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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 ..... 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 appreciating the facts that the valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 valuation of electrical goods. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty 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, the Revenue is in appeal before us. 4. We have heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 earlier year as opening stock. If the stock is actually value-less, it is to be written off as a revenue loss not by deducting from the opening stock. The assessee further has not shown any correspondence with M/s. Surya Electrical Industrial Corporation Ltd.; regarding defectiveness in the stock in the last 5 years. There is no iota of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting 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, which the assessee might to choose to adopt to meet its liability on account of trade creditors. The treatment, he would receive under the income-tax would depend upon the method adopted by him. The assessee can pay the liability as per his books of account or the assessee write back the same at his option or with the consent of the creditor. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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