2019 (5) TMI 103 - AT - Income Tax

Addition account of reduced value of stock - old stock of so many years - HELD THAT - It is not in dispute that assessee-company has been following the method of valuation of closing stock at cost or market value, whichever is less. The assessee did not make any purchases in the year and considering the nature of item used in the business, it is clear that the items day to-day reduce in their value. Thus, the assessee was justified in selling the goods at a lower value year after year. When similar method of accounting have been employed by assessee in earlier year and similar addition have been deleted by the Tribunal in assessment year 2005-2006 2010 (8) TMI 1125 - ITAT DELHI , there was nothing wrong in the findings of the CIT(A) to have deleted similar addition. In the absence of any material on record in favour of the Revenue, no interference is called for in the matter. Revenue in the ground of appeal also stated that in assessment year 2005-2006, Revenue has not filed any appeal before the jurisdictional High Court because of the CBDT Circular. Stands proved that finding of fact in the impugned year have reached finality. In the absence of any contrary material on record, no interference is called for. The Departmental Appeal, therefore, stands dismissed. Addition being remission of liability - capital in nature - wavier of loan - HELD THAT - Hon ble Supreme Court in the case of Mahindra and Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT also held that Section 41(1) of the Income Tax Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter on record that the respondent has not claimed any deduction under section 36(1)(iii) of the Income Tax Act qua the payment of interest in any previous year . In the present case, the authorities below have not given any finding of fact whether the whole amount of loan had been utilised either for the purpose of acquiring a capital asset or for the purpose of business activity or trading activity. There is also no finding of fact whether assessee had claimed any deduction in respect of interest on loan in earlier years - restore the matter to re-decide the issue strictly in accordance with Law - Appeal of assessee is allowed for statistical purposes

Issues Involved:
1. Deletion of addition of ?67,83,571/- made by the assessing officer on account of reduced value of stock.
2. Addition of ?1,64,57,825/- as remission of liability under section 41(1) of the Income Tax Act.

Detailed Analysis of the Judgment:

Issue 1: Deletion of Addition of ?67,83,571/- on Account of Reduced Value of Stock

Background:
The Revenue challenged the deletion of an addition of ?67,83,571/- made by the assessing officer due to the reduced value of stock. The assessing officer noted that the value of certain chemicals shown in the closing stock was questionable as these items are perishable and could become waste over time. However, the assessee-company had shown the value of these items in the closing stock while valuing non-perishable items at NIL without providing a valuation report.

Assessee's Argument:
The assessee maintained that the method of valuing closing stock at cost or market value, whichever is less, was consistently followed. They argued that similar issues had been resolved in their favor in the assessment year 2005-2006 by the Tribunal. The assessee provided detailed stock valuation reports and sale bills during remand proceedings, which were verified by the assessing officer without any adverse comments.

Tribunal's Findings:
The Tribunal noted that the assessing officer had not made any adverse comments on the documentary evidence provided by the assessee during remand proceedings. It was established that the assessee had consistently followed the method of valuation of closing stock at cost or market value, whichever is less. The Tribunal upheld the CIT(A)’s decision to delete the addition, noting that similar additions had been deleted in the assessment year 2005-2006 and that the Revenue had not appealed against this decision. Consequently, the Departmental Appeal was dismissed.

Issue 2: Addition of ?1,64,57,825/- as Remission of Liability

Background:
The assessee challenged the addition of ?1,64,57,825/- as remission of liability, arguing that it was capital in nature. The assessing officer had added this amount under section 41(1) of the Income Tax Act, considering it as cessation of liability.

Assessee's Argument:
The assessee contended that section 41(1) applies only to trading liabilities and not to capital liabilities. They argued that the waiver of the loan under the One Time Settlement Scheme with the State Bank of Bikaner and Jaipur should not be taxed under section 41(1) as it was not a trading liability. The assessee relied on the Supreme Court judgment in the case of CIT vs. Mahindra and Mahindra Limited, which held that waiver of loan does not amount to cessation of trading liability.

Tribunal's Findings:
The Tribunal observed that the authorities below had not provided a clear finding on whether the loan was utilized for acquiring a capital asset or for business/trading activities. It was also not clear whether any deduction for interest on the loan had been claimed in earlier years. The Tribunal, therefore, set aside the orders of the authorities below and remitted the matter back to the assessing officer for reconsideration in light of the Supreme Court judgment in the case of Mahindra and Mahindra Limited. The assessing officer was directed to re-decide the issue strictly in accordance with the law, providing reasonable opportunity for the assessee to be heard. Consequently, the assessee's appeal was allowed for statistical purposes.

Conclusion:
- The Departmental Appeal regarding the deletion of the addition of ?67,83,571/- was dismissed.
- The Assessee’s Appeal regarding the addition of ?1,64,57,825/- was partly allowed for statistical purposes, with the matter remitted back to the assessing officer for reconsideration.

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