9911796707
TMI Blog2023 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before him. 4. The Commissioner of Income Tax - Appeal ought to have allowed the depreciation as the appellant had temporarily suspended its' manufacturing operations. 5. The Commissioner of Income Tax - Appeal ought to have appreciated the fact that the appellant had enough unabsorbed brought forward business / depreciation loss and adjusted the same against the income. 6. The Appellant craves leave to add, amend, alter and withdraw any of the grounds of appeal." 3. The brief facts of the case are that, the assessee company is in the business of manufacturing of cotton yarn and knitted fabrics, filed its return of income for the assessment year 2013-14 on 22.09.2013, declaring net loss of Rs. 2,55,24,649/-. The case was taken up for scrutiny, and during the course of assessment proceedings, the Assessing Officer noticed that during the financial year relevant to assessment year 2013-14, the assessee is having only trading activity. The gross receipt from trading was at Rs. 10.46 crores, as against this, the assessee claimed trading expenses of Rs. 9.93 crores. It was further noted in addition to trading receipts, the assessee has claimed huge amount of other expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a steady movement of the inventory viz., cotton right from 2004 tilt 2011. The stork at dose as on 31.3.2005 and 31.3.2006 were only Rs.11.52 crores and Rs.11.34 crores respectively, It the inventory of cotton purchased during. 2004 to 2006 remained unutilized, then the dosing stock of these years would be more or at least equal to Rs. 16.96 crores and cannot be less than Rs.16. 96 crores. * Further, in consumption of inventory, particularly that of perishable items like cotton, First-in-First-out (FIFO) method would be followed. from the annexure, it can be seen that during the year ended 01.3.2005 and 31.3.2009, the consumption was much higher than the purchases during the year. This implies that stock at commencement was fully consumed in these years, as per FIFO method. The stock at close as on 31.3.2009 was Rs.11. 32 crores. Thus, there is no force In the assessee's argument that inventory of cotton procured during 2004 to 2006 to the tune of Rs. 16.96 crores remain unutilized. * The assessee claims that production of yarn was suspended in July 2011. However during that year, viz., 2011-12, purchases were claimed to be made to the tune of Rs.8.09,38,321, inspite of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significant event. * Most importantly, the assessee company is a widely held company, listed in stock exchange. The alleged write off of inventory to the tune of Rs.16.96 crores is a major significant event whi.ch is required to be reported to the shareholders in the Annual Report. There is no such mention about write off/ of inventory in the Report to Shareholders. 2.3. The reason for such a write off of stock is not far to seek. During the relevant previous year, the assessee sold two pieces of vacant land at Chengalpattu for a total consideration of Rs.22,83,02,899. After reducing indexed cost of acquisition, the net long term capital gains was arrived at Rs.21,24,10,447. This long term capital gain was entirely set off against current year's business loss of Rs.23,79,35,096. And a substantial portion of the current year business loss is due to the alleged write off of stock of Rs. 16,96,24,334. Many gaping holes have been punched into the theory of the assessee that leave me with the conclusion that the write off of stock in an unproven claim. The write off of stock is only an attempt to offset the legitimate taxes due on the windfall profit arisen to the assessee on sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I followed it did not say the method followed by it. The appellant had not furnished the details of stock written off countwise to cross verify whether the said count of yarn was used subsequently or whether it was not fit for use. Though the insurance was against fire accident, whether the Insurance authorities inspected the stock and got satisfied with the value of Rs.20 cr. was not made clear. The appellant was not able to state as to what really happened to the alleged stock written off; whether it was destroyed or sold as scrap etc. The shareholders of the company which is listed company were not informed about the write off or such huge sum. Though in the advertisement for the Q3 published it was claimed to have stated the write off, similar statement is absent in the final accounts submitted to the shareholders in the Annual general body meeting. The Company Secretary was authorized to report the fact of write off to the stock exchange and Company Law Board according to the appellant but whether the Company Secretary had in fact reported the matter or not was not known. The appellant could not produce the stock book on the plea that there was theft in the factory premises. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite off of inventory and consequent loss. Therefore, the AO and CIT(A) completely gone wrong in observing that the assessee could not file necessary evidence to prove the claim of loss on inventory written off. 7. The Ld. DR on the other hand supporting the order of the CIT(A), submitted that facts brought out by the AO and CIT(A) clearly prove the intent of the assessee as per which for the impugned financial year relevant to assessment year 2013-14, the assessee has derived LTCG from sale of property and to offset said capital gains, the assessee has declared business loss by debiting written off inventory. Therefore, the AO and CIT(A) clearly held that the assessee has made tax planning to avoid payment of tax on capital gains and thus, their order should be upheld. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The AO had given various reasons to disallow loss incurred on account of inventory written off, and according to the Assessing Officer, the claim of the assessee that stock of cotton pertains to purchases made in the years 2004-05 & 2005-06, is not supported by any evidence. The AO had also dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock written off pertains to financial years 2004-05 & 2005-06 is devoid of merits. Further, the assessee has written off 100% inventory of cotton held and the value of said inventory is very high. When the assessee is taking such a drastic decisions which impacts its financial decision, it needs to report to the concerned authorities and also required to take approval from the Board of Directors and audit committee. In this case, although assessee claims that it has reported inventory write off to the shareholders in published quarterly financial report, but the CIT(A) recorded categorical findings that similar statement is absent in the final accounts submitted to shareholders in the annual general body meeting. Further, there is no iota of observations by the auditors in their auditors report submitted to the Board of Directors for the financial year 2012-13, even though, there is a requirement of law to report any adverse movement in inventory valuation. The CIT(A) made further observations that the assessee could not file any evidence to prove that whether any report has been submitted to stock exchange and SEBI on this issue. We further noted that the assessee has taken a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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