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TMI Blog2008 (11) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the addition of Rs. 21,09,745 made on account of reduction of opening and closing stock without appreciating the facts that the entire value of stock taken over must have been claimed as a deduction at the time of transfer of stock. 2. That in the facts and circumstances of the case, the ld. CIT(A) has erred in law in deleting the addition of Rs. 21,09,745 without appreciating the facts that the Assessing Officer in his assessment order had elaborately discussed the reasons for which the Assessing Officer concluded that the assessee was not in possession of 75 tonnes of defective stock. 3. That in the facts and circumstances of the case, the ld. CIT(A) has erred in law in deleting the addition of Rs. 21,09,745 without appreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical Industrial Corporation Ltd. at Rs. 21,09,745 and by crediting the opening stock. In other words, the assessee reduced the liability due to M/s. Surya Electrical Industrial Corporation Ltd. at Rs. 21,09,745 and also reduced the opening stock by an equal amount. The explanation of the assessee is that the assessee has purchased stock from M/s. Surya Electrical Industrial Corporation Ltd. in September, 1998 and the stock become bad and having no value consequently remained unused and in the assessment year under consideration, the stock was revalued and corresponding entry was made as stated above. To support the valuation, the assessee produced certificate from Sh. R.K. Jain, Civil Engineer, who is non-competent and unauthorised to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( iv )M/s. Surya Industrial Corpn. Ltd., being related party did not question the revaluation of its sold raw-material even after more than 5 years of sale and delivery. Thus, he invoked the provisions of section 41(1) and made an addition. On appeal, the learned CIT(A) deleted the addition by observing that section 41(1) has no application since there is no question of liability being claimed earlier and now being reduced. The stock was claimed to be unused since 1998 has not formed part of consumption of raw-material debited in the profit loss account of any year in the past and there is no reduction in the liability. Hence, according to the ld. CIT(A), there is no question for application of section 41(1). Aggrieved, by this order, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 7677039.59 9786784.59 8568062.69 10677807.69 G.P. 891023.10 891023.10 The above trading account is fully misleading because the stock which said to be having no value has been purchased by the assessee in September, 1998. The contention of the assessee that for the last five years, it has been appearing in the closing stock and it has been considered for determining the trading results. If the impugned stock has been dead stock, why the assessee has carried forward stock year to year for the last five years and why the assessee has not written off that stock . Further, it is not correct to write off the stock, which is carried forward from ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Surya Electrical Industrial Corporation Ltd. There is direct reduction in the liability and the liability ceased to be exist. Since the liability is ceased to exist and the amount has already been taken into account in earlier year, section 41(1) is directly applicable and the Assessing Officer is justified in invoking the provisions of section 41 of the Income-tax Act, 1961. 4.1 Section 41(1)( a ) of the Income-tax Act reads as follows: "(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, ( a )the first-mentioned person ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, according to the Revenue is that it is a case of cessation of trading liability. On the other hand, the contention of the assessee is that there is no cessation of trading liability since the goods are defective, as such adjustment entry was passed. Further, the contention of the assessee is that the assessee is following mercantile system of accounting and decided to write off the defective goods by crediting opening stock and debiting the outstanding dues to M/s. Surya Electrical Industrial Corporation Ltd. at Rs. 21,09,745 and this action of the assessee according to the counsel of the assessee cannot amount to cessation of liability. In our opinion, the contention of the assessee is not tenable in law, as there are several methods, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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