In a partial relief to Cloudtail, the Delhi High Court remanded matters back to the Assessing Officer (AO) for fresh consideration of Application for Lower Withholding Tax Certificate.
Mr. Ajay Vohra, the Senior Counsel on behalf of the petitioner, Cloudtail stated that ageing of inventory is very common in retail business and based on the period of holding of the inventory, the Petitioner creates provision for slow and ageing inventory on scientific and reasonable estimate on the entire inventory in the books of accounts and financial statements.
Mr. Vohra stated that the petitioner suo motu disallows/adds back the provisions which are not allowable under Section 37 of the Act and does not claim deduction in the computation of taxable income, forming part of the return of income. He emphasises that the treatment for slow and ageing inventory is revenue neutral and the same has been done in accordance with the Accounting Standard 2 stipulated by the Institute of Chartered Accountants of India. This provision for slow and ageing inventory gets reversed in the beginning of the following year in the books of account for the succeeding financial year; consequently, the reversal of provision (which goes to enhance the book profit for the succeeding year) is claimed as a deduction in the computation of taxable income for that year, to avoid double taxation.
Mr. Vohra added that the AO passed the assessment order accepting the returned income for the AY 2018-19 after the petitioner had provided an explanation with respect to the inventory provision. He states that deduction of tax under Section 194O of the Act at the rate of 1% would result in huge refund of taxes causing severe hardship to the petitioner.
Mr. Ruchir Bhatia, Advocate accepted the notice on behalf of respondents as now in the writ petition the petitioner has clarified that the provision creating slow and ageing inventory in relation to the relevant AY has not been claimed as a deduction in the said year, the matter can be sent back to the AO for re-examination.
The division bench of Justice Manmohan and Justice Navin Chawla remanded the matter back to the AO to determine the said application afresh in accordance with law. The court directed the respondent authority to pass a reasoned order in accordance with law after giving an opportunity of hearing to the authorised representative of the petitioner within four weeks.Subscribe Taxscan AdFree to view the Judgment