Milton Cycle Industries Ltd. vs Deputy Commissioner Of Income ...
1994 Latest Caselaw 825 Del

ORDER

N. S. CHOPRA, A. M. :

The assessed is in appeal against order dt. 7th Nov., 1989 of the learned CIT(A).

2. The first ground of appeal is general.

3. Second ground of appeal is that the learned CIT(A) has erred in upholding the disallowance of Rs. 8,104 being depreciation on houses purchased from Housing Board, Haryana on hire purchase basis. The learned CIT(A) noted that whereas the assessed had taken this ground of appeal before him, there was no mention of this addition in the order of assessment. It was explained that the claim on this account was made in the revised return filed on 5th Dec., 1983 but the said claim was not considered by the Assessing Officer (AO). The learned CIT(A) noted that the assessed had already lost as this issue right up to the Tribunal stage in earlier years and the issue was pending before the Hon'ble High Court. All the same, the learned CIT(A) in the circumstances, directed the AO to consider the claim made by the assessed after giving the assessed an opportunity of being heard. The assessed is aggrieved.

4. We have heard the learned representatives. On a mere perusal of relevant facts it is to be held that the assessed under the circumstances cannot have a grievance on this account when the learned CIT(A) has already directed the AO to consider the claim of the assessed. We, therefore, endorse the directions of the learned CIT(A).

5. Ground No. 3 is with regard to addition of Rs. 5,808 under the head stores excess account. The AO included this amount, being difference between the opening and closing balance of store excess account shown under the head creditors, while computing assesseds income.

6. In appeal, the learned CIT(A) upheld the addition. The learned Authorised Representative for the assessed submitted that some times goods in excess of the quantity order is received from suppliers and, therefore, the same stand credited under this head and adjustment of this account is made as and when the suppliers submit supplementary bills in the succeeding year. It was submitted that excess balance represents a liability for purchase of goods and assessed is to discharge the same on receipt of relevant bills.

7. On the other hand, the learned Departmental Representative submitted that there was nothing on record in support of the claim. After having heard the learned representatives, we are of the view that no relief is admissible to the assessed. We do not find the liability as relating to any specified supplier. Therefore, we uphold the order of the learned CIT(A) and dismiss the ground.

8. The next grievance of the assessed is that the learned CIT(A) erred in upholding the disallowance of a sum of Rs. 2,90,299 being the provisions made by the assessed-company during the year against dead and obsolete stock. Here the relevant facts are that the assessed is engaged in the business of manufacturing bicycles and parts for the last 25 years. During the relevant previous year, it appointed a committee of experts to determine the correct value of old and obsolete stock which had been piling up since the inception of its business when it was felt that the assesseds book results were getting distorted. The committee so appointed made its recommendations and suggested item wise reduction in the value of stocks both of raw-material and of stores and spares. The assessed on the basis of recommendations of this committee reduced the value of its such stocks of raw-material by an amount of Rs. 1,60,453 and that of stores and spares by an amount of Rs. 1,29,846 or Rs. 2,90,299 by debit to its P&L account and in the balance sheet, the value of closing stock of raw-material and stores and spares was shown at the reduced value i.e. after deducting the amount of Rs. 2,90,299 from each and individual items. The claim made by the assessed on this account was rejected by the AO and concurrently by the learned CIT(A), when he took the view that the loss claimed pertained to earlier year and he was not satisfied as to how the accumulated losses of earlier years could be made a charge on the profits of the year. He, thus, upheld the disallowance. Thus, the assessed is aggrieved. The learned counsel for the assessed submitted that the authorities below misread the facts and, therefore, reaching erroneous conclusion. He submitted that the assessed has been in business for the last 25 years and during this period it has accumulated large items of raw-material, stores and spares which have either become obsolete or have lost much of their value because of changed circumstances. He submitted that assesseds results were getting distorted on these facts and under these circumstances year in and year out till a conscious decision was taken to go into the whole question for this purpose a committee of experts consisting of factory manager, production engineer, maintenance engineer, store-keeper accounts officer and purchase officer was constituted which as a result of extensive enquiries recommended that the market value of the items involved was far less than what was being disclosed in the books. The committee recommended reduction in the value of each and every item involved as a result of which a total amount of Rs. 2,90,299 was reduced from the value of such stocks by charging it to P&L account. He submitted that a conscious and bona fide decision was taken to change the method of valuation of such stocks due to business necessity and the same method continued to be followed subsequently as also the reduced value was taken as value of opening stock as on the first day of the following previous year. It was accordingly submitted that on these facts and under these circumstances, the claim made was bona fide and, therefore, allowable. In support of his proposition, the learned Authorised Representative placed reliance on K. Mohammed Adam Sahib vs. CIT (1965) 56 ITR 360 (Mad), CIT vs. Carborundum Universal Ltd. (1984) 149 ITR 759 (Mad), Gujarat Machinery Mfg. Ltd. vs. ITO (1992) 42 ITD 35 (Ahd) and ITO vs. Modi Rubber Ltd. (1993) 45 TTJ 415 (Del).

9. The learned Departmental Representative on the other hand supported the orders of authorities below and submitted that such accumulated loss could not be claimed by the assessed during the relevant previous year.

10. We have heard the learned representatives and also perused the relevant record. On a perusal of relevant facts and circumstances as detailed above, we are of the view that the change effected by the assessed is bona fide and aimed at obtaining correct business profit. It is nobody case that assessed has not accumulated such stocks in the past. Undoubtedly such stocks went on losing their values for the purposes of assesseds business thereby distorting assesseds profits year in and year out when a decision was taken to investigate the entire matter by appointing a committee of experts on whose recommendations, based on proper study of market condition, the assessed company reduced the value of the impugned stocks (item-wise) to the extent of Rs. 2,90,299 and this very value has been carried forward to the next year and assessed as such. Therefore, on a consideration of relevant facts and circumstances, we are of the view that the change effected by the assessed in the method of valuation of its stocks was bona fide, the same having been made on permanent basis and the changed method having been followed in the subsequent years. Therefore, we are of the view that assesseds claim was justified. We accordingly allow this ground of appeal.

11. Ground Nos. 5 and 6 are not pressed and the ground No. 7 is general.

12. In the result, the appeal is partly allowed.