9911796707
TMI Blog2019 (9) TMI 1485X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was included in computing the income of the assessee for earlier years and for the year under consideration. The assessee has failed to substantiate with relevant material that the salary advances were given to its employees employed with it. Disallowance on account of loss of stock by obsolescence - AO disallowed the claim of loss on account of absolescene of stock of fish stating that valuation shown by the assessee on the basis of stock or net realizing value cannot be accepted on the basis of evidence available on local sale account - HELD THAT:- As assessee has brought the unsold stock from the earlier years and no production of Surmai fish was made during the year under consideration. It is further noticed that the closing stock for the year under consideration has been accepted by the assessing officer as opening stock for the subsequent year without any variation. We observed that assessing officer has not elaborated the detailed reasons with specific finding for rejecting the claim of loss of stock by absolescence on account of unsold old stock of fish which are of perishable nature. We do not find any infirmity in the decision of ld. CIT(A) in deleting the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t debt has become bad. 5. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee by deleing the trade debt of ₹ 20,67,787/- after relying on the decision of Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT and deleted the disallowances out of advances written off to the amount of ₹ 787084/- after relying on the decision of Hon'ble Supreme Court in the CIT vs. Mysore Company Ltd. 46 ITR 649. Relevant part of decision of ld. CIT(A) is reproduced as under:- "3. 1 have carefully considered the submission of the appellant. The first issue raised before me is regarding disallowance of Bad debt and advances written off of ₹ 38,41, 247/- (₹ 20,67,787 being Bad Debts written off and ₹ 17,75,489/-being advances written off). I have considered the reason for disallowing the claim of Bad Debts mentioned by the AO in para no. 5 on page 6 of assessment order. The AO has disallowed an amount written off of ₹ 38,41,247/-. These amount comprises of ₹ 20,67,787/- being amount of debt arising out of sale of goods accounted for in earlier years. The assessing officer has disallowed this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, now the AO is not allowed to question the wisdom of the appellant and no demonstrative or infallible proof of bad debt having become bad is required. In the case the appellant submitted ledger account of respective years that the amount written of is a debt arising during the course of the business of the assessee which has been shown as its income and is written off in the books as it has become irrecoverable. Appellant also submitted that the transactions are 3 to 4 years older and is legally not enforceable and there are no chances of recovering these amounts. It is held by Supreme Court in Civil Appeal No. 5292 of 2003 in case of T.R.F. Limited vs. CIT, Ranchi that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Therefore in my view all the conditions laid down u/s 36 (1) (vii) rws 36(2) are satisfied and appellant is eligible for deduction of this amount as bad debts written off. I delete the addition of ₹ 20,67,787/- for disallowance of Bad Debts written off in the books of accounts of the appellant. Regarding addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10,192/- 4. Indo marine Cochin ₹ 3,00,000/- Having regards to all the circumstances I delete disallowance in case of above parties amounting to ₹ 7,74,084/-. However in the case of other parties where advance given to the parties for purchases of machinery spares, repairing etc, they are advances in the ordinary course of business however merely because the bills are not received they cannot be carried over to the next year and ultimately written off. In these circumstances it becomes prior period expenses and they are certainly not allowable in this year. Therefore disallowance to the extent of ₹ 10,01,407/- is upheld. 4. Second ground of appeal is regarding disallowance of salary advances written off of ₹ 9,99,450/-. The AO disallowed the salary advances written of stating that the appellant has failed to prove that the persons to whom the advances were given its employees and it is also not proved that same were included in computing the income of the assessee for and earlier year or year under consideration. Appellant before me submitted that the advances were given to employees in past. Those employees left job without refunding the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid decision of Hon'ble Supreme Court on identical issue and facts, we do not find any error in the decision of ld. CIT(A) in allowing the claim of advances written off to the amount of ₹ 7,74,084/- which were given in the ordinary course of business by the assessee. Accordingly, we do not find any merit in the appeal of the revenue and cross of the assessee, therefore, the cross objection of the assessee and appeal of the revenue both are dismissed. Second ground of cross objection of the assesse is pertaining to disallowance of written off salary advance of ₹ 9,99,450/- 7. During the course of assessment, the assessing officer has disallowed the salary written off stating that the asessee has failed to prove that the person to whom salary given were its employees and has also not proved that the same was included in computing the income of the assessee for earlier years and for the year under consideration. The assessee has failed to substantiate with relevant material that the salary advances were given to its employees employed with it. Therefore, we do not find any error in the decision of ld. CIT(A). Accordingly, this ground of cross objection is also dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered Accountants of India, the assessee is required to value the closing stock of the company at cost or Net Realizable Value which ever is lower. The Net Realizable Value as per principal of Accounting Standard is estimated selling price in the ordinary course of business less the estimated cost of completion and estimated costs necessary to make the sale. Net Realizable Value is estimated at each balance sheet date. The cost of inventories may not be recoverable if those inventories are damaged if they have become wholly or partly obsolete or if there selling price has declined. The cost of inventory may also not be recoverable if the estimated cost of completion or the estimated cost necessary to make the sale has increased. The practice of written down inventory below cost to net realizable value is consistent with the view of that asset should not be carried in excess of amount expected to be realized from their sale or use. For determining the Net Realizable Value in respect of stock sold by the date of signing of the accounts, the actual price should be taken for computing the net releasable value and for the stock not sold by the date of signing of the accounts, the net rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cence/damage/deterioration by efflux of time at cost and net realisation value, whichever is lower. It has also come on record that these items were 5-6 years old. It is a/so not disputed before this Court that the assessee had made the requisite efforts to dispose of the same. That apart, some of these items were actually sold in subsequent years at a price 8.43 percent of the cost. Thus, considering the totality .of the facts and circumstances, in our considered opinion the value of the stores inventory written down taken at 10 per cent of the cost by the CIT(A), cannot be faulted with." In the case of the appellant, kuttos are sold in AY 2007-08 and based on the amount realized on sales; same has been adopted as estimated Net Realisable value for the valuation of closing stock as at 31-3-2006. In the next year, opening stock of the appellant as well as the sales of finished goods as kuttos has also been accepted by the AO. As per the provisions of section 145A of the Act, income from business under the head "Profits and gains from business" has to be computed in accordance with the method of accounting regularly employed by the assessee and inventory shall be va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be accepted on the basis of evidence available on local sale account. It is brought to our notice that assessee has been consistently followed accounting Standard-2 for valuation of closing of stock at cost or net realizable value whichever is lower in accordance with the accounting standard referred in section 211(3E) of the Company Act, 1956. The detail of absolescene of stock along with detailed working were submitted before the assessing officer and CIT(A) at the time of hearing. The company has valued the stock at net realizable value on the basis of evidence available on the date of signing of the accounts and the actual price was taken for computing the net realizable sale value. The detail regarding opening stock purchase, sales and closing stock for F.Y. 2005-06 submitted by the assessee is reproduced as under:- Sl. No. Item Opening Stock Production during the year (Qty) Total Sales (Qty) Closing Stock (before obsolescence) Qty Rate Value Qty Rate Value 1 Shrimps 4780 110 5,25,800 0 4180 600 125 75,000 2 Cuttle Fish 9140 90 8,22,600 254300 262400 1040 97 1,00,880 3 Pomfret 640 160 51,200 600 20 172 3,440 4 Croaker 2840 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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