TaxTMI 
TaxTMI 
2026 (8) TMI 1239
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.... the appeal instead of allowing the appeal in full without considering the facts of the case and submissions of the assessee, 3. The Ld. CIT(A) erred in upholding the decision of the Assessing Officer to disallow the claim of impairment/loss of the amount Rs. 2,40,16,579/- as being inconsistent with the Accounting Standards ICDS-II and provisions of Section 145(2) of the Act, without considering the facts of the case. 4. The Ld. CIT(A) ought to have appreciated the fact that the assessee company books of account are prepared in accordance with the applicable Financial Reporting Framework and Indian Accounting Standards (IND AS) and therefore the claim of impairment/loss of Rs. 2,40,16,579/ is in order and is an allowable deduction. 5. The Ld. CIT(A) erred in considering the impairment/loss of Rs. 2,40,16,579/- as a normal loss and cannot be routed through Profit & Loss account without considering that the Accounting Standards ICDS-II and provisions of Section 145(2) of the Act are clearly applicable. 6. The Ld. CIT(A) erred in not considering the fact that as per IND AS 2, the company is required to test impairment on its assets every year consid....
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....me has been treated as impairment loss in respect of raw materials. 4. The A.O., after considering relevant submissions of the assessee and also taking note of various facts, including the Accounting standards issued by the ICAI and Income Computation and Disclosure Standard (ICDS-II), notified by the Government of India for valuation of closing stock, held that, the method followed by the assessee for valuation of closing stock is not in accordance with the AS 2, as well as ICDS-II notified by the Government. Further, the assessee has reduced 14% of the valuation of closing stock without any basis. Further, the assessee, without there being any method followed for valuation of closing stock, has reduced 14% of the valuation of the closing stock contrary to AS-2 and ICDS-II. Therefore, the AO rejected the explanation of the assessee and made addition of Rs. 2,40,16,579/- to the returned loss. The relevant findings of the A.O. are as under: "7.2 The above explanation of the assessee has been perused in the light of the following relevant qualifying remarks/opinion - made by the independent tax auditor in his audit report and also in light of the extant - Income Computati....
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....l of the ITR - 6 form filed by the assessee for the A.Y. 2018-19 under consideration it is seen that - no such reporting of any impact of adjustments have been made. 7.3 Having said that, it is now pertinent to discuss as to whether the impairment loss of Rs. 2,40,16,579/- in the valuation of inventory is as per Ind AS-2 and that it is in alignment with valuation as prescribed by ICDS- II requiring no further adjustments and impact on its profit /loss. The nature of inventory under our consideration is raw materials, which undoubtedly is an asset in the form of materials or supplies to be consumed in the production process. On going through the scope, definition of inventory, cost of inventory, measurement method and list of items to be excluded from inventory etc. in respect of provisions contained in ICDS-II as well as Ind AS-2, it is found that they are almost same except for cost of purchase - in so far as that in the Ind AS-2 method of accounting it is provided to exclude the amount of duties and taxes which are subsequently recoverable by entities from tax authorities . Barring this there are no change / difference in the accounting of valuation of inventories. ....
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..... This is necessary to avoid any fluctuation in cost of production. And accordingly, under Ind AS-2 as well as ICDS - II, provision has been made in clause 16(1) and clause 12(a) respectively. In the present case, as per facts - the impairment loss computed on estimation basis is a normal loss (wastage), and it cannot be routed through P & L A/c which has been prescribed only in respect of any abnormal loss. 7.7 Further from the details submitted by the assessee along with explanation above and as per past records, it is evident that the assessee had valued the closing stock for the year under consideration as per this changed method of valuation - for the second time ( the first such event being during the immediate previous A.Y. 2017-18) by applying the write-off factor of 14 % on estimation basis in respect of valuation of closing stock of raw material of biomass as well as of coal on account of normal wastage (loss) for determination of NRV of such closing stock inventory .In the absence of any documentary evidence to prove that there was fall in the prices of consumable items or deterioration of the life of such items to that extent of write off due to efflux....
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....rment as discussed earlier cannot be directly routed through the P& L A/c - but as prescribed it is required to be accounted / factored in only - indirectly ( when used for production) impacting the quantity of production and consequentially the sale value of finished goods or by the value of sale of the raw materials in a case of non going concern . 7.10 Accordingly, in view of the aforesaid discussion, claim of impairment loss of Rs. 2,40,16,579/- on account of inventory of raw material was proposed for disallowance and adding back to the returned loss on account of accounting the same incorrectly as found to be against the provisions of section 145(2) as per the method prescribed vide ICDS-II duly notified by the CBDT and applicable since A.Y. 2017-18. 7.11 Before, finalizing the above proposed addition the assessee was issued a show cause notice (SCN) apprising of the proposed disallowance of claim of impairment loss in respect of closing stock valuation of raw materials on the basis of above findings, giving opportunity to submit its explanation. In reply to the said SCN the assessee has communicated its disagreement to the proposed modification The gist of i....
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....again furnished the same facts which were submitted during the course of assessment proceedings and no new material has been brought on record to show diminution in the value, and how the diminution in the value of the opening stock of raw materials was computed at Rs. 2,40,16,579/-. The assessee has not furnished any documents or supporting evidence to show the correctness of the valuation of the raw materials. The assessee has not explained the methodology adopted for valuation. It is seen that, the valuation is only based on estimation and not on any scientific method. Further, the assessee itself has stated that, no physical stock was taken, and valuation was done as on 31.03.2018. Further, as observed by the A.O., the nature of impairment of loss claimed by the assessee is not on account of any factor beyond the control of the assessee, but purely on estimation of valuation of closing stock without there being any method. Therefore, the Ld. CIT(A) rejected the explanation of the assessee and upheld the addition made by the A.O. towards disallowance of impairment of loss of Rs. 2,40,16,579/-. 6. Aggrieved by the ld. CIT(A) order, the assessee in now in appeal before the Trib....
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.... same to the profit and loss account, the A.O. has rightly disallowed the loss claimed by the assessee. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the addition made by the A.O. Thus, the order of the Ld. CIT(A) should be upheld. 9. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, the assessee company was engaged in the business of generation of power from biomass products and coal and has stopped generation of electricity from May, 2015 due to non-feasibility and stoppage of power plant. It is also an admitted fact that, the assessee was carrying stock-in-trade in the form of biomass products and coal, which is the main raw material for generation of electricity through biomass-based power generation plant. The assessee has claimed impairment loss of Rs. 2,40,16,579/- and debited the same to the profit and loss account and claimed that, it has valued its closing stock at cost or market value, whichever is lower, in terms of AS-2 and ICDS-II notified by the Government of India under Section 145 of the Income-tax Act, 1961....
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....he nature of industry and the stock-in-trade held by the assessee. Admittedly, the assessee is in the business of generation of power from biomass products and coal, which were stored in the open yard. Further, the biomass products and coal are highly evaporative in nature and due to effluxion of time, the market value of the materials will come down and due to this reason, the valuation of the raw material will automatically be less when compared to the fine quality of biomass products and coal. The assessee, after considering the quality of the raw materials and industrial practices, has valued the closing stock by reducing 14% of the value and reported the valuation of closing stock at cost or net realizable value. The above method followed by the assessee is in accordance with AS-2 and ICDS-II notified by the Government in terms of Section 145 of the Act. Although the assessee has furnished relevant details and also explained the method adopted for valuation of closing stock, which resulted in impairment loss of Rs. 2,40,16,579/-, but the A.O., only on the reason that, the auditor has reported that, the assessee has not furnished details of valuation of closing stock and also p....