ITAT : Allows provision for ‘retrospective’ price reduction on set top boxes

Delhi ITAT grants deduction for provision in respect of price reduction on set top boxes for subject AY 2007-08, notes that price reduction was crystallized after March 31st of relevant year but before the finalization of financial statements; During relevant AY, assessee company had sold set top boxes to Tata Sky Ltd. at the price agreed as per the MOU dated January, 2006, however, owing to reduction in duties announced by Union Budget w.e.f. March 1, 2007, there was a retrospective reduction in the price as agreed between the parties vide letter dated August, 2007; Rejects Revenue’s stand that post facto adjustment to sales receipt cannot be accepted since price reduction was crystallized after the closure of the relevant year; ITAT observes that the provision for price reduction pertained to the set top boxes sold during relevant year, notes that though the exact price reduction happened post 31st March, 2007, it was in principle agreed before March 31st (i.e. at the time of Union budget); Further in view of AS-4 and mercantile system of accounting followed by assessee, ITAT holds that costs directly associated with the revenue recognized during the relevant period, irrespective of whether the money paid or not, have to be considered, lastly clarifies that if the deduction is not allowed in subject AY, the same has to be allowed in subsequent AY:ITAT