RACOLD THERMO PRIVATE LIMITED,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8, PUNE, PUNE

relates to the allowance of provision for obsolescence of finished goods and spares. There can be no dispute that inventory should be valued either at cost or market price, whichever is lower. In the present case, the appellant company followed inventory valuation policy, based on which item-wise analysis was carried out to determine whether a particular item or a part of finished goods has become obsolete or not and it also adopted a methodology for identification of obsolete finished goods, etc. Thus, the provision for obsolete items is clearly allowable, in view of the settled position of law that inventory should be valued at cost or market price whichever is lower in view of decision of Hon’ble Bombay High Court in the case of Alfa Laval India Vs. DCIT 266 ITR 418 is clearly applicable, wherein the Hon’ble Bombay High Court has held as under:

8. In the present case, there is no dispute that the duly certified auditor's report placed before the AO clearly justified valuation of obsolete items at 10 per cent of cost. There is no dispute that the assessee is entitled to value the closing stock at market value or at cost whichever is lower. It is also not in dispute that the value of the closing stock has been taken as the value of the opening stock in the subsequent year. Moreover, it is 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. Under the circumstances, it could not be said that the valuation of the obsolete items done by the assessee and certified by the auditors was not proper or arbitrary. The AO in fact has arbitrarily valued the items in question at 50 per cent of the cost without disclosing the basis of such valuation. The AO had not doubted the correctness of the certificate of the auditors regarding the valuation of obsolete items. The summary of the obsolete items were before the AO. There is nothing on record to show that the assessee was called upon to furnish the list of obsolete items or that the assessee was called upon to establish that the items were not moving for 3 years. Under these circumstances, it could not be said that the assessee has failed to furnish list of obsolete items and failed to establish that the said items were not moving. 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 findings of the AO on the ground that the list of obsolete items were not produced by the assessee. Accordingly, we answer the question No. 1 in the negative, that is, in favour of the assessee and against the Revenue.”

is allowed for statistical purposes.”

9. Since there is no change in facts and law in the present case, we remand the issue to the file of the Assessing Officer as similar lines, as indicated in the earlier order of this Tribunal in assessee’s own case for assessment year 2011-12 in order dated 22.03.2022. Accordingly, the ground of appeal is partly allowed for statistical purposes.”

6. On perusal of the finding of this Tribunal, it is noted that there was no change in the facts and circumstances of the case as related to A.Y. 2013-14. Further, the Tribunal remanded the issue to the file of AO with a direction to allow deduction subject to satisfaction whether the valuation of obsolete inventory is made based on the principle at cost or market price or net realizable value, whichever is less. As discussed above, the NFAC, Delhi confirmed the order of AO for not substantiating whether the obsolete stock was valued at lower of cost or net realizable value vide para 4 of the impugned order. Therefore, following the finding of this Tribunal in assessee’s own case for A.Y. 2013-14, we deem it proper to remand the issue to the file of AO for its fresh consideration to decide the issue as indicated by this Tribunal in assessee’s own case in A.Y. 2013-14. Thus, ground No. 1 consisting of 1.1 and 1.2 raised by the assessee is allowed for statistical purpose.

7. Ground No. 2 consisting of 2.1 and 2.2 raised by the assessee challenging the action of CIT(A), NFAC, Delhi in confirming the disallowance of Rs.7,72,809/- being 20% of total foreign travelling expenses in the facts and circumstances of the case.

8. We note that the assessee claimed Rs.4,72,00,000/- as conveyance and travel expenses. The AO asked the assessee to provide details of the said claim. On verification of such details as filed by the assessee, the AO found the assessee incurred an amount of Rs.38,64,046/- on foreign travel. According to the AO, the assessee could not produce the details fully and show caused why the proportionate disallowance of 20% of foreign travelling expenses should not be made. In the absence of full details by the assessee, the AO disallowed Rs.7,72,809/- and added to the total income of the assessee. The CIT(A) confirmed the same.

9. Before us, the ld. AR submits that the details were submitted before the AO, but however, the AO proceeded to disallow on the basis of estimation which is not justified. We note that the assessee submitted details regarding the claim of conveyance and travel expenses in the proceedings. The AO asked to submit the supporting evidence on chosen sample to an extent of Rs.11,51,000/- and admittedly there was no evidence on such query by the AO. The AO disallowed on estimation basis without giving any reason, but admittedly, there was no evidences as sought by the AO with regard to sample to an extent of Rs.11,51,000/- and in view of the same, we restrict the addition to Rs.2,00,000/-, thus, the order of CIT(A) is modified. Thus, ground No. 2 consisting of 2.1 and 2.2 raised by the assessee is partly allowed.

Order pronounced in the open court on 09th August, 2023.