2019 (9) TMI 1485 - AT - Income Tax

Disallowance on account of bad debt - HELD THAT - Hon ble Supreme Court in the case of CIT Mysore Sugar Company Ltd 1962 (5) TMI 3 - SUPREME COURT wherein it is held that in case the company has advanced money to sugarcane grower for purchase of sugarcane and when they were unable to purchase sugarcane the amount was written off and claimed as trading loss and the same was allowed. We do not find any error in the decision of ld. CIT(A) in allowing the claim of advances written off which were given in the ordinary course of business by the assessee. Accordingly we do not find any merit in the appeal of the revenue and cross of the assessee therefore the cross objection of the assessee and appeal of the revenue both are dismissed. Disallowance of written off salary advance - HELD THAT - AO disallowed the salary written off stating that the assessee has failed to prove that the person to whom salary given were its employees and has also not proved that the same was included in computing the income of the assessee for earlier years and for the year under consideration. The assessee has failed to substantiate with relevant material that the salary advances were given to its employees employed with it. Disallowance on account of loss of stock by obsolescence - AO disallowed the claim of loss on account of absolescene of stock of fish stating that valuation shown by the assessee on the basis of stock or net realizing value cannot be accepted on the basis of evidence available on local sale account - HELD THAT - As assessee has brought the unsold stock from the earlier years and no production of Surmai fish was made during the year under consideration. It is further noticed that the closing stock for the year under consideration has been accepted by the assessing officer as opening stock for the subsequent year without any variation. We observed that assessing officer has not elaborated the detailed reasons with specific finding for rejecting the claim of loss of stock by absolescence on account of unsold old stock of fish which are of perishable nature. We do not find any infirmity in the decision of ld. CIT(A) in deleting the addition made by the assessing officer. Therefore we do not find any force in the appeal of the revenue and the same is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of bad debt.
2. Deletion of addition on account of loss of stock by obsolescence.
3. Disallowance of written-off salary advance.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Bad Debt (?28,39,840)
During the assessment, the Assessing Officer (AO) disallowed the claim of bad debt of ?38,41,247 on the grounds that the assessee failed to prove that the debt had become bad. The CIT(A) allowed the appeal partly, deleting the trade debt of ?20,67,787 and advances written off of ?7,74,084, relying on the Supreme Court's decision in TRF Ltd. vs. CIT, which held that post-1st April 1989, it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had written off the debts in the books and provided necessary details. The Tribunal also upheld the deletion of advances written off, citing the Supreme Court's decision in CIT vs. Mysore Sugar Co. Ltd., which allowed such claims as trading losses.

Issue 2: Deletion of Addition on Account of Loss of Stock by Obsolescence (?3,88,28,010)
The AO disallowed the loss of stock by obsolescence claimed by the assessee, stating that the valuation of closing stock was not acceptable. The CIT(A) allowed the appeal, noting that the assessee consistently followed Accounting Standard-2 for valuing closing stock at cost or net realizable value, whichever is lower. The CIT(A) cited the Rajasthan High Court's decision in CIT vs. Wolkem India Limited, which supported the valuation method adopted by the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the closing stock as the opening stock for the subsequent year and had not provided detailed reasons for rejecting the claim.

Issue 3: Disallowance of Written-off Salary Advance (?9,99,450)
The AO disallowed the salary advances written off, stating that the assessee failed to prove that the advances were given to employees and included in the income computation for earlier years. The CIT(A) upheld the disallowance, noting that the assessee did not provide details or names of the employees, their employment records, or the terms and conditions of the advances. The Tribunal agreed with the CIT(A) and dismissed the cross-objection of the assessee.

Conclusion:
The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The Tribunal found no merit in the revenue's appeal against the deletion of bad debt and loss of stock by obsolescence and upheld the disallowance of the written-off salary advance due to lack of sufficient evidence provided by the assessee. The order was pronounced in the open court on 23-09-2019.