UNIMERS INDIA LTD, NAVI MUMBAI V. ASST CIT 10(3), MUMBAI

ITA 7632/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3448 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 14-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MUKUNDRAJ M CHATE
• Keywords: Business expenditure; Share purchase agreement; Corroborative evidences; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI BEFORE SHRI JASON P.BOAZ, AM AND SHRI SANDEEP GOSAI N, JM ./ I.T.A. NO. 7632/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) UNIMERS INDIA LTD. 2/2, TTC INDUSTRIAL AREA D-BLOCK, MIDC, THANE BELAPUR ROAD, TURBHE NAVI MUMBAI-400 705. / VS. ASSISTANT COMMISSIONER OF INCOME TAX-10(3), AAYAKAR BHAWAN, 4 TH FLOOR, ROOM NO.451, M.K. ROAD MUMBAI-400 020. ./ ./PAN/GIR NO. AAACU 8716C ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : SHRI MUKUNDRAJ M. CHATE / DATE OF HEARING : 14/03/2016 !'# / DATE OF PRONOUNCEMENT : 18/03/2016 $% / O R D E R PER SANDEEP GOSAIN, J. M.: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- 22, DATED 15. 10.2013 FOR A.Y. 2009-10 ON THE FOLLOWING GROUNDS OF APPEAL. 2 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 1. FOR THAT THE LEARNED C.I.T. (A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER DISALLOWING A SUM OF RS.1 ,20 ,00,000/- PROVIDED FOR IN THE ACCOUNTS TOWARDS PART OF ARREAR WAGES IN TERMS OF MOU ENTERED INTO BETWEEN THE APPELLANT AND THE WORKERS UNION. 2. FOR THAT THE LEARNED C.I.T. (A) ERRED IN STATING TH AT THE AMOUNT OF RS.1,20,00,000/- PROVIDED FOR IN THE ACCOUNTS ON AC COUNT OF AMOUNT PAYABLE TO THE WORKERS WAS ONLY A PROVISION MERELY ON THE G ROUND THAT PAY ORDERS FOR RS.1,16,05,272/- WERE CANCELLED, SINCE THE AMOU NT WAS NOT ACCEPTED BY THE EMPLOYEES UNION WITHOUT APPRECIATING THE FACT T HAT IRRESPECTIVE WHETHER THE PAY ORDERS WERE CANCELLED OR NOT, THERE WAS LIA BILITY TO PAY THE SAID AMOUNT TO THE WORKERS IN TERMS OF THE MOU. 3. FOR THAT THE LEARNED C.I.T. (A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER DISALLOWING A SUM OF RS.8,61, 041/- BEING EXPENSES INCURRED FOR PRINTING OF DEBENTURE CERTIFICATES, PO STAL BALLOT AND POSTAGE CHARGES OF NEW CERTIFICATES SUBSEQUENT TO REDUCTION OF CAPITAL AS ENVISAGED IN THE CDR SCHEME, AS CAPITAL IN NATURE. 4. FOR THAT THE LEARNED C.I.T. (A) WAS NOT JUSTIFIED I N CONFIRMING THE ORDER OF THE ASSESSING OFFICER DISALLOWING THE AMOUNT DEBITE D IN THE ACCOUNTS FOR SLOW AND NON-MOVING INVENTORIES OF RS.31,72,246/- O N THE GROUND THAT THIS IS A MERE PROVISION, WITHOUT APPRECIATING THE FACT THA T IN MANY JUDICIAL DECISIONS RENDERED PROVISION MADE FOR SLOW AND NON- MOVING INVENTORIES HAVE BEEN HELD AS ALLOWABLE REVENUE EXPENDITURE. 3 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 5. FOR THAT THE LEARNED C.I.T. (A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER DISALLOWING A SUM OF RS. 11, 21,535/- BEING WRITE-OFF OF STOCK OF ENB (CHEMICAL) ON THE GROUND THAT NO JUSTI FICATION WAS FURNISHED BY THE APPELLANT WHEN FACTS WILL REVEAL THAT THE AMOUN T WRITTEN OFF WAS THE DIFFERENCE BETWEEN THE OPENING BALANCE OF RS.60,72, 052/- AND THE CONSUMPTION VALUE OF RS.38,55,770/-, WHICH WAS NORM AL LOSS DUE TO EVAPORATION. 6. THAT THE APPELLANT CRAVES LEAVE TO ALTER, AMEND AND /OR TO TAKE ADDITIONAL GROUND / S BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS E-FILED ON 29.09.2009 DECLARING LOSS OF RS.4,52,08,012/-. THE SAME WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. THEREAFTER NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 20.08.2010 AND DULY SERVED ON THE ASSESSEE. IN RESP ONSE TO NOTICE THE ASSESSEE SUBMITTED HIS SUBMISSIONS VIDE LETTER DATED 10.09.2 010, 24.07.2011, 08.08.2011, 04.10.2011, 15.11.2011, 02.11.2011 AND 12.12.2011. AFTER CONSIDERING REPLIES SUBMITTED BY THE ASSESSEE THE AO PASSED ORDER OF AS SESSMENT U/S 143(3) OF THE I.T. ACT AND COMPUTED THE TOTAL INCOME THEREBY MAKING AD DITIONS UNDER VARIOUS HEADS. 3. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE FILED THE APPEAL BEFORE CIT(A) AND THE CIT(A) AFTER CONSIDERING THE CASE OF ASSESS EE PARTLY ALLOWED THE APPEAL AND SUSTAIN CERTAIN ADDITIONS MADE BY AO VIDE ITS ORDER DATED 15.10.2013. 4 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 4. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE FI LED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. 5. AT THE VERY OUTSET, IT IS NOTICED THAT EVEN IN S PITE OF SEVERAL NOTICES, NONE HAS APPEARED ON BEHALF OF ASSESSEE AND ON THE PERUSAL O F ORDER SHEET WE HAVE NOTICED THAT NOBODY WAS APPEARING ON BEHALF OF ASSESSEE FOR THE LAST SEVERAL DATES. ALTHOUGH THE NOTICES WERE ALSO SERVED UPON THE ASSE SSEE FOR APPEARING BEFORE US, BUT EVEN THEN THE ASSESSEE HAS NOT PREFERRED TO APP EAR AND EVEN NO APPLICATION FOR ADJOURNMENT WAS MOVED TODAY. ON THE OTHER HAND LD. DR IS PRESENT IN THE COURT AND IS READY WITH ARGUMENTS. THEREFORE WE HAVE DECI DED TO PROCEED WITH THE HEARING OF THE CASE EX-PARTE WITH THE ASSISTANCE OF THE LD. DR AND THE MATERIAL ON RECORD. GROUND NO. 1&2 6. LD. DR REPRESENTING THE REVENUE RELIED UPON THE ORDERS PASSED BY THE CIT(A). 7. WE HAVE PERUSED THE ORDER OF THE CIT(A) AND WE F OUND THAT THE CIT(A) HAS DULY CONSIDERED ALL SUBMISSIONS MADE BY THE ASSESSE E AND THE OPERATIVE PARA OF CIT(A) WHILE DEALING WITH THE AFORE MENTIONED GROUN D IS REPRODUCED BELOW: 5 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 2.1 THE AO HAD DISCUSSED THE ISSUE IN PARA 4 OF THE ASSESSMENT ORDER. THE AO FOUND THAT THE APPELLANT HAD DEBITED A SUM O F RS.1.02 CRORES UNDER THE HEAD 'EXCEPTIONAL ITEMS'. ACCORDING TO TH E NOTES TO ACCOUNTS, PROVISION WAS CREATED TOWARDS LEGAL DUES AND COMPEN SATION PAYABLE TO WORKMEN SINCE THE MANUFACTURING OPERATIONS WERE CLO SED FROM 26.06.2008. SINCE THE APPELLANT HAD FAILED TO FURNI SH ANY SUPPORTING EVIDENCE TO SHOW WHETHER IT WAS A PROVISION OR AN A CTUAL PAYMENT MADE INSPITE OF A SPECIFIC OPPORTUNITY, THE AO HAD DISAL LOWED THE SAME. 2.2 THE SUBMISSION OF THE APPELLANT IS AS UNDER:- 'THE LEARNED ASSESSING OFFICER HAS DISALLOWED EXCEP TIONAL ITEMS OF EXPENDITURE AMOUNTING TO RS. 1,20,00,000 ON GROU NDS THAT THEY WERE MERE PROVISIONS AND NOT PAID DURING THE YEAR O R NOT PAYABLE IN FUTURE. IT WAS EXPLAINED TO THE LEARNED ASSESSING OFFICER T HAT THEY ARE EXPENSES TOWARDS PAYMENT OF LEGAL AND SETTLEMENT OF WORKERS' DUES AFTER SHUTDOWN OF THE PLANT AS PER A MEMORANDU M OF UNDERSTANDING (MOU) ENTERED INTO BETWEEN MANAGEMENT AND UNION AND ACCORDINGLY THE COMPANY AN INTERIM MEASUR E E WORKED OUT THE DUES AND MADE A PROVISION FOR RS. 1,20,000/ - DURING THE AS PER MOU THE WORKERS DUES WERE COMING TO RS 3,56, 11,4851- AND ACCORDINGLY THE BALANCE AMOUNT WAS PROVIDED FOR IN THE NEXT YEAR'S BOOKS. FURTHER THE COMPANY HAD MADE OUT A PA Y ORDER FOR RS 1,16,05,272 DATED 28.8.2008 WHICH WAS NOT ACCEPT ED BY THE UNION. THE PAY ORDER WAS RETURNED TO THE COMPANY AN D THE SAME WAS CANCELLED. COPY OF THE BANK STATEMENT SHOWING T HE WITHDRAWAL AND DEPOSIT AFTER CANCELLATION OF THE PA Y ORDER OF RS. 6 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 1,16,05,272 AS WELL AS THE SETTLEMENT REACHED WITH THE LABOUR UNION ARE ATTACHED FOR THE REFERENCE OF YOUR HONOUR . THE ASSESSING OFFICER AT NO STAGE OF THE PROCEEDING S EXPRESS A NEED TO VERIFY DOCUMENTS OTHER THAN THE EXPLANATION S GIVEN. WHEN SUCH EVIDENCES ARE AVAILABLE, WE FAIL TO UNDERSTAND WHY THE SAME SHOULD BE TREATED AS A MERE PROVISION BY THE ASSESS ING OFFICER. THE BALANCE AMOUNT OF RS. 2,36,11,4851- HAS BEEN PR OVIDED IN THE 2010-11(ASS YEAR 2011-12). ON GROUNDS OF THE FOLLOW ING ARGUMENTS THIS EXPENDITURE SHOULD BE ALLOWED AS NOR MAL BUSINESS EXPENDITURE: THE CONDITIONALITIES LAID DOWN UNDER SECTION 37(1) FOR ALLOWABILITY OF ANY EXPENDITURE UNDER THE NOMENCLATURE OF BUSINESS EXPENDITURE CAN BE STATED IN BRIEF AS FOLLOWS: (I) THE EXPENDITURE INCURRED SHOULD NOT BE OF A NA TURE DESCRIBED IN SECTIONS 30 TO 36 ; (II) THE EXPENDITURE SHOULD NOT BE IN THE NATURE O F CAPITAL EXPENDITURE; (III) THE EXPENDITURE SHOULD NOT CONSTITUTE PERSON AL EXPENSES OF THE ASSESSEE; AND (IV) THE EXPENDITURE SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OR PROFESSION, THE INCOME ARISING IN RESPECT OF WHICH, IS CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' IS ESS ENTIALLY WIDER THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING PRO FITS'. IT COVERS 7 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT NOT ONLY THE RUNNING OF THE BUSINESS OR ITS ADMINIS TRATION BUT ALSO THE MEASURES FOR THE PRESERVATION OF THE BUSINESS. IT MAY LEGITIMATELY COMPREHEND MANY OTHER ACTS INCIDENTAL TO THE ACT OF CARRYING ON THE BUSINESS - CIT V. BIRLA COTTON SPG. & WVG. MILLS LTD. [1971J 82 ITR 166 (SC). EARLIER IN TRAVANCORE TITANIUM PRODUCTS LTD. V. AT [1966160 ITR 277 (SC), THE COUR T HAD OBSERVED: 'THE NATURE OF THE EXPENDITURE OR OUTGOING MUST BE ADJUDGED IN THE LIGHT OF ACCEPTED COMMERCIAL PRACTICE AND TRADI NG PRINCIPLES. THE EXPENDITURE MUST BE INCIDENTAL TO THE BUSINESS AND MUST BE NECESSITATED OR JUSTIFIED BY COMMERCIAL EXPEDIENCY. IT MUST BE DIRECTLY AND INTIMATELY CONNECTED WITH THE BUSINESS AND BE LAID OUT BY THE TAXPAYER IN HIS CHARACTER AS A TRADER. T O BE A PERMISSIBLE DEDUCTION, THERE MUST BE A DIRECT AND I NTIMATE CONNECTION BETWEEN THE EXPENDITURE AND THE BUSINESS , I.E., BETWEEN THE EXPENDITURE AND THE CHARACTER OF THE AS SESSEE AS A TRADER AND NOT AS OWNER OF ASSETS, EVEN IF THEY ARE ASSETS OF THE BUSINESS .' THERE ARE SEVERAL OTHER DECISIONS OF THE SUPREME CO URT AND THE HIGH COURTS ON THE INTERPRETATION OF EXPRESSION 'FO R THE PURPOSE OF BUSINESS. ' THE PROVISION FOR LABOUR PAYMENTS IS NOT A CONTINGE NCY EXPENDITURE BUT A CRYSTALISED LIABILITY ARISING OUT OF A SETTLEMENT MADE WITH THE LABOUR COURT THEREFORE THE SAME SHOUL D BE ALLOWED AS AN EXPENDITURE. 8 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT IF THE HONOURABLE CIT (APPEALS) DECIDES THAT THE PR OVISION SHOULD NOT ALLOWED AS A DEDUCTION, AN ORDER STATING THAT T HE SAME SHOULD BE ALLOWED AT THE TIME OF PAYMENT. 2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE APPELLANT AND THE IMPUGNED ASSESSMENT ORDER. THE ABOVE SUBMISSION CLE ARLY SHOWS THAT A SUM OF RS.1.16.05.272/- TO THE WORKERS IN THE FORM OF PAY ORDER WAS NOT ACCEPTED BY THE EMPLOYEES' UNION AND THE APPELLANT HAD TO CANCEL THE SAME. IN SUPPORT OF THIS, COPY OF THE BANK STATEMEN T MAINTAINED WITH CORPORATION BANK FOR THE PERIOD 01.04.2008 TO 31.03 .2009 SHOWING THE WITHDRAWAL AND DEPOSIT AFTER CANCELLATION WAS FILED . FROM THE ABOVE IT IS CLEAR THAT THE APPELLANT HAD NOT INCURRED ANY EXPEN DITURE BUT MADE ONLY A PROVISION IN ITS ACCOUNT AND HENCE, THE CONTENTIO N OF THE APPELLANT IS NOT ACCEPTED. THE ADDITION MADE BY THE AO IS HEREBY SUSTAINED. THIS GROUND OF APPEAL IS DISMISSED. 8. AFTER ANALYZING THE AFORE MENTIONED ORDER WE FOU ND THAT THE CIT(A) HAS DEALT WITH THE ISSUES AND HAS PASSED JUDICIOUS ORDE R AND NO CIRCUMSTANCES HAVE BEEN BROUGHT BEFORE US IN ORDER TO CONTROVERT OR RE BUT THE FINDINGS RECORDED BY THE CIT(A). THEREFORE, WE SEE NO REASON TO DEVIATE OR I NTERFERE INTO THE FINDINGS RECORDED BY THE CIT(A) AND HENCE, WE REJECT THESE G ROUNDS OF APPEAL RAISED BY THE ASSESSEE AND UPHOLD THE ORDER OF THE CIT(A). 9 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT GROUND NO. 3TO5 9. ALL THE AFORE MENTIONED GROUNDS, NO.3&5 ARE DIR ECTED AGAINST DISALLOWANCE OF VARIOUS EXPENDITURES MADE BY THE AO AND CONFIRME D BY THE CIT(A). 9.1 LD. DR APPEARING ON BEHALF OF REVENUE RELIED UP ON THE ORDERS PASSED BY THE CIT(A). 9.2. WE HAVE PERUSED THE ORDER OF THE CIT(A) AND WE FOUND THAT THE CIT(A) HAS DULY CONSIDERED ALL SUBMISSIONS MADE BY THE ASSESSE E AND THE OPERATIVE PARA OF CIT(A) WHILE DEALING WITH THE AFORE MENTIONED GROUN D IS REPRODUCED BELOW: 3. GROUNDS OF APPEAL NO.3 TO 8 ARE DIRECTED AGAINST DISALLOWANCE OF VARIOUS EXPENDITURES UNDER THE FOLLOWING HEADS: RESTRUCTURING EXPENSES : RS. 8,61,041/ RATES & TAXES : RS.37,16,647/- PROVISION FOR SLOW AND NONMOVING INVENTORIES : R S.31 ,72,2461- LOSS OF STOCK DUE TO EVAPORATION : RS.87,49,640/- PRIOR PERIOD ADJUSTMENT : RS. 9,530/- 3.1 THE AO HAD DISCUSSED THE ISSUE IN PARA 5.1 TO 5 .3 OF THE ASSESSMENT ORDER. THE AO WAS OF THE VIEW THAT THE ABOVE EXPEND ITURE BEING INCURRED AFTER CLOSURE OF THE MANUFACTURING ACTIVITY OR IT I S PRIOR PERIOD EXPENDITURE. IN THE ABSENCE OF ANY EVIDENCE TO PROV E THAT THE EXPENDITURE 10 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT IN RESPECT OF RESTRUCTURING HAS BEEN REALLY INCURRE D DURING THE YEAR. HE WAS OF THE VIEW THAT IT IS REVENUE IN NATURE AND AS FAR AS THE EVAPORATION LOSS IS CONCERNED. HE GAVE A FINDING THAT NO SUCH L OSS WAS CLAIMED IN THE EARLIER YEAR AND HENCE DISALLOWED. WITH REGARD TO P ROVISION MADE IN RESPECT OF NON-MOVING AND SLOW MOVING STOCKS. A FIN DING WAS GIVEN THAT PROVISION CANNOT BE ALLOWED AS EXPENDITURE BY THE A O UNDER THE INCOME- TAX ACT. IN ABSENCE OF ANY EVIDENCE TO SHOW THAT TH E PRIOR PERIOD EXPENDITURE HAS REALLY BEEN CRYSTALLIZED DURING THE YEAR, THE AO DISALLOWED THIS ALSO. 3.2 THE SUBMISSION OF THE APPELLANT IN RESPECT OF R ESTRUCTURING EXPENSES IS AS UNDER:- 'A SUM OF RS.8, 61,0411- WAS DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE APPELLANT AS RESTRUCTURING EXPENSES. THIS AMOUNT REPRESENTED COST OF PRINTING DEBENTURE CERTIFICATES , POSTAL BALLOT AND POSTAGE CHARGES OF NEW SHARE CERTIFICATES SUBSE QUENT TO REDUCTION IN CAPITAL. BEFORE THE ASSESSING OFFICER IT WAS ERRONEOUSLY SUBMITTED BY US THAT THESE ARE EXPENSES INCURRED TO ASSIGN THE LEASEHOLD RIGHTS OF ITS LAND. OUR APOLOG IES FOR THE SAME. AS THE THE EXPENSES WERE INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT AND AS THE EXPENDITURE IS REVENUE IN NATURE, IT SHOULD BE ALLOWED AS AN EXPEN DITURE . ON THE ABOVE GROUNDS THE RESTRUCTURING EXPENSES OF RS.8, 61,041/- SHOULD BE ALLOWED AS A REVENUE EXPENDITURE . 11 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 3.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE APPELLANT. I FIND FROM THE ABOVE SUBMISSION THAT CONSEQUENT TO THE RE DUCTION OF CAPITAL, THE APPELLANT HAD CLAIMED EXPENDITURE RELATED TO PR INTING THE DEBENTURE CERTIFICATE, NEW SHARE CERTIFICATES AND POSTAGE AND BALLOT ETC. UNDER THIS HEAD. THE HON'BLE SUPREME COURT IN THE CASE OF BROO K BOND INDIA LTD. REPORTED IN 225 ITR 798 HAD HELD THAT EXPENDITURE I NCURRED IN CONNECTION WITH ADDITIONAL ISSUE OF SHARES ARE DIRE CTLY RELATED TO EXPANSION OF CAPITAL BASE AND HENCE CAPITAL EXPENDI TURE. APPLYING THE SAME ANOLOGY, THE EXPENDITURE INCURRED TO REDUCE TH E CAPITAL BASE IS DIRECTLY LINKED TO CAPITAL EXPENDITURE AND HENCE, T HE CLAIM OF APPELLANT THAT IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS CANNOT BE ACCEPTED. THE ADDITION MADE BY THE AO IS SUSTAINED AND THIS GROUND OF APPEAL IS DISMISSED. 3.6 THE SUBMISSION IN CONNECTION WITH PROVISION MAD E FOR SLOW AND NON- MOVING INVENTORIES IS AS UNDER:- 'A SUM OF RS.31,72,246/- DEBITED IN THE PROFIT & LO SS ACCOUNT AS PROVISION FOR SLOW AND NON-MOVING INVENTORIES HAS B EEN DISALLOWED BY THE LEARNED ASSESSING OFFICER. SINCE THE APPELLANTS OPERATIONS WERE CLOSED, THE STATUTORY AUDITORS HAD INSISTED TO REVALUE THE INVENTORIES RELATING TO NON-MOVING ITEM S AND TO WRITE- OFF 25% OF THE VALUE ANNUALLY. THE BREAK-UP OF THE AMOUNT IS AS FOLLOWS:- A. IMPORTED RAW MATERIAL (LYING IN THE DOCKS FOR SE VERAL MONTHS) RS. 27.34 LAKHS 12 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT THE STOCK WAS LYING IN OPEN AREA AND HAD OUTLIVED I TS LIFE. TO RELEASE THE STOCK THE COMPANY WOULD HAVE INCURRED U NPRODUCTIVE EXPENSES AND ALSO THE COMPANY DID NOT HAVING WORKIN G CAPITAL TO PAY CUSTOMS DUTY. THE REALIZABLE VALUE WOULD ALSO B E NEGLIGIBLE IF EN ATTEMPT WAS MADE TO SELL THEM. FURTHER EVEN AFTE R PAYING DUTY AND BRINGING THE GOODS TO FACTORY AS THE LIFE OF TH E MATERIAL WAS OVER IT WAS DECIDED TO WRITE IT OFF OVER 4 YEARS. D ETAILS OF SUCH LOSSES IN QUANTITATIVE AND VALUE TERMS HAVE BEEN SU BMITTED TO THE LEARNED ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS. OTHER STOCKS DUE TO WEAR AND TEAR A PACKING MATERIALS 1.01 LACS B. STORES & SPARES 2.7 4 LACS C. OIL & GASES 0.63 LACS SINCE THE PROVISION MADE FOR SLOW AND NON-MOVING IN VENTORIES IS A REDUCTION IN THE VALUE OF INVENTORIES, SUCH REDUC TION WAS CLAIMED AS AN ALLOWABLE EXPENDITURE. AS THE COMPANY HAS CONSISTENTLY VALUED STORES SPARES AND IMPORTED MATE RIALS AT LOWER OF COST OR NET REALIZABLE VALUE, IT IS A RECOGNIZED METHOD OF ACCOUNTING AND SHOULD BE RIGHTFULLY ALLOWED AS AN E XPENDITURE. IT MAY BE NOTICED ON THE BASIS OF SEVERAL DECISIONS OF THE HIGH COURTS THAT THE TAXPAYER IS ENTITLED TO ISSUE THE S TOCKS, WHETHER AT COST OR MARKET PRICE, WHICHEVER IS LOWER, NOT ONLY IN RESPECT OF THE ENTIRE STOCK-IN-TRADE, BUT COMPARTMENTALLY ON DIFFE RENT TYPES OF STOCKS PROVIDED THE SAME METHOD IS FOLLOWED CONSIST ENTLY AND THE TAXPAYER CAN ALSO ASCERTAIN, OF COURSE, CONSISTENTL Y, THE COST OR 13 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT MARKET VALUE ON ANY ONE OR MORE PRINCIPLES, VIZ., A VERAGE COST, TOTAL COST, COST OF IDENTIFIABLE LOTS, LAST BUYING RATE, AVERAGE MARKET PRICE, RULING MARKET PRICE, ETC. THE EMPHASI S IS ALWAYS ON CONSISTENCY AND CLARITY AND UNIFORMITY OF METHOD. T HERE IS NO ABSTRACTNESS OF PRINCIPLES AND THE TAXPAYER IS ENTI TLED TO TAKE INTO ACCOUNT THE CUSTOM OF THE TRADE, THE SPECIAL REQUIR EMENTS OF THE PARTICULAR LINE OF BUSINESS AND PRACTICABILITY OF T HE VALUATION . IN ALL CASES, DUE REGARD MUST BE HAD TO THE CONDITI ON AND LOCATION OF THE GOODS AND TO THE MARKET CONDITIONS GENERALLY -EXTRACTED FROM ACCOUNTANCY BY WILLIAM PICKLES (THIRD EDN.). , .- THE STANDARD TEXT-BOOK ON ADVANCED ACCOUNTING BY J. R. BATLIBOI, TWENTIETH EDN., PP. 66 AND 539, HAS THIS TO SAY ON THE VALUATION OF CLOSING STOCK : THE VALUATION PLACED ON THE CLOSING STOCK MUST RECE IVE THE MOST CAREFUL ATTENTION, AS THE CORRECTNESS OF THE PROFIT OF A BUSINESS WOULD DEPEND TO A CONSIDERABLE EXTENT ON THE ACCURA CY WITH WHICH THIS ASSET IS VALUED. STOCK -IN-TRADE IS A FLOATING ASSET AND, THEREFORE, THE BASIS OF VALUATION SHOULD BE COST PR ICE OR MARKET PRICE, WHICHEVER BE THE LOWER AT THE DATE OF THE BA LANCE SHEET. UNDER NO CIRCUMSTANCES SHOULD IT BE VALUED ABOVE CO ST, AS THIS WOULD RESULT IN ANTICIPATION PROFITS, WHICH MAY OR MAY NOT BE REALISED. THE FOLLOWING PRINCIPLES MAY BE LAID DOWN AS SOUND IN DETERMINING THE VALUE OF THE STOCK OF UNSOLD GOODS ON HAND, NAMELY: 14 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 1. PROFIT ON GOODS IS DEEMED TO HAVE BEEN EARNED O NLY WHEN THE GOODS ARE ACTUALLY SOLD. 2. NO PROFIT SHOULD BE ANTICIPATED AND TAKEN CREDI T FOR UNTIL IT IS EARNED. 3. IF THERE IS ANY CHANCE OF A LOSS LIKELY TO ARIS E, THE SAME MUST IMMEDIATELY BE PROVIDED FOR; AND IN VIEW OF TH E ABOVE RULES, IT FOLLOWS THAT THE STOCK OF UNSOLD GOODS SH OULD ALWAYS BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. THE PRINCIPLE OF VALUATION OF CLOSING STOCK AT COST OR MARKET PRICE. WHICHEVER IS LOWER, IS NOTED BY HRISHIKESH CHAKRABO RTY IN HIS ADVANCED ACCOUNTANCY AS BASED ON THE DOCTRINE OF CO NSERVATION, THAT IS PROVIDING FOR EXPECTED LOSSES BUT NOT ANTIC IPATING PROFITS. BUT WHEN IT CONIES TO TAXATION OF INCOME, THE REVEN UE IS CONCERNED WITH THE ASCERTAINMENT AND QUANTIFICATION OF INCOME OF A PARTICULAR 'PREVIOUS YEAR' AND, THEREFORE, THE REVE NUE WOULD DESIRE NATURALLY THAT THE TRUE PROFITS ARE SO ASSESSED, TR UE PROFITS NOT BEING ALWAYS IDENTIFIABLE WITH ASSESSABLE PROFDS, B ECAUSE OF THE INCLUSION OF STATUTORILY DEEMED PROFITS. THAT PROF ITS OF A BUSINESS OR PROFESSION HAVE TO BE ASCERTAINED WHERE BOOKS OF ACCOUNT ARE MAINTAINED FOR THE SAME, ACCORDING TO THE METHOD OF ACCOUNTING EMPLOYED BY THE TAXPAYER, GOES WITHOUT SAYING IN VI EW OF THE SPECIFIC MANDATE AND INJUNCTION CONTAINED IN SECTIO N 145(1). IN CHAINRUP SAMPATRAM V. CIT [19531241TR 481 (SO, I T WAS NOTED THAT: 15 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT . . IT IS A MISCONCEPTION TO THINK THAT ANY PROFIT, 'ARISES OUT OF THE VALUATION OF THE DOSING STOCK ' AND THE SUITS OF IT S ARISING OR ACCRUAL IS WHERE THE VALUATION IS MADE. VALUATION OF UNSOLD ST OCK AT THE DOSE OF AN ACCOUNTING PERIOD IS A NECESSARY PART OF THE PROCES S OF DETERMINING THE TRADING RESULTS OF THAT PERIOD, AND CAN ;N NO SENSE BE REGARDED AS THE SOURCE' OF SUCH PROFITS .... (P. 481) THIS CAN BE BEST EXPLAINED IN THE CONTEXT OF ASCERT AINMENT OF TAXABLE PROFITS AND GAINS BY REPRODUCING THE WORDS OF THE S UPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM ( SUPRA ) TO THE FOLLOWI NG EFFECT: ... WHILE ANTICIPATED LOSS IS THUS TAKEN INTO ACCO UNT ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHO W INCREASED PROFIT BEFORE ITS ACTUAL REALISATION. THIS IS THE THEORY U NDERLYING THE RULE THAT THE CLOSING STOCK ;S TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOWER AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABL ISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY. AS PROFITS FOR INCOME-TAX PURPOSES ARE TO BE COMPUTED IN CONFORMITY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS OF COURSE, SUCH PR INCIPLES HAVE BEEN SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS, U NREALIZED PROFITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING U NSOLD AT THE END OF AN ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWIN G YEAR'S ACCOUNT IN A BUSINESS THAT IS CONTINUING ARE NOT BROUGHT INTO TH E CHARGE AS A MATTER OF PRACTICE, THOUGH, AS ALREADY STATED, LOSS DUE TO A FALL IN PRICE BELOW COST IS ALLOWED EVEN IF SUCH LOSS HAS NOT BEEN ACTUALLY REALISED. AS TRULY OBSERVED BY ONE OF THE LEARNED JUDGES IN WHIMSTER & CO. V. IRC {1926J12 TC 813, 827, 'UNDER THIS LAW (REVENUE LAW) THE PROFITS ARE 16 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT THE PROFITS REALISED IN THE COURSE OF THE YEAR. WHA T SEEMS AN EXCEPTION IS RECOGNISED WHERE A TRADER PURCHASED AND STILT HOLDS GOODS OR STOCKS WHICH HAVE FALLEN IN VALUE. NO LOSS HAS BEEN REALIS ED. LOSS MAY NOT OCCUR. NEVERTHELESS, AT THE CLOSE OF THE YEAR HE IS PERMITTED TO TREAT THESE GOODS OR STOCKS AS OF THEIR MARKET VALUE. ' (P. 4 85) FROM THIS IT IS CLEAR THAT IF A TAXPAYER HAS ADOPTE D A WELL-RECOGNISED METHOD OF VALUATION OF CLOSING STOCK AND STUCK TO I T CONSISTENTLY, IT CANNOT BE REJECTED BY THE ASSESSING OFFICER MERELY BECAUSE IT IS DISADVANTAGEOUS TO THE REVENUE. THE CASE OF GARDEN REACH WORKSHOP LTD. V. CIT [1981J 132 ITR 814 (CAI.), WHICH WAS AG AINST THE TAXPAYER, MUST BE READ AS CONFINED TO THE FACTS' OF THE CASE IN WHICH THE TRIBUNAL, RIGHTLY OR WRONGLY, HELD THAT THE METHOD OF VALUATI ON OF WORK-ILL- PROGRESS OF THE ASSESSEE'S SHIP-REPAIRING BUSINESS, AT 'COST OR REALISABLE VALUE WHICHEVER IS LESS', WHICH WAS A- VARIATION OF THE PREVIOUSLY REGULARLY ADOPTED 'COST BASIS', WAS NOT IN CONSONAN CE WITH RECOGNISED PRINCIPLES OF ACCOUNTANCY. THIS FINDING OF FACT WAS BINDING ON THE HIGH COURT WHICH HAD, THEREFORE, TO UPHOLD THE TRIBUNAL' S ORDER ILL THE TAX REFERENCE. THE DECISION SHOULD NOT BE CONSTRUED AS ONE DISABLING A TAXPAYER FROM CHANGING THE METHOD OF VALUATION AND MAKING A CLEAN BREAK WITH PAST PRACTICE. THE CASE OF BRITISH PAINT S INDIA LTD. ( SUPRA ) AND CARBORANDUM UNIVERSAL LTD. ( SUPRA ) AND MANY O THER DECISIONS PRECEDING THEM HAVE RULED THAT A BONA TIDE CHANGE M ADE IN THE BASIS OF VALUATION OF STOCK AND THEREAFTER REGULARLY ADOPTED IS PERMISSIBLE, PROVIDED IT IS A RECOGNISED BASIS OR METHOD AND IS ACTED UPON REGULARLY IN FUTURE YEARS. 17 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT STOCK -IN-TRADE, AS THE TERM ITSELF SUGGESTS, HAS B EEN LEGALLY DEFINED AS 'THE EQUIPMENT, MATERIALS OR GOODS WITH WHICH A MER CHANT OR TRADER CARRIES ON BUSINESS'- MITRA'S LEGAL & COMMERCIAL DI CTIONARY, P. 537. BUT THAT WOULD NOT BE SUFFICIENT FOR THE PURPOSES O F ASCERTAINING THE PRINCIPLES OF VALUATION OF STOCK -IN-TRADE OF A PER SON OTHER THAN A MET TRADER. STOCK -IN-TRADE MAY INCLUDE NOT ONLY FINISH ED GOODS IN STOCK, BUT ALSO WORK-IN-PROGRESS, SEMI-FINISHED GOODS, CONSUMA BLE STORES AND SPARES, TRADING GOODS AND SEMI-PROCESSED GOODS IN T HE CASE OF A MANUFACTURER OR MANUFACTURER-CUM-TRADER. THE VALUAT ION OF FINISHED GOODS MAY NOT POSE A PROBLEM IN ALL CASES. BUT SEMI -FINISHED GOODS, WORK-IN-PROGRESS (PARTICULARLY IN THE CASE OF A BUI LDER OR CONTRACTOR) AND SPARE PARTS MAY LEAD TO DEBATABLE QUESTIONS. IN ALL THESE MATTERS, TWO FACTORS HAVE TO BE REMEMBERED. ONE IS THAT THE VALUATION OF CLOSING STOCK IS A QUE STION OF FACT AND THE OTHER IS THAT THE PRINCIPLES OF VALUATION OF STOCK AM MATTERS WITHIN THE PROVINCE OF THE DISCIPLINE OF ACCOUNTANCY AND REGUL ATED BY COMMERCIAL PRACTICE IN THE RELEVANT TRADE, INDUSTRY OR COMMERC IAL FIELD. HENCE, NO THEOCRATIC IMPOSITION OF A RULE OR PRINCIPLE OPPOSE D TO SUCH ACCOUNTANCY PRACTICES WOULD BE JUSTIFIED. THE PURPOSE OF VALUATION OF STOCK -ON-HAND IS TO AS CERTAIN THE TRUE PROFITS OF AN ACCOUNTING PERIOD AND AS LONG AS IT I S DONE ON THE BASIS OF SOME WELL RECOGNISED AND GENERALLY PREVALENT PRACTI CE AND IS OTHERWISE INTELLIGIBLE, IT HAS GOT TO BE ACCEPTED AND ACTED U PON BY THE ASSESSING AUTHORITY. THE MANUFACTURER OR OTHER BUSINESSMAN IS THE BEST JUDGE OF WHAT METHOD OF VALUATION IS THE MOST SUITABLE AND A PPROPRIATE FOR THE PARTICULAR LINE OF MANUFACTURE OR OTHER BUSINESS IN WHICH HE IS ENGAGED AND UNLESS HE ACTS FRAUDULENTLY OR INCONSISTENTLY O R IRREGULARLY IN FIXING 18 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT THE VALUE OF STOCK - IN-TRADE FOR ASCERTAINING CHAR GEABLE PROFITS, THE METHOD ADOPTED BY HIM OUGHT NOT TO BE CALLED IN QUE STION. ACTING IN TERMS OF THE PROVISION TO SECTION 145(1), WHEN THE CIRCUMSTANCES OF THE CASE DO NOT ATTRACT THAT PROVI SO, WOULD RENDER THE ASSESSMENT MADE BY THE ITO SUSCEPTIBLE OF INTERFERE NCE BY THE APPELLATE AUTHORITY IF NOT BY THE REVISIONARY AUTHORITY. AS S AID BY THE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM ( SUPRA) AN D IN THE ENGLISH CASES, WHICH WERE FOL/OWED BY THE SUPREME COURT IN THAT CONTEXT, THE BASIC PRINCIPLE IS THAT NO ANTICIPATED PROFITS OF A TRADER OR BUSINESSMAN SHOULD BE BROUGHT TO TAX TILL ACTUALLY REALISED ON THE BASIS OF THE METHOD OF ACCOUNTING ADOPTED BY THE TRADER OR BUSINESSMAN, WHILE HE IS NOT PRECLUDED FROM TAKING ACCOUNT OF THE ANTICIPATED LO SSES (DUE TO A FALL IN PRICES IN THE CONCERNED MARKET) AND THIS LATTER IS JUSTIFIED NOT ONLY BECAUSE IT IS BENEFICIAL TO THE TAXPAYER BUT ALSO B ECAUSE IT ENABLES HIM TO EVEN OUT HIS LOSSES. THAT BEING THE POSITION, A TOO READY OR UNJUSTIFIED INTERFERENCE WITH THE METHOD OF VALUATION GIVES RIS E ONLY TO NEEDLESS LITIGATION, HARASSMENT TO THE TAXPAYER AND A WASTE OF TIME, LABOUR AND MATERIAL FOR THOSE RESPONSIBLE FOR MAKING THE ASSES SMENT AND COLLECTION OF LEGITIMATE REVENUE FOR THE EXCHEQUER. IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (2) OF SECTION 145 OF THE INCOME-TAX ACT. 1961 (43 OF 1961), THE CENTRAL GOVERNMENT NOTIFIED ACCOU NTING STANDARDS VIDE NOTIFICATION NO. 9949 [F. NO. 13217F.J5-TPL] DATED 25-1-1996 TO BE FOLLOWED BY ALF ASSESSEES FOLLOWING MERCANTILE SYST EM OF ACCOUNTING, NAMELY : 19 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT '4. ACCOUNTING POLICIES ADOPTED BY AN ASSESSEE SHOU LD BE SUCH SO AS TO REPRESENT JJ TRUE AND FAIR VIEW OF THE STATE OF AFF AIRS OF THE BUSINESS, PROFESSION OR VOCATION IN THE FINANCIAL STATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES. FOR THIS PURPOSE, THE MAJOR CONSIDERATIONS GOVERNING THE SELECTION AND APPLICAT ION OF ACCOUNTING POLICIES ARE FOLLOWING, NAMELY . ( I) PRUDENCE - PROVISIONS SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMI NED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN TH E LIGHT OF AVAILABLE INFORMATION; (II) SUBSTANCE OVER FORM (III) MATERIALITY ON MAY 26, 2009, THE ITAT MUMBAI BENCH 'J'IN THE CA SE OF JACOBS ENGINEERING INDIA (P.) LTD. V. ASSTT. CIT [2011] 14 TAXMANN.COM 186, HELD AS FOLLOWS: 'HAVING REGARD TO THE ABOVE LEGAL AND FACTUAL DISCU SSIONS, AND FOLLOWING THE DECISION OF THE ITA T IN THE CASE OF MAZAGON DOCK LTD. ( SUPRA ) AND METAL BOX CO. OF INDIA LTD. ( SUPRA) AN D DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF WOODWARD GO VERNOR INDIA (P.) LTD. (SUPRA) THE CONTENTION OF THE ASSESSEE REGARDI NG ALLOWABILITY OF FORESEEABLE LOSS IS ACCEPTED IN PRINCIPLE. 20 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT IT IS CLEAR FROM ABOVE THAT THE UNDERLYING REASONS OF CONTROVERSY ARE THE PROVISIONING FOR ANTICIPATED LOSSES. AS THE TAXATIO N AUTHORITIES ARE NOT YET COMFORTABLE WITH THE REQUIREMENT OF PROVISIONIN G FOR ANTICIPATED LOSSES, THE CBOT HAS ISSUED EXPOSURE DRAFT OF 'TAX ACCOUNTING STANDARDS ON CONSTRUCTION CONTRACTS' LAYING DOWN RU LES FOR COMPUTATION OF TAXABLE INCOME. YOUR ATTENTION IN ALSO INVITED TO THE RECENT DECISI ONS OF THE HONOURABLE SUPREME COURT WITH REGARD TO DIMUNITION IN VALUE OF STOCK IN: CLT V. HINDUSTAN LINE LIMITED (2007) 2911TR 3911161 TAXMAN 162 AND CIT V. BRITISH PAINTS INDIA LIMITED (1991) 1881TR 4 4154 TAXMAN 499. THE DELHI HIGH COURT IN CIT V HOTLINE TELETUBE AND COMPONENTS LTD (2008) 175 TAXMAN 286 HAS TAKEN THE SAME VIEW. IT IS IMPORTANT TO POINT OUT TO YOUR HONOUR THAT IN THE PREVIOUS YEARS ALSO THE COMPANY HAD DONE THIS EXERCISE OF REVALUING STO CKS AND THE SAME WAS ALLOWED AS A DEDUCTION. EXCEPT THAT IN THE EARLIER YEARS THE AMOUNT INVOLVED WAS NOT VERY MATERIAL WHEREAS DURING THE Y EAR IN QUESTION IT IS A MATERIAL FIGURE AND THE AMOUNT HAS BEEN HIGHLIGHTED ON GROUNDS OF MATERIALLITY. DETAILS OF SUCH LOSSES IN QUANTITATIV E AND VALUE TERMS WERE SUBMITTED TO THE-LEARNED ASSESSING OFFICER. THE SAM E WOULD BE MADE AVAILABLE IF REQUIRED. AS THE COMPANY HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF VALUING STOCK OF RAW MATERIALS, PACKING MATERIALS, STORES A ND SPARES, ETC AT LOWER 21 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT OF COST OR NET REALIZABLE VALUE THE SAME SHOULD BE ALLOWED AS A DEDUCTION. 3.7 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE APPELLANT. SINCE THE APPELLANT TOPPED THE MANUFACTURING ACTIVITY CER TAIN INVENTORIES WHICH WERE NON-MOVING/SLOW MOVING WAS REVALUED BY T HE STATUTORY AUDITORS FOR WRITING OFF 25% VALUE ANNUALLY AS THE MATERIAL WAS OVER. IT IS THE CLAIM OF THE APPELLANT THAT THE PROVISION MA DE FOR MOVING/NON- MOVING ITEMS IS A REDUCTION IN VALUE OF INVENTORY A ND HENCE, SUCH REDUCTION IS AN ALLOWABLE EXPENDITURE. I FIND THE A PPELLANT HAD MADE ONLY A PROVISION AND IN FACT, THE AMOUNTS ARE NOT B EEN WRITTEN OFF IN THE ACCOUNT. IN VIEW OF THIS, THE CLAIM OF THE APPELLAN T CANNOT BE ALLOWED. THIS GROUND OF APPEAL IS DISMISSED. 3.8 THE SUBMISSION IN CONNECTION WITH STOCK WRITTE N OFF DUE TO EVAPORATION IS AS UNDER :- THE APPELLANT HAD CHEMICALS VIZ. ENB AND PROPYLENE, HEXANE IN ITS INVENTORY. THESE CHEMICALS EVAPORATED SINCE THE Y WERE NOT USED FOR A LONG TIME AND HAD ALSO OUTLIVED ITS LIFE . IT WAS, THEREFORE, DECIDED BY THE MANAGEMENT TO WRITE-OFF T HE STOCK VALUE DUE TO EVAPORATION. AS THERE IS DIMINUTION IN THE N ET REALIZABLE VALUE OF THE CHEMICALS AND THE COMPANY FOLLOWS THE METHOD OF VALUING STOCKS AT LOWER OF COST OR NET REALIZABLE V ALUE THE COMPANY HAS CLAIMED THESE AS NORMAL BUSINESS EXPEND ITURE. DETAILS OF SUCH STOCK WAS GIVEN TO THE ASSESSING OF FICER. 22 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT A). THE AMOUNT OF RS.87,49,6401-, BEING STOCK WRITT EN OFF DUE TO EVAPORATION IS A NORMAL LOSS IN THE COURSE OF BUSIN ESS. ALSO THE CHEMICALS HAD OUTLIVED ITS LIFE. THESE ARE HIGHLY H AZARDOUS MATERIALS AND IN GASEOUS FORM AND IF ONE CANNOT USE IT WITHIN A LIMITED PERIOD IT AUTOMATICALLY EVAPORATES. AS FACTORY WAS CLOSED WE HAD TO DRAIN IT OUT UNDER SUSPENSION OF THE FACTORY INSPECTOR ALONG WITH OUR SAFETY ENGINEE R. THE CHEMICAL NAMED 'HEXANE' IS A HIGHLY DANGEROUS MATERIAL. OUT OF RS. 87.49 LAKHS THE HEXANE VALUE IS 87.18%. OVER AND ABOVE TH E VISIT BY FACTORY INSPECTOR FOR INSPECTION ON PERIODICAL BASI S, MADE US TO DRAIN OUT ALL PIPE LINE MATERIALS FOR SAFETY OF THE NEIGHBOURING INDUSTRIES. B)BEING TECHNICAL MATTER IT IS DIFFICULT TO FURTHER EXPLAIN THIS MATTER. C)ON THE ABOVE GROUNDS IT IS NOTHING BUT IS A PROCE SS OF NATURAL LOSS FOR ANY CHEMICAL FACTORY HANDLING SUCH CHEMICA LS. D) IN FACT SUCH A SITUATION HAPPENED EVEN IN CALICO CHEMICALS CHEMBUR, FACTORY WHERE CHLORINE LEAKAGE W AS THEREFORE FORCED DRAINED OUT AND THE SAME WAS CLAIM ED AS A DEDUCTION. RECENTLY IT HAPPENED IN STANDARD ALKAU I N THANE BELAPUR ROAD. AS THE COMPANY HAS CONSISTENTLY VALUED RAW MATERIAL S AT LOWER OF COST OR NET REALIZABLE VALUE, WHICH IS 8 RECOGNIZED METHOD OF ACCOUNTING IT SHOULD BE RIGHTFULLY ALLOWED AS AN EX PENDITURE. WE HAVE ARGUED ADEQUATELY ON A SIMILAR ISSUE OF WRITIN G OFF 23 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT CHEMICALS, PACKING MATERIALS, STORES AND SPARES IN THE EARLIER PARAGRAPH AND AS WE HAVE ALSO WRITTEN OFF SUCH STOC K IN THE EARLIER YEAR THE LEARNED ASSESSING OFFICER HAS FAIL ED TO APPRECIATE THE FACTS OF THE CASE AND HAS ERRED IN DISALLOWING THE GENUINE EXPENDITURE . 3.9 I HAVE CAREFULLY CONSIDERED THE SUBMISSION. THE APPELLANT HAD WRITTEN OFF TWO CHEMICALS VIZ. ENB AND PROPYLENE HE XANE. THE APPELLANT HAD STOPPED THE MANUFACTURING ACTIVITY AND THE FACT ORY WAS CLOSED. ACCORDING TO THE APPELLANT, HEXANE A HIGHLY INFLAMM ABLE CHEMICAL SUBSTANCE WAS GETTING EVAPORATED AS IT WAS NOT USED FOR LONG TIME. IT WAS ALSO SUBMITTED THAT THE LIFE OF THE CHEMICAL HAS EX PIRED AND THE MANAGEMENT DECIDED TO WRITE OFF THE STOCK DUE TO EV APORATION. I FIND THE SUBMISSION OF THE APPELLANT THAT BEING A TOXIC AND DANGEROUS CHEMICAL HEXANE WAS DRAINED OUT IN THE PRESENCE OF INSPECTOR ALONG WITH SAFETY ENGINEER PERIODICALLY, CONSIDERING THE SAFETY OF TH E NEIGHBORING INDUSTRIES, IS ACCEPTABLE. THE DETAILS OF SUCH WRIT E-OFF FURNISHED IS REPRODUCED HERE UNDER: PARTICULARS OPENING BAL. 01.04.2008 RAW MATERIAL IMPORTED 6,072,052 -- -- 3,855,770 IN TRANSIT -- 2,216,282 INDIGENOUS 9,637,557 -- 2,009,452 7,628,105 4,225,734 PACKING MATERIAL 280,415 10,940 189,915 101,440 INCL. PALLETS SUB TOTAL 15,990,024 10,940 8,64,383 11,585,315 24 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT SHORTAGE DOWN VALUE ENB 1121535 2734235 PROPYLENE HEXANE 7628105 0 101440 8,749,640 2,835,675 3.10 I FIND FROM THE ABOVE ONLY A SUM OF RS.76,28,1 0S/- WAS WRITTEN OFF ON ACCOUNT OF PROPYLENE HEXANE AND FOR THE REASONS MENTIONED ABOVE IN PARA 3.9, THE ADDITION MADE TO THE EXTENT OF RS.76, 28,10S/- IS DELETED, AS THERE WAS A COMMERCIAL EXPEDIENCY. THE ENTIRE WRITE -OFF INCLUDES RS.11 ,21,5351- ON ACCOUNT OF ENB FOR WHICH THE APPELLANT HAD NOT FURNISHED ANY JUSTIFICATION HENCE, THE SHORTAGE CLAIM ON ACCO UNT OF ENS IS NOT ALLOWED AND THE ADDITION OF THE AO TO THIS EXTENT I S CONFIRMED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9.3. AFTER ANALYZING THE AFORE MENTIONED ORDER WE F OUND THAT THE CIT(A) HAS DEALT WITH THE ALL THE ISSUES AND HAS PASSED JUDICI OUS ORDER AND NO CIRCUMSTANCES HAVE BEEN BROUGHT BEFORE US IN ORDER TO CONTROVERT OR REBUT THE FINDINGS RECORDED BY THE CIT(A). THEREFORE, WE SEE NO REASON TO DEVIA TE OR INTERFERE INTO THE FINDINGS RECORDED BY THE CIT(A) AND HENCE, WE REJECT THESE G ROUNDS RAISED BY THE ASSESSEE AND UPHOLD THE ORDER OF THE CIT(A). 10. GROUND NO.6 IS GENERAL IN NATURE AND NEEDS NO S EPARATE ADJUDICATION. 25 ITA NO.7632/MUM/2013 (A.Y. 2009-10) UNIMERS INDIA LTD. VS. ACIT 11. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH MARCH, 2016 SD/- SD/- (JASON P. BOAZ) (SANDEEP GOSAIN) $ / ACCOUNTANT MEMBER &' $ / JUDICIAL MEMBER ( ) MUMBAI; *$ DATED :18.03.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI