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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D. AGRAWALG.D. AGRAWAL & AND BEFORE SHRI G.D. AGRAWALG.D. AGRAWAL & AND SHRI ABY T. VARKEY SHRI ABY T. VARKEYSHRI ABY T. VARKEY SHRI ABY T. VARKEY
PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP :- PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP This appeal by the Revenue for the assessment year 2005-06 is directed against the order of learned CIT(A)-X, New Delhi dated 11th August, 2010.
The only ground raised in this appeal by the Revenue reads as under:-
“On the facts and circumstances of the case the ld.CIT(A) erred in law as well as on merits in deleting the addition of Rs.1,07,83,935/- made by AO on account of pilferage/obsolete inventories.”
At the time of hearing before us, the learned DR pointed out that the assessee has claimed the deduction for pilferage/obsolete inventories on the ground that its business premises were temporarily
2 ITA-5034/Del/2010 suspended in April, 1996 and the office block of the assessee, cost section and store room in the premises of the company were sealed on 26th August, 1996. The premises were de-sealed consequent to the order of Hon’ble High court dated 5th November, 2002. He, therefore, submitted that even if any loss was incurred due to pilferage/obsolence of stock, it would arise in the assessment year 2003-04 and not in the year under appeal i.e. 2005-06. He further submitted that in support of the pilferage, the assessee claimed to have filed the copy of FIR. In the FIR, the assessee has mentioned the theft of certain items like office equipment, computers, air conditioners, typewriters etc. but, there is no mention of the theft of stock of finished goods or raw material or other things in respect of which the assessee is claiming loss. Learned DR further submitted that the assessee did not furnish any details in respect of either the pilferage or obsolence. The assessee did not even specify which item has been stolen and which part of loss is for obsolence. He, therefore, submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer may be restored.
Learned counsel for the assessee, on the other hand, stated that the issue is squarely covered in favour of the assessee by the decision of ITAT Delhi ‘G’ Bench in the case of M/s Super Oil Seals India Ltd. vide ITA No.1766/Del/2011. He also relied upon the decision of CIT(A) and pointed out that the physical verification of the inventories was completed in the accounting year relevant to the assessment year under consideration and when the inventories were prepared, it was found that certain items have become obsolete and unserviceable. In view of the aforesaid, the inventories have been written off in the year in question. He, therefore, submitted that the order of learned CIT(A) should be sustained.
3 ITA-5034/Del/2010
We have considered the rival submissions and have perused the relevant material placed before us. Learned counsel for the assessee has relied upon the decision of ITAT in the case of M/s Super Oil Seals India Ltd. (supra) wherein the issue before the ITAT was with regard to addition made by the Assessing Officer on account of obsolence of stock. Learned CIT(A) had deleted the addition and when the matter reached to the ITAT, it sustained the order of learned CIT(A) with the following finding:-
“5. After hearing the revenue, we find that there is no merit in the appeal of the revenue. The assessee is free to value the stock as per the market value of the stock or cost of the stock, whichever is less. The assessee has option to value the stocks as per the market rate and assessee has done so. Therefore, we find no merit in the ground of appeal taken by the revenue and the same stands dismissed.”
After considering the facts of the case and arguments of both the sides, we find that the only issue before the ITAT was allowability of loss on account of obsolence. There is no dispute with regard to the legal proposition laid down by the ITAT that the assessee is free to value the stock as per the market value of the stock or cost of the stock, whichever is low. However, in the year under consideration, the issue under consideration is first with regard to the year of loss and secondly, whether the loss was actually incurred. Both these issues were not before the ITAT in the case of M/s Super Oil Seals India Ltd. (supra) and, therefore, the above decision of ITAT would have no application to the case under appeal before us.
Reverting to the facts of the assessee’s case, we find that the assessee has claimed the loss on account of pilferage/obsolete inventories. It was explained by the assessee that the pilferage/obsolence of stock took place on account of sealing of the assessee’s premises. However, we find that the premises of the 4 ITA-5034/Del/2010 assessee were de-sealed during the accounting year relevant to assessment year 2003-04. Therefore, if any loss was incurred on account of pilferage/obsolete inventories due to sealing of the assessee’s premises, it came to the knowledge of the assessee on the de-sealing of the premises which was admittedly during the accounting year relevant to assessment year 2003-04. If the assessee chose not to prepare the inventory for a period of two years, the incurring of the loss cannot be postponed. Therefore, in our opinion, the loss, if any, on account of obsolence/pilferage of the goods claimed to have been incurred by the assessee due to sealing of its premises, could have been claimed in the assessment year 2003-04 and not in the year under consideration. Learned DR has also pointed out that the assessee has not produced any evidence with regard to pilferage of the stock. The only evidence produced in support of the claim is the FIR which mentions the theft of certain items like office equipment, computers, air conditioners, typewriters etc. but there is no mention of the pilferage of the inventory. No other evidence for pilferage of the stock is produced. The assessee did not even produce the list of the items which have been stolen. The claim of the assessee is of general nature without specifying which item is pilfered and which item has become obsolete. In view of the above, in our opinion, learned CIT(A) was not justified in allowing the loss claimed to have been incurred by the assessee on account of pilferage/obsolence of the inventory. The order of learned CIT(A) on this point is reversed and that of the Assessing Officer is restored.
In the result, the appeal of the Revenue is allowed. Decision pronounced in the open Court on 17.11.2015.