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TMI Blog2019 (7) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee in entirety when tested on the touchstone of evidences in this regard. However, keeping in mind the narrative of the assessee and difficulty posed in furnishing objective justification of many items in practice, we consider it appropriate to assume loss on account of obsolete item at 5% of the closing stock to be fair and plausible which works out to ₹ 58,65,680/-. The assessee thus gets relief to this extent. It shall be open to the assessee to make amends in the opening stock of subsequent financial year in accordance with law. While holding so, we are not inclined to discuss various case laws cited on behalf of the assessee which are rendered in totally different facts. Disallowance of bad debt written off in respect of excise duty refund - HELD THAT:- We find merit in the claim of the assessee. The excise duty received as refund naturally forms part of the revenue operations of the assessee. The version of the assessee has been confirmed by the Auditors requires to be ordinarily believed. The action of the Revenue authorities are accordingly reversed. Disallowance u/s 14A - disallowance to extent of the exempt income - HELD THAT:- Disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion during the year under consideration. It be so held now. 4 Ld. CIT (A) erred in law and on facts in confirming adhoc disallowance of interest expenses estimating 10% of WIP value u/s 36(1)(iii) of the Act. Ld. CIT (A) further erred in law and on facts in directing AO to allow depreciation on capitalized interest in the year in which capital asset is put to use. Ld. CIT (A) ought to have allowed depreciation during the year. 5 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO on account of bad debts of ₹ 2,68,465/- written off in respect of excise duty refund. Ld. CIT (A) ought to have deleted disallowance. It be so held now. 6 Ld. CIT (A) erred in law and on facts in restricting disallowance made by AO to ₹ 19,216/- for earning exempt income of ₹ 1134/- u/s 14A of the Act. Ld. CIT (A) ought to have deleted disallowance in absence of any expenses incurred by the appellant to earn exempt income. 7 Ld. CIT (A) erred in law and on facts in confirming action of AO making adjustment in book profit by amount of addition made u/s 14A of the Act. Ld. CIT (A) ought to have deleted s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l relatable to FY 09-10 concerning AY 2010 11 or other period. The AO further noted that inventory was valued at full cost till last year without any write off and therefore it was for the assessee to show that the material has turned obsolete and rendered unusable during the FY 2009-10 in question. In the absence of any technical report or certificate from competent authorities for identification of non-moving items or obsolete items, the AO rejected the claim of loss made by the assessee and consequent lowering of closing stock owing to such obsoletion. The taxable income was consequently increased to the extent of ₹ 1,00,68,057/-. 6. Aggrieved, the assessee preferred appeal before the CIT(A). 7. The CIT(A) re-visited the submissions made on behalf of the assessee as reproduced in para 4.2 of its order but found little merit in the claim of loss resulting from write off of value of inventory. The conclusion drawn by the CIT(A) on the issue is reproduced hereunder for ready reference: 4.3. I have considered the facts of the case, the submission made by the appellant and the AO's observations. A perusal of the Audit Report in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h stock at nil means that the appellant is claiming business loss u/s 28 of the IT Act, 1961 on account of such action. Under such circumstances, the appellant has to establish that the value of such stock become nil in the year in which these were valued at nil amount and not in any preceding year or subsequent year. This is, as per the ratio laid down by the Hon'ble Supreme Court of India in the case of Glass Miniature Bulb Industries 204 ITR 352 (SC), Hence, the claim of the appellant is not allowable. Accordingly, the AO's action of making disallowance of this amount is upheld and this ground of appeal is dismissed. 8. Aggrieved by the endorsement of the action of the AO by the CIT(A), the assessee preferred appeal before the Tribunal. 9. The learned AR for the assessee broadly reiterated various submissions made before the lower authorities. It was contended that material used in pharmaceutical industry are typical and is rendered unusable with the efflux of time. The loss arising from obsoletion of material is a normal incidence of the business of the assessee. The learned AR submitted that the loss towards obsolete stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 1,00,68,057/-. The assessee has explained that the write off is mainly on account of obsolete items identified by the assessee to be nom moving and unusable and having regard to the typical character of pharma companies. Accordingly, the assessee has reduced the value of closing stock towards obsolete material recognized by it. The AO held that the assessee has neither furnished the supportive documents for claiming such loss on account of obsolete items nor produced any record to show that items were not moving. The AO accordingly denied the loss claimed on account of such obsoletion. 11.2 We pause here to note that there can be no dispute that the assessee is entitled to value the closing stock at market value or at cost whichever is lower in tune of recognized accounting policies. However, the question arises as to whether the action of the assessee in declaring a list of certain items to be unfit and non-usable for the purpose of its ongoing business is justified and supportable. In this context, while we note that having regard to the special nature of material claimed to be used in pharmaceutical industries which are of sensitive nature, some obseleti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficulty posed in furnishing objective justification of many items in practice, we consider it appropriate to assume loss on account of obsolete item at 5% of the closing stock to be fair and plausible which works out to ₹ 58,65,680/-. The assessee thus gets relief to this extent. It shall be open to the assessee to make amends in the opening stock of subsequent financial year in accordance with law. While holding so, we are not inclined to discuss various case laws cited on behalf of the assessee which are rendered in totally different facts. 12. Consequently, grievance of the assessee is partly accepted. 13. Ground Nos. 1 to 3 are thus partly allowed. 14. Ground No. 4 concerns disallowance of interest expenses under s.36(1)(iii) of the Act amounting to ₹ 5,43,456/-. 14.1 The learned AR for the assessee fairly submitted that owing to the smallness of the amount, it does not seek to press the grievance. 14.2 Ground No.4 of the assessee s appeal is dismissed. 15. Ground No.5 concerns disallowance of bad debt written off amounting to ₹ 2,68,465/- in respect of excise duty refun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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