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TMI Blog2019 (10) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee did not submit any stock statement and the bank considered the stock of the company as Nil. For this Revenue has raised the following two grounds: - "1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 40,35,22,309/- on account of loss of sales without appreciating the fact that the assessee company did not submit any stock statement since December 2008 and therefore the bank considered the stock of the company at nil in absence of any detail filed by the assessee company. As the company did not submit any stock statement, bank did not inspect the stock. Further, the bank stated that there is no record as to the inspection of mortgaged properties i.e. plant and machinery. 2. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of Rs. 40,35,22,309/- on account of loss of sales appreciating that the stock of Rs. 40,68,10,503/- was sold as scrap at Rs. 32.88 lakhs benefit of reducing the income of Rs. 47,91,16,254/- on account of settlement with the banks in respect of the loans borrowed by them. The operandi is nothing but a colou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock amounting to Rs. 40,35,22,309/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) allowed the claim of loss and reversed the finding of the AO by stating that the assessee's factory premises were closed as on 08.12.2008 on account of strike by workers and factory remained close for close to 4 & ½ years, since, no settlement is being arrived between the assessee and the workers. Due to heavy losses, the assessee has to close the factory and for repaying loan entered into an agreement with banks for one-time settlement in respect of loan borrowed from them. During this period, when factory was closed, the assessee's stock amounting to Rs. 40,68,10,503/- damaged as this is a carry forward stock from earlier years and this year, the stock further destroyed being cotton grey fabric which is a running item and it cannot be put on hold for sale. Ultimately, the assessee has to sale this stock of cotton grey fabric as scrap and he only realized this amount of Rs. 32,46,632/-. The CIT(A) also noted that these damaged stocks was having no commercial value and the same could only be sold as scrap in weight and not by measurement. He noted that the assessee has pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... around 4 ½ years the stocks lying in the factory premises was damaged due to dust, rainwater and fungus. The assessee could salvage only the finished stocks and some yarn, which were sold in bulk and for which the assessee realized Rs. 32,46,632/- and thereby sustained loss of Rs. 40,35,22,309/-. Raw materials represented cotton, yarn fabrics and packing materials. Cotton lost its strength and hence could not be used for producing any fabrics. Thus the realizable value was nil. Further the stock in process which was a major component of stock was totally damaged having come in contact with chemicals during the manufacturing process. The finished goods along with yarn were salvaged to some extent and which were sold by weight to the scrap dealers. 8. He explained that a major portion of the stock to the extent of Rs. 25.10 crores was hypothecated to State bank of India in accordance with the stock statement for the month of December, 2008 filed on 19.01.2009 with State bank of India. The assessee also drew our attention to the report from a technical expert explaining the state of affairs of the quality of fabrics which were lying in closed doors and on machines. The said re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the bank. The A.O. failed to appreciate that it was a coincidence that the strike by the workers ended in the relevant financial year and the settlement with the lenders also took place in the relevant financial year and hence arrived at fallacious conclusions, failed to appreciate that the assessee company had arranged for loans of Rs. 9.72 crores to repay towards onetime settlement. If the assessee company was able to sell the stocks, there would have been no need to bring in funding of Rs. 9.72 crores. The presumption is further negative since the assessee had to sell its land during financial years 2013-14 and 2014- 15 to payoff the liabilities. If the assessee was able to sell its stocks, there was no need to introduce fresh loans and resort to sale of company's land in subsequent years. 12. Secondly, we noted that the assessee was going through the crisis. It was a double whammy, by settlement with the bankers the assessee gained and lost due to compensation paid to workers Rs. 2,28,73,760/- and loss on account of damage to stocks, the A.O has made the addition purely on conjecture, assumption and presumption. The AO failed to appreciate the note given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal and affirm the order of CIT(A). 15. The next common issue in these three appeals of Revenue is against the order of CIT(A) allowing the claim of depreciation. For this, in all three years, the Revenue has raised the identically worded grounds relating to disallowance of depreciation except quantum. The facts and circumstances are exactly identical in all the three years. Hence, we will take the facts from AY 2011-12 in ITA No. 3086/Mum/2017. The relevant ground raised is ground No. 2 read as under: - "2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made by the AO on account of depreciation amounting to Rs. 76,10,671/-. Without appreciating the fact that the assets had not been put to use as there was no manufacturing / business activity carried out by the assessee in the earlier years, during the year under consideration and in subsequent years." 16. Briefly stated facts are that the AO noticed during the course of assessment proceedings that the assessee has claimed depreciation under section 32 of the Act amounting to Rs. 76,10,671/- in its computation of income. The AO noted that since there was no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O disallowed the expenses on adhoc basis and by noting that the there was no business or manufacturing activity carried out by the assessee during this year or earlier years. We noted that the CIT(A) allowed the claim of the assessee on the premises that the assessee did not carry on the business because the workers of the company are went on illegal strike and therefore, the assessee business was stopped including manufacturing activity. He stated that actually, the assessee's business is very much in place and assessee has not close down its business. It can be called a temporarily lull in the business activity and none of the expenses are in the category of disallowable items rather the same are for business expenditure. It is not the case of the AO that the expenses are not genuine or not related to business. We have gone through the facts in entirety and noted that the assessee has placed on record that the assessee has sold closing stock of goods as scrap sale in AY 2013-14. This justifies that the assessee's business was not close down. We find that the CIT(A) has rightly allowed the claim of the assessee and we confirm the order of CIT(A). 21. Similar are the facts in AYs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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