TaxTMI 
TaxTMI 
2026 (5) TMI 1334
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....g readymade garments which filed its return of income on 17.10.2016 at a loss of Rs. 3,10,04,764. The limited scrutiny was carried out. The assessee has debited a sum of Rs. 2,34,61,475 in the Profit & Loss Account towards the diminution in the value of inventories. It was stated that assessee is in the business of importing and selling readymade garments. The import of such garments and business has already been discontinued. In each of the seasons, the purchase of previous season renders itself out of fashion and becomes outdated and therefore same are valued at lower of cost or net realizable value in terms of Accounting Standards as well as Income Computation & Disclosure Standards. Such diminution in the value of goods being the purchase value and compared thereto to the market value being net realizable value of such outdated fashioned products is diminution in the value of inventory which is recorded in the P&L account. 4. The ld. AO after considering the explanation of the assessee stated that the loss is in respect of revaluation of stock, hence same cannot be allowed u/s. 28 of the Act. Further the accounting policy cannot decide the allowance of the claim. Hence, he d....
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.... 12. The date chart explaining the delay is as under: - Chronology of Events Annexed to Petition for Condonation of Delay Action Date Remarks Income Tax Returns 17-Oct-16 ROI filed claiming loss of Rs. 3,10,04,764 within Due Date Notice us 143(2) 03-Aug-17 Order under section 143(3) 16-Dec-18 The AD disallowed INR. 2.34 crore claimed as diminution in inventory, treating it as a mere revaluation and not an allowable business expense, and further added IN R 1.26 lakh for unconfirmed sundry creditors. Penalty proceedings under section 271(1)(c) were initiated and demand notice issued accordingly. Appeal Against 143(3) order 17-Jan-19 Delay by one day in filing the appeal was condoned Financials for FY 2018-19 31-Mar-19 Turnover dropped to Rs. 19 Lakhs from Rs. 273 lakhs in earlier year and business stopped completely Resignation of the Key Employees By June 2019 Most of the Employees had resigned and activity of the company had completely shut down Appeal Order 250 in connection to 143(3) 10-Jun-19 INR. 191. was allowed and balance disallowance of 21561475 was upheld. Further with regards to the unconfir....
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....l or otherwise, wherein the matter of pending Income Tax Penalty appeal was discussed. It was advised that company should file appeal before ITAT with prayer for condonation of delay since the company stood a good chance of succeeding on merits of the case which would ultimately benefit the company in pending penalty proceedings Filing of Appeal November 2025 Appeal filed before ITAT on 21/11/2025 13. We have carefully considered the rival contentions. We find that the returned income was filed on 17.10.2016 at a loss of Rs. 3.10 crores wherein the assessment order was passed u/s. 143(3) on 16.12.2018 also at a loss. The appeal was filed before the first appellate authority on 17.1.2019. The assessee did not have the resources as well as the manpower because of the closure of the business and the activity had completely shut down. The first appellate order dated 10.6.2019 was also decided in a rectification proceeding and the same was also dismissed. However, the proceedings resulted into penalty in the month of March 2022 which is also contested before the ld. CIT(A), and which is also pending. Meanwhile the assessee made an attempt to revive its business because of in....
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....h respect to the disallowance of Rs. 2,15,61,475 being the valuation adjustment of the closing stock in terms of Accounting Standards AS-2 consistently followed by the assessee. However, the ld. AO disallowed holding that the same is not allowable u/s. 28 of the Act. The ld. CIT(A) agreed that such losses are required to be allowed to the assessee but restricted it to 3.2% only compared to the earlier years and thus allowed only to the extent of Rs. 19 lakhs. The diminution in the value of inventory made on consistent and scientific basis is allowable as deduction to the assessee as held by the Hon'ble jurisdictional High Court in the case of IBM India Pvt. Ltd. v. CIT, 55 taxmann.com 575 (Kar). The facts and circumstances are also identical. It is not the case of the Revenue that the provision made by the assessee is not in terms of AS-2. This AS-2 provides that the valuation of the inventory is to be made at lower of the cost or net realizable value, whichever is less. The provision so made is also in conformity with the same. It is also not the case of the Revenue that the provision made by the assessee is without any basis. 18. The Ld. CIT (A) agreed that such loss is allowa....