Appellate Tribunal allows appeal, deletes disallowance for product expiry loss.

The Appellate Tribunal allowed the appeal, directing the deletion of the disallowance of Rs. 20,89,501 related to excess shortage/breakage due to product expiry. The Tribunal emphasized the genuine nature of the loss and the absence of revenue generation from the expired goods, leading to the decision to allow the claim in full.

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Issues: Disallowance of excess shortage/breakage claimed by the assessee due to pulling back of inventory from the market on account of product expiry.

Analysis:

1. Facts and Disallowance: The assessee, a trading company of non-alcoholic beverages, claimed a loss in its return due to excess breakage and shortage compared to the previous year. The company attributed this to various reasons, including destruction of cases due to floods and pulling back of cases from the market due to quality issues or product expiry. The Assessing Officer (AO) disallowed the claim of exceptional inventory loss, amounting to Rs. 20,89,501, stating lack of evidence to prove ownership of stock risk and absence of claims made to the manufacturing company. The AO found the reasons provided unsatisfactory and added the amount to the income of the assessee.

2. Appeal Before CIT(A): The issue was appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], who observed that the appellant had made a similar claim in a previous assessment year. Referring to the appellant's own case for AY 2008-09, the CIT(A) allowed 70% of the inventory loss claimed, noting the necessity of maintaining brand value. The CIT(A) restricted the claim to 70% based on the appellant's consistent method and lack of complete details and evidence. The CIT(A) directed the AO to recompute the disallowance, partially allowing the appellant's claim.

3. Appellate Tribunal Decision: The matter was further appealed before the Appellate Tribunal. The Tribunal noted the appellant's submission that the inventory was pulled back due to product expiry, which was a risk solely borne by the assessee. The Tribunal disagreed with the CIT(A)'s decision to restrict the claim to 70%, emphasizing that the loss was genuine and not contingent. The Tribunal found no justification to limit the allowance and directed the AO to delete the addition of Rs. 20,89,501, allowing the claim in its entirety. The Tribunal held that the loss on account of product expiry should be fully allowed as it was a real and non-marketable loss incurred by the assessee.

In conclusion, the Appellate Tribunal allowed the appeal of the assessee, directing the deletion of the disallowance of Rs. 20,89,501 related to excess shortage/breakage due to the expiry of products. The Tribunal emphasized the genuine nature of the loss and the absence of revenue generation from the expired goods, leading to the decision to allow the claim in full.

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