Ador Welding Limited Vs DCIT (ITAT Mumbai)
The appeal concerns an assessee challenging the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, under section 250 of the Income Tax Act for Assessment Year 2018-19. The primary dispute relates to the disallowance of ₹1,21,21,767 under section 37(1), arising from a reduction in the value of opening stock due to the assessee’s transition to Ind AS during FY 2017-18. The assessee contended before the appellate authorities that the reduction was a mandatory accounting adjustment under Ind AS 2 and Ind AS 101, representing a genuine business loss duly reflected in its audited financial statements. It argued that the lower authorities failed to appreciate the supporting documentation and judicial precedents regarding the allowability of losses arising from obsolete or impaired inventory.
The assessee, a listed company engaged in manufacturing welding consumables, equipment, and spares, filed its original return declaring income of ₹10.76 crore and a revised return declaring ₹10.62 crore after recording investment under section 54EC. The case was selected for complete scrutiny under the E-Assessment Scheme on issues including deductions claimed, expenditure of personal nature, variations in income between the original and revised returns, refund claims, and capital gains. During the assessment, the Assessing Officer issued notices under sections 143(2) and 142(1) and examined the assessee’s claim of deduction for stock written off amounting to ₹2,04,90,695 under section 37(1). The Assessing Officer disallowed the claim on the grounds that the assessee failed to substantiate the write-off with adequate documentary evidence. Consequently, the assessment was completed determining total income at ₹12,67,36,025.
