THIS METHOD OF INVENTORY FROM YEAR TO YEAR BASIS. THEREFORE, WE ARE OF THE VIEW THAT THE ISSUE STANDS COVER IN FAVOUR OF ASSESSEE BY VARIOUS DECISIONS OF VARIOUS HIGH COURTS, WHICH ARE, MOHAMMAD ADAM SAHIB (K) 6 ITA 95 PNJ 2013 ACIT VS. M/S. GIGABYTE TECHNOLOGY (INDIA) LTD. VS. CIT, (1965) 56 ITR 360(MAD) AND CIT VS. BHARAT COMMERCE AND INDUSTRIES LTD. 240 ITR 256(DEL).WE ARE RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE VIEW THAT CIT(A) IS JUSTIFIED IN ALLOWING THE LOSS ON ACCOUNT OF OBSOLETE OF OLD STOCK. 7. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.09. 2013. SD/- SD/- ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 27.09 .2013 P.S.- *PK* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER PRIVATE SECRETARY, ITAT, PANAJI, GOA