2020 (4) TMI 330 - AT - Income Tax

Disallowance of obsolete inventory written off - no justification was given for inventories becoming obsolete and also believes that the same should have been written off gradually - HELD THAT - A perusal of the record would indicate that basically the assessee has written off its inventory on the ground that such inventory has become obsolete; but when the Assessing officer has enquired to submit the supporting details, what is the nature of inventory, what is the shelf-life, how it became obsolete, then nothing was produced. In other words, the assessee should produce the details of inventory, year of manufacturing/purchase, how it is to be used and how it can be construed that it has no value. Since the assessee failed to give any such details; therefore, the Assessing Officer has disallowed it. There is no disparity on facts from Assessment Year 2005-06 to this year when similar disallowance was upheld upto the Tribunal in the findings extracted supra. Therefore, we do not find any merits in this ground of appeal; it is rejected. Disallowance of prior period expense - HELD THAT - Case of the assessee is that certain expenditures were crystallized during this year and, therefore, deduction of such expenditures deserves to be allowed to the assessee. The learned First Appellate Authority has recorded a categorical finding that these expenses have not been crystallized or pertaining to this year and they cannot be allowed in this year. After going through the well reasoned findings of the learned CIT(A), we do not find any error in it. Hence, this ground of appeal of the assessee is also rejected.

Summary

Issues:
1. Disallowance of ?1 crore as obsolete inventory written off.
2. Disallowance of ?22,84,056 on account of prior period expense.

Issue 1: Disallowance of ?1 crore as obsolete inventory written off:
The assessee appealed against the disallowance of ?1 crore for writing off obsolete inventory. The assessee argued that the inventory was outdated, and justification was provided for its obsolescence. The inventory was valued according to AS2, and gradual writing off would go against accounting principles. The Assessing Officer disallowed the claim, stating lack of evidence for under-valuation of stock. The CIT(A) upheld the disallowance citing lack of technical reports and evidence to support the claim. The ITAT also confirmed the disallowance, noting absence of supporting evidence and upheld the decision. The Tribunal emphasized the need for detailed inventory information and upheld the disallowance.

Issue 2: Disallowance of ?22,84,056 on account of prior period expense:
The assessee contested the disallowance of ?22,84,056 as prior period expense. The CIT(A) confirmed the disallowance, stating that expenses from FY 2005-06 cannot be claimed in AY 2007-08. Regarding purchases, the appellant failed to demonstrate receipt of goods in stocks during FY 2006-07, leading to disallowance. The disallowance of bank charges was upheld as the shortfall in receipts was accounted for in books after the finalization for AY 2007-08. The CIT(A) rejected the appellant's claim for deductions due to insufficient evidence. The ITAT upheld the CIT(A)'s findings, stating that the expenses were not crystallized in the relevant year. Consequently, the ground of appeal was dismissed, and the appeal of the assessee was ultimately rejected.

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