Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (1) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (1) TMI 16 - AT - Income TaxAddition of write off of inventory - AO sustained the additions made towards disallowance of loss on account of written off of inventory, on the ground that the appellant could not produce necessary evidences to prove its claim that written off of inventory is unusable and obsolete and further, there was no reporting to the authorities concerned, even though the assessee is a listed company which required to report major events to various authorities including SEBI etc - HELD THAT:- The assessee is required to take necessary approvals from the Board of Directors and also required to report major events to the stock exchange and SEBI, to inform the shareholders about any adverse events which cause huge financial burden or loss. Further, although the assessee claims that inventory write off pertains to purchase of cotton made in the financial years 2004-05 & 2005-06, but on perusal of statement of movement of stock filed by the assessee, the closing stock of cotton as on 31.03.2006 was only at Rs. 11.34 crores, whereas, the value of stock written off for the impugned assessment year is at Rs. 16.96 crores. Therefore, the argument of the assessee that the inventory of stock written off pertains to financial years 2004-05 & 2005-06 is devoid of merits. 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. 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 an insurance coverage for loss of stock and other asset. Even though, the assessee claims stock written off became obsolete and unusable, there is no proof of claim before the insurance company. Further, when such a huge chunk of inventory was written off, obviously there will be a revenue from sale of scrap. There is no iota of evidence with the assessee to prove its claim that whether any revenue is generated from sale of scrap. The assessee also could not able to furnish any evidence whether obsolete/unusable stock is still lying with the assessee or any further action is taken to sell or disburse the stock. Therefore, we are of the considered view that the assessee could not satisfactorily explain with necessary evidence the loss claimed on account of write off inventory, but is only to offset capital gain derived from sale of property as brought out by the AO and CIT(A). AO in their order observed that during the financial year relevant to assessment year 2013-14, the assessee shows two pieces of vacant land and computed LTCG and set off LTCG against current year business loss - AO further noted that substantial portion of the current year business loss is due to alleged write off of inventory - Therefore, from the above, it is very clear that the assessee has devised a tax planning to offset capital gains derived from sale of property by claiming set off current year business loss. There is no error in the reasons given by the AO as well as the CIT(A) to make additions towards disallowance of loss on account of write off inventory of cotton. Appeal filed by the assessee is dismissed.
|