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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Commissioner of Income Tax(Appeals)-1, Kolkata [in short the Ld. CIT(A)] in appeal No. 1112/CIT(A)-1/Circle- 3(1)/2014-15 dated 08.11.2016 against the order passed by the DCIT, Circle-3(1), Kolkata [in short the Ld. AO] u/s 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] dated 25.02.2015 for the assessment year 2012-13.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in confirming the action of the ld AO in adding back Rs 49,68,673/- being diminution in the value of inventories (shares) in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a public limited company engaged in the business of dealing in capital markets and investment activities. The return of income for the Asst Year 2012-13 was filed by the assessee on 29.9.2012 showing total loss of Rs 3,67,48,840/-. The ld AO observed that the assessee has shown loss of Rs
Peerless Securities Ltd. A.Yr.2012-13 49,68,673/- as valuation loss of shares and debited the amount in profit and loss account. In the opinion of the ld AO, this was a notional loss and provisional in nature and cannot be allowed as deduction. Accordingly he added back the same to the total income of the assessee. The assessee stated that it has always been making the valuation of shares at lower of cost or market value, computed on individual scrip basis. Since at the close of the year , there had been a reduction in the market value of certain shares for an aggregate sum of Rs 49,68,673/- , the assessee reduced the said sum of Rs 49,68,673/- from the book value of the shares to arrive at the market value of the shares. In effect, it had reported the closing stock of shares at lower of cost or market value in the balance sheet. This is the mandate provided in Accounting Standard 2 issued by The Institute of Chartered Accountants of India and also acknowledged by the Income Tax Act u/s 145 of the Act. This is one of the notified accounting standards under section 145 of the Act. The ld CITA by placing reliance on the order of his predecessor in assessee’s own case for the Asst Year 2009-10 on the very same issue, upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us on the following grounds:-
1. That the Commissioner of Income Tax(Appeals) was wrong in confirming the action of the Assessing Officer in adding back Rs. 49,68,673/- being the Diminution in the value of the Inventories (Shares).
2. That without prejudice to the contention raised in Ground No. 1 above, the Commissioner of Income Tax (Appeals) failed to appreciate that the Diminution in the value of the Inventories (Shares) had been made for correctly disclosing the Profit or Loss resulting from the Trading of Shares and thus he erred in confirming the addition of Rs. 49,68,673/-.
3. That the appellant craves leave to add, alter or withdraw any ground or grounds of appeal before or at the time of Hearing of the Appeal.
Peerless Securities Ltd. A.Yr.2012-13 4. We have heard the rival submissions. We find that the assessee is engaged in dealing in shares and accordingly the inventory of shares are held as stock in trade in the books of the assessee. There is no dispute on this point. Once the shares are held as stock in trade, it is well settled that the closing stock of shares are to be valued at lower of cost or market price as on the balance sheet date. Accordingly, the assessee identified the cost or market price for each of the shares and identified the least of the two in respect of each of the shares held by it and arrived at the reduction in the value of shares when compared to the existing book value to the tune of Rs 49,68,673/-. Accordingly, the closing stock of shares as on 31.3.2012 was reflected at Rs 18,69,544/- as against the book value of Rs 68,38,217/- after writing off the diminution in value of shares to the tune of Rs 49,68,673/-. Hence it is effective write off of stock of shares which were held as stock in trade which is an allowable business loss. Moreover, the valuation of shares are to be done as per the mandate provided in AS-2 issued by ICAI which is also a notified accounting standard u/s 145 of the Act. Moreover, this valuation method has been duly recognized by various judicial decisions rendered under the Income Tax Act. The same are not reiterated herein for the sake of brevity. We also find that in Asst Year 2011-12, the assessee had compared the lower of cost or market value in respect of each of the shares held as on 31.3.2011 and had written off Rs 2,110/- as in respect of shares of State Bank of India, the market price was Rs 5,53,060/- as against the book value of Rs 5,55,170/- leading to a difference of Rs 2,110/- ( 555170-553060). This method of valuation has been consistently followed by the assessee over the years. The ld AR fairly stated that against the upholding of the addition on the very same issue in Asst Year 2009-10 by the ld CITA, the assessee had not preferred any appeal before this tribunal in view of the smallness of the amount involved therein. In view of the aforesaid facts, we hold that the assessee had effectively written off to the tune of Rs 49,68,673/- while valuing the closing stock of shares at lower of cost or market price and the said loss arising due to diminution would only be a regular trading loss arising in the course of business and accordingly is squarely allowable as a deduction. Hence 3
Peerless Securities Ltd. A.Yr.2012-13 we direct the ld AO to grant deduction towards the sum of Rs 49,68,673/- to the assessee. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 16.02.2018