TaxTMI 
TaxTMI 
1997 (1) TMI 37
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....--- 1974-75 1975-76 (Rs.) (Rs.) Reserve for deficit stock 1,20,691 1,03,551 Reserve for excess stock 20,990 24,550 These additions were confirmed in appeal by the Commissioner of Income-tax (Appeals). Aggrieved, the assessee filed second appeal before the Appellate tribunal. The Appellate Tribunal upheld the above additions, following the earlier orders of the Tribunal in I.T.A. Nos. 1678 and 1679/Mad of 1972-73; 795/Mad of 1973-74 and 376(Mad), 1974-75, for the assessment years 1968-69, 1969-70 and 1970-71, dated July 30, 1975, and I.T.A. No. 888(Mad), 1977-78 for the assessment year 1971-72, dated January 6, 1978. For the assessment year 1975-76, the Income-tax Officer further disallowed a sum of Rs. 88,314 being the reserve for damaged stock in finished products. The Commissioner of Income-tax (Appeals) upheld this addition also. The Tribunal sustained the addition, following the decision of the Tribunal in I.T.A. No. 888(Mad) of 1977-78 cited supra. Before us, learned counsel appearing for the assessee submitted that in so far as reserve for deficit stock is concerned, the assessee maintained day-to-day stock accounts in respect of different branches. At the end of the ye....
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....l the necessary documents including account books were produced before the Income-tax Officer. As per the provisions of section 34 of the Evidence Act, the Income-tax Officer is bound to consider the documents filed by the assessee and find out the real income that is assessable in the case of the assessee. If the loss is shown in the account books and, all full particulars were furnished for substantiating that such loss occurred during the course of the business, it is the duty of the Income-tax Officer to allow the loss as a deduction. It is not necessary that the loss incurred and entered in the account books should necessarily be written off for the purpose of claiming the same as deduction. According to learned counsel, the decision rendered by this court in the case of the same assessee in the earlier assessment years reported in North Arcot District Co-operative Supply and Marketing Society Ltd. v. CIT [1987] 165 ITR 623, would not be applicable to the facts arising in the present assessment years under consideration. According to learned counsel for the assessee, the principles of res judicata would not be applicable in the income-tax matters and each assessment year has....
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....(19) Indian Overseas Bank v. CIT [1990] 183 ITR 200 (Mad); (20) Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506 (SC); (21) CIT v. Darbhanga Laheriasarai Electric Supply Corporation Ltd. [1988] 169 ITR 382 (Patna); (22) State of Travancore v. CIT [1986] 158 ITR 102 (SC); (23) Jatia Investment Co. v. CIT [1994] 206 ITR 718 (Cal); (24) Kerala Financial Corporation v. CIT [1994] 210 ITR 129 (SC); (25) CIT/CEPT v. Jwala Prasad Tiwari [1953] 24 ITR 537 (Bom); (26) Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC); (27) R. N. Goenka v. CWT [1989] 176 ITR 129 (Mad); (28) Sundarjas Kanyalal Bhatija v. Collector [1990] 183 ITR 130 (SC). On the other hand, learned standing counsel appearing for the Department submitted as under : The Income-tax Officer noticed that the deficit is not written off in the accounts of the assessee. They continued to be shown as assets. What is debited in the profit and loss account is only a reserve. Unless the deficit is written off, it cannot be allowed. The reserve created can only be an appropriation of the profit and not an allowable expenditure. The stock book showed goods of certain value as in stock whereas physically they were not avail....
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....unsel appearing for the assessee and learned standing counsel appearing for the Department. The fact remains that in the assessment years 1974-75 and 1975-76 in computing the income, the Income-tax Officer made the following additions, under the head " reserve for deficit stock " Rs. 1,20,691 in the assessment year 1974-75 and Rs. 1,03,551 in the assessment year 1975-76. Addition was also made under the head " reserve for excess stock " Rs. 20,990 in the assessment year 1974-75 and Rs. 24,550 in the assessment year 1975-76. According to the assessee, the reserve is only a fictitious asset. The closing stock as per the physical verification is shown in the balance-sheet. There is difference between the balance-sheet figure and the stock register. The difference is a deficit in stock. In respect of the co-operative societies, the audit had to appraise this situation. Until such appraisal has taken place, the deficit is shown as a reserve in accordance with the bye-laws of the society. Therefore, the deficit should be allowed as a loss occasioned during the assessment years under consideration due to the defective handling of the goods by the employees. According to the Department, u....
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....here was no indication to show that what was suffered by the assessee is loss occasioned by deficit of goods on verification. According to learned counsel for the assessee unless the audit party of the co-operative department scrutinises the account and appraised the loss, it cannot be written off. In such circumstances, it was submitted that the loss claimed should be allowed as a deduction even though it was not actually written off in the account books. According to learned counsel for the assessee, the writing off of the loss can be inferred and implied from the entries made in the account books. This contention put forward by learned counsel appearing for the assessee cannot be accepted, unless the assessee proved that really the loss occurred and the same was written off in accordance with the materials available on record. Further, a similar question came up for consideration in the case of the same assessee before this court in the assessment year 1967-68. In the assessment year 1967-68, the Income-tax Officer disallowed the deduction claimed by the assessee on the following two sums (see [1987] 165 ITR 623, 625) : (1) Reserve for deficit in jail supply disallowed (Rs.) on....
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....al held that the assessee has not established that the loss has occurred in the year of account in which case alone the assessee could get a deduction and the recoveries, if any, later, could be brought to tax under section 41 of the Act. Regarding the sum of Rs. 4,803, the Tribunal found that the nature of the loss and whether it has arisen in this year has not been established. Aggrieved by the order of the Tribunal, the assessee approached this court. Before this court, the assessee contended that though normally a deduction can be claimed only when the deficiency in the stocks is written off during the year of account and treated as a loss in stocks, the position in the case of a co-operative society is different. In co-operative societies before the loss in stock is written off, sanction of the higher authorities has to be obtained and since obtaining of the sanction takes considerable time, the actual writing off of the loss in stocks during the accounting year should not be insisted upon. According to the assessee, it is because of the delay in getting the sanction from the higher authorities for writing off of the loss in stocks that the co-operative audit has suggested cr....