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Facts
The assessee appealed against the order of the CIT(A) concerning the assessment year 2018-19. The revenue contested two issues: deletion of addition regarding devaluation in closing stock and deletion of addition invoking Section 41(1) for advances.
Held
The Tribunal noted that the CIT(A) had categorically held the assessee to be a going concern. The revenue failed to disprove this finding. Therefore, the CIT(A)'s decision on revaluation of closing stock was upheld, making the ITAT Kolkata's decision in Shyam Prasad Agarwal inapplicable.
Key Issues
Whether the assessee, being a going concern, is entitled to revaluation of closing stock and whether Section 41(1) is applicable to outstanding advances.
Sections Cited
41(1)
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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: BEFORE S/SHRI GEORGE MATHANSHRI GEORGE MATHAN & RATNESH NANDAN SAHAY & RATNESH NANDAN SAHAY & RATNESH NANDAN SAHAY
O R D E R Per Bench This is an appeal filed by the assessee against the order of the ld CIT(A) This is an appeal filed by the assessee against the order of the ld CIT(A) This is an appeal filed by the assessee against the order of the ld CIT(A)- Patna-3dated 8.7.2023 8.7.2023in Appeal No.CIT(A),Patna-3/10454/2017 3/10454/2017-18 for the assessment year 2018 2018-19
Smt. Rinku Singh, Ld CIT DR appeared for the revenue and Shri Smt. Rinku Singh, Ld CIT DR appeared for the revenue and Shri Smt. Rinku Singh, Ld CIT DR appeared for the revenue and Shri K.M.Mohan Dass/Tharis V, K.M.Mohan Dass/Tharis V, ld ARs appeared for the assessee. appeared for the assessee.
P a g e 1 | 4
It was submitted by ld CIT DR that two issues are involved, first issue is in regard to deletion of addition of Rs.25,66,72,064/- in respect of devaluation in the closing stock allowed as deduction. It was the submission that the Assessing Officer in the course of assessment had disallowed the devaluation in the value of the closing stock by placing reliance on the decision of ITAT Kolkata Bench in the case of CIT vs Shyam Prasad Agarwal, (2003) 85 ITD 529 (Kol). It was the submission that the Assessing Officer had taken the stand as the business of the assessee was no more continuing, it would not be permissible for the assessee to revalue its closing stock. On appeal, ld CIT(A) held that the assessee is a going concern and consequently held that the assessee is entitled to revaluation of the closing stock leading to devaluation. It was the submission that the order of the ld CIT(A) is liable to be reversed and that of the AO restored. It was the submission that the second addition was made by invoking the provisions of section 41(1) in respect of certain advances given by the assessee. It was the submission that the assessee himself had applied the provisions of section 41(1) of the Act on some of the advances and balance advances which were old advances also, the AO had applied the provisions of section 41(1) of the Act. It was the submission that the ld CIT(A) had deleted the addition by holding that the assesee has not recognised said amount as income and, therefore, provisions of section 41(1) could not be applied in respect of such advances which have been treated as income by the assessee. He submitted that the order of the ld CIT(A) be reversed and that of the AO restored.
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In reply, ld AR vehemently supported the order of the ld CIT(A). It was the submission that in respect of the revaluation of the closing stock, the business of the assessee had not stopped and, therefore, the assessee was entitled to revaluation in respect of addition deleted by ld CIT(A) by applying the provisions u/s.41(1) of the Act. It was submitted that the advances are still live and the provisions of section 41(1) could not be applied to treat the same as income of the assessee.
We have considered the rival submissions. Ld CIT(A) has categorically given a finding tat the assessee is a going concern. The revenue has not been able to point out how the revenue is holding that the business of the assessee has come to an end. The fact that the revenue has not been able to dislodge the finding of fact in respect of going concern in the case of the assessee, we are of the view that the findings of ld CIT(A) in respect of revaluation of the closing stock is on right footing and does not call for any interference . As long as the it is going concern, the decision of ITAT Kolkata in the case of Shyam Prasad Agarwal,(supra) would have no applicability to the facts of the case of the assessee. In regard to issue of section 41(1) one of thecondition for invoking section 41(1), the assessee should recognise the same as income or the advance should have become time barring. This has not been shown by the revenue. Ld CIT(A) recognises the provisions of section41(1) and deleted the addition. As the revenue has not been able dislodge the findings arrived at by the ld CIT(A), we
P a g e 3 | 4 find no error to interfere with the order of the ld CIT(A), accordingly uphold the same.
In the result, appeal of the assessee stand allowed.
Order dictated and pronounced in the open court on 12/06/2025.