9911796707
TMI Blog2016 (11) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... he year, the assessee has claimed loss of Rs. 2,90,45,101 on account of writing down the value of slow moving / old / obsolete inventory. During the course of scrutiny assessment, AO made additions on account of disallowance of loss claimed on valuation of slow moving items and old stock. 5. It was submitted before the AO that assessee M/s Novadigm Limited till 01.04.2009 was a 100% subsidiary of M/s Lupin Limited. It was further informed that vide its order dated 06.05.2010, the Honorable Gujarat High Court has given its sanction for the amalgamation of M/s Novadigm Limited with M/s Lupin Limited with effect from 01.04.2009. Pursuant to the Share Purchase Agreement dated 26/9/2007, Lupin acquired Rubamin Laboratories Limited (now known as Novodigm Ltd and since merged with Lupin Limited) by way of purchase of 100% equity of the company from its erstwhile promoters / owners. 6. In the course of the assessment proceedings, it was found that the main reason for the fall in the gross profit margin was that the new management of the company had valued inventories of raw materials and WIP of Rs. 2,90,45,101 at ZERO. The AO did not accept the assessee's contention and declined loss on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of the goods in question. While anticipated loss is thus taken into account. anticipated profit in the shape of appreciated value of the closing stocks is not brought into account as no prudent trader would care to show increased profit before its actual realization. This is the theory underlying the rule that closing stock is to be valued at cost or market price whichever the lower is, and it is now generally accepted as an established rule of commercial practice and accountancy. This is the theory underlying the rule that the closing stock is to be valued at cost or market price, whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's account in a business that is continuing are not brought into the charge as a matter of practice though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so found that he assessee-company with the help of photographs, inventory statements of earlier years i.e.,31/3/2006 and 31/3/2007, destruction records of inventories, etc., has clearly demonstrated before the lower authorities that the inventories in question were partly old and unusable and mainly obsolete. The erstwhile promoters / owners of the assessee-company also admitted to this fact by agreeing to receive reduced purchase consideration for sale of their shareholding. 12. Allegation of the AO is that some part of the inventory was sold in the succeeding year, for an amount of Rs. 1,32,551/- which constituted only 0.456% of the non-moving inventory. We found that against the sale price no cost was claimed. The entire sale consideration was offered by assessee to tax in A.Y.2009-10. Therefore, there was no loss to the Revenue. We also found that the cost of inventory used in F.Y.2008-09 was just Rs. 1,01,854/- and constituted a mere 0.351 % of the entire non-moving and old inventory. Further, this amount was not charged to the profit and loss account as the cost of material used was taken as zero. This ultimately increased the sales realization amount and thereby the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valued at cost (being lower than the net realisable value) by the erstwhile management in all the preceding assessment years including the accounts prepared for the period ended on 31/8/2007. It was only when the due diligence was carried out by the present owner the erstwhile owner accepted that the inventory in question may not have the realisable value and accordingly they agreed to receive the further consideration only when the inventory in question was realised from sale or captively consumed on or before 31/12/2007. 18. From the record we found that the inventory in question was neither written off / written down nor shown as slow moving or old inventory in earlier assessment years including the accounts for the period ended on 31/08/2007 prepared by the erstwhile management. Since present management of the assessee-company and the auditors were of the opinion that since the inventory in question was slow / non-moving and old, its value was to be thus written down / the inventory was to be written off in the audited accounts for the period ended 26/09/2007,as it had no realisable value. And such write-off / writing down in the value to Zero on 26/9/2007 itself was strictly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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