Case Law Details

Case Name : M/s Sigma Aldrich Chemicals Pvt. Ltd. Vs Addl. CIT, Bangalore (ITAT Bangalore)
Appeal Number : IT Appeal No. 268/2012
Date of Judgement/Order : 24/07/2015
Related Assessment Year : 2005-06
Courts : All ITAT (5688) ITAT Bangalore (276)

Brief of the case:

The ITAT Bangalore in the case of M/ s Sigma Aldrich Chemicals P. Ltd. held that when short landing of goods is common having regard to the nature of goods and such loss is negligible , then it has to be allowed deduction as business expenditure.

Facts of the case:

  • The assessee company is a wholly owned subsidiary of Sigma Aldrich Foreign Holdings Co. Inc. It is engaged in the manufacture and trading of chemicals and distribution of a broad range of bio-chemicals, organic and inorganic chemicals and related products.
  • The assessee claimed deduction of Rs.3, 81,583/- on account short receipt of goods. Such goods were purchased from overseas group company and while receiving these goods, there is shortage of goods in weight physically received and such shortage is claimed as business expenditure by the assessee.
  • As per AO, the assessee should have recovered this amount from its principal companies which supplied the goods to it short either through raising debit notes or reducing the bills amount.It was assessee’s policy that in respect of amounts less than USD 2500, no credit/debit note is issued.
  • AO disallowed the entire amount and added it back to the assessee’s returned income. The CIT(A) confirmed this addition.

Contention of the Revenue:

  • The shortage of goods should have been recovered from supplier by issuing a debit note or any other mode. The shortage cannot be termed as expenditure incurred for the purpose of business.
  • Such loss, therefore, not allowable as business expenditure under Sec 30 to 36 or Sec 37.

Contention of the Assessee:

  • It is the global policy to not to issue debit notes for amounts less than USD 2500 (approx. Rs.150,000/-) per consignment. It is why because the cost incurred in processing of the credit or debit notes would be higher than the cost recovered.
  • Further, since the value of loss is too small when considered individually, it has been written off which is in line with the normal industry practice in which assessee operates.

Held by ITAT Bangalore:

  • In the case of shipment, it cannot be disputed that there is a possibility of wastage in quantity due to various factors such as leakage, drying up, evaporation etc., particularly since the goods imported are chemicals.
  • Such a loss being incurred in the regular course of business is allowable as business expenditure.
  • Further, the tribunal agreed with the plea of assessee that raising debit or credit note on small amounts might be more costly than setting off the above shortage.
  • It is choice of the businessmen as to the method he wants to adopt to make a transaction cost-effective.
  • In result the claim was allowed and revenue’s appeal on this ground was dismissed.
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Category : Income Tax (28832)
Type : Judiciary
Tags : CA Saurabh Chokhra (242) ITAT Judgments (5867)


  1. S. Sundaresan says:

    The verdict in this case has come from Income Tax Dept since the dispute was business expenditure.

    I am eager to know how the case was handled from Customs Dept. angle because of material shortage at the time of receipt.

    Request you to please let me know.


    S. Sundaresan

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