TaxTMI 
TaxTMI 
2025 (11) TMI 557
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....ces? (ii) Whether on the facts and in the circumstances of the case Ld. CIT(A) is justified in deleting the addition of Rs. 20,18,53,648/- on account of loss occurred due to theft?" 4. The assessee's cross objection CO No. 36/Del/2024 on the other hand raises the following grounds: "1. That the Ld. CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs. 12,09,87,377/- made by the Assessing Officer on claim of loss due to flood. 2. That the Ld. CIT(A) has failed to appreciate that the loss of stock due to flood/damping could have been only ascertained on physical verification undertaken after the close of the accounting year by a qualified Chartered Accountant. 3. That the Ld. CIT(A) has failed to appreciate the written submissions filed and is wrong in confirming the adverse inference drawn by the Assessing Officer which is contrary to the facts and circumstances of the case. 4. That on the facts and circumstances of the case as well as in law, the Ld. CIT(Appeals) is fully justified in deleting the addition of Rs. 52,65,28,560/- made by the Assessing Officer in respect of imputed interest ....
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....4 119,589,711 - Nil Nil İNil In Mutual Funds Sahara Liquid Fund-Variable Pricing-Growth option (LEVG) 234,868,073 - NII 118,477,471 Nil Sub Total A 354,457,784 - - 118,477,471 Loans Mr. Roop Madan & Mrs. Bela Roop Madan, A-9/4, Vasant Vihar, New Delhi- 110057 1,104,328,231 Nil Nil Sub Total B 1,104,328,231 - - - Other Advances Security Deposit with sales Tax Deptt. 20,000.00 - Nil Nil Nil Interest Accrued on Loan Mr. Roop Madan & Mrs. Belaj Roop Madan, A-9/4, Vasant Vihar, New Delhi- 110057 234,072,134.0 Nil Nil Nil Advance to Parties ....
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....e by the Ld. Assessing Officer for alleged loans given by the appellant to customers as appearing under the head Sundry Advances. In response to the query of the Ld, Assessing Officer, complete details of loans and advances were duty submitted before her, and out of the same, she has imputed an interest Income @ 12% of total advances in respect of sundry advances of Rs. 4,38,77,38,004/- and has added the same to the income of the appellant. The brief facts of the case are that the appellant company was in the business of mobilizing of OFCDs from the public. The appellant had taken on hire the entire infrastructural facilities of M/s. Sahara India including its branches and usage of its bank account format on its business activities. In the preceding years, interest was provided /paid to the debenture holders, either on accrual system of accounting or on payment basis. Inadvertently, the tax which was deductible at source was not deducted from the payments made / provision made in respect of the interest on debentures and full amount paid to bond holders, However, the deductible though not deducted TDS was deposited by the appellant at the time of finalization of books, and....
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....an vs. CIT 198 ITR 415 (Alld) 2. Highway Construction Pvt. Ltd. vs. CIT 111 CTR 143 (Guwahati). 3. CIT vs. Motor Credit Co. Pvt. Ltd, 127 ITR 572 (Mad.). 4. CIT vs. Devi Films (P) Ltd. 143 ITR 386 (Mad.) 5. S.A. Builders Ltd. vs. CIT(A) 288 ITR 1 (SC). 6. CIT vs. Hotel Savera 239 ITR 795 For the proposition that if no interest has been charged in the preceding year, the same cannot be considered during the year and the inquiries has to be limited to the increase in current year only. For the above proposition, the appellant would like to place reliance on the following cases:- 1. CIT vs. Sridev Enterprises 59 Taxman 439 (Karnataka). 2. CIT vs. H.V. Stock Holdings' Ltd. (No.1) 325 ITR 216 (Del.). In light of the above facts and circumstances as well as the legal position, the addition of Rs. 52,65,28,560/- is not tenable on the facts and circumstances of the case and, therefore, deserves to be deleted." 16. The reply of the appellant on the impugned Issue is examined. It is a well settled principle of law that only the real income which has accrued to an assessee can be brought to tax. Hypo....
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.... 18. In the case of E.D. Sassoon & Co. Ltd. Vs. CIT 26 ITR 27 (SC) it was laid down by the court that income accrues when the assesses acquires a right to receive the income. The assessee must have created a debt in his favor and he must have acquired a right to receive the payment. The observations of the court are as under:- "...........A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or In other words a debitum in presentí, solvendum in future it cannot be said that any income has accrued to him. The mere expression "earned" In the sense of rendering the services etc. by itself is of no avail......." 19. The Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom.) has held that if there are funds available both Interest-free and overdraft and/or loans taken, then a presumption would arise that Investments would be out of the interest free fund generated or available with the company, if the interest-free funds were sufficient to meet the In....
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.... that in cases of the interest-free loans and interest given by the assessee to its subsidiary companies are in the above sums, still, the principle laid down by this court that if there are funds available to them interest-free and over-draft or loans taken, would not apply. This view of the Assessing Officer is ex facie contrary to the settled principle that a presumption would arise that the investment would be out of the interest free funds generated or available with the company. Then, the borrowed capital in hand in that case and interest expenditure was deductible under section 36(1)(iii) of the Income-tax Act, 1961. The Tribunal held that the interest-free fund available to the assessee is sufficient to meet Its investment. It can be presumed that investments were made from interest-free funds available with the assessee. The position clearly emerges from the record and for the current assessment year as well. We do not see how a different view in the facts and circumstances .can be taken, If the Tribunal had followed the earlier view and on facts, then, there is no perversity when nothing contrary to the factual material was brought on record by the Revenue. In such circum....
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....n herein supporting the CIT(A) foregoing findings stands rendered infructuous in very terms. 8. Next comes the remaining common sole issue between the parties wherein the assessee had claimed loss of inventory due to floods, expiry of products and theft at it's godowns of warehouse; involving varying sums, which stood disallowed by the Assessing Officer and the CIT(A) has partly interfered with his action to this effect, vide the following detailed discussion: "24. Ground No. 6, 7 and 8 are regarding the disallowance of Rs, 32,28,41,025/- made by the Assessing Officer. In these grounds of appeal the appellant has objected to disallowance of Rs. 32,28,41,025/- on account of stock of loss which has occurred due to theft and flood (dampness and water logging) etc. 25. The appellant in the accounts has claimed the following deduction on account of theft/loss etc. 1. Loss of inventory due to flood-Rs. 12,09,87,377/- 2. Loss of inventory due to expiry of products-Rs. 4,06,73,167/- 3. Loss of inventory due to theft-at Vadodara-Rs, 11,87,46,052/-, At Jaipur Warehouse- Rs, 23,107,597/- and At Lucknow Warehouse- Rs. 5,99,99,999/- totaling Rs. 2....
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....41,025/- on account of loss occurred due to theft and floods (dampness and water logging etc.) of the stock in hand. During the course of assessment proceedings, details in respect of flood were called for by the Ld. Assessing Officer which were duly submitted before her by the appellant. The details of total loss of stock of Rs. 36,37,53,303/- was submitted before the Ld. Assessing Officer. This loss of stock was found during the course of the physical verification of the stock in hand on 31st March of the year under assessment. The loss had occurred because of expiry of inventory, theft of inventory and loss due to flood (dampness and water logging in the warehouse) etc. The breakup of stock where ¡t was found short during the course of assessment proceedings by the Ld. Assessing Officer was submitted before her. It was also intimated In response to her query that no separate Stock Register was maintained, but the stock was maintained on Tally Software, which itself works as Stock Register and the printout of the same was filed before the Ld. Assessing Officer during the course of assessment proceedings. As regards the loss on account of theft, complete details of the theft....
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....Assessing Officer that physical verification of the stock was undertaken at close of the year which has resulted in shortage of stock. This shortage was ' booked under the head Loss of Inventory Written off (theft and abnormal loss). The stagnation in the stock for a long period is one of the reasons for damage & theft of the stock which stagnancy had occurred because of the embargo pieced by the Hon'ble Supreme Court of India In the case of SEBI vs. SIRECL & others. The Hon'ble Supreme Court had in their order passed on 21.11.2013 held that no concern of the Sahara Group shall part with any of their assets whether immovable or movable as well as order dated 13,.02,2013, all the bank accounts and or movable and immovable properties of its Directors and company was freezed and attached respectively and as a result thereof the sale of the goods which were in stock could not take place over a period of few years from 2013, onwards because of which the stock lying idle In the godown was stolen as well as it was damaged due to dampness, water logging etc. in the godown. In light of the above factual position, your honour will appreciate that the ap....
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.... 30. The loss claimed by the appellant and disallowed by the Assessing Officer are of two different types. The first is loss of Inventory due to floods at the following locations: Chandigarh 7,447,7797- Delhi 13,281,105/- Gorakhpur 21,316,901/- Mumbai 13,304,960/- Mundka (Delhi) 54,602,227/- Panipat 11,034,403/- Total 12,09,87,377/- 31. The second is loss due to theft at following locations: Vodadara 11,87,46,052/- Jaipur 2,31,07,597/- Lucknow 5,99,99,999/- Total 20,18,53,648/- 32. In respect of the above two losses, the appellant has furnished a common reply. However, the two Issues are 'different and needs to be adjudicated separately. 33. During the course of appellate proceedings It was argued by the appellant that the physical verification of Inventory was undertaken during the year and the loss of products which depleted due to water logging etc were affected by flooding and dampness was discovered by the assesses and therefore the same was accounted for during the year under assessment. 34. It was argued that the Hon'ble Supreme Court of India in appellant'....
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....tment for the stock/inventory was made subsequently. 39. The assessee company follows the mercantile system of accounting. Any event occurring after the date of closure of the balance sheet has no bearing on the profitability of the year ending on 31st March, 2017. It was only for the purpose of claiming deduction that the Inventory were claimed to have been written off in the assessment year 2017-18. 40. As brought out in the foregoing paragraphs, the decision to write off the inventory was taken in the Asst. Year 2018-19. So properly the inventory were to be written off in the subsequent year's accounts and not in the accounts for the year ended 31/03/2017. 41. Thus, when all the necessary compliance took place after the end of the F.Y. 2016-17, the write off cannot be allowed in the A.Y. 2017-18 relevant to the previous year 2016-17. 42. The above position in law has the support of the decision of the jurisdictional Bombay High Court In the case of CIT V/s. Herdilla Chemicals Ltd. 225 ITR 532, the relevant extract of which reads as under:- "We have carefully considered the rival submissions. The PAN catalyst was purchased by the a....
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....h can positively indicate that the decision to write off the Inventory was taken in the F.Y.2016-17. 44. On the similar issue in. the case of M/s. Eastern Peripherals Ltd V/s, ACIT, Circle- 8(1), Mumbai In. ITA No.321/Mum/2007 the Hon'ble ITAT, Mumbai has confirmed the addition made by the Assessing Officer on the issue of write off of stock after the closure of financial year. 45. Above mentioned facts prove that inventory was not written off during the year under consideration but in the subsequent year. Hence, the claim of the assessee is not allowable. 46. Apart from making entry in the books of accounts dated 31.03.2017, the appellant has not been able to furnish any evidence to show that when the goods were actually discarded even as scrap. By the report of the auditor dated 04.05.2017, it is evident that the goods were in possession of the appellant atleast till 04.05.2017. Thus, the right over the goods continued with the appellant atleast till 04.05.2017. In any transaction there has to be more than one party. As one cannot make profit out of himself, one cannot make loss out of himself. In the impugned case as the right over the goods contin....
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....longing to the appellant. 55. In light of the above facts and circumstances, it is seen that the loss of stock found on physical verification of stock was written off by the appellant. The appellant has specifically relied on a few case laws the gist thereof is summarized as follows: 56. Badridas Daga V. Commissioner of Income-tax 34 ITR 10(SC) wherein Hon'ble Supreme Court has held as follows: "Loss resulting from embezzlement by an employee or agent in a business is, however, admissible as a deduction under section 10(1) of the Indian Income Tax Act if it arises out of the carrying on of the business and is incidental to it. It makes no difference in the admissibility of the deduction whether the employee occupies a subordinate position in the establishment or it's an agent with large powers of management, It is a question turning on the facts of each case whether the embezzlement in respect of which deduction is claimed took place in the carrying on of the business." 57. Further reliance is placed by the Bombay High Court in the case of G.G.DANDEKAR MACHINE WORKS LTD Vs. CIT reported in 114 CTR(Bom) 190 wherein Hon'ble Bombay High ....
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....ome-tax 34 ITR 10(SC) held as follows; "A businessman has to keep moneys either when he gets it as sale proceeds of the stock-in-trade or for disbursement to meet the business expense or for purchasing stock-in-trade and if he loses such money in the ordinary course of business, the toss is a deductible trading loss, It is Immaterial whether the money is a part of the stock-in-trade, such as,, of a banking company or a money-lender, or is directly connected with' other business operations. The risk is inherent in the carrying on of the business and is either directly connected with it or incidental to it." 60. The stock-in-trade was part, of business carried out by appellant The stock remains the part of trading asset. There was loss due to theft of such stock in trade. Therefore, such stock has a direct nexus in the carrying on of the business by the appellant. However, no transaction could be effected from such stock because of embargo placed by the Hon'ble Supreme Court. 61. In view of the peculiar facts of the case and the decision of Hon'ble Apex Court as cited and the Hon'ble Bombay High Court, the addition made by the Assessing Officer ....
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....the date of making up accounts, if that value is less, than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profit than the difference between the actual sale price and the actual cost price of the goods in question" (extracted in paragraph 281 of the Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April 1951). While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by ....