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TMI Blog2016 (11) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in the earlier years when the erstwhile management of the assessee-company had shown the inventory in question as old and slow-moving stocks in the audited accounts for the year ended 31/03/2005,31/03/2006, 31/03/2007 and the accounts for the period ended on 31/08/2007. However, this loss was cristalised by valuation of non-moving and slow moving stock during the year under consideration, therefore assessee had correctly claimed the said loss during Assessment year 2008-09 under consideration. No justification for disallowing the loss claimed on account of valuation of obsolete/slow moving inventory - Decided in favour of assessee - ITA No. 3458/Mum/2013 - - - Dated:- 3-11-2016 - Shri R. C. Sharma, AM And Shri Sandeep Gosain, JM Assessee by : Shri Rajan Vora with Shri Hemen Chandaria Revenue by : Shri Neil Philip ORDER Per R. C. Sharma ( A. M ) This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2008-09 in the matter of order passed u/s. 143(3) of the IT Act. 2. The only grievance of assessee relates to addition made on account of loss on valuation of slow moving / non-moving items and old stock. 3. Ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, the business of Rubamin continued without disturbing its structure / identity and only the shareholding changed from one hand to another hand. 9. The inventories which were unusable and unmarketable were revalued by the assessee by writing down the value of old / slow moving inventories, such obsolete / non-moving inventories went on losing their values. This change in the value of old and slowmoving or obsolete inventories has been made bonafide aimed at obtaining true business profits and such method of valuation has been continued in the subsequent assessment years. Thus, the assessee company's claim of loss was bonafide and proper. The issue under consideration is squarely covered by the decision of Hon ble Supreme Court the case of Chainrup Sampatram v. CIT 24 ITR 481. 485. 487 (SC) wherein it was held that:- As the entry for stock which appears in a trading account is merely intended to cancel the charges for the goods purchased which have not been sold, it should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods which actually have been sold at the incorrect figure From this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the business, and the place of their accrual is where the business is carried on. As such profits can be correctly ascertained according to the method adopted by an assessee only after bringing into the trading account his closing stock wherever it may exist the whole of the profits must be taken 10 accrue or arise at the place of carrying on the business. Similarly, in the case of ClT v. British Paints (I) Lld 188 ITR 44 (SC) pg 75-81 - pgs 5-10 of the compilation], it was held- it is a well- recognised principle of commercial accounting to enter in the profit and loss account the value or stock-in-trade at the beginning and at the end or the accounting year at cost of market price, whichever is the lower. Where the market value has fallen before the date of valuation and. at that date, the market value of the article on that date is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he will probably incur at the time of the sale of the goods. 10. From the record we found that inventories belonged to the assessee-company. The purchaser, Lupin Ltd, only acquired the shares of the assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entories which were lying with Rubamin must have been discussed when the negotiations for purchase of stake in Rubamin started. 14. A.O. also observed that it is also not understandable as to what happened during 31/08/2007 to 26/09/2007 that the value of raw materials and WIP fell so much so that the value of inventories valuing ₹ 2,90,45,101/- had to be taken at NIL at the end of the financial year on 31/03/2008. 15. The Ld. A.O. has further observed that the reduction of ₹ 2,65,88,000/- may have occurred due to conversion of W1P into finished products or due to use of raw materials in production or due to writing down the value of inventory to Zero between the interval of 31/8/2007 and 26/9/2007. But at the same time the Ld. A.O. also observed that it is unable to comprehend as to what happened during this period which prompted the new management to take the value of raw materials and inventory amounting to ₹ 2,90,45,101 /- at Nil at the end of the financial year 31/3/2008 especially when these inventories were used for production in the subsequent assessment year. 16. It is a settled accounting principle that the valuation of inventory is made at cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss under Section 28 of the Act. 21. It is not the case of the AO that the assessee has not submitted any documentary evidence and the reasons for writing off the inventory in question. His case is that loss on inventory had already been incurred by the assessee in the earlier years when the erstwhile management of the assessee-company had shown the inventory in question as old and slow-moving stocks in the audited accounts for the year ended 31/03/2005,31/03/2006, 31/03/2007 and the accounts for the period ended on 31/08/2007. However, this loss was cristalised by valuation of non-moving and slow moving stock during the year under consideration, therefore assessee had correctly claimed the said loss during Assessment year 2008-09 under consideration. 22. Issue under consideration is also squarely covered by the decision of Jurisdictional High Court in case of Alpha Laval India Ltd., 133 Taxmann.com 740 wherein Hon ble Bombay High Court held that valuation of obsolete items made by the assessee is allowable as a business loss. 23. In view of the above discussion, we do not find any justification for disallowing the loss claimed on account of valuation of obsolete/slow movi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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