Income Tax Appellate Tribunal - Delhi
Jcit(Osd) Central Circle 1, ... vs Sahara India Real Estate Corporation ... on 7 October, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G', NEW DELHI
Before Sh. Satbeer Singh Godara, Judicial Member
&
Sh. S. Rifaur Rahman, Accountant Member
ITA No. 1085 & CO No. 36/Del/2024 : Asstt. Year: 2017-18
JCIT(OSD), Vs Sahara India Real Estate
Central Circle-1, Corporation Ltd., 1, Sahara India
New Delhi-110055 Bhawan, Kapoorthala, Complex
Aliganj, Lucknow-226024
(APPELLANT) (RESPONDENT)
PAN No. AAJCS7265F
Assessee by : Sh. Ajay Vohra, Sr. Adv. &
Sh. Aditya Vohra, Adv.
Revenue by : Sh. Mahesh Kumar, CIT-DR
Date of Hearing: 10.07.2025 Date of Pronouncement: 07.10.2025
ORDER
Per Satbeer Singh Godara, Judicial Member:
This Revenue's appeal and assessee's cross obje ction i.e .
ITA No. 1085/Del/2024 and CO No. 36/Del/2024 for AssessmentYear 2017-18, arises against the CIT(A)-23, New Delhi's in case No. CIT(A), Delhi-23/10218/2019-20 dated 0 5.01.2024, in proceedings u/s 143(3) of the Income Tax Act, 1961 (in short "the Act").
2. Heard both the parties at length. Case files perused.
3. The Revenue proposes the following substantive grounds in it's instant appeal ITA No. 1085 /Del/2024:
2 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
" 1 . W h e th e r on th e fa c t s a n d ci r cu m st a nc e s of th e c a s e l d . C I T( A) is ju s ti f ied in d el et in g the a d di ti on of R s.5 2 ,6 5 , 2 8 ,56 0 /- on a c c ou nt o f i n te r e st on l oa n s a n d adv a n c e s ?
( ii) W h et h e r on t h e f a c ts a nd in t h e c i rcu mst a n c es o f th e c a s e Ld . C I T( A ) i s j u st i fi ed i n d el et in g th e a d di ti on o f R s.2 0 ,1 8 , 5 3 ,64 8 /- o n a c c oun t o f l o s s o c cu r r ed du e t o t h e ft ? "
4. The assessee's cross objection CO No. 36/Del/2024 on the other hand ra ises the following grounds:
"1. That the Ld. CIT( A) has erre d in law and on fac ts and circumstances of the case in co nfirming the addition of Rs. 12,09,87,377/- made by the Assessing Officer on claim of loss due to flood.
2. That the Ld. CIT(A) has fa ile d to appreciate that the loss o f stock due to flood/dam ping could have been only ascertaine d o n physical ve rification undertaken after the close of the accounting ye ar by a qualifie d Charte red Accountant.
3. That the Ld. CIT (A) has failed to appreciate the writte n submissio ns file d and is wr ong in confirming the adve rse infere nce drawn by the Assessing Office r w hich is co ntrary to the facts and c ircumstances o f the case.
4. That o n the facts and circumstances of the c ase as well as in law, the Ld. CIT(Appe als) is fully justified in deleting the addition of Rs.52,65,28,560/- made by the Assessing Office r in respect of imputed intere st income @12% which was neithe r due nor received by the appe llant.
5. That o n the facts and circumstances of the c ase as well as in law, the Ld. CIT(Appe als) is fully justified in deleting the addition of R s.20,18,53,648/- out of disallo wance of Rs.32,28,41,025/- made by the Assessing Office r in respect of claim of loss due to the ft and floo d."
5. It is in this factual backdrop that we come to the Revenue's fir st and foremost grievance that the CIT(A) has 3 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
erred in law and on facts in reversing the Assessing Officer's actio n adding the assessee's notional interest income of Rs.52 ,65,28,560/-, in his assessment order date d 10.12.2019, vide the follow ing detailed lower appellate discuss ion:
"13. Ground No. 3, 4 & 5 are regarding the addition of Rs. 52,65,28,560/ - made by the Assessing Officer. The appe llant has made certain advance s to various parties. On suc h adva nces made, the appellant has no t charged any interest. The Assessing Officer computed interest @ 12% on advances made and accor dingly made additio n of Rs.52,65,28,560/-. In the asse ssment order , the Assessing Office r has sta ted as under:-
"Since proper de tail as re quired is not being pro vided by the assesses after seve ra l reminders hence, it canno t be asce rtained as for w hat purpose this advance is given and to w hom, Also , the co mpany Is suffering loss on one side and on other side interest free advance is given to vario us investors. T he justific ation w ith respect to the same has not been pro vided by the justific ation w ith respect to the same has not be en provide d by the a ssessee hence, interest income @ 12% of total a dvances in respect of sundry advance of Rs. 4,38,77,38,004/- is added to Income of the as sessee.
In view o f the aforesaid facts, addition of interest Income of Rs. 52,65,28,560/- is made to the total income of the assessee for the relevant assessme nt year 2017- 18."
14. The appe llant has furnished the fo llo wing details In respect o f investment, lo ans and advances:
4 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
Name of the party Opening Balance Amount Source of Income earned Rate of
with PAN and address given/ Loan/Advanees/ interest
Advance Investment
during the
year
Investment
In Equity
Shares
Sanya Hospitality 119,589,711 - Nil Nil Nil
Pvt. Ltd, D- 13/1
Defence Colony, New
Delhi-110024
In Mutual
Funds
Sahara Liquid Fund- 234,868,073 - NII 118,477,471 Nil
Variable Pricing-
Growth Option
(LFVG)
Sub Total A 354,457,784 - - 118,477,471
Loans
Mr. Roop Madan & 1,104,328,231 Nil Nil
Mrs. Bela Roop
Madan, A-9/4,
Vasant Vihar, New
Delhi- 110057
Sub Total B 1,104,328,231 - - -
Other Advances
Security Deposit with 20,000.00 - Nil Nil Nil
sales Tax Deptt.
Interest
Accrued on
Loan
Mr. Roop 234,072,134.0 Nil Nil Nil
Madan & Mrs. Bela 0
Roop Madan, A-9/4,
Vasant Vihar, New
Delhi- 110057
Advance to
Parties
M/s SRM 326,797 000023(Advance Nil Nil
Samart Hoops Pvt. from S.I)
Ltd.
M/s Bhatia & 3,000,000 - Nil Nil Nil
Company
M/s MDPL 900 Nil Nil Nil
Infosystem(P) Ltd.
Alchemy Enterprises 361,086 - Nil Nil Nil
Bridges Healthcare 60,000 Nil Nil Nil
Federation
5 ITA No. 1085/Del/2024
CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
D.C. 1,575,000 - Nil Nil Nil International Gyan Security Press 1,255,650 Nil Nil Nil Pvt. KVR Infosys Pvt. Ltd. 2,704,252 Nil Nil Nil N.K. Gossaln and 44,806 - Nil Nil Nil Company Pvt. Ltd. Par's 158,250 - Nil Nil Nil Packagers R Cube Intl. 1,869,273 - Nil Nil Nil The New India 605,361 Nil Nil Nil Assurance Co Ltd Sahara Welfare 16,452 Nil Nil Nil Foundation Commission Advance 23,069,358 Nil Nil Nil (Advance to various field workers) Sundry Advance 4,387,738,004 Nil Nil Nil (Advance to various Investors) Sahara Credit Co- 141,031 91,676 Book entry Nil Nil operative Society Ltd. Sahara India 367,262 Nil Nil Nil Karyakarta Gratuity Fund Trust Misc. Advance to 49,862 Nil Nil Nil employee Sahara Housing 206,216 Nil Nil Nil Investment Corporation Ltd. TDS & 241,514,751 6,863 Nil Nil Nil Advance Income Tax (Net to Provision) Input VAT 858,843 Nil Nil Nil including Disputed Vat Advance TDS 91,754 Nil Nil Nil Deposited (Excess TDS) TDS on 16,428,281 Nil Nil Nil Commission Prepaid Expenses 30,949 26,462 Nil Nil Nil (Insurance to Vehicle) Interest Accrued on 240,931 67,566 Fixed Deposit Sub Total C 4,916,480,406 519,364 Grand Total (A+B+C) 6,375,266,421 519,364 118,477,471 6 ITA No. 1085/Del/2024 CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
15, The submissions o f the a ppe llant with regar d to this addition are as under:-
"Ground No- 3, 4 & 5:
In these gro unds of appeal the appella nt has objecte d to imputation of interest income of Rs.52,65,28,560/- on hypo thetical ba sis made by the Ld. Assessing Officer for alle ged lo ans given by the appellant to cus tomers as appe ar ing under the head Sundry Adva nces . In respo nse to the que ry of the Ld, Assessing Officer, complete de tails of loa ns and advances we re duty submitted befo re her, and out of the same, she has imputed an inte rest Income @ 12% of to tal advances in respect of sundr y advance s of Rs.4,38,77,38,004/- and has added the same to the income of the appellant.
The brief facts of the case are that the appe llant com pany was in the bus iness of mobilizing of OFCDs from the public . The appella nt had taken on hire the entire infras tr uctural facilities o f M/s. Sahara India including its branches and usage of its bank a ccount fo rmat on its business activities. In the preceding years, interes t was provide d /paid to the debenture ho lders , either on ac crual system of accounting or on payment basis. Inadverte ntly, the ta x w hich w as deductible at source w as no t deducted from the payments made / provisio n made in res pec t of the inte rest on debentures and full amount paid to bond holde rs, However , the deductible though not de duc ted TDS was de posited by the appe llant at the time of finalization of books , and the refore proper accounting entries for TDS deduc tio n and TDS deposited were made by the appe llant company a nd the TDS which coul d not be deduc ted be came a debt or amount recoverable from bond holder o f the appe llant- company , to be realize d from the de be nture holde rs. Thus, the appellant Company debited the said amount unde r the head Sundry Adva nces (advanc e to various investor s) which represente d recove rable TDS in their c ases from them. It was no t a loan which was given by the appe llant company to the debenture ho lders or any other party but w as in the nature of a Trade Debt whic h was reco verable . All these facts were brought to the notice of the Ld. Assessing Officer vide our reply file d during the course of assessment proceedings on 28.05.2019, 21.10.2019 and 27.11.2019 on the above subjec t, Without finding any fault in the re plies of the asse ssee, the Ld. Assessing Office r has in a curso ry way that the proper deta ils have no t been provided by the appellant, and it 7 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
canno t be ascertaine d as to and for what purpo se this adv ance was give n details with refe rence to the same has not bee n provide d by the appellant and she has imputed an interest income of Rs.52,65,28,560/- and added the same to the income of the appellant. The entire observ ation o f the Ld. Assessing Officer is misplace d, in as much as , in all the replies submitte d by the appellant, the explanation with reference to the amount outstanding was give n to the Assessing Officer . At no stage o f the proceedings she required the appellant to submit the deta ils o f the parties in w hose case TDS was de posite d by the appellant company and was appearing under the head Sundry Advances. Moreover, the amount is an old balance brought forward from earlier years on which no interest has been impute d in those years and, therefo re, there arises no occasion for imputi ng inte rest income @ 12% of the said amount as there is no contract or agree ment between the a ppe llant company and the debenture ho lder , on whose a ccount the TDS has been de posited ,fo r payment of any interest on the T DS amount de posite d on their behalf by the appellant company. The entire additio n made is mere ly on surmises and conjectures and on wishful thinking of the L d. Assessing Officer and, therefore, dese rves to be dele ted. For the above propos ition, the appellant would like to rely on the following cases:-
1. Jwala Prasad Radha Kishan vs. CIT 198 ITR 415 (Alld)
2. Highwa y Construction Pvt. Ltd. vs. CIT 111 CTR 143 (Guwahati).
3. CI T vs. Moto r C redit Co . Pvt. Ltd, 127 ITR 572 (Mad.) .
4. CI T vs . Dev i Films (P) Ltd. 143 ITR 386 (Mad.)
5. S.A. Builders Ltd. vs. CIT(A) 288 ITR 1 (SC).
6. CI T vs . Hote l S ave ra 239 ITR 795 For the propositio n that if no interest has been charged in the prece ding yea r, the same canno t be conside red during the yea r and the inquiries has to be limite d to the increase in c urre nt year only. Fo r the above propos ition, the appe llant would like to place reliance on the follo wing cases:-
1. CI T vs. Sride v Ente rprises 59 Taxman 439 (Karnataka).
2. CI T vs. H.V . Stock Holdings' Ltd. (N o.1) 325 ITR 216 (Del.).8 ITA No. 1085/Del/2024 CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
In light of the above facts and circumstances as well as the legal position, the additio n of Rs.52,65,28,560/- is not tena ble on the facts and circ umstances of the c ase and, therefore, deserves to be dele ted."
16. The reply of the appellant on the impugned Is sue is examine d. I t is a well se ttled principle of law that only the real income which has accrued to an assessee can be brought to tax. Hypo thetical income in the nature of notio nal inte rest canno t be brought to tax. T he incom e-tax is charge able or payable o n the Rea l income. The income tax is not payable on any income whic h one co uld have been earned but has not been earned. In the case of CIT Vs. Shoorj l Va ilabhdas & CO. 46 ITR 144 (SC) , the apex court on the conce pt o f real income held as under:-
"Income Tax is a levy on income. No doubt, the Income Tax Act takes into account two po ints of time at which the ¡¡ability to tax is attracted, viz., the accrual o f the income or its receipt; but the substance of the matter is the income. If income does not result at all, there canno t be a tax, e ven though in book keeping, an e ntry is made abo ut a "hypothetical inco me", which does not materialize. Wher e income has, in' fact, been received and is s ubse quently given up in such circumstances that it remains the income of the recipient, eve n though give n up, the tax may be pa yable . Where, however, the income can be said not to have resulted at all, the re is obvio usly neither accrua l nor rece ipt of income, e ven though an e ntry to that effect might, in certain circums tances, have been made in the books of accounts."
17. Similarly In the case of Go dhra Electricity Co . L td. Vs. CIT 225 ITR 746 (SC) , the apex court he ld as unde r:-
"The question whe ther there was re al accrual of income to the assessee -company in respect of enhance d char ges for supply of electr icity has to be conside red by taking the proba bility or improbability of realization i n a realistic manner. If the matter Is considered in this light, it is not possible to ho ld that there was re al accrual of income to the assessee- company in respe ct of enhance d charges for supply of electricity which we re adde d by the ITO while passing the assessment o rder s in res pect of the assessment years under cons ide ratio n. The AAC was right in dele ting the said additio n made by the ITO a nd the Tr ibuna l had rightly held that the Claim 9 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
at the increase d rates as made by the assesse e- company on the basis of which necessary e ntries we re made represente d only hypo thetical income and the Impugned amounts as brought to ta x by the IT O did not represe nt the income which ha d re alty accrue d to the assessee-company during relevant previous years . T he High Court, in our opinion, was in er ror in upse tting the said v iew of the T ribunal."
18. In the c ase of E.D. Sassoon & Co . Ltd. Vs. CIT 26 ITR 27 (SC) it was laid down by the co urt that income acc rues when the assesses acquires a right to receive the inco me. The assessee must have created a debt in his favor and he must have a cquired a right to receive the payment. The observ ations of the cour t are as under:-
"...........A de bt m ust have come into exis tence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effec tive in bringing into existence a debt o r a right to receive the paym ent or In other words a debitum in presentí, solvendum in future it c annot be s aid that any income has accrued to him . The mere expression "earned" In the sense of rendering the services etc. by itself is of no avail......."
19. The Bombay High Court in the case of CIT Vs . Reliance Utilities & Power L td. 313 ITR 340 (Bom.) has held that if the re are funds ava ilable both Inte rest- free and ove rdraft and/or loans take n, then a presumption would ar ise that Investments would be out of the inte rest- free fund gene rated or available with the company, if the interest- free funds were sufficient to meet the Investments. T he relevant po rtion of the judgement of Bombay High Court is repro duce d below:-
"10. If the re be interest-free funds available to an assessee sufficie nt to meet its investments and at the same time the a ssessee had raised a lo an it can be presumed tha t the investments we re from the inte rest- free funds ava il able. In our o pinion the Supreme Court in East India Pharmace utical Wor ks Ltd.'s case (supra) had the occasion to consider the decisio n of the Calcutta High Court in Woo lcombers of India Ltd.' s case (supra) where a similar iss ue had arise n. Be fore the Supreme Court it was argued that it sho uld ha ve been presumed that in essence and true c har acte r the taxes were paid out o f the profits of the relevant ye ar and ho t out of the overdraft account 10 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
for the running of the business and in these circums tances' the appe llant was entitle d to c laim the deduc tio ns. The Supreme Cour t noted that the argument had cons ide rable force, but considering the fac t that the contention had not been adva nced earlie r it did not require to be answe red. It then note d that in Woolcombe rs of India L td.'s case (supra) the Calcutta High Court had come to the conclusion that the pro fits w ere suffic ient to meet the advance tax liability and the pr ofits were depos ited in the overdraft account of the assesse e and In suc h a case it should be presumed that the taxes were paid out of the profits o f the ye ar and not out of the overdr aft account for the running o f the busine ss. It no ted that to raise the presumptio n, there was sufficient materi al and the assessee had urged the contention before the High C ourt. The principle the refore would be that if there are funds ava ilable both- interest-free and overdraft and/o r loans taken, then a pre sumptio n wo uld arise that inves tments would be out of the inte rest-fre e fund ge nerate d or ava ilable with the company, if the interest-free funds were suffic ient to meet the investments, In this c ase this presumptio n is established co nsidering the finding of fact both by the CTT (Appeals) and ITAT."
20. The Hon'ble Apex Court in the case of CIT(LTU) vs . Reliance Industries Ltd, 410 ITR 466(SC)/ 102 taxmann.com 52 (SC) upheld the order o f Mumbai High Court 86 Taxmann.com 24 (Bomba y). The High Co urt in par a 33 o f its order he ld as under:-
"(Para 33) We do not see how when the Assessing Office r's views are that in cases of the inte rest- fr ee loans and intere st give n by the assessee to its subsidiary companies are in the abo ve sums, still, the principle laid do wn by this court that if the re are funds available to them interest-free and over-draft or loans taken, would no t apply. This view of the As sessing Office r is ex facie contrary to the settle d princ iple that a pres umption wo uld arise that the investment would be out of the interest free funds generate d or available with the company. Then, the bo rrowed c apital in hand in tha t case and interest expenditure was deductible under section 36( 1)(iii) o f the Income-tax Act, 1961. The Tribunal held that the interest-free fund available to the assessee is sufficient to mee t Its investment. It can be presumed that investments were made fro m interest- free funds available with the assessee. The position clearl y e merges from the record and for the 11 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
curre nt assessment year as we ll . We do not see how a different view in the facts and circumstances .can be taken, I f the Tribunal had followed the earlier vie w and on facts, then, there is no perve rsity when nothing contr ar y to the factual mate rial was brought o n record by the Re venue . In such circumstances, the concurre nt view on disallowa nce of interest was re verse d and the appe al o f the a ssessee to that extent was partly allo wed. We do not see any substantial ques tio n of ¡aw aris ing from such a view of the Tribunal."
21. Thus, it is settle d principle of law that if anything is to be taxed, there has to be specific provisio n in law. Had it been the intention of law to tax notio nal interest on interest free loans, in that case, there wo uld have been separate deeming provisio n in law as is there in sec tion 68, 69 etc . It is beyond the jurisdiction of the Asses sing Office r to create a source o f Inco me that never e xisted and that too whe n there is no spe cific pro vis ion in law. What is Income is to be decided by the legislature and no t by the e xecutive . The Assessing Officer therefo re, er red in computing notiona l Income and bringing it to tax des pite there being no taxing provision in this regard.
22. In vie w of the above discussion it is he ld that the Assessing O fficer was no t justified in creating a new source of income in the form of inte rest on loan and adv ance , There fore, the a ddition of Rs, 52,65,28,560/- is hereby delete d.
23. Consequently , Ground No.3, 4 & 5 are allowe d."
5.1 This is w hat leaves the Revenue aggrieved.
6. We have given our thoughtful consideration to the Revneue's and the assessee's vehement riva l submissions against and in support of the learned CIT(A)'s foregoing detailed discussion de leting notional interest income in issue made by the Assessing Officer. We make it clear first of a ll that this is not an instance of disallowance of interes t u/s 36(1)(iii) 12 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
of the Act wherein the department alleges the assessee to have diver ted it's interest bearing funds for non-business purposes.
This is for the precise reason that the learned Assessing O fficer had computed notional interest @ 12% on adva nces made to sister concerns without invoking sectio n 36(1)(iii) of the Act which couldn' t be concurred w ith since not made under any specific provis ion in the Act. That being the clinching case, we hold that the learned CIT(A) has rightly inter fered with the foregoing notional interest computation @ 12% made in the assessee's hands in assessment proceedings. The Revenue's instant first and foremost substantive ground is re jected there fore.
7. The assessee's fourth substantive ground in it's cross objec tion here in supporting the CIT(A) foregoing findings s tands rendered infructuous in very terms.
8. Next comes the remaining common sole issue between the parties where in the assessee had claime d loss of inventor y due to floods, expiry of products and the ft at it's godow ns of warehouse; involving varying sums, which stood disallowed by the Assessing Officer and the C IT(A) has partly interfered with his action to this effect, vide the following detailed discuss ion:
13 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
"24. Ground No . 6, 7 and 8 are regarding the disallo wance of Rs, 32,28,41,025/- made by the Assessing Office r. In these grounds of appe al the appe llant has objected to disallo wance of Rs.32,28,41,025/- on account o f stock of loss which has occurre d due to theft and flood ( dampness and water logging) etc.
25. The appellant in the accounts has claimed the following deductio n on acco unt o f theft/los s etc.
1. Loss o f invento ry due to floo d-Rs. 12,09,87,377/-
2. Loss of inventor y due to expiry of produc ts-Rs.
4,06,73,167/-
3. Loss of inventor y due to theft-at Vadodara-Rs , 11,87,46,052/-, At Jaipur Wareho use- Rs, 23,107,597/- and At Luck now Warehouse- Rs . 5,99,99,999/- totaling Rs. 201853648/-.
26. The Assessing Officer ha s no t allo wed the claim of loss of Inventory due to flo ods amounting to Rs.12,09,87,377/- and loss o f Inventory due to theft amounting to Rs. 20,18,53,648/-.
27. The Assessing Officer raised ce rtain .que ries during the course of assessment proceedings. Uns atisfied with the re ply of the appellant, the Assessing Offic er concluded as unde r:-
"In respect o f loss due to flood:-
On per usal of warehouse wise detail of Joss due to flood It is found that mostly locations of warehouse are in Delhi/N CR, Chandigarh & Panipat, As per the records ava ilable and in the inter ne t it was found that there was no majo r flood occurred in Delhi/NCR during F.Y. 2016- 17. As sesses has claimed loss due to flood of Rs. 12,09,87,377.12/-. Do cumentary evidence is not sho wing tha t the area was actuall y e ffec ted from flood. Copy of Insurance policy, Copy of RC etc were demande d from the assessee which are no t pro vide d by It. Ho wever, complete de ta ils to substantiate the flood is not pro vided. Hence under these circums tances, loss of stock due to flood is not to be allo wed, addition under this head is made o f Rs. 12,09,87,377.12/- .14 ITA No. 1085/Del/2024 CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
In res pect of loss due to theft: -
Loss claimed by the assessee on account of fire o f Rs. 5,99,99,998,92/-. On perusal o f do cuments submitte d by you it was found that o f insurance polic y, Copy of RC (ev idencing that the . places where fire occurred were declared as additio nal place of business, with VAT department) were hot submitte d by the assessee deta il.
Further it was found that in FIR copy to S tation House Office , police sta tion Ban! Pa rk , Jaipur , combined stock held by SICCL & SIRCEL was mentione d and entity wise deta il of stock was no t provided to us .
Since proper deta il w.r.t. abo ve said documents have not been filed by the asse ssee hence, ;pss under the head loss due to theft/ fire o f Rs. 20,18,53,648/- is no t to be allowed, additio n unde r this head Is made of Rs. 20,18,53,648/-.
In view o f the aforesaid facts, disallowance o f Rs . 32,28,41,025/- is made unde r the said he ad and adde d to the total income of the assessee fo r the relev ant a ssessment year 2017-18."
28. In response to the additio n made, the appel lant has state d as under:-
"I n this grounds of appea l the appellant has objected to the disa llowance of Rs.32,28,41,025/- on account of loss occurre d due to theft and floo ds (dampness and water logging etc.) o f the stock in hand. During the cours e of assessment proceedings, details in respect of floo d were calle d fo r by the Ld. Assessing Officer which were duly submitted befo re her by the appellant. The details of total loss of stock of Rs.36,37,53,303/- was submitted before the Ld. Assessing Office r. T his loss of stock was found during the course of the physical verific ation of the stock in ha nd on 31 s t March of the year under assessment. The loss had occurred because of e xpiry of inve nto ry, the ft of invento ry a nd loss due to flood (dampness and water logging in the warehouse) etc . The break up of stock where ¡t was fo und short during the course of assessment procee dings by the Ld. Asses sing Office r was submitted befo re he r. It was also intimated In res ponse to he r que ry that no separate Stock Register was maintaine d, but the stock w as maintained on T ally Softw are, which itself works as Stock Registe r and the printo ut o f the same was file d be fore the Ld. Assess ing 15 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
Office r during the course of as sessment proceedings. As regards the loss on account of the ft, complete de tails of the theft which have taken place at Baroda, Jaipur and Lucknow were intimated to the Ld. Assessing Officer alongwith the list of invento ry of the items whic h was give n him . Copy o f the FIR which was filed at J aipur was also submitted before the Ld. Assessing Office r alongw ith the FIR, Comple te list of items in respect of which theft had taken place was subm itte d by the appellant, The Ld. Assessing Officer has proceeded to disallo w the loss on account of the ft only for the reason that the the ft had occurre d In the case of the appellant inste ad o f all belonging to the a ppellant company, there were goods of Saha ra India Co mmercial Co rpo ration Limited, and the stock ke pt in the godown consisted of sto cks both of the appe llant Company as well as sto ck of Sahara India Commercial Co rporation L imited.
As regards the stock appearing under the head Theft at Lucknow, the sam e was in form of stock misappropriated by the Landlord the godown, for w hich a le gal notice was Issued to them w hich finds place a t Paper Book at page 106-110. Copy of the same was also submi tted before the Ld. Assessing Office r.
As regards the lo ss on account o f flood, due to he avy rainfall in the NCR Region and in ' Mumbai, lot o f w ater logging had taken place in the godown, whe re the stock of the appellant company was place d which has resulted in damage of go ods and loss of stock at Chandigarh, Delhi, Gorakhpur, Mumbai, Panipat and and Minde ka (Delhi). Comple te details of stock which w as dilapidated because o f dampness, wate r logging and he avy rainfall was placed befo re the Ld. Assessing Officer . A certificate from a Charte red Accountant certifying the stock w hich was damaged a nd was considered as a loss due to heavy rainfall, flood, w ater logging e tc. was submitted befo re the Ld. Assessing Officer alongw ith the lis t of items to whic h such stock was relatable. The Ld. Assess ing Officer has dis believe d the sta tement of the appellant in res pect of loss of stock , as according to her as per rec ord ava ilable in the Internet, it was found that no major flood occurred in Delhi/ NCR during the Financ ial Year 2016-17, It is for this rea son, that she has proceeded to disallo w the loss claimed by the appellant inspite of the fac t that it has never been claimed by the appellant that the loss because of dampness, wa ter logging and flo od has occ urred during the year itself. It was intimate d to 16 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
the Ld. Assessing Office r that physical ve rific ation of the stock was undertaken at close of the ye ar which has resulted in shor tage of stock. This s hortage was ' booked under the head Loss of Inve nto ry Written off ( the ft and abno rmal loss).
The stagnation in the stock fo r a long perio d is one of the reasons for dama ge & theft of the stock which stagnancy had occ ur red because of the embargo pieced by the Hon'ble Supreme Court of India In the c ase o f SEBI vs. SIRECL & o thers.
The Hon'ble Supre me Court had in their o rder passe d on 21.11.2013 held tha t no co ncer n of the Sahara Group shall part with any of their assets whethe r immovable or movable as wel l as order date d 13,.02,2013, all the bank accounts and or movable and immovable properties of its Dire ctors and company was fre ezed and attached respectively and a s a result thereo f the sale of the go ods whic h we re in stock could no t take place o ver a period of few years from 2013, onw ar ds because of whic h the s tock lying idle In the godown was sto le n as well as it w as damaged due to dampness, w ater logging etc . in the godown.
In light o f the above factual position, your honour will appreciate that the appellant has c orrect/ y claimed the loss of stock incurred during the course of carrying on of business by the appe llant and, therefore , it is a fully allo wable deductio n.
Without prejudice to the above submission, the appellant would like -to understand a$ to w hy the assessee will claim a bogus loss of stocks, more particularly, whe n a return o f I ncome of the year was at excess loss than the amount wr itten o ff on acco unt of lo ss of stock, As far as the le gal aspe ct o f the ma tte r is co ncerne d, it a settled law that any loss which had occurre d on account of shortage of stock .is a fully allowable deduc tion and the primary c ase regarding this issue is tha t of the Hon' ble Supreme Co urt in the case o f B adri Das Daga vs. CTT 1958 AIR 783 34 ITR and Associated Banking Cor poration of India Ltd. vs. C IT 56 ITR 1 a lso:
1. Ram Chander Shivnarayan vs. CIT 111 ITR 263 (SC),
2. Lord's Ber ry Farm Ltd, vs. CIT 27 ITR 700 (Mum.) 17 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
3. GG Dande karMac hine Works Ltd. vs. CIT 114 CTR 190 ( Bom.)
4. Circ ul ar No.13 (C.No.27 (29-IT/43) date d 24.5.1994.
5. Nikon Sys tems Pvt. Ltd. vs. ACI T Appeal No.ITA 6115/De//2019 dated 15.05.2020 In light of the a bove facts as- well as legal pos ition of the matter that the disallowanc e made by the Ld. Assessing Office r may k indly be dele ted."
29. The reply of the appella nt is conside red. The bre ak- up of cla im made by the appellant unde r the said claim comprises o f two Items. The first item Is loss on theft amounting to Rs.20,18,53,947/- and the second ¡tern is loss on account damage because of expir y items and destr uction to the stock at warehouses because of water logging Rs . 16,18,99,352/- totaling to Rs.36,37,53,299/-. Before the Assessing Office r as well as dur ing the course of appe llate proceedings the appe llant had submitted his reply in respect of same. The Asses sing Officer in par a 9 to par a 13 of the assessment or der has proceeded to disallo w a sum o f Rs.32,28,41,025/ - out o f c laim made by the assessee by allowing loss in relation to expired products and diffe rence in v aluation of closing inventory and differe nce due to physical verification, the details of whic h finds place at paper book page 47 the reby as aga inst the total loss claimed by the appellant. The disallo wance of Rs.32,28,41,025/- by the Assessing Office r allowing the bala nce amount of loss.
30. The loss cla imed by the appellant a nd disallowed by the Assess ing Offi cer a re of two different types . The first is los s of Inve ntory due to floods at the follow ing locations:
Chandigarh 7,447,7797-
Delhi 13,281,105/-
Gorakhpur 21,316,901/-
Mumbai 13,304,960/-
Mundka (Delhi) 54,602,227/-
Panipat 11,034,403/-
Total 12,09,87,377/-
31. The second is loss due to theft at fo llowing lo cations:
Vodadara 11,87,46,052/-
Jaipur 2,31,07,597/-
Lucknow 5,99,99,999/-
Total 20,18,53,648/-
18 ITA No. 1085/Del/2024
CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
32. In respect of the above two losses, the appe llant has furnis hed a common reply . Ho wever, the two Is sues are ' diffe rent a nd needs to be adjudi cated separate ly.
33. During the co urse of appellate proceedings It w as argued by the appellant that the physical verification of Inventory was undertaken during the year and the loss of products which deplete d due to water logging etc were affected by floo ding and dampness was discovere d by the assesses and the refore the same was accounte d for during the year under assessment.
34. It was argue d that the Ho n'ble Supreme Court of India in appe llant' s case vs. SEBI had placed embargo on dispo sal o f any a ssets of the company as well as the assets of entire S aha ra Group. Consequent thereo f since 2013, the stock w as lying in the go down. It was o nly on 31.03.2017 when physical verification was undertake n by the appellant that the loss co uld be determined w hich was destro yed by dampness etc. and the refore the same was writte n off during the ye ar. The appellant also submitted a certificate of Charte red Accountant dated 04.05.2017 certifying the loss which had taken place on 31.03.2017. The same is reproduced as under:-
19 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
35. Apar t from the report of the auditor dated 04.05.2017, the appe llant furnished le dge r acc ount where in the entrie s are dated 31.03.2017.
36. From the abo ve report o f the auditor resolutio n. It is ev ide nt that the loss was found out a nd quantified on 04.05.2017 i.e . after 31stMarch, 2017. T he management could not have made the entry o f loss of Rs.
12,09,87,377/- on 31.03.2017 In Its books of accounts. As the report of the audito r w as prepared o n 4th May 2017, therefo re , the decision of the management to w rite off mus t have been after 4th Ma y 2017. Howe ver, the entr y in the books of accounts is dated 31.03.2017, T his establis hes the fa ct that the appellant had made a back date d entry in its books of accounts some time after 4th May 2017.
20 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
37. Anything happening after closure of the Financial Year has no bearing o n the acco unts o f the Financ ial Year. If the accounts were close d o n 31s t March, 2017, the findings, quantifica tio n and deci sion of 4th May 2017 has no bearing on the account or the profitability fo r the year ended 31st March 2017.
38. The assessee is a large corpor ate body. It has a bure aucratic structure o f command. The accountant making entries in the accounts is no t empowered to w rite off the inventor y in the book s without permission and approv al of the Board/management. The decision can only be take n by the management and then o nly the stock/inventory can be writte n off in the accounts . In this c ase a lso first the dec ision to write off the stock/inventory was taken by the management and then the s tock/invento ry was wr itten off. Howeve r, the stock/inventory was written off no t in the current year (i.e . F.Y .2017- 18) but in the acco unts of the immediate preceding year i.e . F.Y.2016-17. The back dated entr y in the acco unts were made and the adjustment for the stock/inventory was made subsequently.
39. The assessee company follo ws the mercantile system of accounting. Any event occurring after the date of clos ure o f the balance sheet has no bearing on the profitability of the year ending on 31st March, 2017. It was only for the purpose of claiming deduc tion that the Inventory we re claimed to have been w ritten off in the assessment yea r 2017-18.
40. As brought out in the fo regoing paragraphs, the decis ion to write o ff the inventory w as take n in the Asst. Year 2018- 19. So pro perly the inventory we re to be writte n off in the subsequent yea r's accounts and not in the accounts fo r the ye ar ende d 31/03/ 2017.
41. Thus, when a ll the necessa ry compliance took place afte r the end o f the F.Y. 2016- 17, the write o ff cannot be allo wed in the A.Y . 2017-18 relevant to the previo us year 2016-17.
42. The above positio n in law has the suppo rt of the decis ion o f the jurisdictional Bombay High Court I n the case of CIT V/s. Herdilla Chemicals Ltd. 225 ITR 532, the relev ant e xtract of which reads as under:-
21 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
"We have carefully conside red the rival submissions. The PAN cata lyst was purchased by the assessee in the year 1970. It was tying with the assessee as stand by for the phthalic a nhydride plant. It is the case of the assessee that over the course of yea rs, the production process of the chemicals had cha nged whe reby the catalys t plant was rendered supe rfluous and á result thereo f, the PAN catalyst became, obso lete. Admittedly, even on it's becoming superfluous o r obsolete; it was neithe r sold no r otherwise dispose d of by the assessee, It was merely writte n off by the assessee in its acc ounts in the previous years relevant to the assessment year under conside ration and deduc tio n claimed in respect of the entire cost of acquisitio n a nd deduction cla imed In respec t o f the entire cost of acquisition thereof in the computatio n of its income fo r the said assessment year . In fact, it was with the assessee even at the time of he aring of the appe al by the Tribunal, The a ssessee, ho weve r, assured the authorities to bring back the sale proceeds o f the same for the assessment as and w hen it was sold. I n such a- situation, in our o pinion, it canno t be said that the assessee suffered any loss in the previous yea r re levant to the assessment year under co nsidera tio n.
Moreover the productio n of process of the chemical in the factory of the assessee did not undergo the change in the year under consider ation. Admitte dly, as set out in pa ragr aph 8 of the statement of the c ase, the production process had been .change d over the course of the ye ar s. In such a s itua tion, the assessee canno t claim deduction for the cost of the PAN catalys t in any ye ar it likes. The only y ear in which the deduc tio n can be claimed is the year in which it is sold or disposed off. Merely by writing off the value thereo f, the assessee is not entitle d to claim deduction in the ye ar in which he had w ritten o f the s ame. The re must be something positive to show that its value become nil in the particular year to justify the claim for deduction in that year. This legal position would not change with the assurance of the assessee to bring back the sale price as and w hen it was so ld. In fac t, the assessee will ha ve, to wa it till it is so ld or otherwise dispose d off and only then it may be justifie d in claiming deduction of the difference between the purchase price and sale price in the computa tion o f its Income."22 ITA No. 1085/Del/2024 CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
43. Similar is the case of the assessee. There is nothing whic h can positiv ely indica te that the dec ision to w rite off the Inventory was take n in the F .Y.2016-17.
44. On the simila r issue in. the case of M/s. Eastern Periphe ra ls Ltd V/s, ACIT, Circle- 8(1) , Mumbai In.ITA No.321/Mum/2007 the Hon'ble ITAT, Mumbai has confirmed the a dditio n made by the Assessing Officer on the iss ue of w rite off of stock after the closure of financ ia l year.
45. Above mentio ned facts prove that invento ry w as not writte n off during the ye ar under co nsideration but in the subsequent year . Hence, the claim of the assessee is not allo wable .
46. Apar t from making entry in the bo oks of accounts date d 31.03.2017, the appe llant has not been able to fur nis h any e vide nce to show tha t when the goo ds were actually disca rded even as scrap. By the repo rt of the audito r da ted 04.05.2017, it is evident that the go ods were in possession of the appellant atleas t till 04.05.2017. Thus, the right over the goods continued with the appella nt atleast till 04.05.2017. In any transac tio n there has to be more than one party. As one canno t make profit out of himself, one canno t make loss out o f himself. I n the impugned case as the right o ver the goods continued with the appellant till 31.03.2017, therefore, the re was no tra nsactio n resulting into any loss to the appella nt.
47. The nomenclature of a n item of e xpenditure or loss would not decide the actual nature of transaction. What the appellant is calling loss is actually in the nature of provisio n, for diminution in the value of stock/invento ry. Taxa tion is dependent upon the actual nature of transac tio n. What is the nomenclature given in the boo ks of accounts or how the entry has been passed cannot determine the taxability of the receipts or allow ability of the expe nditure . Taxa bility o f a receipt o r allowance o f a deduc tio n is dependent upon the actual nature of transac tio n. This position of law has bee n affirmed by Hon'ble S upreme Court In the case of Kedarnath lute Manufacturing Co . Ltd. vs CIT re por ted in [1971] 82 ITR 363 (SC).
23 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
48. Therefo re, it Is held tha t the Inve ntor y w rite o ff amounting to Rs, 12,09,87,377/ - were actually a provisio n for diminution in the value of I nventory as at 31,03.2017. On this ground also , the c laim of the appe llant is no t allowable.
49. In view of the abo ve disc ussio n, the additio n to the extent o f R s.12,09,87,377/- is uphe ld.
50. The other issue for adjudication is addition o f Rs.20,18,53,648/- in respect o f loss of Inventor y due to theft.
51. The appellant cla imed that there was a loss o f Inventory due to theft at three locations . In this regard, the appellant also submitted a notice iss ued by MSA JURIEC Advocate and Solicitor w hich was issue d on 20.1,0.2016 in respect o f loss o f stock at Jaipur and Baroda ware houses which w as issued to M/s Vis ion Freight Solutio n I ndia L imite d who were the wareho use owner's at Baro da and Jaipur. It was sta ted by appellant that no respo nse or further actions was taken up in the matter.
52. Copy of FIR made with Jaipur Police Station against M/s Vision Freight Solution India Limite d and its Dire ctors was also file d by the appellant. The FIR also- include d the loss in respect o f goods stole n from Baroda Guest House .
53. Similarly, a lette r in respect of re covery of stock whic h was missing from the godown of Luckno w was also issued by the same Advocate and Solicitor by way of reminde r notice on 06.12.2016.
54. On perus al o f the documents furnished by the appe llant/ it is seen that there was some theft of go ods belonging to the a ppella nt.
55. In light of the above facts and circumstances , it is seen that the loss of stock found on physical ver ification of sto ck w as written off by the appellant. The appellant has s pecific ally relied on a fe w c ase laws the gist ther eof is s ummarized as follows:
56. Badr idas Daga V. Commissione r of Income-tax 34 ITR 10(SC) w here in Hon' ble Supre me Court has held as follows:
24 ITA No. 1085/Del/2024 CO No. 36/Del/2024Sahara India Real Estate Corporation Ltd.
"Loss resulting fro m embezzlement by an employee o r agent in a business is, ho weve r, admiss ible as a deduc tio n under section 10(1) o f the Indian Income Tax Ac t if it arises out of the carrying on o f the business a nd is incidental to it. It m akes no differe nce in the admissibility of the deduction whether the employee occupie s a subordinate position in the establis hment o r it's an agent with large powers of management, It is a question turning on the facts of each case whe ther the embezz le ment in respect of whic h deductio n is claimed took place in the carrying on of the business."
57. Further reliance is placed by the Bo mbay High Court in the c ase o f G.G.DANDEKAR MACHINE WORKS LTD Vs. CIT repo rte d in 114 CTR(Bom) 190 whe rein Hon' ble Bombay High Court a s he ld as fo llo ws:
"The re al co ntrove rsy that falls for determination in s uch cases is whether the loss is incidental to the ope ration of the bus iness and this question e vide ntly has to be decide d on the facts of e ach case having regard to the nature o f the business and the ope ratio ns carried on by the assessee . If the loss incurre d by the assessee is found to be incide ntal to the carrying on of his busine ss, It will be deduct ible as a trading loss in computing the profits , o f the assessee from the said business, The loss caused to assessee in this case was by embezzlement from its bank account. The account in the bank was. a curre nt account maintaine d for the running o f the business . The amount ke pt there was also the amo unt required for the pur pose o f the business . T here Is no dispute that by fo rging the signatur e of the secretary of the compa ny the amount in questio n was w ithdr awn by some unknow n person w hich resulted in a lo ss to the assessee to tha t extent. Looking from, a bus inessman's angle, it is difficult to ho ld that such a loss is not incidental to the business o f the assessee. It is diffic ult to draw a distinction between e mbezzlement of the amount from, the bank and theft of the amount from the cash bo x of the business-man from his sales counter or business premises. What is materia l is whe ther the lo ss was ca used to the assessee in the course of his business activity and closely connected w ith his business. If that is so, it w ill be a n allowable deduction in computing the "pro fits". I n the Instant case , it is so and that being so, the loss s uffered by the assessee is clearly a loss w hich is deductible i n the computation of income, under s.25 ITA No. 1085/Del/2024 CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
28(1) of the Act- CIT-Vs, Nainital Bank Ltd.(19.65) 55 ITR 707(SC), RamchandarShivna raya n v. CIT 1978 CTR(SC)5: ( 1978) 111 ITR 2& 3(SC) . Sassoon J. David & Co. ( P) Ltd. Vs CIT(1975) 98 ITR 50(Bom), CIT vs . P.V. Gore & Co .(1982) 29 CTR(Bom) 110(1983) 143 ITR 922(Bom) and BadridasDaga vs. CIT(1958) 34 ITR 10(S C) relied o n."
58. The cases fo llowed by Bombay High Court have been mentione d herein above also.
59. Similar vie w has been taken by the Hon'ble Supreme Co ur t o nce again in the case o f Ramchandar Shiv naray an v. CIT reported in 111 ITR 263(SC) whe rein the Hon' ble Supreme Court has follow ing its e ar lier decis ion in the case of Badridas Daga vs . Commissio ner of Income-tax 34 ITR 10(SC) held as follows;
"A bus inessma n has to kee p mone ys either whe n he gets it as sale pr oceeds of the sto ck-in-trade or fo r disbursement to meet the business expense o r fo r purc has ing stock- in-trade and if he loses suc h money in the o rdina ry course o f business, the toss is a deduc tible trading loss, It is Immaterial whether the money is a part o f the stock- in- trade, such as,, o f a bank ing company or a money-lender, or is direc tly connecte d with' other business oper atio ns. The risk is inherent in the c arr ying on of the bus iness and is eithe r directly connected with it or incide ntal to it."
60. The stock-in- trade was part, of business carrie d out by appellant The stock remains the par t of trading asset. There w as loss due to theft o f such stock in tr ade. Therefore, suc h stock has a direct nexus in the c arrying on of the business by the appella nt. Howeve r, no transac tio n could be effected from such stock because of embargo placed by the Hon' ble Supre me Court.
61. In vie w of the peculiar facts of the case and the decis ion o f Hon' ble Apex Co urt as cited and the Hon' ble Bombay High Court, the a ddition made by the Assessing Office r of Rs.20,18,53,648/- is liable to be deleted."
8.1 It is in this factual backdrop that the Revenue raises it's second substantive ground seeking to revive the Assessing 26 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
Officer's actio n disallow ing the assessee's loss claim on account of theft to the tune of Rs.20,18,53,648/- in issue wherea s the latter's endeavour is to support the lower appellate findings qua the Revenue' s second substantive ground; and, at the same time, it seeks to allow the remaining claim of Rs.12,09,87,337/-
which has been disallowed in bo th the lower proceedings.
9. Both the learned representatives reiterate their respective stands as per the Revenue's and the assessee's pleadings.
Coming to the former components of Rs.20,18,53,648/-
representing loss of inventory due to theft, the Revenue could hardly dispute that the assessee had duly substantiated the same by filing the necessary first information report ("FIR") as well as the inventory of the corresponding items which could not be rebutted by the Assessing Officer. That being the case, we are of the considered view that the assessee was very well justified in booking it's impugne d loss as an allowable deduction at the first sign of re asonable probability in light of Chainrup Sampatram vs . CIT (1953) 24 ITR 481 (SC) holding as under:
".........The true purpose of crediting the value of unsold stock is to balance the cost o f those goods entered on the other s ide of the account at the time of their purc hase , so that the cancelling out o f the entries relating to the same stock from both sides of the account would leave only the transac tio ns on which there have been actual sales in the 27 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
course of the year show ing the profit or loss actually realize d on the year's trading. As pointed out in par agraph 8 of the Report of the Committee on Financia l Risks attaching to the ho lding of T rading Stocks , 1919, "As the entry fo r stock which appear s in a trading acco unt is merely inte nde d to cancel the charge for the goods purc hase d which have no t bee n sold, it s hould necessarily represe nt the cost of the goo ds. If it is more or less than the cost, then the effect is to state the profit on the goods which actually have been sold at the inco rrect figure .........F ro m this rigid doctrine one exce ptio n is very gene rally recognised o n prudential gro unds and is now fully sanctioned by custom, viz., the adoption of market value a t the date of making up accounts , if tha t value is less, than cost. It is o f course an anticipatio n o f the loss that may be made on those goods in the fo llo wing year, a nd may e ven have the effec t, if price s rise again, of attr ibuting to the fo llo wing ye ar's results a greater amount o f pro fit than the diffe renc e between the actual sale price and the actual cost price o f t he goods in question" (extracted in paragra ph 281 o f the Repor t of the Committee on the Ta xation of Trading Pr ofits presented to British Parliament in April 1951) . While anticipa ted loss i s thus taken into account , anticipated profit in the sha pe of appreciated value o f the closing stock is not bro ught into the a ccount, as no prudent trader would car e to show increased profit before its actual rea lisatio n. This is the theo ry underlying the rule that the closing stock is to be va lued at cost o r mar ket price whicheve r is the lowe r, and it is now generally accepte d as an established rule o f commercial pr actice and accounta ncy. As pro fits for income-tax purposes are to be computed in conformity with the ordinar y principles of commercial accounting, unle ss of course, such principles have be en supersede d o r modified by legislative enactments unrealised profits in the shape of apprec iated value of goo ds remaining unsold at the e nd of an accounting year and car rie d over to the following ye ar's account in a business that is continuing are not bro ught into the charge as a matter of prac tice , though, as already sta ted, lo ss due to a fall in price below cost is allo wed even if such loss has not be en ac tually realise d."28 ITA No. 1085/Del/2024 CO No. 36/Del/2024
Sahara India Real Estate Corporation Ltd.
9.1 We accordingly reject the Revenue vehement contentions, it's instant se cond substantive ground and the main case ITA No. 1085/Del/2024 in very terms.
10. This leaves us with the assessee's grievance(s) canvassed in it's cross objections wherein it seeks to allo w the ba lance amount of Rs.12,09,87,377/- as representing write off on account of diminution in the value of inventory as on 31.03.2017. I t is an admitted fact that the asses see/a company is engaged in real esta te and allied activity business. And that the hon'ble a pex court had passed it's order dated 21.11 .2013 restr aining M/s Sahara Group; including the assessee/company, from alienating all the ir movable or immovable assets, as the case may be. The said injunction continued admittedly combined at lease upto the rele vant previous year. It is in this factual backdrop that the assessee chose to write off the impugned inve ntory items including child's toys, ladies sar is and bed sheets etc. i.e. gift items as on 31.03.2017 in the corresponding ledgers since the same had become very much obso lete after a time period of almost four years. The Revenue vehe mently argues the decision to this effect was taken subse quently on 04.05.2017. We find no merit in these arguments once it is clear the corresponding write off had been 29 ITA No. 1085/Del/2024 CO No. 36/Del/2024 Sahara India Real Estate Corporation Ltd.
passed in the ledger(s) accounts concer ned on the closing day of the relevant accounting period based on the principle of reasonable probabilities (supra). The mere fact that the same was ratified s ubsequently on 04.03.2017 would not change the status already written off items in our considered opinio n. We thus accept the assessee's instant last substantive ground canvassed in it's cross objection to delete the impugned disallowance of Rs.12 ,09,87,377/- in very ter ms. It's cross objec tion CO No. 36/De l/2024 is partly allowed therefore.
11. To sum up, this Revenue's appeal ITA No. 1085/Del/2024 is dismissed and the assessee's cro ss objection CO No. 36/Del/2024 is partly allowed. A copy of this common order be place d in the respective case files.
Order Pronounced in the Open Court on 07/10/202 5.
Sd/- Sd/-
(S. Rifaur Rahman) (Satbeer Singh Godara)
Accountant Member Judicial Member
Dated: 07/10/2025
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR