Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYASHRI SANDEEP SINGH KARHAIL
Date of Hearing – 30/06/2025 Date of Order - 03/07/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned order dated 20.12.2023, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2013-14.
In this appeal, the assessee has raised the following grounds: - “1. That on the facts and in the circumstances of the case and in law, the orders passed by the Learned Deputy Commissioner of Income (“Ld. AO") and the Learned Commissioner of Income Tax (Appeals) (“Ld. CIT(A)") are bad in ./2024 (A.Y. 2013-14) 2 law as it is based on surmises and conjectures without evidence to support the conclusion.
2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the ad-hoc disallowance of INR 1,50,00,000 made by the Ld. AO for old and obsolete stock written off during the FY 2012-13. 2.1 That the Ld. CIT(A) erred in upholding the ad-hoc disallowance made by the Ld. AO without appreciating the fact that it is an actual write-off of the obsolete stock made as per the generally accepted and established rule of commercial practice and accountancy that closing stock is to be valued at cost or market price whichever is lower, in accordance with the guiding principles laid down in Accounting Standard 2 as issued by the Institute of Chartered Accountants of India and also now provided by the Income Computation and Disclosure Standards - II. 2.2 That the Ld. CIT(A) erred in upholding the ad-hoc disallowance made by the Ld. AO disregarding the principles laid down by plethora of judicial decision including that of the Hon'ble Supreme Court on the allowability of the actual write-off made in the books of accounts. 2.3 Without prejudice to above and without conceding the additions made in subject year on this issue which is a subject matter of appeal, where the Ld. AO has proceeded to disallow the write off for obsolete stock resulting in the higher closing stock valuation for the subject financial year, the Ld. AO should have considered the enhanced value of opening stock in the subsequent financial year i.e., F.Y. 2013-14 for computing the taxable income for such year.
3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the partial ad-hoc disallowance of INR 10,00,000 made in an arbitrary manner purely on surmises and conjectures for various business expenses even after admitting that there is nothing placed on record by the Ld. AO pointing any specific instances of non-business purposes.”
3. Ground No.1 is general in nature, and therefore, the same needs no separate adjudication.
4. The issue arising in Ground No.2, raised in assessee’s appeal, pertains to the disallowance made on account of old and obsolete stock written off.
5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the business of procuring and selling hot stamping foils both in the local and international markets. For the year under consideration, the assessee filed its return of income on ./2024 (A.Y. 2013-14) 3 26.11.2013, declaring a total income of Rs.2,77,00,850/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, the assessee was asked to explain the reasons for the fall in gross profit. In response, the assessee submitted that the company has carried out stock verification on their shifting to its new godown and identified stocks of Rs.3,90,23,227/- as old and obsolete, which were subsequently sold in August 2013 for an amount of Rs.27,02,017/-. Accordingly, the assessee submitted that the closing stock was written down to its net realizable value as of 31.03.2013. In this regard, the assessee also referred to the notes to accounts.
6. The Assessing Officer (“AO”), vide order dated 11.03.2016 passed under section 143(3) of the Act, disagreed with the submissions of the assessee for treating the stock as old and obsolete. Since the assessee did not provide the date of purchase of item-wise reconciliation, value at the time of purchase, valuation of closing stock and its basis and also item to item reconciliation of value realized on the date of sale on August 2013, the AO did not find any merit in the submissions of the assessee. Further, the reliance placed by the assessee on the resolution passed during the Board of Directors meeting held on 26.09.2013 was also rejected by the AO in the absence of the aforementioned documentary evidence. Accordingly, the AO made a disallowance of Rs.1,50,00,000/- and added the same to the total income of the assessee. The learned CIT(A), vide impugned order, dismissed the ground ./2024 (A.Y. 2013-14) 4 raised by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorized Representative (“learned AR”) reiterated the submission made by the assessee before the lower authorities and submitted that the products with which the assessee is dealing are extremely sensitive, and they come with very specific storage information. The learned AR submitted that the stock, which was found old and obsolete on their shifting by the assessee from its one warehouse to another, was written off to its net realizable value as of 31.03.2013. In respect of its submission, the learned AR, apart from the resolution passed by the Board of Directors, placed reliance upon the technical storage condition of these products.
On the other hand, the learned Departmental Representative vehemently relied upon the order passed by the lower authorities.
We have considered the submissions of both sides and perused the material forming part of the record as per Rule 18(6) of the ITAT Rules, 1963. As per the assessee, it is engaged in the business of procuring and selling stamping foil, which are used in a variety of products such as automotive components, cell phones, TVs, washing machines, furniture, packaging, books, textiles, bottle labels, bank cards, etc. It is further the plea of the assessee that these are extremely sensitive products and therefore, as per the technical specification, are required to be stored in a specific temperature under defined tolerable humidity levels, etc. It is the claim of the assessee ./2024 (A.Y. 2013-14) 5 that it moved its warehouse in July / August, 2013 from one location in New Delhi to another location and at the time of shifting of stock from the old warehouse to new warehouse, some of the stock was damaged due to exposure to excessive humid conditions, exposure to rain, wear and tear during shifting, etc. From the perusal of the record, we find that the lower authorities, disagreed with the submissions of the assessee, as the assessee failed to provide the date of purchase of item-wise reconciliation, value at the time of purchase, valuation of stock and its basis and item to item reconciliation of value realized on the date of sale. We find that these details were also not furnished before the learned CIT(A), and in the absence of any satisfactory explanation with supporting documents by the assessee, the disallowance made by the AO was upheld. Even in the appeal before us, the assessee has failed to produce any of the documents as pointed out by the lower authorities. It is pertinent to note that the assessee even though claimed that it had moved its warehouse from one location in New Delhi to another location and in the course of shifting of the stock from the old warehouse to the new warehouse, some of the stock was damaged, however did not bring any evidence on record to prove the aforementioned shifting of stock. It is further pertinent to note that no evidence has been brought on record to prove the fact of such movement of goods. Further, the assessee has consistently placed upon the resolution passed by the Board of Directors and the auditor’s report, however, despite the claim that the stock was highly technical in nature, there is no report from any technical expert supporting the fact that the stock had in fact turned obsolete. Accordingly, we do not find any infirmity in the findings of the lower authorities in the absence of ./2024 (A.Y. 2013-14) 6 satisfactory documents being brought on record by the assessee. Accordingly, the same are upheld, and Ground No.2 raised in assessee’s appeal is dismissed.
The issue arising in Ground No.3, raised in assessee’s appeal, pertains to ad hoc disallowance of administrative expenses.
We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that during the year under consideration, the assessee claimed an amount of Rs.5,60,70,181/- under the head “other administrative expenses”, which, inter alia, included the following expenses: - Repairs & Maintenance Rs.29,59,445 Communication expenses Rs. 7,21,233 Travelling & conveyance expenses Rs.35,64,818 Printing & Stationery Rs.13,26,790 Sales Promotion expenses Rs.14,73,569 Interest & Penalties Rs. 73,578 Misc. expenses Rs.29,58,223
Accordingly, the assessee was asked to justify the claim of huge expenses as compared to the previous year. In response, the assessee furnished the details of cash expenses incurred under various heads. The AO, vide order passed under section 143(3) of the Act, upon verification of the details of expenses and vouchers furnished by the assessee, concluded that most of these expenses were incurred in petty cash for which proper 3rd party bills were not produced and most of these expenses were incurred on self- made vouchers. Accordingly, the AO disallowed the expenditure amounting to Rs.25 lakh for want of supporting.
./2024 (A.Y. 2013-14) 7
The learned CIT(A), vide impugned order, though agreed with the fact that these expenses are quite reasonable, considering the huge turnover of the assessee and were meant for business purpose, however, restricted the disallowance to Rs.10 lakh finding the disallowance made by the AO to be excessive and arbitrary. Being aggrieved, the assessee is in appeal before us.
Having considered the submissions of both sides and perused the material available on record, we are of the considered view that once the learned CIT(A) found the expenses to be for business purpose and reasonable considering the huge turnover of the assessee, and also noted the fact that there are no adverse remarks in the tax audit report, we do not find any merit in restricting the disallowance to Rs.10 lakh by the learned CIT(A) without finding any fault in the submissions by the assessee. Accordingly, we direct the deletion of the balance disallowance of Rs.10 lakh upheld by the learned CIT(A). As a result, Ground No.3 raised in assessee’s appeal is allowed.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 03/07/2025