FOXCONN INDIA PVT. LTD.,KANCHEEPURAM vs. DCIT COMPANY CIRCLE 2(1), CHENNAI

This appeal by assessee for Assessment Year [AY] 2008-09 arises out of the order of learned Commissioner of Income Tax (Appeals)-13, Chennai [CIT(A)] dated 07/05/2018 in the matter of assessment framed by Ld. Assessing Officer [AO], u/s.143(3) of the Act on 28/11/2011. In this appeal, the grievance of the assessee is two-fold – (i) Disallowance of custom duty paid for Rs.38.33 Lacs; (ii) Addition of Rs.80.94 Lacs on account of valuation of stock. Having considered rival submissions, our adjudication would be as under: - 2. Disallowance of Custom Duty paid for Rs.38.33 Lacs The assessee paid advance custom duty of Rs.38.33 Lacs and made provision of the same in earlier years. In this year, this was claimed as deduction in the computation of income. However, Ld. AO denied the same since the claim was u/s 36(1)(vii) and the assessee did not fulfill the conditions of Sec.36(2) which provide that no deduction would be provided unless debts have been taken into account in computing the income. 3. Addition of Rs.80.94 Lacs on account of valuation of stock It was noted that valuation of closing stock of finished goods was less in comparison to unit price of the same material sold to NOKIA. The assessee submitted that stock was valued at standard cost in accounting software and the variation between the standard cost and actual cost was adjusted while valuing the closing stock. The valuation was stated to be done as mandated by relevant Accounting Standards and Income Tax provisions. The method adopted was cost price or net realizable value (NRV), whichever is lower. However, not convinced Ld. AO added the difference of standard cost and actual cost to the income of the assessee. The same resulted into an addition of Rs.80.94 Lacs in the hands of the assessee. 4. The stand of Ld. AO on both issues, upon confirmation by Ld. CIT(A), is in further challenge before us. 5. So far as the write-off of advances is concerned, we find that the assessee paid custom duty in earlier years and reflected the same as advances. Subsequently, the assessee was not able to get back the deposits and accordingly, wrote-off the same in this year as business loss. The perusal of assessee’s financial statements (page-10) would show that the amount have been written-off against provision for doubtful advances and Ld. AO weighed assessee’s claim u/s 36(1)(vii) which was not the case. The assessee’s case was that the deposits were merely advances in normal course of business which became irrecoverable and hence written-off. Such claims are allowable as business losses in terms of decision of Hon’ble Madras High Court in the case of CIT V/s Inden Bisellers (181 ITR 69) wherein it was held that loss of such advances would be allowable as trading loss. Drawing strength from the same, we direct Ld. AO to allow the deduction of the same. This ground stand allowed. 6. So far as the valuation of inventories is concerned, we find that the assessee was following recognized method of valuation of closing stock i.e. lower of cost price and net realizable value. The same has been mentioned in notes to accounts. This method was consistently being followed and there are no contrary findings in this respect. In accounting software, the assessee was valuing the stock on standard cost which was adjusted taking into account actual cost of material consumed. Another aspect which could be noted that increase in valuation of stock in this year would impact the opening stock of next year. However, it was submitted by Ld. AR that in subsequent years, the method of stock valuation has been accepted by the revenue. This being the case, the impugned adjustment as made by Ld. AO has no legs to stand. By deleting the same, we allow this ground of appeal.