2009 (1) TMI 94 - HC - Income Tax

Loss shown under the head Stock-in-Trade difference in value of stock - assessee s explanation that the stock had deteriorated within one accounting year to the extent of Rs.8,00,000/-, is not acceptable - finding of the Assessing Officer is that there was no evidence for the sudden drop in the value during the accounting period in question, is justified - since loss was on capital account, authorities were justified in coming to the conclusion that the said loss was not an allowable loss

Summary

Issues:
1. Disallowance of Rs.8,00,000 on account of alleged difference in value of stock.

Analysis:
The appellant questioned the sustainability of the Tribunal's restoration of disallowance of Rs.8,00,000 on the grounds of alleged difference in value of stock for the Assessment Year 2004-2005. The respondent, engaged in construction business, re-valued the stock-in-trade and work-in-progress, resulting in a decrease from Rs.9,00,000 to Rs.1,00,000, with Rs.8,00,000 debited to Profit & Loss A/c. The Assessing Officer disallowed the loss under "Stock-in-Trade," rejecting the explanation of stock deterioration provided by the assessee.

The matter proceeded to the Commissioner (Appeals) where the assessee succeeded. However, the Tribunal, in the revenue's appeal, upheld the Assessing Officer's decision, deeming the loss as on capital account due to no business closure. The appellant contended that the Tribunal erred in this classification as there was no business closure, and the valuation method for closing stock had remained consistent, following cost or net realization value, whichever was lower.

Regarding the closure of business, it was noted as a factual determination based on evidence and record facts, subject to rectification if found incorrect. The method of closing stock valuation remained undisturbed by both the Assessing Officer and the Tribunal. The Assessing Officer's finding highlighted the lack of evidence supporting the sudden Rs.8,00,000 valuation drop within one accounting year.

The explanation provided by the assessee indicated a gradual decrease in stock valuation over time, culminating in a significant fall in the seventh year. Despite the consistent valuation method, the absence of evidence for the abrupt valuation drop during the relevant accounting period led the authorities to conclude that the loss was not allowable for the year under review. Consequently, as no substantial question of law arose from the Tribunal's order, the appeal was dismissed.