TaxTMI 
TaxTMI 
2020 (12) TMI 220
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....ssee is engaged in the business of manufacturing of pickles, spices, pastes and chutneys and had filed its return of income for the A.Y.2012-13 on 29/09/2012 declaring total income of Rs. Nil. The assessee apart from engaging itself in the business of manufacturing of pickles as stated supra had also engaged in the business of trading in the local market. The assessee company is having two manufacturing activities - one unit is at Ratlam and second unit is at Nasik. The Nasik unit is run under the wholly owned subsidiary called Wisdem Machines Pvt. Ltd., The Ratlam unit is engaged in manufacturing activities of curry powder and some spice products whereas the Nasik unit is engaged in manufacturing of pickles, pastes, sauces and ready meals etc., The Nasik unit of Wisdem Machines Pvt. Ltd., is undertaking job work in the assessee company. The ld. AO during the course of assessment proceedings observed that assessee during the year had written off stock worth Rs. 11,99,41,682/- on the ground that the said stock had become stale. Assessee had already treated the said stock as obsolete and had accordingly, reduced the same from the valuation of closing stock made at the end of the year....
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....ck write off amounting to Rs. 11.99 Crores in the assessment. 3.2. We find that assessee had made the following submissions:- a) Assessee is dealing in food products which are perishable in nature, which cannot have indefinite durable life. b) Assessee had two manufacturing units- one unit is at Ratlam and Second unit at Nasik. The Nasik unit is run under the wholly owned subsidiary called Widem Machinery P Ltd. c) Due to unrest amongst the employees (workers at factory) as well as go slow tactics, the stocks was accumulated and resulted into the same becoming stale and not marketable, compelling the company to write off the stock of Rs. 11,99,41,682/-. d) The event Sheet of disturbance in manufacturing of products at factory which are brought into knowledge of the Ld. AO vide letter dated 5.3.2015 alongwith all evidences are as under: Date Event 08/05/2009 Notice issued to all workers, where in the company noticed various tactics adopted by the workers, in delaying the production. The copy of the notice were forwarded to various parties like i) CTU union, ii) Labour Office, iii) Labour Court & iv) Industrial Court, 06/07/2009 ....
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....h also affected the liquidity problem and affected the export sales. Due to all these problems the assessee stock get stale and accordingly assessee write off the stock off. 3.3. Apart from the above, the assessee also made detailed submissions that in accordance with Section 145A of the Act read with Accounting Standards - 2 (AS-2) of Institute of Chartered Accountants of India (ICAA) on "valuation of inventories", the closing stock is to be valued at the lower of cost or net realizable value in accordance with the method of accounting regularly employed by the assessee. It was submitted that assessee had regularly followed AS-2 issued by the ICAI for valuation of stock. The assessee also placed reliance on the following decisions: (a) Decision of the Hon'ble Supreme Court in the case of Chainrup Sampatram vs. CIT reported in 24 ITR 481. (b) Decision of Delhi Tribunal in the case of Pepperi-Fuchs (India) Ltd., vs. DCIT reported in 6 SOT 10 (c) Decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Wolkem India Ltd., reported in 221 CTR 767 (d) Decision of Hon'ble Delhi High Court in the case of CIT vs. Tupperware India P....
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..... Appellant is manufacturing its goods through its subsidiary company M/s Widem Machinery Pvt Ltd. on job work basis. Appellant goods were lying at the premises of subsidiary. At subsidiary factory dispute between management and labour got started in May 2009 onwards and various legal notices/ companies and litigation/ cases were filed by both the parties, supporting evidences were also filed by the appellant. On 30/01/2011 workers stopped the work, therefore, management requested to resume the work vide letter dated 30/01/2011 (Notice kept on Page No.82). But again and again workers stopped the work. Again on 18/10/2011 (Notice kept on Page No.78) the workers stopped the work for want of wages and Diwali Bonus. Therefore, appellant again requested them to resume the work on 18/10/2011 but they threaten the management therefore, the management requested the police to protect the goods and premises of the appellant. Due to these development appellant business highly suffered and turnover fall down by 50%. But the stock was already purchased and lying with the appellant. Appellant maintained the stock in range of the 20 to 25 cr to achieve the sales of Rs. 25 cr and above. But, durin....
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....uchs (India) Ltd. v/s DCIT [2006] 6 SOT 10 (DELHI Trib) accepted the above proposition and held that:- " Admittedly, the method of valuation of stock followed by the assessee was cost or realizable value, whichever was lower. The value of the obsolete stock as on 31-3-1998 was lower than its actual cost. The object of valuing closing stock in terms of the method followed by the assessee was to bring to charge the true profits for the year. Where the value of unsold stock is less than its actual cost, adoption of market value, to value it at the end of the year, would imply accounting for an anticipated loss that may result on sale of such goods, maybe in the following year. The said treatment of recognising the loss in the year itself is based on prudence as no trader would show increased profits before its actual realization. [Para 14] The Apex Court in the case of Chainrup Sampat Ram v. CIT [1953] 24 ITR 481, opined that as the profits of income-tax are to be computed in conformity with the principles of commercial accounting, unless such principles stand superseded or modified by a legislative enactment, the loss due to fall in price below cost with respect to ....
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....mittee so appointed made its recommendations and suggested items wise reduction in the value of stocks both of raw-material and of stores and spares. The assessee on the basis of recommendations of this committee reduced the value of its such stocks of raw- material by an amount of Rs. 1,60,453 and that of stores and spares by an amount of Rs. 1,29,846 or Rs. 2,90,299 by debit to its P&L account and in the balance sheet, the value of closing stock of raw-material and stores and spares was shown at the reduced value i.e. after deducting the amount of Rs. 2,90,299 from each and individual items. The claim made by the assessee on this account was rejected by the Assessing Officer and concurrently by the learned Commissioner (Appeals), when he took the view that the loss claimed pertained to earlier year and he was not satisfied as to how the accumulated losses of earlier years could be made a charge on the profits of the year. He, thus, upheld the disallowance. Thus, the assessee is aggrieved. The learned counsel for the assessee submitted that the authorities below misread the facts and, therefore, reaching erroneous conclusion. He submitted that the assessee has been in business for....
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....;s business thereby distorting assessee's profits year in and year out when a decision was taken to investigate the entire matter by appointing a committee of experts on whose recommendations, based on proper study of market condition,, the assessee-company reduced the value of the impugned stocks (item-wise) to the extent of Rs. 2,90,299 and this very value has been carried forward to the next year and assessed as such. Therefore, on a consideration of relevant facts and circumstances, we are of the view that the change effected by the assessee in the method of valuation of its stocks was bona fide, the same having been made on permanent basis and the changed method having been followed in the subsequent years. Therefore, we are of the view that assessee's claim was justified. We accordingly allow this ground of appeal." (iii) Another aspect involved in this issue is that the AO raised one doubt that the stock was written off for showing loss instead of the profit. But the AO failed to consider that the appellant not earned the profit. Loss claimed by the appellant is almost equal to the stock written off. And further, in case of stock written off tax effect is ne....
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....far as the first question is concerned, it relates to the valuation of the closing stock. The assessee carries on the business of installation of VSAT equipment. The stock consists of two categories; (i) old and used stock which is categorized as defective but repairable, (ii) demo stock. In its accounts the assessee reduced a sum of Rs. 90,35,298/- from the value of the stock on account of impairment and defects. The claim was made on the footing that the "net realizable value" of the stock had fallen below even the cost price. In support of the valuation, the assessee submitted the basis of the estimate which was prepared by its technical department. Certain details were also submitted regarding certain items of stock together with their realisable rate as on 31.03.2003 and 31.03.2004. The assessing officer rejected the assessee's claim for reduction in the value of the closing stock made on the basis of the net realizable value being less than the cost and made an addition of Rs. 90,35,298/- to the business profits. 5. On appeal the CIT (Appeals) noted that though the assessee was right that there was some diminution in the value of inventory, complete details were ....
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....11 of its order. We are, therefore, unable to accept the contention of the revenue that the claim of the assessee remains unsupported. It is also to be noted that on a question of valuation of the closing stock, any alleged difference of discrepancy tends to balance itself' out over a period of years if the same method is consistently followed. This is because the closing stock of one year becomes the opening stock of the succeeding year and any addition made to the valuation of the closing stock to increase the profits for that year automatically gets neutralised when the same figure of closing stock is taken as the opening stock of the succeeding year. What is, therefore, more important to be seen is whether the same method of valuation of stock is followed consistently by the assessee so that there is no distortion of profit. There is also no finding to the effect that the true profits of the business cannot be determined having regard to the method of valuation of stock employed by the assessee. It may be noted that in India Motor Parts & Accessories (P.) Ltd. v. CIT [1966] 60 ITR 531 (Mad.) the Madras High Court noted that the method of valuing the slow moving and....
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....ancial statements to the tune of Rs. 11.99 Crores. With regard to the argument advanced by the ld. DR about the conduct of the assessee of having decided to write off the said stock during this year is concerned, we find that no ulterior motive in any manner whatsoever could be attributed to the assessee in view of the fact that even after disallowance of stock write off to the tune of Rs. 11.99 Crores is made by the ld. Assessing Officer there was no taxable income for the assessee in view of the set off of loss brought forward from earlier years which had also been duly granted by the ld. Assessing Officer in the assessment. Even if these stale stocks had been written off in any earlier years as accepted by the ld. AO in his assessment order and by the ld. DR before us, the same would have only enabled the brought forward losses to get increased. Hence, in any case it will have no impact in the computation of total income for the year under consideration. One more observation made by the ld . AO that assessee had not offered any income in respect of these stocks. This observation is factually incorrect in as much as the stocks worth Rs. 11.99 crores was included in the closing....