The Chandigarh Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition holding that mere non-accounting of expired stocks part of opening stock would not have any impact on profitability.
The assessee, Abhinav Malik, filed his return of income declaring total income which was
selected for scrutiny. During the course of assessment proceedings, the AO observed that the assessee has shown opening stock for the Financial Year 2011-12 relevant to the impugned assessment year 2012-13, a difference of in the opening stock for the year under consideration as compared to the closing stock for the previous Financial Year was noticed by the AO.
The assessee submitted that after filing of the return of income for the Financial Year 2010-
11, the assessee undertook a stock audit and detected stock amount which were not in saleable condition as the stock had expired and the same could not be returned to the respective companies as stock has crossed stipulated time of six months past the expiry date.
Accordingly, the assessee had to destroy the stock as per manufacturing requirement under Drugs & Medicines Act. It was further submitted that upon preparation of Balance Sheet for the Financial Year 2011-12, the accountant, inadvertently took the opening stock of saleable stock only after netting off of the expired stock from the earlier financial year.
The AO held that the expired medicines/drugs amounting had since not been returned to the manufacturer and same was not believable as a person who has stock of expired medicines worth had not sent the same to the manufacturer for replacement.
In view of the same, the amount of expired stock was treated as saleable stock and thereafter the AO has applied a GP rate of 14.99% as declared by the assessee and had worked out the gross profit amount which was brought to tax in the hands of the assessee.
S.K. Mukhi, on behalf of the assessee submitted that there was no basis to hold that the expired stock has been sold by the assessee and there was no evidence which had been brought on record by the AO that the expired stock has been sold out of books
by the assessee.
He further submitted that the submitted that even where the expired stock had to be accounted for in the books of account, the same would form part of the opening stock as well as the closing stock and therefore, would have a ‘nil’ impact on the profitability so
declared by the assessee.
The two member Bench of A.D.Jain, (Vice President) and Vikram Singh Yadav, (Accountant Member) allowed the appeal observing that mere non- accounting of the expired stock as part of the opening stock wouldn’t have any impact on the profitability so declared by the assessee for the reason that such expired stock would again form part of the closing stock at the end of the financial year.
The Bench further held that “Similarly, whether such stock has been destroyed or returned will not have any impact on the profitability so declared and what efforts have been taken by the assessee or should have been taken by the assessee are not relevant consideration for the reason that the same doesn’t affect the profitability so declared by the assessee as the assessee has not claimed any loss on account of writing off of such expired stock which otherwise it is entitled to.”
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