2021 (1) TMI 889 - HC - Income Tax

Disallowance on account of advances written off - Tribunal confirming the decision of CIT(A) deleting the disallowance - HELD THAT - Addition on account of advances written off indisputably an amount of advance was given in the ordinary course of business to persons like fishermen etc. for the procurement of raw material and labour work. No error in the decision of ld. CIT(A) in allowing the claim of advances written off to the 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 Disallowance on account of claim loss of stock by obsolescence - no quantitative details in respect of obsolescent stock was available with the assessee - Tribunal confirming the decision of CIT(A) deleting the disallowance - HELD THAT - It is brought to our notice that assessee has been consistently followed accounting Standard 2 for valuation of closing of stock at cost or net realizable value whichever is lower in accordance with the accounting standard referred in section 211(3E) of the Company Act, 1956. The detail of absolescene of stock along with detailed working were submitted before the assessing officer and CIT(A) at the time of hearing. The company has valued the stock at net realizable value on the basis of evidence available on the date of signing of the accounts and the actual price was taken for computing the net realizable sale value - In view of the aforesaid findings of fact recorded by the Tribunal, we see no good reason to entertain this appeal.

Summary

Issues:
1. Disallowance of advances written off
2. Disallowance of claim loss of stock by obsolescence

Analysis:

Issue 1: Disallowance of advances written off
The Tax Appeal under Section 260 of the Income Tax Act, 1961 was filed by the Revenue against the order of the Income Tax Appellate Tribunal. The Revenue raised two questions of law for consideration by the Court. The first question pertained to the disallowance of ?7,74,084 out of a total disallowance of ?17,75,489 made on account of advances written off. The Tribunal, after considering relevant judicial findings, upheld the decision of the CIT(A) in deleting the addition of ?20,67,787 pertaining to trade bad debt. Regarding the addition of ?17,75,489 on account of advances written off, the Tribunal found that an amount of advance of ?7,74,084 was given in the ordinary course of business for procurement of raw material and labor work. The Tribunal referred to a Supreme Court decision related to a similar issue and concluded that there was no error in allowing the claim of advances written off. The Court noted the concurrent findings of the two Appellate Authorities and upheld the decision, dismissing the appeal of the Revenue.

Issue 2: Disallowance of claim loss of stock by obsolescence
The second question raised by the Revenue concerned the disallowance of ?3,88,28,010 on account of claimed loss of stock by obsolescence. The Tribunal noted that the assessing officer disallowed the claim based on the valuation shown by the assessee regarding the stock's net realizable value. However, the assessee followed accounting Standard-2 for stock valuation, as per the Company Act, 1956. Detailed workings and evidence were submitted before the assessing officer and CIT(A) regarding the obsolescence of stock. The company valued the stock at net realizable value based on available evidence on the date of account signing. Considering these facts, the Tribunal found no reason to entertain the appeal, and consequently, the appeal was dismissed.

In conclusion, the High Court upheld the decisions of the Appellate Authorities regarding both issues raised by the Revenue, resulting in the dismissal of the appeal.