Loss by writing off inventory disallowed in absence of necessary evidence

Gem Spinners India Limited Vs ACIT (ITAT Chennai)

ITAT Chennai held that disallowed the claim of loss on account of written off inventory as the assessee failed to produce necessary evidence proving that such stock became obsolete and unusable.

Facts- The assessee company is in the business of manufacturing cotton yarn and knitted fabrics, filed its return of income for the assessment year 2013-14 on 22.09.2013, declaring net loss of Rs. 2,55,24,649/-. The case was taken up for scrutiny, and during the course of assessment proceedings, AO noticed that during the financial year relevant to assessment year 2013-14, the assessee is having only trading activity.

The gross receipt from trading was at Rs. 10.46 crores, as against this, the assessee claimed trading expenses of Rs. 9.93 crores. It was further noted in addition to trading receipts, the assessee has claimed a huge amount of other expenses. The assessee submitted that during the year, the company has written off the unusable stock of cotton valuing Rs. 16,96,24,334/-, and said cotton was purchased way back in the year 2004-05. Since the cotton was not used for manufacturing knitted fabric or yarn, it was unusable and the management has taken a decision to write off said stock as scrap and debited it to the profit and loss account.

AO noted that the assessee neither furnished the necessary certificate from an expert to prove that such stock became obsolete and unusable nor filed any evidence to prove its claim that in earlier years also unusable and obsolete stock was written off. Hence, AO opined that claim of the assessee that the amount debited under the headstock write-off is not backed by any evidence and also to offset income derived from the sale of assets computed under the head ‘Long Term Capital Gains’ (LTCG) and thus, rejected the arguments of the assessee and disallowed the claim of loss on account of written off inventory amounting to Rs. 16,96,24,334/-.

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