Synergy Telecommunications Vs DCIT (ITAT Chandigarh)
Obsolete Stock Cannot Be Valued on the AO’s “It Must Have Some Value” Theory: ₹59.79 Crore Write-Off Allowed Under AS-2
The Chandigarh ITAT has allowed the write-off of obsolete telecom inventory amounting to ₹59.79 crore, holding that the AO cannot substitute an assessee’s valuation based on the recognised method of lower of cost or net realisable value merely on the presumption that the stock must possess some scrap value.
Where the assessee had followed Accounting Standard-2, physically verified the inventory, furnished item-wise details, obtained certification from its auditor and demonstrated the commercial circumstances that rendered the stock obsolete, the burden shifted to the Revenue to establish a higher realisable value through positive evidence. An assumed scrap value without market quotations, comparable transactions, technical valuation or identification of prospective buyers could not justify rejection of the assessee’s valuation.
The assessee was engaged in manufacturing sheet-metal products and providing telecom tower solutions, including intelligent power interfaces, cool shelters, air conditioners & towers. Its business suffered severely following the disruption in the telecom industry associated with the 2G spectrum controversy during FY 2011-12. The relevant business line eventually became commercially unviable and was discontinued.
For AY 2015-16, the assessee had opening stock of approximately ₹53.02 crore, purchases of ₹2.91 crore and sales of ₹4.99 crore. The closing stock was valued at ₹3.22 crore after writing down obsolete and non-moving inventory. The total reduction on account of obsolete stock was ₹59.79 crore.
