SUZUKI MOTORCYCLE INDIA PVT LTD Vs. CIT

JUDGEMENT

(1.) On 4.12.2012 the following substantial question of law was framed.

(2.) The brief facts giving rise to the appeal may be noted. We are concerned with the assessment year 2007-08. The appellant-assessee is a private limited company engaged in the manufacture and sale of motorcycles. In the return of income, an amount of Rs. 1,58,70,623/- was claimed as deduction on account of inventory written off. In the course of the assessment proceedings under Section 143(3) of the Act, the assessee was asked to justify the claim which it did by pointing out that the claim consisted of Rs. 1,23,36,086/- being the amount of raw material component and consumables written off and Rs. 35,34,537/- being the amount of finished goods written off. The assessee claimed that it was consistently following the principle of "cost or net realizable value, whichever is less" in valuing its inventory, that in ascertaining the net realizable value it adopted a scientific working and arrived at a net realizable value of 91.05%, thereby adopting the write off factor at 8.50% and that the working was based on estimated cost of production and estimated value of the sales. It was also submitted by the assessee that in the automobile industry such write off was an accepted practice.

(3.) The assessing officer rejected the assessee's explanation on the ground that such write off was only a prudent decision of a trader to set apart an amount for meeting the liability which was contingent and that there was no present obligation capable of commercial valuation which would justify the deduction. In this view he disallowed and added back the amount of Rs. 1,58,70,623/-.