TMI Blog2021 (10) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, in our considered view the CIT(A) had rightly vacated the addition. As the valuation of the closing stock of the shares held by the assessee is as per the provisions of Sec. 145 of the Act and in conformity with the Accounting Standard 2 (AS-2), therefore, no infirmity qua the loss suffered by the assessee pursuant to the diminution in the value of the inventory therein arises. Backed by the aforesaid facts, we are of the considered view that as the A.O had framed the assessment on the basis of glaringly misconceived and incorrect facts - Decided against revenue. - ITA No.774/MUM/2019 - - - Dated:- 29-9-2021 - Shri S.Rifuar Rahman (Accountant Member) And Shri Ravish Sood (Judicial Member) For the Assessee : Shri Vivek Shah, A.R For the Revenue : Shri Gurbinder Singh, D.R ORDER PER RAVISH SOOD, J.M: The present appeal filed by the revenue is directed against the order passed by the CIT(A)-49, Mumbai, dated 19.11.2018, which in turn arises from the order passed by the A.O u/s 143(3) of the Income Tax Act, 1961 (for short Act ), dated 30.12.2016 for A.Y 2014-15. The revenue has assailed the impugned order on the following so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his aforesaid observations, the A.O added the loss of ₹ 3,86,56,040/- as an unexplained cash credit u/s 68 of the Act. Resultantly, the A.O vide his order passed u/s 143(3) after making the aforesaid addition scaled down the returned loss of the assessee company to an amount of (-) ₹ 14,16,212/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was submitted by the assessee before the CIT(A) that the A.O had failed to appreciate the correct factual position and had most erroneously made an addition of ₹ 3,86,56,040/- u/s 68 of the Act. It was submitted by the assessee that it had during the year suffered a business loss of ₹ 4,01,11,372/- out of which loss of ₹ 4,00,68,550/- had arisen due to change (i.e decrease) in the value of inventory. Backed by the aforesaid facts, it was submitted by the assessee that the A.O had made a glaring error in treating the business loss that was suffered by it due to change in value of inventory as a loss due to sale of shares. Considering the aforesaid factual position, it was observed by the CIT(A) that the assessee had not undertaken any trading during the year. It was further obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in shares and securities had been holding scrips of three companies, viz. M/s Royal India Corporation Ltd. (5,30,000 shares); M/s Shreenath Commercials and Finance Ltd. (1,00,000 shares); and M/s Tuni Textiles Mills Ltd. (14,60,500 shares) as stock-in-trade of its aforesaid business of trading in shares and securities. The shares of M/s Shreenath Commercials Finance Ltd. (1,00,000 shares) and M/s Tuni Textiles Mills Ltd. (14,60,500 shares) were purchased by the assessee in the financial year 2012-13 at the rates prevailing on the relevant dates and were recorded at cost. The aforesaid shares were valued on 31.03.2013 and thereafter on every 31st March of each financial year at the rates prevailing on the relevant dates. During the A.Y 2014-15, the abovementioned shares not having been traded at all by the assessee were thus valued as on 31.03.2014 at the rates prevailing as on that date. As is discernible for the records, we find that the price of the aforesaid shares had drastically fallen during the year under consideration i.e A.Y. 2014-15, details as regards which are culled out as under: Particulars Purchase Cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case: Scrip name: 12105 Shreenath commercials 31411 Tuni Textiles Buy Sell Scrip Code Quantity Rate Amount Quantity Rate Amount Loss 12105 100000 39.68 3967920 100000 8.71 871000 (-) 3096920 31411 1460500 25.65 37457770 1460500 1.30 1898650 (-) 35559120 Business Loss ₹ 3,86,56,040/- 7.1 As seen from the above, on the one hand the AO states that the assesses booked short term capital loss of ₹ 3,86,56,040/- while on the other hand in the table which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntories under section 145 of Income Tax Act, 1961. The facts of the case are that during the F.Y. 2013-14 relevant to the A.Y. 2014-15, the Assessee Company has suffered business toss of ₹ 4,01,11,372/- out of which toss of ₹ 4,00,08,550/- has arisen due to Change (decrease) in value of inventories. Therefore, the ld. Assessing Officer has made an apparent error by treating business loss arising due to change in inventory as toys due to sale of shares. The copies of statement showing stock in trade for FY 2013-14 have been furnished to you which are enclosed herewith. 2. During the A.Y. 2014-15, Assessee Company has valued the dosing stock as per Accounting Standard 2 Valuation of Inventories as 'Cost or NRV, whichever is lower'. The valuation of dosing stock is also as per the provisions of Section 145 of the Income tax Act, 1961 which is in consonance with Accounting Standard 2. For this purpose the Assessee Company relies on the following citations: ACIT, Circte-2 vs M/s Shantilal Nagardas And Co. held in ITAT B Bench (Ahmedabad) M/s Sound Capital Markets Ltd. vs DCIT, 10(2) held in ITAT I Bench (Mumbai) The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercials Si Finance Ltd. (Now known as Proaim Enterprises Ltd.) and M/s Tuni Textiles Miffs Ltd. were found suspicious and detailed investigation of this issue was undertaken. Various tools available were examined including FTD data, B5E data, (none/control website, taxmann, court rulings, internet as well as investigation wing report and findings of the SEBI . The Ld. Assessing Officer erred in appreciating the facts and submissions made by the Assessee Company and passed the order merely based on suspicions, findings of investigation wing, SEBI and various other toots as mentioned above. High Court of Gujarat in case of Commissioner of Income-tax-1 Vs. Maheshchandra G. Vakil [2013] 40 taxmann.com 326 (Gujarat) held that where Assessee Company proved genuineness of share transactions by contract notes for safe and purchase, bank statement of broker, demat account showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange. Assessing Officer was not justified in treating capital gain arising from sale of shares as unexplained cash credit. The Assessee Company also relies on the following citation: Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 4/-. All these three scrips were held by the assessee as stock in trade as on last day of the financial year i.e. 31.03.2014. As these shares constituted the assessee's stock in trade, same were valued at cost or market price whichever is lower. The opening value of stock was ₹ 4,47,86,175/- and as on 31.03.2014 the same had diminished to ₹ 47,77,625/- resulting in a loss of ₹ 4,00,08,550/-. This loss coupled with some administrative expenses resulted in a loss of ₹ 4,00,72,252/-. There is no trading activity, whatsoever, which happened during the year. So the AO's contention that the assessee had set off the loss from sale of shares against income from sale of other shares is factually incorrect. The assessee had no business activity and there was no other receipt during the year. It is also not understood as to where from the AO obtained the figure ₹ 3,86,56,040/-, The assessment order is silent on how this figure of loss has been arrived at or when these shares have not been sold by the assessee. The findings En the assessment order are contradictory to the facts as could be seen from the return of income and the financials filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had not sold any of the aforementioned scrips during the year, then, how and on what basis the A.O had concluded that the assessee had booked a bogus loss on sale of shares, which thereafter had been set-off against its other income. As the loss suffered by the assessee company is on account of the valuation of inventory and not a trading loss or a capital loss, therefore, in our considered view the CIT(A) had rightly vacated the addition of ₹ 3,86,56,040/- made by the A.O u/s 68 of the Act. At this stage, we may herein observe that as the valuation of the closing stock of the shares held by the assessee is as per the provisions of Sec. 145 of the Act and in conformity with the Accounting Standard 2 (AS-2), therefore, no infirmity qua the loss suffered by the assessee pursuant to the diminution in the value of the inventory therein arises. Backed by the aforesaid facts, we are of the considered view that as the A.O had framed the assessment on the basis of glaringly misconceived and incorrect facts, the same, thus, had rightly been vacated by the CIT(A). Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold the same. We, thus, finding no merit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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