Case Law Details
Advocate Akhilesh Kumar Sah
Hero Moto Corp Ltd Vs DCIT (ITAT Delhi)
If a particular accounting system has been followed and accepted and there is no acceptable reason to differ with it, the doctrine of consistency would come into play; the method of accounting cannot be rejected. Such tinkering with the method is unjustified when the exercise does not materially alter the profits. Petty additions should be avoided on the ground of materiality, as AS-1 which talks about materiality, consistency, prudence etc. is part of the I.T. Act after it is notified under section 145(2).
Recently, in Hero Moto Corp Ltd. vs. DCIT [I.T.A. No. 6990/DEL/2017 (A.Y 2013-14), decided on 20.06.2018], the appeal was against the assessment order under section 143(3) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’ for short] read with section 144C of the Act, passed by Addl.CIT, Range-11, New Delhi vide order dated 27/10/2017. One of the ground was relating to addition of freight inward/import clearing expenses to cost of closing inventory amounting to Rs. 3,17,000. The assessee purchased raw material on CIF basis and included the freight cost for delivery of goods in purchase price and were factored in the value of closing inventory. In exceptional circumstances viz. material shortage, wherein assessee had to immediately lift material, transport charges are paid, which were not included to the purchase price, but were separately debited to profit and loss account, because the invoices of transporters were received after consumption of material. Such freight amount was not included in the valuation of closing stock, as per regularly and consistently followed method of valuation of stock accepted by the Revenue in the past. The AO/DRP held that the assessee’s contention that as the method was regularly followed year after year its impact will be revenue neutral, cannot determine the income of the assessee correctly for the year under consideration. The AO/DRP further held that the Revenue aspect keeps on changing on year to year basis. Therefore, AO further held that impact on non inclusion of freight inward and clearing charges at Rs 3,17,000/- has to be added to the income of the assessee.
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