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TMI Blog2019 (9) TMI 1485X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember, 2007. The assessee is engaged in the business of processing and export of marine product. The assessment u/s. 143(3) of the act was finalized on 26th December, 2008 at total loss of Rs. 2,38,87,989/-. The ld. CIT(A) has partly allowed the appeal of the assessee and deleted the disallowance of bad debt and advance written off of Rs. 28,39,840/- and deleted the disallowance of claim of stock on absolescence to the amount of Rs. 3,88,28,210/-. The Revenue has filed appeal against the decision of ld. CIT(A) in deleting the aforesaid additions on both the issues. The further facts in brief are discussed while adjudicating these grounds of appeal as under: Ground No. 1 (Deleting claim of bad debt claim to the amount of Rs. 28,39,840/-) 4. During the course of assessment, the assessing officer noticed that the assessee has claimed bad debt and advances written off to the amount of Rs. 38,41,247/- in the P & L account. The assessing officer has reported party wise break up of bad debt and advances amounting to Rs. 20,67,787/- and trade debt of Rs. 17,75,489/- written off at page 2 to 5 of the assessment order. The assessing officer has disallowed the claim of bad debt of Rs. 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were used and after the above amendment these words are substituted by 'any bad debt or part thereof which is written off as irrecoverable in the account of the assessee for the previous year'. Accordingly for allowing the claim of Bad Debts what is required is that there must be a debt incidental to the business of the assessee which is taken into account in computing assessable income and must have been written off in the books of account of the assessee. Appellant has also submitted copy of the decision of honourable Supreme Court in the case TRF Ltd. Vs. CIT Ranchi Civil Appeal No. 5293 of 2003 dated 9th February, 2010 which is fairly covering the issue and he also stated that this decision has overruled the decision of Gujarat High Court of Dhall Enterprises. I have carefully considered the issue. The Honourable Supreme Court in the case of TRF Ltd. Vs. CIT Ranchi has held that after 1st April, 1989 it is not riecessary for the assessee to establish that the debt, in fact, has become, irrecoverable. It is enough if the bed debt is written of as irrecoverable in the accounts of the assessee. As per decision of Hon SC it is clear that now assessee need not prove that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es etc, which has already been carried out but appropriate bills have not been received. But such advances written off cannot be allowed as they become as such prior period expenses. Appellant is in the business of fisheries. Appellant acquires fish from fisherman who goes into sea for capturing fish and this is an accepted commercial practice. After' supply of fish if the amounts were not recoverable fully and then balance amount is loss arising to the appellant in the ordinary course of business and incidental thereto and was therefore a trading loss allowable under section 28 itself. Appellant has also placed reliance on the decision of Honourable Supreme court in the case of CIT V Mysore Sugar Co. ltd 46 ITR 649 (SC), in the case company has advanced money to sugarcane growers for purchase of sugarcane and when they are unable to supply sugarcane. The amount was written off and claimed as trading loss and same was allowed. Therefore respectfully following the decision of Hon Supreme court I delete the disallowance made in case of following advances written off. 1. Shree Laljibhai M Khokhari Rs. 4,43,000/- 2. APL India Private Limited Rs. 20,892/- 3. International Mari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring of this case. After considering the decision of Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT Civil Appeal No. 5293 of 2003 dated 9th Feb, 2010, it is not necessary for the assessee to establish that the debt in fact has become irrevocable. Therefore, considering the aforesaid judicial finding of the Hon'ble Supreme Court on identical issue and facts, we do not find any infirmity in the decision of ld. CIT(A) in deleting the addition of Rs. 20,67,787/- pertaining to trade bad debt. Regarding addition of Rs. 17,75,489/- on account of advances written off, it is noticed that it is undisputed fact that an amount of advance of Rs. 7,74,084/- were given in the ordinary course of business to various fishermen, fisheries for procurement of raw material and labour work. After considering the decision of Hon'ble Supreme Court in the case of CIT Mysore Sugar Company Ltd 46 ITR 649(SC) wherein it is held that in case the company has advanced money to sugarcane grower for purchase of sugarcane and when they were unable to purchase sugarcane, the amount was written off and claimed as trading loss and the same was allowed. Therefore, after considering the aforesaid decision of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of the closing stock made by the assessee cannot be accepted. Accordingly, the assessing officer has concluded that assessee has undervalued its closing stock by Rs. 3,88,28,010/- and added the same to the total income of the assessee. 9. The assessee has preferred appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. Relevant part of the decision of ld. CIT(A) is reproduced as under:- "5. Third ground of appeal is against the addition of Rs. 3,88,28,010/- on account of loss of stock by obsolescence. The AO made this addition for the reason that appellant has undervalued its closing stock by Rs. 3,88,28,010/- and thereby suppressed its income by that amount and the valuation done by the appellant at cost or NRV whichever is less cannot be accepted on the basis or evidences available of "local sale" account. Before me, the appellant submitted that assessee is a private limited company and under the companies Act, 1956, the Accounting Standard are mandatory applicable to the company. As per accounting standar-2 (Revised) - Valuation of Inventories issued by the Institute of Chartered Accountants of India, the assessee is required to value t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that 'As per the provisions of s. 145A of the Act of 1.961, the income from business under the head "Profits and gains from business" has to be computed in accordance with method of accounting regularly employed by the assessee Similarly, s, 145A of the Act of 1961 provides that the inventory shall be valued in accordance with the method of accounting employed by the assessee therefore, if the method of valuation adopted by the assessee is recognised method then the same cannot be rejected on the ground that the net realisable value/market value has been determined on the basis of certain estimate. It is to be noticed that the AO while holding that the inventories valued by the assessee @ 5 per cent is excessive did not care to estimate the net realisable value of the store and proceeded to disallow the amount of Rs. 68,59,108 written off as obsolete stores and claimed in P&L a/c altogether. It has come on record that the assessee has valued the inventories such as nut bolt glass fuse bearing bushes, lock pin, pipe, screw etc. which were rusted, non-moving and unusable on account of obsolescence/damage/deterioration by efflux of time at cost and net realisation value, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years is not proper and therefore he rejected the same, is not correct as appellant has given item wise details of stock obsolescence loss showing quantity, rate and amount. As per Para no 22 of the accounting standard Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the balance sheet date to the extent that such events confirm the conditions existing at the balance sheet date. Thus, considering the overall circumstances, I delete disallowance of Rs. 3,88,28,010/- made on account of stock obsolescence. 6. In the result appeal is partly allowed." 10. We have heard rival contentions and perused the material on record. The assessing officer has disallowed the claim of loss on account of absolescene of stock of fish to the amount of Rs. 3,88,28,010/- stating that valuation shown by the assessee on the basis of stock or net realizing value cannot be accepted on the basis of evidence available on local sale account. It is brought to our notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year Total Sales (Qty) Closin g Stock (Qty) Price/ Kg Total Closing Stock Value 1 2004-05 449340 66.12 2,97,10,361 3515600 3421640 543300 90.00 4,88,97000 2 2003-04 595360 44.00 2,61,95,840 3899040 4045060 449340 66.12 2,97,10,361 It is indicated from the above demonstration that assessee has brought the unsold stock from the earlier years and no production of Surmai fish was made during the year under consideration. It is further noticed that the closing stock for the year under consideration has been accepted by the assessing officer as opening stock for the subsequent year without any variation. We observed that assessing officer has not elaborated the detailed reasons with specific finding for rejecting the claim of loss of stock by absolescence on account of unsold old stock of fish which are of perishable nature . In the light of the above facts and circumstances, we do not find any infirmity in the decision of ld. CIT(A) in deleting the addition made by the assessing officer. Therefore, we do not find any force in the appeal of the revenue and the same is dismissed. 11. In the result, the appeal of the revenue and cross objection of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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