NMDC LIMITED, Hyderabad V. ADDL.CIT, Hyderabad

ITA 1080/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66119 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: LAXMINIVAS SHARMA
• Keywords: Business expenditure; Bad and doubtful debts; Competent authority
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1080/HYD/2010 ASSESSMENT YEAR: 2006-07 NMDC LTD., APPELLANT (FORMERLY NATIONAL MINERAL DEVELOPMENT CORPORATION LTD.) HYDERABAD (PAN AAACN7325A)) VS. ADDL. COMMISSIONER OF INCOME-TAX, RESPO NDENT RANGE 16, HYDERABAD. APPELLANT BY : SHRI LAXMINIVAS SHARMA RESPONDENT BY : SHRI V. SRINIVAS DATE OF HEARING : 05/06/2012 DATE OF PRONOUNCEMENT : ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-V, HYDERABAD DATED 28/05/2010 FOR T HE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE LEARNED CIT(A) PASSED U/S 250 O F THE IT ACT IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) HAS ERRED IN DISALLOWING THE AMOUNT O F RS. 110.95 LAKHS TOWARDS OBSOLETE STORES WRITTEN OFF WI THOUT CONSIDERING THE FACT THAT THE STORES & SPARES NOT M OVED FOR 5 YEARS AND ABOVE AND IDENTIFIED AS OBSOLETE BY TEC HNICAL ASSESSMENT ARE VALUED AT RS. 1 PER UNIT. ITA NO. 1080/HYD/2010 NMDC LTD. 2 3. THE CIT()A) HAS ERRED IN DISALLOWING THE AMOUNT OF RS. 7.25 LAKHS TOWARDS SHORTAGE OF STORES WITHOUT CONSI DERING THE FACT THAT OUR PROJECT AREA IS SITUATED IN THE A REA WHERE ACTIVITIES OF MAOIST ARE ALARMING. THERE WAS A MAO IST ATTACK N 09/02/2006 AT OUR PROJECT ON THE EXPLOSIVE GODOWN AND THEY HAVE CARRIED LOT OF EXPLOSIVES, WHICH COULD NO T BE RECOVERED BY POLICE. HENCE, THE SAME IS WRITTEN OFF AS SHORTAGE STORES. 4. THE CIT(A) HAS ERRED IN DISALLOWING THE AMOUNT O F RS. 1.23 LAKHS TOWARDS OTHER LOSSES WITHOUT CONSIDERING THE LOSS IS MAINLY SHELF LIFE OF INVENTORY CONSISTING OF SCA LE INHIBITOR & WATER TREATMENT CHEMICALS AT OUR VIZAG OFFICE. DU E TO EXPIRY OF THE WATER TREATMENT CHEMICALS, THE AMOUNT HAD BEEN WRITTEN OFF. 3. THE ASSESSEE HAD CLAIMED SUM OF RS.. 1,22,57, 000/- ON ACCOUNT OF MISCELLANEOUS EXPENDITURE.. THIS EXPEN DITURE WAS DISALLOWED BY THE ASSESSING OFFICER . DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE FURN ISHED THE INFORMATION WHEN THE DETAILS OF MISCELLANEOUS LOSSE S WRITTEN OFF WAS CALLED FOR, AS UNDER: HEAD OF EXPENDITURE AMOUNT (RS. IN LAKHS) 1. NON MOVING STORES WRITTEN OFF 0.3 1 2. OBSOLETE STORES WRITTEN OFF 110.64 3. SHORTAGE OF STORES 7.25 4. BED DEBT/ADVANCES WRITTEN OFF 3. 14 5. OTHER LOSSES 1.23 ------------------- TOTAL 122.57 ------------------- 4. IT CAN BE SEEN FROM THE ABOVE THAT MAJOR ITEMS OF LOSS WRITTEN OFF ARE IN RESPECT OF OBSOLETE STORES WRITT EN OF SHORTAGE OF STORES AND ADVANCES DEBTS WRITTEN OFF WHICH ARE ALL OWABLE AS BUSINESS LOSS IN RESPECT OF NON MOVING STORES WRITT EN OFF COMPANY HAS ITS ACCOUNTING POLICY NO 5.5 WHICH IS BEING CON SISTENTLY FOLLOWED SINCE 12 YEARS. ITA NO. 1080/HYD/2010 NMDC LTD. 3 5. IT WAS SUBMITTED BY THE LEARNED AR THAT THIS PR ACTICE IS BEING FOLLOWED OVER THE YEARS AND SUCH LOSSES HAVE BEEN ALLOWED IN THE EARLIER YEARS AS REVENUE TRADING LOSS BY THE INCOME TAX DEPARTMENT. THE COMPANY IS CONSISTENTLY FOLLOWING THE METHOD OF ACCOUNTING DISCLOSED BY WAY OF ACCOUNTING POLIC Y AND SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. IT IS A TRAD ING LOSS WHICH IS ALLOWABLE UNDER SECTION 28 ITSELF IN COMPU TING THE BUSINESS PROFIT IN A SIMILAR CONDITION BOMBAY HIGH COURT HAS DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF AL FA LAVAL INDIA LTD (2003) 133 TAXMAN 740(BOM) IT IS FURTHER SUBMIT TED THAT COMMISSIONER OF INCOME TAX (A) HAS ALLOWED SUCH TRA DING LOSS WHILE DISPOSING OFF THE APPEAL FILED BY THE ASSESSE E ON HIS OWN CASE IN RESPECT OF ASSESSMENT YEARS 2001-02 AND 200 2-03 ON A SIMILAR ISSUE INVOLVED VIDE APPELLATE ORDERS DATED 24.9.2004 AND 18.5.2005. 6. THE AO HELD THAT THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE. FOR THE ASSESSMENT YEAR 2003-04 THE ASS ESSING OFFICER IN COURSE OF ASSESSMENT PROCEEDINGS RELYING ON THE ITAT DECISION IN THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 2000-01 DISALLOWED THE AMOUNT CLAIMED UNDER THE HEAD MISCE LLANEOUS LOSSES WRITTEN OFF. ON APPEAL FILED BY THE ASSESSE E THE COMMISSIONER OF INCOME TAX (A) VIDE HIS ORDER IN IT A 278/AC- 16(1)/CIT(A)V 2005-06 CONFIRMED THE DISALLOWANCE BY OBSERVING THAT ACTUAL LOSS IF ANY IN RESPECT OF SUCH STORES A ND SPARES REFERRED BY THE ASSESSEE IS PURELY NOTIONAL LOSS WH ICH HAS NO NEXUS WITH THE ACTUAL PROFIT EARNED BY THE COMPANY DURING THE PREVIOUS YEAR. THE DECISION OF THE CIT(A) ON THIS ISSUE WAS ALSO CONFIRMED BY THE ITAT IN ITS ORDER IN ITA NO. 657/H YD/07 DATED 6.6.2008. IN VIEW OF THE ABOVE, THE CLAIM MADE BY THE ASSESSEE COMPANY IS DISALLOWED. ITA NO. 1080/HYD/2010 NMDC LTD. 4 7. AGGRIEVED, THE ASSESSEE PREFERRED THE APPEAL BEF ORE THE CIT(A). 8. THE LEARNED AR OF THE ASSESSEE SUBMITTED BEFORE THE CIT(A) AS FOLLOWS: AS HAS BEEN EXPERIENCED FOR A LONG TIME SOME I TEMS OF STORES AND SPARES DO NOT GET CONSUMED DUE TO OBSOLE SCENCE WEAR PASSAGE OF TIME ETC EVEN UP TO 5 YEARS AND BEY OND. THE INTRINSIC VALUE OF SUCH ITEMS THUS SUFFERS LOSS AND WHEN THEY CAN NO LONGER BE USED IN OPERATION SUCH ITEMS ARE IDENTIFIED AND THEIR BOOK VALUE IS WRITTEN DOWN BY 85% BASED ON THE COMPANYS EXPERIENCE ON SALE OF SUCH S TORES AS THEY DO NOT USUALLY FETCH MORE THAN 15% ON DISPOSAL THUS THE COMPANY HAS TO BEAR COMMITTEE CONSISTING OF MEM BERS FROM VARIOUS DEPTS.. LIKE MECHANICAL (PLANT AND SE RVICES) ELECTRICAL (PLANT & SERVICES) CIVIL, MATERIAL FINAN CE ETC ARE CONSTITUTED FOR DECLARING THE ITEMS AS NON MOVING A ND OBSOLETE. AFTER DECLARING THE ITEMS AS NON MOVING O R OBSOLETE BY THE COMMITTEE THE NOTE ALONGWITH LISTS OF THE ITEMS ARE BEING SENT TO OUR HEAD OFFICE AT HYDERABA D FOR APPROVAL OF THE COMPETENT AUTHORITY. THIS PRACTICE IS BEING FOLLOWED CONSISTENTLY. THE VALUATION OF INVENTORIES TOWARDS STORES & SPARES NOT MOVED FOR 5 YEARS OR MORE ARE MENTIONED AT POINT NO. 5.5 AND PAGE NO.81 OF THE AN NUAL REPORT FOR THE F.Y 2005-06. THE PROJECT WISE AND H EAD WISE DETAILS OF RS 122.57 LAKHS FOR THE ASSESSMENT YEAR 2006-07 ARE ENCLOSED HERE WITH FOR YOUR KIND PERUSAL LIST O F ITEMS AND COPY OF APPROVAL OF SOME UNITS ARE ATTACHED FOR YOU R INFORMATION AND RECORD PLEASE THE FALL IN ITS BOOK VALUE WHICH IS RIGHTFULLY A BUSINESS EXPENDITURE. THE BO ARD OF DIRECTORS HAS ACCORDED THE APPROVAL FOR SUCH WRITE OFF IN ITS 276 TH MEETING HELD ON 26.3.1992 AND AN ACCOUNTING POLICY HAS BEEN FORMULATED TO REGULATE ITS TREATMENT IN BO OKS OF ACCOUNT. SUCH WRITE OFF OF NON MOVING AND OBSOLETE STORES IS VERY NEGLIGIBLE AND WORKS OUT TO LESS THAN 5% OF TH E TOTAL INVENTORY OF THE CORPORATION. THE CORPORATION IS CONSISTENTLY FOLLOWING THIS PROCEDURE OF WRITING DO WN NON MOVING STORES OF 5 YEARS OR MORE. THE INCOME TAX DE PT. HAS ALSO ALLOWED THIS EXPENDITURE UPTO AY 1999-200 0 AND AGAIN FOR THE ASST. YEARS 2001-02 AND 2002-03. IT MAY BE STATED HERE THAT IT IS MERELY A TRADING OR BUSINESS LOSS THAT IS SHOWN IN THE BOOKS OF ACCOUNT AS MISCELLANEOUS L OSSES WRITTEN OFF. THE NON MOVING STORES WHICH ARE LYING IN STOCK ARE SOLD AT A FUTURE DATE AND THE AMOUNT REALIZED O N SALE IS ACCOUNTED IN THE BOOKS OF ACCOUNT AS MISCELLANEOUS INCOME, ITA NO. 1080/HYD/2010 NMDC LTD. 5 IN THE YEAR OF SALES REALIZATION WHICH IS BEING OFF ERED TO TAX YEAR AFTER YEAR. SUCH WRITE OFF OF NON MOVING STORE S IS ALLOWABLE EXPENDITURE AS PER DECISIONS TAKEN IN CAS E ALFA LAVAL INDIA LTD VS DCIT (2004) 266 ITR 418(BOM) AND NATIONAL ALUMINIUM CO. LTD VS DCIT(2006) 101 TTJ (C TK) 948. THE OTHER LOSSES LIKE (A) OBSOLETE STORES WRI TTEN OFF (B) BAD DEBTS WRITTEN OFF (C) SHORTAGE OF STORES WRITTE N OFF AND (D) OTHER LOSSES WRITTEN OFF TOTALLING RS 122.26 LA KHS ARE BEING ALLOWED BY THE DEPT. IT APPEARS THAT THESE L OSSES HAVE BEEN INADVERTENTLY DISALLOWED. THE LOSSES IND ICATED ABOVE ARE REGULAR LOSSES INCURRED DURING THE COURS E OF BUSINESS AND ARE ALLOWABLE AS BUSINESS LOSS. 9. THE AR OF THE ASSESSEE FURTHER SUBMITTED THA T THE COMPANY IS ALSO OFFERING TO TAX THE SALE PROCEEDS O F THE NON MOVING AND OBSOLETE STORES IN THE YEAR OF SALE. IT WAS ARGUED THAT WHEN THE INCOME IS TAXABLE, EXPENSES ON THIS IS ALSO ALLOWABLE, THEREFORE, THE EXPENSES OF RS 122.26 LAK HS SHOULD BE ALLOWED. 10. AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE, THE CIT(A) HELD AS FOLLOWS:- I HAVE CONSIDERED THE ARGUMENTS OF THE ASSESSEE AS WELL AS FACTS OF THE CASE CAREFULLY. I FIND THAT WITH RES PECT TO NON MOVING STORES WRITTEN OFF ABSOLUTE STORES WRITTEN O FF AND OTHER LOSSES THE IDENTICAL ISSUE IN THE CASE OF THE ASSESSEE HAS BEEN DECIDED BY THE PREDECESSOR VIDE HIS APPEAL ORDER IN ITA NO.278/AC-16(1)/CIT (A) V 2005-06 DATED 28.3 .2007 FOR AY 2003-04. SINCE THE FACTS ARE IDENTICAL IN THIS YEAR ALSO O N THE SAME REASONING AS GIVEN ABOVE AND HAVING REGARD TO THE PRINCIPLE OF STARE DECISES I TOO HOLD THAT THE EXPENSES WITH RESPECT TO NON MOVING STORES OBSOLETE STORES AND OTHER LOSSES HAVE BEEN CORRECTLY DISALLO WED BY THE ASSESSING OFFICER. WITH REGARD TO THE SHORTA GE OF STORES THE ASSESSEE COULD NOT PROVIDE ANY DETAILS O F THE ITEMS WHICH WERE SUPPOSED TO HAVE BEEN BOOKED UNDER THE HEAD SHORTAGE OF STORES. IT COULD NOT PROVIDE EVIDENCE TO SHOW THAT SOME STORES HAD INDEED BEEN STOLEN OR HAD NOT BEEN RECEIVED. IT COULD NOT ALSO EXPLAIN WHAT IS EXACTLY CONSTITUTED THE SHORTAGE OF ITA NO. 1080/HYD/2010 NMDC LTD. 6 STORES. THEREFORE IN THE ABSENCE OF PROPER VERIFICA TION THIS AMOUNT IS ALSO HELD TO BE CORRECTLY ADDED BACK . WITH REGARD TO BAD DEBTS WRITTEN OFF THE SAME PERTA INS TO TRADING DEBTS WRITTEN OFF. FROM THE DETAILS PROV IDED IT IS CLEAR THE ASSESSEE HAS PROPERLY DEBITED THE S AME IN ITS BOOKS OF ACCOUNT. MOREOVER THE ASSESSING OFF ICER HAS NOT DISCUSSED ANY REASONS AS TO WHY THE BAD DEB TS SHOULD NOT BE ALLOWED UNDER SECTION 36(1)(VII) OF T HE ACT. ACCORDINGLY THE BAD DEBTS AMOUNTING TO RS 3.14 LAKHS SHOULD NOT BE DISALLOWED AND ADDITION ON THIS ACCOUNT IS ORDERED TO BE DELETED. GIVEN THE FACTS AND CIRCUMSTANCES OUT OF A TOTAL DISALLOWANCE OF RS 1,22,57,000/- ON ACCOUNT OF MISCELLANEOUS EXPENDITURE THE ADDITION OF RS 3.14 LAKHS ON ACCOUNT OF BAD DEBTS IS HELD TO BE INCORRE CTLY MADE AND ORDERED TO BE DELETED. THE BALANCE ADDITIONS ARE CONFIRMED AS DISCUSSED ABOVE. THIS GROUND IS ACCORDINGLY DECIDED PARTLY IN FAVOUR OF T HE REVENUE. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. 11. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI LAXMI NIVAS SHARMA SUBMITTED BEFORE US THAT SOME ITEMS OF STORE S AND SPARES DO NOT GET CONSUMED DUE TO OBSOLESCENCE/WEAR/PASSAG E OF TIME ETC. EVEN UP TO 5 YEARS AND BEYOND. THE INTRINSIC V ALUE OF SUCH ITEMS THUS SUFFERS LOSS AND WHEN THEY CAN NO LONGER BE USED IN OPERATION, SUCH ITEMS ARE TECHNICALLY IDENTIFIED AN D THEIR BOOK VALUE IS WRITTEN DOWN BY 85%, BASED ON THE COMPANY S EXPERIENCE ON SALE OF SUCH STORES IN THE FORM OF WA STE SCRAP AS THEY DO NOT USUALLY FETCH MORE THAN 15% (SCRAP VALU E) ON DISPOSAL. THUS, THE COMPANY HAS TO BEAR THE FALL IN ITS BOOKS VALUE, WHICH IS RIGHTFULLY BUSINESS EXPENDITURE. IT IS SUBMITTED THAT THE BOARD OF DIRECTORS HAS ACCORDED THE APPROV AL FOR SUCH WRITE OFF IN ITS 276 TH MEETING HELD ON 26/03/1992 AND AN ITA NO. 1080/HYD/2010 NMDC LTD. 7 ACCOUNTING POLICY HAS BEEN FORMULATED TO REGULATE I TS TREATMENT IN BOOKS OF ACCOUNT. SUCH WRITE OFF OF NON-MOVING STOR ES IS VERY NEGLIGIBLE COMPARED TO TOTAL INVENTORY OF THE COMPA NY. THE COMPANY IS CONSISTENTLY FOLLOWING THIS PROCEDURE OF WRITING DOWN NON-MOVING STORES OF 5 YE4ARS OR MORE FOR THE PAST 15 YEARS. 13. IT WAS ALSO POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE IT DEPARTMENT ALLOWED THIS EXPEND ITURE UP TO AY 1999-00 AND AGAIN FOR THE AYS 2001-02 AND 2002-0 3. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT IT IS MERELY A BUSI NESS EXPENDITURE I.E. SHOWN IN THE BOOKS OF ACCOUNT AS MISCELLANEOUS LOSSES WRITTEN OFF. THE NON MOVING STORES WHICH A RE LYING IN STOCK ARE SOLD AT A FUTURE DATE AND THE AMOUNTS REA LIZED ON SALE IS ACCOUNTED IN THE BOOKS OF ACCOUNT AS MISCELLANE OUS INCOME IN THE YEAR OF SALES REALIZATION. THIS IS BEING OFFERE D TO TAX IN THE YEAR OF RECEIPT. HENCE, SUCH WRITE OFF OF NON-MOVIN G STORES IS ALLOWABLE EXPENDITURE AS EXPENDITURE IN THE COURSE OF RUNNING THE BUSINESS U/S 37 OF THE IT ACT. OUR VIEW IS FORTIFIE D BY THE DECISION IN THE CASE OF ALFALAVAL INDIA LTD. VS. DCIT, [2004 ] 206 ITR 418, WHEREIN THE HONBLE BOMBAY HIGH COURT HELD AS UNDER :- THAT THE DULY CERTIFIED AUDITORS REPORT PLACED BEF ORE THE AOCLEARLY JUSTIFIED VALUATION OF OBSOLETE ITEMS AT 10 PER CENT OF COST. THERE WAS NO DISPUTE THAT THE ASSESSEE IS ENTITLED TO VALUE THE CLOSING STOCK AT MARKET VALUE OR AT CO ST WHICHEVER IS LOWER. IT WAS ALSO NOT IN DISPUTE THAT THE VALUE OF THE CLOSING STOCK HAD BEEN TAKEN AS THE VALUE OF THE OPENING STOCK IN THE SUBSEQUENT YEAR. MOREOVER, IT WAS ALSO NOT DISPUTED THAT THE OBSOLETE ITEMS WERE IN FACT S OLD IN THE SUBSEQUENT YEAR AT A PRICE LESS THAN 10 PER CENT, O F THE COST. IN THE ABSENCE OF ANY BASIS FOR VALUING THE O BSOLETE ITEMS AT 50 PER CENT OF THE COST. THE TRIBUNAL COUL D NOT HAVE UPHELD THE FINDINGS OF THE AO. ITA NO. 1080/HYD/2010 NMDC LTD. 8 15. THE 2 ND ISSUE WITH RESPECT TO OBSOLETE STORES WRITTEN OFF OF RS. 110.64 LAKHS. 16. THE LEARNED COUNSEL SUBMITTED BEFORE AS FOLLOWS : DUE TO RAPID TECHNOLOGICAL CHANGES AND OBSOLESCENCE OF THE STORES ITEMS, THE COMPANY PREFERRED TO CHANGE ITS ACCOUNTING POLICY FROM VALUING 15% TO RS. 1 PER UNI T UPON DECLARING THEM AS OBSOLETE. VIDE 380 TH BOARD MEETING DATED 27/10/2004, THE COMPANY CHANGED ITS ACCOUNTING POLICY FROM FINANCIAL 2004-0 5 ONWARDS TOWARDS VALUATION OF INVENTORIES AND IT WAS PROPERLY DISCLOSED UNDER POLICY NO. 5.5 AT PAGE NO. 75 OF TH E ANNUAL REPORT WHICH IS REPRODUCED BELOW. STORES AND SPARES NOT MOVED FOR 5 YEARS AND ABOVE A ND IDENTIFIED AS OBSOLETE BY TECHNICAL ASSESSMENT ARE VALUED AT RS. 1 PER UNIT. THE EFFECT OF CHANGES HAS BEEN DISCLOSED UNDER POIN T NO. 2.2 OF SCHEDULE 24 AT PAGE NO. 106 OF THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2004-05. UPTO FINANCIAL YEAR 2003-04, THE COMPANY HAS BEEN V ALUING STOCK @ 15% OF THEIR ORIGINAL COST WHICH WAS NOT MO VED 5 YEARS OR MORE AND DECLARED AS NON-MOVING STORES. BU T FROM FINANCIAL YEAR 2004-05 ONWARDS, THE COMPANY VALUED THE STOCK AT RS. 1 PER UNIT WHICH WERE NOT MOVED 5 YEAR S OR MORE AND DECLARED AS OBSOLETE STORES ON THE RECOMMENDATION OF A TECHNICAL COMMITTEE CONSTITUTED FOR THIS PURPOSE. THE TECHNICAL ASSESSMENT OF THE STORES & SPARES IS DONE BY FORMULATING A SURVEY COMMITTEE, CONSISTING OF MEMBE RS FROM VARIOUS DEPTS. LIKE MECHANICAL (PLANT & SERVICES), ELECTRICAL (PLANT & SERVICES), CIVIL, MATERIAL, FINANCE ETC. F OR REVIEWING THE USEFULNESS OF THE INVENTORY ITEMS AND DECLARING THE SAME AS OBSOLETE IF, THE SAME ARE CONSIDERED AS SUC H. THE RECOMMENDATIONS OF THE COMMITTEE ARE PUT UP FOR CONSIDERATION AND APPROVAL OF THE BOARD OF DIRECTOR S. UPON APPROVAL THE VALUES OF THESE ITEMS ARE REDUCED TO R E.1/- PER UNIT. THIS PRACTICE IS BEING FOLLOWED CONSISTENTLY. ITA NO. 1080/HYD/2010 NMDC LTD. 9 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE ARE OF THE OPINION THAT WE FIND THAT IT IS MERELY A TRADING OR BUSINESS LOSS I.E. SHOWN IN THE BOOKS OF ACCOUNT AS MISCELLANEOUS LOSSES WRITTEN OFF. THE NON MOVING STORES WHICH ARE LYING IN STOCK ARE SOLD AT A FUTUR E DATE AND THE AMOUNTS REALIZED ON SALE IS ACCOUNTED IN THE BOOKS OF ACCOUNT AS MISCELLANEOUS INCOME IN THE YEAR OF SALES REALIZA TION. THIS IS BEING OFFERED TO TAX IN THE YEAR OF RECEIPT. SUCH W RITE OFF OF OBSOLETE STORES IS AN ALLOWABLE REVENUE EXPENDITUR E. FURTHER THE ASSESSEE HAS BEEN REGULARLY FOLLOWING THE METHOD OF ACCOUNTING AND WE FIND THAT THE COMPANY CHANGED THE ACCOUNTING POLICY FROM FY 2004-05 ONWARDS TOWARDS VALUATION OF INVENTORIES AND THE DEPARTMENT CANNOT COMPEL THE ASSESSEE TO CHOOSE THE PARTICULAR METHOD. OUR VIEW IS SUPPORTED BY THE DECISION OF JU GGILAL KAMLAPAT BANKERS VS. CIT [1975] 101 ITR 40 (ALL.). 18. AS REGARDS SHORTAGE OF STORES OF RS. 7.25 LAKHS , THE LEARNED COUNSEL SUBMITTED BEFORE US THAT ITEM-WISE DETAILS FOR RS. 7,24,903.23 HAS BEEN SUBMITTED AND DISCUSSED WITH C IT(A) DURING HEARING ON 18/05/2010. HE FURTHER SUBMITTED THAT TH E PROJECT AREA IS SITUATED IN THE AREA WHERE ACTIVITIES OF MA OIST ARE ALARMING. HE EXPLAINED THAT THERE WAS A MAOIST ATTA CK ON 09/02/2006 AT THE PROJECT ON THE EXPLOSIVE GODOWN A ND THEY HAD CARRIED LOT OF EXPLOSIVES, WHICH COULD NOT BE RECOV ERED BY POLICE. HENCE, THE SAME IS WRITTEN OFF AS SHORTAGE OF STORE S. 19. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. IN THE CASE OF BASANTLAL SANWAR PRASAD VS. CIT, 67 ITR 380 (PATNA), THE LOSS OF CASH IN A BURGLARY COMMITTED AT NIGHT IN A WHOLE SALE CLOTH WAS HELD TO BE ALLOWABL E. THE DIRECT AND PROXIMATE CONNECTION AND NEXUS MUST BE BETWEEN THE ITA NO. 1080/HYD/2010 NMDC LTD. 10 BUSINESS OPERATION AND THE LOSS. THE RISK IS INHER ENT IN CARRYING ON OF THE BUSINESS AND IS EITHER DIRECTLY CONNECTED WITH IT OR INCIDENTAL TO IT. IN THE PRESENT CASE BEFORE US, T HE ASSESSEE HAS LOST THE STOCK-IN-TRADE IN THE ORDINARY COURSE OF B USINESS DUE TO THE ATTACK BY THE MAOIST, WHICH IS AKIN TO DAY-LIGH T ROBBERY AND HENCE DEDUCTIBLE AS A BUSINESS LOSS. 20. AS REGARDS OTHER LOSSES OF RS. 1.23 LAKHS, IT W AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS L OSS IS MAINLY SHELF LIFE OF INVENTORY CONSISTING OF SCALE INHIBIT OR & WATER TREATMENT CHEMICALS AT THEIR VIZAG OFFICE. IT WAS E XPLAINED THAT DUE TO EXPIRY OF THE WATER TREATMENT CHEMICALS, THE AMOUNT HAD BEEN WRITTEN OFF. 21. WE HAVE HEARD THE ARGUMENTS OF BOTH THE CASE PA RTIES AND PERUSED THE RECORD. IN THE CASE OF HIRALAL PHOOLCHA ND VS. CIT, 15 ITR 205 (ALL.) IT WAS HELD THAT LOSS OF STOCK BY WH ITE ANTS, WHICH WAS PROVED BY THE ASSESSEE WAS AN ALLOWABLE DEDUCTI ON. THE ISSUE IS REMITTED BACK TO THE FILE OF THE CIT(A) AS NO FINDING HAS BEEN GIVEN BY THE CIT(A) ON THIS ISSUE. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 03/08/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER HYDERABAD, DATED:3 RD AUGUST, 2012. KV ITA NO. 1080/HYD/2010 NMDC LTD. 11 COPY TO:- 1) CHAIRMAN-CUM- MANAGING DIRECTOR, NMDC LTD., KHANJI BHAVAN, 10-3-311/A, CASTLE HILLS, MASAB TANK, HYDERABAD 500 173. 2) ADDL. CIT,RANGE 16, HYDERABAD 3) THE CIT (A)-V, HYDERABAD 4) THE CIT-IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.