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TMI Blog2005 (9) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer denied the claim of depreciation on the ground that since the manufacturing activities of the assessee have been discontinued with effect from 1-12-1996, thus for the period under consideration, the abovesaid assets were not put to use. The claim of the assessee, on the other hand, was that it had, during the year under consideration, continued the activity of trading in the above items as well as carrying out job work in respect to warranty given on account of items manufactured and sold in the earlier years as well as in respect of the goods traded. The assessee claimed that it continued to use the machinery for the above purpose although not for the purposes of manufacturing. In this manner, the assessee contended that the plant and machinery and other related items like generator, dies and moulds were kept in ready condition for use in the manufacturing. The Assessing Officer, however, has denied the claim on the ground that the assessee itself admitted that no manufacturing activities were carried out during the year under consideration and thus, the non-use of assets for business stood established. 4. In appeal before the CIT(A), the assessee reiterated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Dy. CIT [2005] 201 ITR 39 wherein similar issue has been decided in favour of the assessee by relying on the decision of the Apex Court in the case of Dalmia Dadri Cement Ltd. (supra). 6. On the other hand, ld. DR has relied upon the orders of the lower authorities in support of his submissions. It is argued by the ld. DR that the non-use of the impugned assets by the assessee was an admitted position and, therefore, it does not qualify one of the conditions of the use of the asset envisaged under section 32 of the Act. 7. Having heard the parties at length on this issue, in our view, the fact situation, which emerges, is as follows. That the assessee has been hitherto carrying on manufacturing activities in the field of electronic items. During the year under consideration, the assessee did not manufacture the items, which its plant and machinery was capable of. Instead, it carried out activities relating to the trading of items as well as rectification, providing job work in relation to warranties given on account of items manufactured and sold in the earlier years. Thus, it is undisputed that the manufacturing activity was temporarily discontinued and such discontinuation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year can lead to a safe presumption that in the intermittent period i.e., the assessment year under consideration the assets were indeed kept ready for use. Indeed, the averment to this effect has been consistently been made by the assessee even before the lower authorities and nothing has been brought on record by the revenue to rebut the same except by way of bald assertions. Under these circumstances, in our opinion, it cannot be said in the context of section 32 that the plant and machinery, generator and moulds were not put to use for the business of the assessee during the year under consideration. Therefore, in view of the aforesaid discussion, we allow the claim of the assessee for depreciation on plant and machinery, generator, dies and moulds amounting to Rs. 1,73,731. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to allow the claim as above. 9. On this ground, the assessee accordingly succeeds. 10. The third ground taken by the assessee is with regard to the action of the CIT(A) in allowing deduction of Rs. 9,80,177 on account of purchase of obsolete items representing fall in the value of the closing stock of raw materials. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material was re-exported in April 1998 for a value of Rs. 4,30,403. Therefore, the value of such inventory as on 31-3-1998 was taken on the same figure, thereby resulting in a loss on account of diminution in its value by Rs. 9,80,177. The ld. Counsel referred to the paper book to substantiate the aforesaid factual matrix. Our attention was invited to page 84 of the paper book wherein is placed a certificate by the excise authorities regarding the reversal of Modvat credit in relation to the impugned items. Similarly, our attention was invited to page 85 wherein is placed the approval of RBI permitting the assessee to re-export the obsolete items under consideration. Similarly, at pages 86 to 88 are placed the invoices of re-exports of the obsolete items under consideration. The ld. Counsel submitted that the impugned provision of loss was allowable having regard to the decision of the Apex Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44. 13. On the other hand, ld. DR has reiterated the reasoning taken by the lower authorities in denying the claim of the assessee. 14. We have considered the rival submissions, perused the orders of the lower authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue [1926] 12 Tax 813 :- "Under this law (Revenue law) the profits are the profits realized in the course of the year. What seems an exception is recognized where a trader purchased and still holds goods or stocks which have fallen in value. No loss has been realised. Loss may not occur. Nevertheless, at the close of the year, he is permitted to treat these goods or stocks as of their market value." 15. The Hon'ble Apex Court in the said decision further opined that as the profits of income-tax are to be computed in conformity with the principles of commercial accounting, unless such principles stand superseded or modified by a legislative enactment, the loss due to fall in price below cost with respect to the traded goods is allowed even if such loss has not been actually realized in the year itself. Evidently, the emphasis by the Apex Court is to effectuate the theory of prudence underlying the rule that the closing stock is to be valued at cost or market price/realizable value whichever is lower. Coming back to the instant case, the assessee, having valued its obsolete stock at its realizable value, being lower of the actual cost, the resultant loss has to be taken into conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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