IN THE INCOME TAX APPELLATE TRIBUNAL
`G' : NEW DELHI
DELHI BENCH `G'
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
VARKEY, JUDICIAL MEMBER
SHRI ABY T. VARKEY,
No.5034/Del/2010
ITA No.
2005-06
Assessment Year : 2005-
Deputy Commissioner of Vs. M/s Sylvania & Laxman Pvt.Ltd.,
Income Tax, B-57, Swami Nagar,
Circle-
Circle-7(1), New Delhi.
Delhi.
New Delhi. PAN : AAACS6862P.
(Appellant) (Respondent)
Appellant by : Shri B.R.R. Kumar, Senior DR.
Respondent by : Shri Manpreet Singh Bagga,
Shri Amit Arora &
Shri Suraj Nangia, CAs.
Date of hearing : 05.11.2015
Date of pronouncement : 17.11.2015
ORDER
PER G.D. AGRAWAL, VP :-
This appeal by the Revenue for the assessment year 2005-06 is
directed against the order of learned CIT(A)-X, New Delhi dated 11th
August, 2010.
2. The only ground raised in this appeal by the Revenue reads as
under:-
"On the facts and circumstances of the case the ld.CIT(A)
erred in law as well as on merits in deleting the addition of
Rs.1,07,83,935/- made by AO on account of
pilferage/obsolete inventories."
3. At the time of hearing before us, the learned DR pointed out that
the assessee has claimed the deduction for pilferage/obsolete
inventories on the ground that its business premises were temporarily
2 ITA-5034/Del/2010
suspended in April, 1996 and the office block of the assessee, cost
section and store room in the premises of the company were sealed on
26th August, 1996. The premises were de-sealed consequent to the
order of Hon'ble High court dated 5th November, 2002. He, therefore,
submitted that even if any loss was incurred due to pilferage/obsolence
of stock, it would arise in the assessment year 2003-04 and not in the
year under appeal i.e. 2005-06. He further submitted that in support
of the pilferage, the assessee claimed to have filed the copy of FIR. In
the FIR, the assessee has mentioned the theft of certain items like
office equipment, computers, air conditioners, typewriters etc. but,
there is no mention of the theft of stock of finished goods or raw
material or other things in respect of which the assessee is claiming
loss. Learned DR further submitted that the assessee did not furnish
any details in respect of either the pilferage or obsolence. The
assessee did not even specify which item has been stolen and which
part of loss is for obsolence. He, therefore, submitted that the order of
learned CIT(A) should be reversed and that of the Assessing Officer
may be restored.
4. Learned counsel for the assessee, on the other hand, stated that
the issue is squarely covered in favour of the assessee by the decision
of ITAT Delhi `G' Bench in the case of M/s Super Oil Seals India Ltd. vide
ITA No.1766/Del/2011. He also relied upon the decision of CIT(A) and
pointed out that the physical verification of the inventories was
completed in the accounting year relevant to the assessment year
under consideration and when the inventories were prepared, it was
found that certain items have become obsolete and unserviceable. In
view of the aforesaid, the inventories have been written off in the year
in question. He, therefore, submitted that the order of learned CIT(A)
should be sustained.
3 ITA-5034/Del/2010
5. We have considered the rival submissions and have perused the
relevant material placed before us. Learned counsel for the assessee
has relied upon the decision of ITAT in the case of M/s Super Oil Seals
India Ltd. (supra) wherein the issue before the ITAT was with regard to
addition made by the Assessing Officer on account of obsolence of
stock. Learned CIT(A) had deleted the addition and when the matter
reached to the ITAT, it sustained the order of learned CIT(A) with the
following finding:-
"5. After hearing the revenue, we find that there is no
merit in the appeal of the revenue. The assessee is free to
value the stock as per the market value of the stock or cost
of the stock, whichever is less. The assessee has option to
value the stocks as per the market rate and assessee has
done so. Therefore, we find no merit in the ground of
appeal taken by the revenue and the same stands
dismissed."
6. After considering the facts of the case and arguments of both the
sides, we find that the only issue before the ITAT was allowability of
loss on account of obsolence. There is no dispute with regard to the
legal proposition laid down by the ITAT that the assessee is free to
value the stock as per the market value of the stock or cost of the
stock, whichever is low. However, in the year under consideration, the
issue under consideration is first with regard to the year of loss and
secondly, whether the loss was actually incurred. Both these issues
were not before the ITAT in the case of M/s Super Oil Seals India Ltd.
(supra) and, therefore, the above decision of ITAT would have no
application to the case under appeal before us.
7. Reverting to the facts of the assessee's case, we find that the
assessee has claimed the loss on account of pilferage/obsolete
inventories. It was explained by the assessee that the
pilferage/obsolence of stock took place on account of sealing of the
assessee's premises. However, we find that the premises of the
4 ITA-5034/Del/2010
assessee were de-sealed during the accounting year relevant to
assessment year 2003-04. Therefore, if any loss was incurred on
account of pilferage/obsolete inventories due to sealing of the
assessee's premises, it came to the knowledge of the assessee on the
de-sealing of the premises which was admittedly during the accounting
year relevant to assessment year 2003-04. If the assessee chose not
to prepare the inventory for a period of two years, the incurring of the
loss cannot be postponed. Therefore, in our opinion, the loss, if any,
on account of obsolence/pilferage of the goods claimed to have been
incurred by the assessee due to sealing of its premises, could have
been claimed in the assessment year 2003-04 and not in the year
under consideration. Learned DR has also pointed out that the
assessee has not produced any evidence with regard to pilferage of
the stock. The only evidence produced in support of the claim is the
FIR which mentions the theft of certain items like office equipment,
computers, air conditioners, typewriters etc. but there is no mention of
the pilferage of the inventory. No other evidence for pilferage of the
stock is produced. The assessee did not even produce the list of the
items which have been stolen. The claim of the assessee is of general
nature without specifying which item is pilfered and which item has
become obsolete. In view of the above, in our opinion, learned CIT(A)
was not justified in allowing the loss claimed to have been incurred by
the assessee on account of pilferage/obsolence of the inventory. The
order of learned CIT(A) on this point is reversed and that of the
Assessing Officer is restored.
8. In the result, the appeal of the Revenue is allowed.
Decision pronounced in the open Court on 17.11.2015.
Sd/- Sd/-
VARKEY)
(ABY T. VARKEY) AGRAWAL)
(G.D. AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
VK.
5 ITA-5034/Del/2010
Copy forwarded to: -
1. Appellant : Deputy Commissioner of Income Tax,
Circle-
Circle-7(1), New Delhi.
2. Respondent : M/s Sylvania & Laxman Pvt.Ltd.,
B-57, Swami Nagar, New Delhi.
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
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