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TMI Blog2013 (10) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... rived at by the assessee as under :- Opening stock Rs.5,95,98,341/- Less : Closing stock Rs.1,78,80,891/- Balance Rs.4,17,17,450/- After considering the submission the AO found that the amount of Rs.5,95,98,341/- is carried forward in the balance sheet as stock in trade right from 31-3-2000 to 1-4-2005. The AO also noted that in none of the intervening years, the auditor's report or director's report, there is no mention of the status of the stock and its value. The claim of the assessee that the stock is damaged due to earthquake and this explanation of the assessee was not acceptable to the AO as in his view no credence in the absence of FIR filed with the police/local authority can be given. The AO was of the view that the valuation of closing stock at Rs.1,78,80,891/- is purely arbitrary and to suit the assessee's convenience. The AO also noted that there is no Board resolution to the effect or any documentary evidence to prove the genuineness of the decision to reduce the valuation of stock. The AO also noted that the assessee has made a sale of old stock at Rs.59,55,568/- is also arbitrary and has no basis. Therefore, the AO treated the variation of stock at Rs.53,28,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter considering the order of the AO, CIT(A) and submission of both the parties, we found no infirmity in the findings of the learned CIT(A). The findings of the CIT(A) have been recorded in para 5 to 5.1.3 at pages 4 to 7, which are as under :- "5. I have carefully considered the information on record. It was explained by the appellant that there was an earthquake on 26.01.2000 which had badly damaged the factory premises. It was further explained that due to dispute with the main purchaser namely RG. Holding, the appellant had to suffer serious set back in his business. Added to this due to failure to pay the bank loan, the bank authorities had kept the stock hypothecated to them under lock. As the stock was lying for 5 to 6 years it got seriously damaged. It was further submitted by the appellant that, it is only after verification of the stock by the bank authorities, they have agreed to one time settlement during the relevant previous year. It is important to reproduce the stock valuation report given by the bank authorities on 23.04.2005 which reads as under: Finished Goods: The finished goods were packed in the cartoons and it was explained by the official of the company t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. Therefore; these accessories cannot be utilized for manufacturing of the garments arid no value can be given to the same. In respect of one unit which was more or less not damaged and was in a very good condition, most of the stock was in a good condition except the stock lying on the top of the hips of the total stock: The condition of these stock was very good and were easily used for the manufacturing of garments, Considering the above facts, I give my findings are as under: a) Finished Goods. As per the statement given by the Company the finished goods were of Rs. 173 lakhs. These goods were lying in the cartoons as well as loose have no value and for working out the valuation of the same I put the value only at Rs. 1,00,000/- (Rupees one lakhs only). b) Semi Finished Goods (work in progress) as per the statement given by the company the value of the semi finished goods were of Rs. 38.9 lakhs. For the reasons stated in earlier paragraph, I value these goods at Rs. 50.000/- (Rs. Fifty Thousands only). c) Raw materials and Accessories - as stated earlier. Some of the stock from two units was usable and in respect of the one unit most of the stock can be used for manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... colour, there is no strength in cloth and are practically unfit for sale. It is also pertinent to mention that the appellant could not prevent the damage to the stock as the same was in the custody of the bank. In view of the above discussion the addition made by the AO on the ground that nothing is mentioned in the audit report or in the director's report and no police complaint was given are materially unimportant. Taking into account the totality of the fact that there was an earthquake in 2000, the stock was lying in the godown for 5 to 6 years and more particularly in view of the report given by the bank authorities after physical verification of the stock, the variation of stock made by the appellant is reasonable and the losses. in terms of reduction in stock has to be allowed to the assessee, hence the addition made by the AO of Rs.3,57,61,782/- is deleted." The above findings of the CIT(A) are findings of fact which are given after examining all the facts and taking into consideration the valuation adopted by the assessee and valuation adopted by the bank on 27-5- 2005. As per the written submission filed by the assessee, copies of this valuation were also filed before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e valuation report in contravention of Rule 46A. The findings of the learned CIT(A) are findings of fact which are given after ascertaining the factual matrix of the case, therefore, we see no reason to interfere in the findings of the learned CIT(A). Accordingly, we confirm the findings of the learned CIT(A) on the issue involved. 10. Next ground i.e. ground No.5 relates to allowing the valuation of stock at Rs.59,55,568/- as against determined by the AO to Rs.53,28,755/-. The AO did not accept the cost of goods sold by the assessee at Rs.59,55,568/-. He estimated the valuation of cost of material at Rs.53,28,755/- and made an addition of Rs.6,26,913/-. No reason was given by the AO for valuing the stock at Rs.53,28,755/-. Therefore, the CIT(A) accepted the contention of the assessee after examining all the details. The CIT(A) found that through four challans the sale was made for Rs.62,69,094/- and all these payments were received by the bank directly from the sister concern of the assessee as per agreement arrived at between the assessee and the bank. Accordingly, the CIT(A) noted that there was no reason assigned by the AO as to why the cost of goods was reduced and the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to various creditors was assessable under the head business income. 15. After considering the submission, we found no infirmity in the finding of the learned CIT(A). We are not understandable that how the amount which was waived by the bank was income from other sources as the loan was taken for the purpose of business activity only. The amount payable to various creditor were also on account of business activity. These amounts were offered under Section 41(1), therefore, there was no question of treating the same as income from other sources. Learned CIT(A) was right in holding that these receipts are business receipt and are assessable under the business income. Accordingly, we confirm the order of the learned CIT(A) in respect to these grounds also. 16. Grounds No.8 & 9, relate to directing the AO to allow the set off of income of the year against the carry forward loss of earlier years which include provision for bad debts. 17. The AO did not allow the set off of brought forward losses and unabsorbed losses for the reason that from the assessee's account, there is no business for the last 5 years, no depreciation was claimed for assessment years 2001-02 to 2005-06 and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at on account of old stock sold; the income has to be assessed as business income. No doubt, there was no use of machinery etc. in the year under consideration and, therefore, the depreciation of the year under consideration is not allowable, however, quantified brought forward business loss and unabsorbed depreciation can be set off against the business income as the business income shown by the assessee is on account of same business activity carried out in earlier years. Therefore, we are of the view that this decision of the Hon'ble Bombay High Court is not applicable. Similar facts are in other case i.e. in the case of Oriental Coal Co. Ltd (supra). Therefore, for the same reasoning, we hold that the ratio of this case is also not applicable on the facts of the present case. 21. In view of these facts and circumstances of the case, we hold that learned CIT(A) was justified in directing to allow the business loss and unabsorbed depreciation against the business income as per provision of law. This ground of department also fails. 22. Now, we will take up the appeal of the assessee i.e. ITA No.6662/M/2009. 23. Grounds No.1 & 2 relate to treating the bank loan written off of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et then the amount of loan, which was waived, was capital asset and, therefore, cannot be brought to tax. Accordingly, we direct the AO to allow this issue in favour of the assessee, if the amount of term loan of Rs.21,83,773/- was taken for the purchase of capital asset. The AO will verify and then rectify his order accordingly. 30. Regarding the remaining loan, we find that the decision of the Tribunal in case of M/s King Prawns Limited (supra), does not help the assessee. In this case, the Tribunal allowed the issue in favour of the assessee by ascertaining the fact that the bank loan which was waived, was capital in nature as the loan was used for the purpose of capital asset. However, in the present case, the loan was used for business activity. This fact has not been disputed even by the assessee. Therefore, the decision of the jurisdictional High Court in the case of Solid Container (supra), which has been followed by the CIT(A), squarely applies on the facts of the present case. Accordingly, we confirm the order of CIT(A) on the amount which was taken by the assessee from the bank on account of cash credit, packing credit etc. For the sake of clarification, the amount of R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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