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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI N.K. BILLAIYA
ORDER PER H.S. SIDHU, JM
The Revenue has filed this Appeal against the Order dated 25.11.2014 passed by the Ld. CIT(A), Meerut relevant to assessment year 2002-03 on the following grounds:-
1. Whether in the light of facts and circumstances of the case the Ld. CIT(A),
Meerut has erred in law and facts in deleting the addition of Rs. 1,02,69,000/- made by 1 the AO in respect of used service components and spare which were written off during the relevant year and not included in the inventory of such goods by the assessee.
2. Whether in the light of facts and circumstances of the Ld. CIT(A) has erred in law and facts in not appreciating the basis of addition made by the AO as to why the amount written off be not treated as sales
outside books of provoking provisions of Section 145 of the I.T. Act since the assessee had written off 25% of inventory on account of wear and tear in the past yearas and the policy of writing off 100% value of used material / spare parts had been adopted by the assessee in the relevant previous year.
3. That the appellant craves leave to add,
modify and / or delete any ground(s) of appeal.
4. In the facts and circumstances of the case,
the order of the CIT(A), Meerut may be asset aside and that of the AO restored.
The brief facts of the case are that assessee company has filed the return on 31.10.2002 showing total income of Rs. NIL.
The case of the assessee was taken in scrutiny. Notices u/s. 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) were issued. The assessee company is a Public Limited Company which was engaged in the business of manufacturing, trading and servicing of computer printers etc.
Till assessment year 2001-02 the assessee was writing off all the spare parts @ 25% over a period of four years. During the relevant assessment year, the assessee changed the method of valuation of inventory and wrote off fully the used components and spares and valued new and unused component at cost.
Due to this change in the method of valuation of inventory of service component, the closing stock and consequently the profit of year was lower by Rs. 1,01,14,000/-. The AO rejected the aforesaid change. The AO stated in his order that the used service components and spares has not been valued at realizable cost but altogether written off from the inventory of closing stock. The AO also required the assessee to show cause as to why realizable value of used item not be taken as sales outside the books by invoking the provisions of section 145 of IT Act. In its reply which is mentioned in the assessment order itself, the assessee stated that the accounting policy has been changed in view of fast changing of computer technology. The assessee further stated that the obsolescence rate in computer industry is very high and the earlier method of charging depreciation @25% does not hold good in the present condition. The assessee also stated that used parts are not saleable except as scrap. The AO felt that the assessee had not replied to his specific query i.e. why should realizable value of used components not be treated as sales outside the books of account. The AO thereafter treated 90% of the realizable value of used items as sales outside the books and added Rs. 1,02,69,000/- to the total income of the assessee and completed the assessment u/s. 143(3) of the Act vide order dated 29.03.2005. Against the assessment order dated 29.3.2005, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 25.11.2014 has deleted the 4 addition of Rs. 1,02,69,000/- and partly allowed the appeal of the assessee. Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
Ld. DR relied upon the order of the Assessing Officer and reiterated the contentions raised in the grounds of appeal.
In this case, Notice of hearing to the assessee was sent by the Registered AD post, in spite of the same, assessee, nor its authorized representative appeared to prosecute the matter in dispute, nor filed any application for adjournment. Keeping in view the facts and circumstances of the present case and the issue involved in the present Appeal, we are of the view that no useful purpose would be served to issue notice again and again to the assessee, therefore, we are deciding the present appeal exparte qua assessee, after hearing the Ld. DR and perusing the records.
We have heard the Ld. DR and perused the records especially the impugned order. We note that the assessee is a Public Ltd. Company and is listed with Bombay Stock Exchange. The assessee’s books of account are audited under the provisions of companies law as well as Income Tax Law. No 5 specific defect has been pointed out by the AO in the books of account. It is noted that during the appellate proceedings before the Ld. CIT(A), the Ld. AR of the assessee has given explanation regarding the need for change in the method of valuation of stock. It has also been stated by the Ld. AR of the assessee and not controverted by the AO, that the method of accounting introduced in A.Y. 2002-03 was regularly followed in subsequent assessment years also. It is no where discussed in the assessment order as to how can it be inferred by invoking the provision of section 145, that sales have been made outside the books of account. To substantiate this allegation, no enquiry seems to have been conducted by the AO. The AO has quoted assessee's submission in his own order wherein the assessee has said that because of fast obsolescence in the computer industry the spare parts are not saleable except as scrap. Thus the AO has not considered the explanation given by the assessee and has not supplemented any evidence from his side which would warrant his conclusion of out of book sale by making enquiry on his own. Hence, the additions cannot be made on mere allegations. Considering the factual matrix of the case, the Ld. CIT(A) has rightly deleted the addition of 6 Rs. 1,02,69,000/-, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) and reject the grounds raised by the Revenue.
In the result, the Appeal filed by the Revenue stands dismissed.
Order pronounced on 05/06/2018.