The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has set aside the appellate order and allowed the deduction of Rs. 52,51,027 in respect of traded goods written off on account of damaged, obsolete, or expired stock.
The assessee, Nihon Parkerizing ( India ) Pvt. Ltd., filed an Income Tax Return ( ITR ) declaring total income at NIL by claiming the current year’s loss at Rs. 10,75,89,514/-. for the Assessment Year 2013-14. The assessee’s case was selected for scrutiny through CASS, and they received a notification under section 143(2) of the Income Tax Act, 1961. The assessee received both the notice and questionnaires under section 142(2) of the act.
The assessment order was passed by disallowing the expenses claimed under Section 40a (ia) of the Income Tax Legislation of Rs. 16,38,113/- in costs claimed under Section 40a(ia) of the income tax statute, as well as disallowed Rs. 10,00,000/- for bad debts and also disallowed Rs. 52,51,027/- for inventory returns of income.
The Income Tax assessment order came to be passed by disallowing the expenses claimed under Section 40a (ia) of the Act of Rs. 16,38,113/- further disallowed the provision of bad debts return of Rs. 10,00,000/- and also disallowed the provision for inventory return of income of Rs. 52,51,027/-. The assessee who was aggrieved by the above order, dated 30/12/2016 filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].
The CIT(A) affirmed the disallowance of Rs. 52,51,021/- for written-off traded goods, as well as the non-deduction of tax under Section 40(a)(ia). Being aggrieved by the Income Tax Commissioner of Appeals’ order, the assessee preferred an appeal to ITAT.
The Income Tax Assessing Officer ( AO ) by referring to note the Balance Sheet, stated the Assessee calculated the value of traded products at cost or NRV, whichever was lower. This resulted in a lower valuation for the closing stock. The A.O. observed that after taking stock at NRV, the assessee cannot reduce the value of provisions for obsolete or damaged stock, resulting in a double benefit. As a result, the amount of Rs. 52,51,027/- for inventory written off was not admissible and was added back to the assessee’s taxable income.
It is the case, the amount of obsolete inventory written off by the assessee, which was debited to the Profit and Loss Account had been properly audited. The assessee, represented by Harsh Kumar and Divesh Kalra contended that the order of the CIT(A), of not allowing a deduction of Rs 52,51,027/- in respect of traded goods written off on account of obsolete, damaged, or expired stock, as well as not appreciating the various facts of the case as per the details, explanations, and documents provided by the assessee during assessment/appellate proceedings, violated the facts of the case and the laws.
The bench also considered the case Gillette India Ltd. v. ACIT, in which the ITAT Bench in Jaipur determined that the assessee provided details and ledger codes for inventory written off in the books of account. As a result, the assessee was entitled to a deduction for written-off obsolete inventory.
The two-member ITAT bench, consisting of Pradip Kumar Kedia, ( accountant member ), and Yogesh Kumar ( judicial member ), based on the facts and previous decisions, found merit in the ground claimed by the assessee and deleted the disallowance made by the A.O. which has been confirmed by the CIT(A) and thus the appeal was partly allowed.
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