2019 (1) TMI 1207 - AT - Income Tax

Disallowance of trading loss claimed on sale of stock - addition on the ground of genuineness and as being unsubstantiated - alternative claim of the assessee made u/s. 32(1)(iii) also not acceptable - Held that - The assessee had stopped his business since long back and during the impugned year, the assessee sold some goods which were lying with him. There is no dispute on the opening stock as on 01.04.2005. The dispute is only for the assessee had sold old items only on losses of ₹ 77,10,789/-. AO has pointed out many discrepancies in the documents submitted by the assessee, but he accepted the cash book submitted by the assessee and closing balance shown in the cash book are in agreement with the financial statement of the assessee. The financial statements have been accepted by the Assessing Officer. It is clear from the submissions of the assessee that the goods which have been sold were very old. When the stock sold was very old, it is not strange to sell them at reduced rate. The Assessing Officer has no authority to compel the assessee as to at which rate, an assessee has to make sale of his goods. Considering the facts and circumstances of the case of the assessee, ground No. 1 of the assessee is allowed. Carry forward of short term capital loss on sale of fixed asset - Held that - Short term capital loss was claimed by the appellant on account of sales of plant & machinery, therefore, the onus was clearly on the appellant to prove with corroborative evidence the transaction of sale to substantiate the claim of loss. In the absence of corroborative evidence, the disallowance made by the AO is fully justified. Further, the submission that deficiency is fully allowable to the assessee u/s 32(l)(iii) and to this extent the return may be deemed to have been revised, is not sustainable. Because neither the claim was made filing a valid revised return within 31.03.2008 nor it a legal claim on the facts of the case. In view of the above, the disallowance made by the A.O. is fully justified. Therefore, appeal failed on this ground.

Summary

Issues Involved:
1. Sustaining of disallowance of trading loss of ?77,10,789/-.
2. Sustaining of disallowance of short-term capital loss of ?26,35,659/-.
3. Alternative contention for deduction under section 32(1)(iii) for the discarded and written-off fixed asset.

Detailed Analysis:

1. Sustaining of Disallowance of Trading Loss of ?77,10,789/-
The assessee filed a return of income for the assessment year 2006-07, declaring a business loss and short-term capital loss. The Assessing Officer (AO) scrutinized the return and found discrepancies in the trading account. The AO noted that the assessee sold stock worth ?1,13,94,351/- for ?36,63,562/-, resulting in a trading loss of ?77,10,789/-. The AO issued a show-cause notice questioning the genuineness of this loss, given the rising trend in gold prices. The assessee explained that the stock consisted of old, out-of-fashion jewelry pieces, sold at a distress sale. However, the AO was not convinced due to the lack of supporting evidence such as a stock register and discrepancies in the submitted bills. Consequently, the AO added the trading loss to the total income.

Upon appeal, the Tribunal noted that the assessee had stopped its business long ago and sold old stock during the impugned year. Despite discrepancies in the documents, the Tribunal accepted the cash book and financial statements. It was acknowledged that selling old stock at a reduced rate is not unusual. The Tribunal held that the AO has no authority to dictate the sale price of goods and allowed the trading loss of ?77,10,789/-.

2. Sustaining of Disallowance of Short-Term Capital Loss of ?26,35,659/-
The AO also scrutinized the short-term capital loss claimed on the sale of fixed assets, amounting to ?26,35,659/-. The assessee claimed that the fixed assets, in scrap condition, were sold to junk dealers for ?53,000/-, with a written-down value (WDV) of ?26,88,660/-. The AO disallowed the carry forward of this loss due to the non-filing of the return as prescribed under section 139(1) and the lack of details about the purchasers. The AO cited the Supreme Court decision in Goetze India Ltd. vs. CIT, which mandates filing a revised return for such claims.

The Tribunal upheld the AO's decision, noting that the assessee failed to provide corroborative evidence for the sale of fixed assets. The Tribunal found no infirmity in the AO's decision to disallow the short-term capital loss due to the absence of supporting documentation and the non-filing of a revised return.

3. Alternative Contention for Deduction Under Section 32(1)(iii)
The assessee alternatively contended that the fixed assets, being discarded and written off, should be allowed as a deduction under section 32(1)(iii). The AO rejected this claim, stating that the assessee did not file a valid revised return within the stipulated time. The Tribunal concurred with the AO, emphasizing that the claim was not sustainable without a valid revised return and corroborative evidence.

Conclusion:
The Tribunal allowed the appeal regarding the trading loss of ?77,10,789/-, recognizing the distress sale of old stock. However, it upheld the disallowance of the short-term capital loss of ?26,35,659/- and rejected the alternative claim under section 32(1)(iii) due to procedural lapses and lack of evidence. The appeal was thus partly allowed.