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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Shri R.K. Panda & Shri Laliet Kumar
आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member & ITA 75/Hyd/2018 Assessment Years:201-11 & 2011-12 Andhra Pradesh Power Vs. Dy. C.I.T. Generation Corporation Circle 1(1) Ltd Hyderabad Hyderabad PAN:AACCA2734J (Appellant) (Respondent) Assessee by: Shri M.Chandramouleswara Rao, C.A Revenue by: Shri Jeevan Lal Lavidiya, CIT (DR) Date of hearing: 01/11/2022 Date of pronouncement: 02/11/2022 ORDER Per R.K. Panda, A.M ITA No.236/Hyd/2016 filed by the assessee is directed against the order dated 18.12.2014 passed u/s 263 by the learned CIT-1 Hyderabad relating to A.Y 2010-11. 31.7.2017 passed by the learned CIT (A)-1 Hyderabad relating to A.Y 2010-11. For the sake of convenience, both these appeals were heard together and are being disposed of by this common order.
2. There is a delay of 375 days in filing of this appeal by the assessee for which the assessee has filed a condonation Page 1 of 21 application along with an affidavit explaining the reasons for such delay. The reason given in the condonation application filed along with the affidavit is that at the time of receipt of the order, there was a lull and the administration of the assessee company came to a standstill and lot of confusions were prevailing due to the division of the State of A/P and dispute in the division of employees of the company and agitations all around. After considering the contents of the condonation application filed along with the affidavit and after hearing both the sides, the delay in filing of this appeal by the assessee is condoned and the appeal is admitted for adjudication.
Facts of the case, in brief, are that the assessee is a State PSU engaged in power generation, filed its return of income on 28.09.2010 declaring total income at Nil under the normal provisions and Rs.484,74,65,032/- u/s 115JB of the I.T. Act. The Assessing Officer passed the order u/s 143(3) on 28.3.2013 determining the taxable income at Nil and book profit u/s 115JB at Rs. 484,74,65,032/-.
3.1 Subsequently, the learned CIT examined the records and noted that the Assessing Officer completed the assessment without properly examining the following issues: (i) The assessee has debited an amount of Rs.24.55 Crores in P& L A/c towards misc. losses and provisions. This amount includes Rs. 87,30,955/- toward provision for bad and doubtful debts. Since these provisions are not allowable expenditure, the same is required to be verified and decided accordingly.
(ii) The assessee in the computation of income statement u/s 115JB(working sheet to form 29B) has taken the book profit at Rs.28866.02 lakhs and derived income of Rs.484,74,65,032 u/s 115JB as against Rs.51008.45 lakhs. This resulted in short Computation of income and hence required to be corrected.
(iii) It is noticed that the assessee has debited an amount Rs.24.55 Crores in P& L A/c towards 'misc. losses and provisions'. This amount includes Rs.15,03,01,740/- and Rs.3,43,45,409/-towards, obsolescence of stores etc. and 'loss on sale of scarp’ respectively. As the assessee is having the scarp account separately, the obsolescence of store account needs to be transferred to scarp account and scarp receipts thereof, if any needs to be offered to tax.
3.2. He, therefore, issued a show-cause notice to the assessee asking as to why the order passed by the Assessing Officer should not be set aside in terms of section 263 of the I.T. Act. The assessee in its reply filed the following submissions which has been reproduced by the learned CIT in his order which reads as under: 1. The provision for bad and doubtful debts for Rs. 87,30,955/- is debited to the P&L accounts due to non- receipts of the following amounts: a. Water charges receivable from Kothagudem Municipality since 1999 amounted to Rs.40,98,138/-. b) Amount receivable toward reimbursement of salaries of the staff counted against the Government posts of Rs. 37,27,682/- from the Government for the period from 01.02.1999 to 31.03.2004. c) Bill of cost for an amount of Rs. 9,05,135 from various companies to the end of 31.03.2010.
An amount of Rs. 3426.57 lakhs is incurred towards extraordinary items due to Heavy floods in 1st week of October 2009 which inundated the Srisailam Right Bank Powerhouse. The restoration works of Srisailam Right Bank Powerhouse completed in January 2010. Thus, the expenditure on this account charged to the extraordinary items during the year.
3. In respect of Miscellaneous loss & provisions towards obsolescence of Stores, the assessee has submitted its explanation in detail. The assessee has submitted that profit on sale of scrap and loss on sale of scrap both are business income and expenses respectively”.
3.3 It was accordingly requested that the revisional proceedings u/s 263 of the I.T. Act should be dropped.
3.4 However, the learned CIT was not satisfied with the arguments advanced by the assessee. He noted that although the Assessing Officer has called for the details, however, he has not verified the correctness of the following claims:
1. 1. Provisions of Rs. 87,30,955/- are not allowable expenditure under Income tax Act.
2. Book profit for the purpose of computation u/s 115JB is required to be considered at Rs.5108.45 lakhs as per P& LA/c (being above the line) as against Rs.28866.02 lakhs (down the line). Apart from the above, Provisions debited in the P & L a/c of Rs. 87,30,955/- are also to be considered required to be added to the net profit for determination of book profit.
3. As the assessee is having the scarp account separately, the obsolescence of store account needs to be transferred to scarp account and scarp receipts thereof, if any needs to be offered to tax. Page 4 of 21 3.5 He observed from the record that though the details of above expenditures were called for during the assessment proceedings, however, no findings were given. He, therefore, set aside the order of the Assessing Officer and directed him to verify the claim of the assessee afresh and redo the assessment on the above issues after affording reasonable opportunity of being heard to the assessee.
Aggrieved with such order of the learned CIT the assessee is in appeal before the Tribunal by raising the following grounds of appeal: “1. The Revisionary Order made by Commissioner of Hyderabad is bad, Income Tax-1, unlawful and erroneous both on facts and in law.
2. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax has erroneous in assuming the jurisdiction U/s.263 on issues which were raised by the Assessing Officer during the assessment proceedings and due examination was made in passing the assessment order.
3. On the facts and in the circumstances of the case, the Ld. CIT has erred in passing revisionary order U/s.263 of the Act on the following issues alleging that, the assessing officer has failed to verify the correctness of the claims made by the Assessee: i. Provisions of Rs.87,30,955/- are not allowable expenditure under Income Tax Act. ii. Book profit for the purpose of computation U/s.115JB is required to be considered at Rs..51008.45 lakhs as per P&L A/c. (being above the line) as against Rs.28866.02 lakhs (down the line). Apart from the above, provisions debited in the P&L A/c of Rs.87,30,955/- are also to considered required to be added to the net profit for determination of the book profit iii. As the assessee is having the scarp account separately, the obsolescence of store account needs to be transferred to scarp account and scarp receipts thereof, if any needs to be offered to tax. He is not justified in ordering the revision of assessment contrary to his own statement that, the details of the above expenditures were called for during the assessment proceedings.
4. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax has erred in ordering revision U/s.263 of the assessment order which is neither erroneous nor has caused any prejudice to the interests of the revenue.
5. Such other ground/grounds that may be urged with the leave of the Hon'ble Tribunal during the appeal proceedings.”
The learned Counsel for the assessee referring to page No.9 of the Paper Book drew the attention of the Bench to the queries raised by the Assessing Officer vide notice dated 21/8/2012 wherein he had raised various queries. The learned Counsel for the assessee referring to the said notice drew the attention of the Bench to queries 8 to 13 which are as under: “8. Please furnish the details for the Miscellaneous losses and provisions. 9. Please furnish the details for prior period items of Rs.892.77 lakhs. 10. Please furnish the details for Extraordinary items of Rs.3,426.57 lakhs. 11. Please furnish the details of related to prior periods.
12. Please furnish the details for provision for expenses Rs.4,497.38 lakhs.
13. Please furnish the details for provision for other Rs.14,348.30 lakhs.”
Referring to page 10 of the paper book, he drew the attention of the Bench to the miscellaneous losses and provisions written off wherein the provisions for bad and doubtful debts was shown at Rs.87,30,955/-. Referring to page 11 of the Paper Book, he drew the attention of the Bench to the details showing the particulars of income or expenditure of prior period credited or debited to P&L A/c. Referring to page 12 of the paper book, he drew the attention of the Bench to the details of extraordinary items accounted for in the financial year 2009-10 (A.Y 2010-11). Referring to page 45 to 48 of the Paper Book, he drew the attention of the Bench to the details of provision for recovery/ write off of material. He submitted that the assessee has filed the year-wise statement of provision for recovery/write off of material. Wherever there was increase in the provisions for a year, the same was debited to P&L A/c and whenever there was a decrease in the provisions in a year, the same is credited to P&L A/c and offered to tax.
Referring to page 80 of the Paper Book, the learned Counsel for the assessee drew the attention of the Bench to the Profit & Loss A/c for the year ended on 31.3.2010 and submitted that the prior period item at Rs. 892.77 lakhs was credited to the P&L A/c and accordingly net profit of Rs.28866.02 lakhs has been declared. He submitted that the assessee has filed the full details before the Assessing Officer and therefore, the learned CIT is not justified in invoking the provisions of section 263 of the I.T. Act.
So far as the allegation of the learned CIT that the Assessing Officer has not examined the details called for by him, he submitted that the assessee has no control over the manner of writing of the order by the Assessing Officer. Relying on various decisions, he submitted that the order passed by the Assessing Officer is not erroneous and therefore, the twin conditions are not satisfied for invoking the jurisdiction u/s 263 of the I.T. Act, 1961. He accordingly submitted that the grounds raised by the assessee should be allowed and the order passed by the CIT u/s 263 be quashed.
The learned DR, on the other hand, while supporting the orders of the learned CIT invoking the jurisdiction u/s 263 of the I.T. Act submitted that the order of the Assessing Officer clearly shows that he has not verified the vital issues after calling for the details from the assessee. He submitted that the provision for any type of expenditure is not an allowable expenditure under the I.T. Act. Similarly, the book profit is required to be considered at Rs.51008.45 lakhs as per the P&L A/c being above the line as against Rs.28866.02 lakhs shows down the line. Further, the provisions debited in the P&L A/c at Rs. 87,30,955/- should have also been added to the net profit for determination of the book profit as per the statutory provisions. He submitted that when the assessee is having scarp a/c separately, the obsolescence of stores account should have been transferred to the scarp a/c and scarp receipts thereof, if any, should have been offered to tax. Since the Assessing Officer has failed to conduct necessary inquiries, therefore, the order has become erroneous and prejudicial to the interest of the Revenue and therefore, the learned CIT was fully justified in invoking the jurisdiction u/s 263 of the I.T. Act and thereby setting aside the order for de novo assessment.
We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case completed the assessment u/s 143(3) determining the taxable income at Nil under the normal provisions (after setting off of brought forward losses) and u/s 115JB at Rs.484,74,65,032/-. We find the learned CIT after examining the records noted that the Assessing Officer has failed to verify the correctness of the claims made by the assessee the details of which are given at Para No.3.2 of this order. It is the submission of the learned Counsel for the assessee that the Assessing Officer has called for the details as per the questionnaire dated 21.8.2012 and during the physical hearing, the assessee has explained the details called for by the Assessing Officer and accordingly the Assessing Officer has passed the order u/s 143(3) of the Act. Thus, there is application of mind by the Assessing Officer on all the issues while passing the order and merely because the Assessing Officer has not mentioned all the details in the assessment order, the same cannot make the order erroneous so as to invoke the provisions of section 263 of the I.T. Act.
We do not find any merit in the arguments advanced by the learned Counsel for the assessee. It is an admitted fact that the assessee has debited an amount of Rs.24.55 crores in the P&L A/c towards miscellaneous losses and provisions written off which include Rs.87,30,955/- towards provisions for bad and doubtful Page 9 of 21 debts. Although the assessee has given the details of miscellaneous losses and provisions written off at Rs.24.55 crores as per page 10 of the Paper Book, however, the Assessing Officer failed to consider the provisions for bad and doubtful debts at Rs.87,30,955/- included in Rs.24.55 crores since any provision for bad and doubtful debts cannot be allowed as an expenditure. Similarly, in the computation of income statement u/s 115JB, the assessee has taken the book profit at Rs.28866.02 lakhs and arrived at the income of Rs.484,74,65,032/- u/s 115JB as against Rs. 51008.45 lakhs. Despite the figures available on record, the Assessing Officer failed to examine the short computation of income u/s 115JB of the Act. Similarly, the Miscellaneous losses and provisions for bad and doubtful debt of Rs.24.55 crores includes Rs.15,03,01,740/- towards obsolete stores etc., and Rs.3434340 towards loss on sale of scarp. However, the Assessing Officer failed to examine the issue properly since the assessee is having scarp a/c separately and therefore, the obsolescence of store a/c should have been transferred to the scarp a/c and scarp receipts thereof, if any, should have been offered to tax. Since the Assessing Officer in the instant case has not examined the vital issues properly, therefore, the order passed by the Assessing Officer, in our opinion, has become erroneous as well as prejudicial to the interest of the revenue. Therefore, the learned CIT, in our opinion, has rightly invoked the jurisdiction u/s 263 of the I.T. Act. The various decisions relied upon by the learned Counsel for the assessee, in the instant case, are distinguishable and not applicable to the facts of the present case since the Assessing Officer in the instant case has not at all examined the issue for which he has raised the queries. Accordingly, the order passed by the learned CIT is upheld and the grounds raised by the assessee are dismissed. Page 10 of 21
The grounds raised
by the assessee are as under: “1. The Appellate Order of the Learned Commissioner of Income Tax (Appeals) bad and is erroneous both on facts and in law.
2. On the facts and in the circumstances of the case and in Commissioner law, the Learned of Income Tax (Appeals) has erred in dismissing the claim of the Appellant in relation to the addition of 87,30,955/, on account of disallowance towards Provision for Bad and doubtful debts, both under normal well provisions as well as in the computation of book profits U/s 115 JB of the Act. The Learned Commissioner of Income Tax (Appeals) ought to have considered the fact that the amount has been written off as irrecoverable in the accounts of the assessee.
3. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in dismissing the claim of the Appellant in relation to the loss on sale of scrap for an amount of R3,43,45,409/- stating that the 'loss of scrap' cannot be termed as expenditure relating to business.
4. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in dismissing the claim of the Appellant in relation to the loss on obsolescence of stores for an amount of Rs.15,03,01,740/- stating that 'provision on obsolescence of stores' is a provision and not justified to claim as allowable deduction.
5. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in partly allowing the claim of the Appellant in relation to adopting Profit before prior period items as Book profit u/s 115JB instead of Net Profit in the Profit and loss account prepared in compliance with section 211(2) of the Companies Act, 1956. The Learned Commissioner of Income Tax (Appeals) ought to have considered the Net Profit after prior period items and extraordinary items in the computation of 'Book Profit's as per the provisions of section 115JB of the Income Tax Act, 1961.
6. Such other ground/grounds that may be urged during the course of hearing of the appeal.”
Grounds 1 & 6 are being general in nature are dismissed.
Ground No.5 was not pressed by the learned Counsel for the assessee for which the learned DR has no objection. Accordingly, Ground No.5 raised by the assessee is dismissed as not pressed.
Ground of appeal No.2 relates to the addition of Rs. 87,30,955/-,on a/c of disallowance towards provision for bad and doubtful debts.
Facts of the case, in brief, are that during the assessment proceedings, the Assessing Officer noted that the assessee has debited Rs.24.55 Crores in P&L A/C towards miscellaneous losses and provisions. This amount includes Rs.87,30,955/- towards provision for bad and doubtful debts. Since the provisions are not allowable expenditure, the Assessing Officer asked the assessee to explain as to why the same should not to be disallowed. The assessee submitted that these amounts are receivable from various parties. Since the same are not received, it was debited to P&L A/C towards provision for bad and doubtful debts.
However, the Assessing officer was not satisfied with the arguments advanced by the assessee. He noted that the expenses have not been incurred during the year and only provision has been made for future liability and therefore, cannot be allowed. Accordingly, the Assessing Officer disallowed Rs.87,30,955/- towards Provision of Bad and Doubtful Debts and added to the total income.
Before the learned CIT (A), the assessee submitted that particulars of Rs.87,30,955/- written off as bad debts are as follows: PARTICULARS AMOUNT Water charges receivable from Rs.40,98,138/- Kothagudem Municipality since 1999 Amount receivable towards Rs.37,27,682/- reimbursement of salaries of the staff counted from the Govt. of A.P for the period from 1.2.1999 to 31.3.2004. Bill of cost receivable from various Rs.9,05,135/- companies to the end of 31.3.2010 Total Rs.87,30,955/-
It was submitted that as the above items are long pending receivables, the amounts have been written off as irrecoverable in the accounts of the assessee for that previous year by reducing the amount from 'Schedule-12 Other Current Assets' under the separate head named Provision for Doubtful Receivables. The assessee submitted that the amount is not a simple provision for bad and doubtful debts but in fact it is actual debt written off.
However, the learned CIT (A) was not satisfied with the arguments advanced by the assessee and upheld the disallowance made by the Assessing Officer by observing as under: “5.3 The submissions of the appellant have been carefully examined. It is no doubt that the appellant has made provision for Bad and Doubtful debts. Asper the Accounting principles, this is just a 'provision' not actually incurred. Also, the appellant has also not justified reasons for going receivable bad, as to why the municipality a Governmental Authority, has not paid, nor the Government of Andhra Pradesh not paid. It is pertinent to note that a municipality or Government of Andhra Pradesh has not issued any order or certification that these payments will not be made in future. This is to say that the ‘payers’ have not confirmed that these amounts have become bad. The appellant has also not submitted the confirmations issued by them to the respective Governmental agencies, to show that these amounts is no longer payable by them. Suo-moto disallowance and proclaiming bad debts is not justifiable. As these receipts are from the Governmental agencies there might be a delay but absolute non-payment by the Governmental agencies cannot be presupposed or presumed. It is also to be noted that the Government of Andhra Pradesh is the major shareholders/promoter of this corporation. Hence, the contention of the assessee that these receivables can be designated as 'bad debts', cannot be sustained. Also, the Assessing Officer correctly disallowed as they were mere provisions' and not real current year liability as per accounting principles under Income Tax Act. I uphold the disallowance made by the Assessing Officer. Ground dismissed”.
Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal.
The learned Counsel for the assessee submitted that the learned CIT (A) sustained the disallowance made by the Assessing Officer on the ground that the assessee has made the provision and that the amounts are receivable from the parties which are govt. departments and therefore, it cannot be a bad debt. He submitted that although the assessee has given the nomenclature as provision for bad and doubtful debt, however, for all practical purposes, the same is bad debts written off. So far as the amount receivable from the Govt. Departments are concerned, he submitted that as and when the assessee will receive the amount, the same shall be offered to tax. He accordingly submitted that the order of the learned CIT (A) being not in accordance with law should be set aside and the ground raised by the assessee on this issue should be allowed.
The learned DR, on the other hand, strongly supported the order of the learned CIT (A) on this issue.
We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the assessee in the instant case has debited an amount of Rs.24.55 crores in the P&L A/c towards miscellaneous loss and provisions which includes an amount of Rs.87,30,955/- towards provision for bad and doubtful debt. We find the Assessing Officer made the addition on the ground that the provision for bad and doubtful debt is not an allowable expenditure. We find the learned CIT (A) sustained the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the learned CIT (A) on this issue. A perusal of the order passed by the learned CIT (A) for the A.Y 2011-12 shows that similar addition made by the Assessing Officer was sustained by him at Rs.64.35 crores towards provision for bad and doubtful debts and the learned Counsel for the assessee admitted that the assessee has accepted the same and has not filed any appeal. Further, any provision for bad and doubtful debt debited to P&L A/c is not an allowable expenditure. In this view of the matter, we do not find any infirmity in the order of the learned CIT (A) on this issue. Accordingly, the same is upheld and the ground raised by the assessee is dismissed.
Ground No.3 relates to the addition on account of loss on sale of scrap at Rs.3,43,45,409/-. Facts of the case, in brief, are that the Assessing Officer during the assessment proceedings noticed that the assessee debited Rs.3,43,45,409/-towards loss on sale of scrap under the head ‘Misc. Losses and Provisions’. As the assessee is having the scrap a/c separately, hence the same is Page 15 of 21 not an allowable expenditure. The assessee submitted that the profit on sale of scrap and loss on sale of scrap both are business income and expenses respectively. The contention of the assessee was not acceptable to the Assessing Officer and the Assessing Officer disallowed Rs.3,43,45,409/- towards loss on sale of scrap.
Before the learned CIT (A), the assessee submitted that the profit from sale of stores and scrap amounting to Rs.56.55 lakhs was credited to P&L A/c as shown under schedule-16. The assessee submitted that other income and the same was included in the profit on sales of fixed assets (net) and stores in the amount of Rs.6098.10 lakhs. The assessee submitted that in this schedule, it was never declared that the profit on sale of scrap is the net amount. The assessee submitted that in case it reduce the loss on sale of scrap and stores from schedule 18, then the net effect is same as declared by the assessee in his return of income. The assessee further submitted that the loss on sale of scrap was shown as separate figure without reducing it from profit from sale of scrap in view of the disclosure requirements. The assessee submitted that during the relevant previous year, the loss on sale of scrap is Rs.3,43,45,409/- and this figure was separately disclosed in Schedule 18 ‘Administration & General Expenses’ under the heading ‘Misc. Losses and provisions’ in the amount of Rs.2455.00 lakhs. The assessee submitted that the profit from sale of scrap is Rs.56.55 lakhs and loss on sale of scrap is Rs.343.45 lakhs, hence the loss on scrap is allowable deduction.
However, the learned CIT (A) was not satisfied with the arguments advanced by the assessee sustained the addition made by the Assessing Officer by observing as under:
“5.3 The submissions of the appellant have been carefully considered. The profit from the sale of scrap is Rs. 56.55 lakhs and loss on sale of scrap is Rs.343.,45 lakhs. The appellant submitted that the profit from the sale of stores and spares amounting to Rs.56.55 lakhs which was declared in the Annual Accounts under the head "Other income". The profit on sale of fixed assets was shown at the net figure and it was never declared that profit from sale of stores is the net amount. It is pertinent to understand that the profit from the sale of scrap is Rs.56.55 lakhs and loss on sale of scrap is Rs.343.45 lakhs. The loss from the sale of scrap was shown as a separate figure without reducing it from the profit from sale of stores and scrap. The issue raised by the appellant that there is a loss on sale of scrap. The appellant submitted that these scraps are part of their unused plant & machinery. That is to say, these have already been subjected to depreciation before sale. The appellant has not submitted any calculation as to the 'cost' of this scrap. Unless appellant/internal audit values the scrap there cannot be any loss or gain. There is no confirmation as to now the sale was made through auction or otherwise. As per Form 3CD report in col No.12(a) dated 25.09.2010 by M/s. Jawar Associates, CA, Hyderabad the report referred as: 12 (a). Method of valuation of closing stock in the previous year: "
2. Scrap is valued at realizable value.” Since the scrap is valued at 'sellable value', there cannot be a loss. Hence, there is strength in the argument of the Assessing Officer. Appellant has shown loss from scrap is much more than the profit which cannot be possible in light of audit report. In background to the 3CD report, there cannot be loss as the valuation is at the sellable/market rate. It is pertinent to understand that the sale of scrap is not basic business of the appellant. Hence, loss of scrap cannot be termed as expenditure relating to business. The disallowance of loss from sale of scrap is upheld. Ground Dismissed”
Aggrieved with such order of the learned CIT (A) , the assessee is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the Assessing Officer in the instant case made addition of Rs.3,43,45,409/- towards loss on sale of scrap under the head Mis.Losses and provisions” on the ground that the assessee is having the scrap a/c separately and the obsolescence and stores a/c needs to be transferred to scrap a/c and scrap receipts thereof, if any, needs to be offered to tax. We find the learned CIT (A) sustained the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraph. We do not find any infirmity in the order of the learned CIT (A) on this issue. In our opinion, since the scrap is valued at saleable value, there cannot be any loss on account of sale of scrap. Further, the sale of scrap is not the basic business of the assessee. In this view of the matter and in view of the detailed reasoning given by the learned CIT (A), we do not find any infirmity in the order of the learned CIT (A) on this issue. So far as the argument of the learned Counsel for the assessee that in subsequent years, the learned CIT (A) has allowed such type of claim by deleting the addition made by the Assessing Officer on this issue and the Revenue has not filed any appeal against the relief granted by the learned CIT (A) is concerned, we do not find any merit in the same argument. Merely, because some wrong has been followed, the same cannot be perpetuated. Further, it is the settled proposition of law that the principle of res judicata does not apply to Income Tax Proceedings and every A.Y is separate and distinct. In this view of the matter, the order of the learned CIT (A) is upheld and the ground raised by the assessee is dismissed
In Ground of appeal No.4, the assessee has challenged the order of the learned CIT (A) in sustaining the addition of Rs. Rs.15,03,01,740/-made by the Assessing Officer on account of loss on obsolescence of stores.
Facts of the case, in brief, are that during the assessment proceedings, the Assessing Officer noticed that the assessee debited Rs.15,03,01,740/- towards obsolescence of stores, etc., under the head ‘Misc.Losses and Provisions’. As the assessee is having the scrap account separately, he held that the same is not an allowable expenditure. The assessee submitted that profit on sale of scrap and loss on sale of scrap both are business income and expenses respectively. However, the Assessing Officer rejected the explanation and disallowed Rs.15,03,01,740/- towards obsolescence of stores etc.
Before the learned CIT (A) it was submitted that the accounting systems and policies followed have been accepted by the Revenue for the earlier years and the same accounting system and policies were followed even during the A.Y 2010-11. There is no change in maintenance of accounts. The assessee further submitted that during the relevant previous year, the provision on obsolescence of stores of Rs.1503.01 lakhs was disclosed in Schedule 18 ‘Administration and general expenses’ under the head ‘Misc. Losses and provisions’ in the amount of Rs.2455.00 lakhs. The assessee further submitted that the same was further credited to inventories as disclosed in the Schedule 9 – Inventories under the head ‘Provision for recovery/write off of stores and spares’ in the amount of Rs.5108.16 lakhs. The assessee further submitted that the loss on obsolescence of stores is allowable deduction. Page 19 of 21
However, the learned CIT (A) was not satisfied with the arguments advanced by the assessee sustained the addition made by the Assessing Officer on the ground that the assessee has disclosed Rs.15,03,01,740/- towards provision of obsolescence of stores which is a provision and therefore, it cannot be claimed as a deduction.
Aggrieved with such order of the learned CIT (A), the assessee is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT (A) and the Paper Book filed on behalf of the assessee. We have considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.15,03,01,740/- being amount debited towards obsolescence of stores etc., under the head ‘Misc.Losses and Provisions” on the ground that the assessee is having scrap a/c separately and therefore, the same is not an allowable expenditure. We find in appeal, the learned CIT (A) sustained the addition. We do not find any infirmity in the order of the learned CIT (A) on this issue. As mentioned earlier, the assessee has made a provision towards obsolescence of stores and as mentioned by us in the preceding paragraphs, provision cannot be allowed as an expenditure especially when the assessee was unable to show us as to whether such provision was quantified in a scientific basis or not. Further, whether there is any reversal of entry on account of increase or decrease in the provision in the subsequent years was also not shown by the assessee. Under these circumstances, we do not find any infirmity in the order of the learned CIT (A) on this issue and the ground raised by the assessee is dismissed.
In the result, both the appeals filed by the assessee are dismissed.
Order pronounced in the Open Court on 2nd November, 2022.