2009 (3) TMI 902 - AT - Income Tax

Court affirms deduction of trading losses based on realizable value principles

The judgment upheld the Commissioner's orders regarding the valuation and treatment of damaged stock in both regular and income escaping assessments. The ... - Issues involved: Appeals by Revenue and cross-objections by respondent-assessee regarding regular assessment and income escaping assessment u/s 143(3) and 143(3) read with 147 of the Income-tax Act, 1961.Regular Assessment Issue: Revenue challenges deletion of disallowance for damaged stock valuation based on Delhi High Court precedent. Income Escaping Assessment Issue: Dispute over valuation of damaged stock and disallowance by Assessing Officer, questioning treatment as capital loss.Valuation of Damaged Stock: Assessee, a furniture company, valued damaged stock at Rs. 1,04,511, later disputed by Assessing Officer at Rs. 10,45,116, leading to disallowance.Valuation Principles: Stock valued at realisable value; Assessee's computation accepted as Department lacked evidence against it.Treatment of Loss: Loss from damaged stock considered trading loss, deductible in computing taxable income.Allowance of Loss: Loss ascertained at year-end applicable for that assessment year; Historical treatment of stock in accounts supports deduction.Legal Precedent: Decision aligns with Delhi High Court ruling allowing loss even without change in valuation method.Conclusion: Commissioner's orders upheld as sustainable; Revenue's grounds dismissed; Cross-objections condoned for delay but dismissed as supporting Commissioner's orders.In summary, the judgment addressed the issues of valuation and treatment of damaged stock in the context of regular and income escaping assessments, emphasizing adherence to valuation principles, deduction of trading losses, and historical accounting practices. The decision supported the Commissioner's orders, citing legal precedents and dismissing Revenue's arguments.