Income Tax Appellate Tribunal - Mumbai
Dcit-9(1)(1), Hyderabad vs M/S.Trinethra Super Retail Private ... on 22 March, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA Nos. 7186 & 7187/Mum/2017 (A.Ys: 2010-11, 2009-10) & ITA No. 1653/Mum/2018 (A.Y: 2011-12) DCIT - 9(1)(1) बनाम/ M/s. Trinetra Super Retail Rm No. 260A, 2 n d Floor, Vs. Pvt Ltd., th Aayakar Bhavan, Mumbai. 6 Floor, Mirchandani Business Park, Sakinaka, Andheri (E), Mumbai.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACT7531Q (अपीलाथ /Appellant) .. ( यथ / Respondent) अपीलाथ ओर से / Appellant by : Shri Salil Mishra, DR यथ क ओर से/Respondent by : Shri Yogesh Thar, AR ु वाई क तार ख / सन Date of Hearing 24/12/2021 घोषणा क तार ख /Date of Pronounce ment 22/03/2021 आदे श / O R D E R PER PAVANKUMARGADALE JM:
The revenue has filed these three appeals against the separate orders of the Commissioner of Income Tax (Appeals) - 16, Mumbai, passed u/s. 143(3) and 250 of the Income Tax Act, 1961. Since the issues involved in all the appeals are identical and similar, ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -2- hence they are clubbed and heard together and consolidated order is passed. For the sake of convenience we shall take up the ITA No. 7187/Mum/2017, A.Y 2009-10 as lead case. The revenue has raised the following grounds of appeal:
1. Whether in the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 24,24,09,476/- on account of stock losses & diminution, whereas the AO has rightly made the addition in absence of documentary proof regarding clear & verifiable evidence in support of the expenditure claimed by the assessee?
2. Whether in facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on account of depreciation of 'Bizerba weighing scales' whereas the AO has rightly made the addition as the depreciation was claimed @ 60% on said plant and machinery instead of 15% as this was not forming part of computer and independent computers items?
2. The Brief facts of the case are that, the assessee company is engaged in the business of running super markets and filed the return of income for the A.Y 2009-10 on 25.09.2009 declaring a total loss of Rs. 128,14,82,205/-, the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny and notice u/s 143(2) of the Act was issued. In compliance to the notice, the Ld. AR of ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -3- the assessee along with company representative appeared from time to time and furnished the details and the case was discussed. The A.O on perusal of the profit and loss account find that, the assessee has debited an amount of Rs. 27,94,92,526/- on account of stock losses & diminution disclosed under the head operating and administrative expenses and called for the explanations. The assessee has filed the submissions on 19.12.2011 with detailed notes referred at para 3 of the assessment order. Further the assesses has explained that out of the total claim of Rs. 27.94 crores made by the assessee (i) the stock losses on account of shrinkage is Rs 17.49 crores (ii) stock losses on account of expired stock write off is Rs.6.75crores and (iii) provision for slow and non moving stocks is Rs.3.70 crores. Whereas, the provision was made considering the business activity and the write off of stock in respect of business retail trade in particular to food and non food products. The assessee s contentions are that it is engaged in the retail trade and most of the products are perishable in nature and contains the expiry dates and products cannot be liquidated and FMG products are also ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -4- expired and need to be destroyed and such products cannot be sold to consumers as per the consumer laws. The company has incurred such loss to the extent of Rs 6.75 crores on a turnover of Rs.608 crores. Therefore the loss is actually stock loss in relation to the business of the assessee company and to be allowed. Similarly, the assessee has claimed shrinkage of stock loss on account of shrinkage, which relates to actual shortages found at the time of periodical inventory checks. The company deals with variety of products and they are purchased in bulk and stored in warehouses located at strategic locations and are distributed to stores for sale for end user customers and the major contributors to shrinkages are thefts, pilferage, handling errors, billing disputes etc. Such losses arise directly due to carrying on business and incidental to the nature of business activity. The A.O dealt on the submissions and observed that the nomenclature of the expenses is loss of the stock and due to differences in physical verification it will be treated as shrinkage loss. Since the assessee could not produce or not able to produce all the details corresponding to the loss under the ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -5- head stock losses on account of shrinkages and stock losses on account of expired stocks written off. Further the criteria followed by the assessee are not available for verification. The A.O. has observed that the assessee has not submitted the complete details which are required to allow the claim. Further no method/ methodology has been filed/explained with evidence for calculation/quantification and therefore any loss of stock or any asset is not deductable and made addition of Rs. 24,24,09,476/-. Similarly, the A.O. observed that the assessee has claimed depreciation on UPS and other computer peripherals @ 60% whereas depreciation allowable is only @15% as it falls under the block of plant and machinery. Therefore, the A.O disallowed the excess depreciation claim of Rs. 45,45,885/- and assessed the total loss of Rs.103,45,26,844/- and passed the order u/s 143(3) of the Act dated 29.12.2011.
3. Aggrieved by the order, the assessee has filed an appeal with the CIT(A). In the Appellate proceedings, the Ld.CIT(A) considered the submissions and the grounds of appeal raised by the assessee. The CIT(A) dealt on the findings of the A.O in respect of ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -6- shrinkage, expiry of stock write off and slow and non moving stocks, and the contentions of the assessee that they should be allowed considering the turnover of the assessee. The assessee company filed the submissions on 18.07.2017 referred at page 4 of the CIT(A) order along with judicial decisions. The contentions raised by the assessee are that the A.O has made additions without considering the nature of the assessee's business and obsolesce of stock like perishable goods and also the assessee is operating a chain of food and grocery retail units and hypermarkets and such shrinkage is on account of employee, theft, shoplifting, and administrative error. Though the assessee company maintains the adequate internal controls to minimize losses and some of these stocks are not saleable are to be written off as non moving inventory. The Ld.CIT(A) called for more details in the course of hearing proceedings referred at page 11 para D of the order.
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4. In respect of disallowance of depreciation on the block of assets, the assessee has submitted the information that the depreciation on UPS and ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -7- computer peripherals has to be allowed @ 60% and the assessee has submitted the details in respect of the depreciation referred at page 14 to 19 of the order. Whereas, in assessee's own case the CIT(A) in earlier Asst year 2008-09 has allowed the claim. The CIT(A) considering the claim of the assessee on losses has dealt on the facts and information submitted and deleted the addition. On the second disputed issue, the CIT(A) relied on the earlier assessment years and deleted the disallowance of depreciation and allowed the appeal. Aggrieved by the order of the CIT(A) the revenue has filed an appeal with the Hon'ble Tribunal.
5. At the time of hearing, the Ld.DR submitted that the CIT(A) has erred in deleting the addition on account of stock losses and diminution irrespective of the fact that no documentary proof is filed by the assessee before the AO. The Ld. DR further submitted that the assessee has submitted the details in appellate proceedings and the A.O was deprived the opportunity to verify the facts along with evidences. Therefore, the order of the CIT(A) is bad in law and the CIT(A) has also not called for any comments of the A.O in respect of the evidences filed first time before ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -8- the appellate authorities. On the second disputed issue, the Ld.DR submitted that the CIT(A) has erred in granting relief on depreciation @ 60% on UPS, computers and weighing scales irrespective of the fact that in the assessee's own case for the earlier assessment year the Hon'ble Tribunal has allowed the depreciation on weighing scales @ 15% instead of 60% and prayed for allowing the Revenue appeal.
6. Contra, the Ld. AR relied on the orders of the CIT(A) and submitted that the information submitted before the CIT(A) are not new material but only the information from the books of accounts. The ld. AR further submitted that it is a common practice of stock losses on account of shrinkage, stock loss on account of expired goods write off and also the provisions for non moving stock in the accounts. The Ld.AR further emphasized on applying the various bench markings in respect of stock losses and shrinkages and the claim is comparatively lower and also made submissions on ground of appeal with respect to claim of depreciation and prayed for dismissal of the revenue appeal.
ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018 -9-
7. We heard the rival submissions and perused the material on record. The revenue has filed the appeal on the disputed issued of claim of loss on account of stock loss, diminution and higher claim of depreciation. The Ld.DR submissions are that the assessee for the first time has filed the information before the Ld.CIT(A) and the A.O was not provided the said information in the assessment proceedings. We on perusal of the Ld.CIT(A) order find that the CIT(A) considering the submissions and claims of the assessee has called for the details, information and documents to substantiate with evidences at page11 para D of the order as under:
"D. During the appeal hearing, the appellant was asked to produce the following details to substantiate the said claim:
(1) Evidences for shrinkage; whether any FIR was lodged? If yes, to provide a copy of the same.
(2) Item-wise inventory of opening and closing stock, duty certified by the auditors.
(3) Details of expired stock; Corresponding bills of such stock& Item-wise details of the expired stock; (4) Mode of disposal of expired stock with evidences and transport receipts.
(5) Details of such losses in preceding and succeeding years.
In response to point No(5), the appellant company submitted the following details by letter dated 24 t h July 2017.
Statement showing percentage of stock loss and Diminution of turnover (From FY 2007-08 to FY 2012-13) ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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FY 2007-08 FY 2007-08 FY 2007-08
Particulars
(AY 2008-09) (AY 2008-09) (AY 2008-09)
Amount % of Amount % of Amount % of
(Rs) T/O (Rs) T/O (Rs) T/O
Turnover 426.07 647.76 794.12
Stock loss and
diminution
Shrinkage 17.49 2.70% 15.43 1.94%
Expiry and 6.75 1.04% 13.98 1.76%
Damage
Slow and non 3.71 0.57% 0.04 0.00%
moving item
Dormancy, - 0.00% 0.05% 0.01%
Transit Loss and
others
Total 17.83 4.18% 27.95 4.31% 29.50 3.71%
FY 2007-08 FY 2007-08 FY 2007-08
Particulars
(AY 2008-09) (AY 2008-09) (AY 2008-09)
Amount % of Amount % of Amount % of
(Rs) T/O (Rs) T/O (Rs) T/O
Turnover 918.85 911.59 952.25
Stock loss and
diminution
Shrinkage 12.17 1.32% 13.70 1.50% 10.40 1.09%
Expiry and 10.46 1.14% 10.63 1.17% 9.35 0.98%
Damage
Slow and non (0.54) -0.06% - 0.00% - 0.00%
moving item
Dormancy, (0.36) -0.04% 11.56 1.27% 3.22 0.34%
Transit Loss
and others
Total 21.74 2.37% 35.89 3.94% 22.97 2.41%
(E) In response to other points the appellant company made
the following submission vide letter dated 21st aug 2017 as reproduced below:-
(a) In response to Point 1 ; in this respect we would l ike to su bmit th at as par t of nature of retail business the normal shrinkage and expiries are inevitable. Also the regular stock Shortages are known on regular stock taking. Company cannot lodge FIR in case of normal business losses. However, in cases where there are cases of theft, break open of locks, cash theft, etc. the FIR's has been lodged ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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and copies of the sample FIRs lodged for theft and burglary is attached.
(b) In response to Point 2 - Details of item wise inventory of opening & closing stock is attached herewith. We would like to humbly submit that Company deals in thousands of Stock Keeping Units (herein after referred as SKU's"). The losses provided in books on account of the Shrinkages etc. is thoroughly checked and verified by auditors as part of the audit process. The same losses h ave been disclosed as a separate line item tit duly audited signed profit and loss account. The auditors have issued audit report without any qualification. The audit is done by the one of the most prestigious firm of auditors M/s Deloitte. Auditors have not provided any separate certificate for the inventory valuation and losses on account of shrinkage, expiry etc. In support of this point company enclosed the following details:
i) summary of the zone wise stock report which indicates opening stock, COGS, Shrinkages, Expiry and closing stock.
ii) The SKU wise detailed report of Opening Stock, Purchases, COGS, Shrinkages, W-off/ Expiries loss, and Closing stock. Since the file is heavy/voluminous and containing line items of approx. 30 - 35 thousands in each sheet, we are submitting the same in sof t copy on the pen drive. However, the same c an be printed and submitted on instructions of Your Honour.
(c) In response to Point 3 - Inventory is valued on weighted average cost basis and such disclosure is also made in the financials vide Point 'F' to Significant Accounting Policies and Notes forming a part of accounts which is reproduced below for your ready reference;
"Stock-in-trade is valued at the lower of cost and net realizable value Cost of inventories is computed on a 'weighted average basis' ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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Inventory in this case consists of large number of identical products valued at weighted Average Cost (WA of opening stock & purchases made during the year and thins loss on accoun t of shrink age or expir y f or a p ar ticu l ar produ ct c anno t be ti ed / l inked to a particular bill, V/AC is system generated number win ch comprises mainly the opening inventory cost and purchase cost and various overheads loaded on inventory cost.
In order to substantiate and further explain such: method of arriving at weighted average cost, the appellant company had attached 11w samples of invoices along with their weighted average cost of items as reflected in the system.
(d) In response to point No.4:- The items in stores which are expired and remained unsold due to ageing are brought to Distribution centre (dc) through the owned DC vehicles, for disposal, hence there are no invoices for transportation of such materials.
As far as mode of disposal is concerned, separate are is designated for disposal of such expired stock in the DC and are disposed off under strict monitoring of the responsible officials of the company.
The appellant company has submitted items wise details of the expired / written off stocks is attached herewith and full item wise details of the same is available in the soft files submitted vide point No. 2 above.
F. In addition to this company made the submission vide letter dated 08 th Sep 2017, where it has provided following details and documents:-
('a) Certificate (enclosed with the submission) issued by the Statutory Auditors of the company certifying the loss incurred by the appellant on account of shrinkage and expired stock. The certificate mentions the details verified by the statutory auditors before certifying that such losses are in agreement with the audited financials of the Appellant.
(b) Further, the appellant company also relied on the reports issued by Global Retail Theft Barometer and KPMG India which have ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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conducted an exhaustive research on the retail industry and derived the average percentage of shrinkage borne by the retail industry for the year under consideration. The results of such research are detailed below:
Global Retail Theft Barometer (GRTB): The Global Retail Theft Barometer is a global research on the cost of shrink, comprised of shoplifting, employee or supplier fraud and administrative errors. The study provides data to help retailers around the world benchmark their performance against averages for specific merchandise, vertical markets and regional geographies. This report has been prepared from details provided in confidence by 1,103 of the largest retailers with combined sales of $873.8 billion, representing a cross-section of countries and retail vertical markets. As per this report, India has the highest shrinkage rate i.e. 2.72% for period ending June 2010 and 3.20% for period ending June 2009 (Report is enclosed with the submission). Reference points in the report are listed as under:
Srl Particulars Pg. No. of
report
1 Country wise statistics of shrinkage borne by 21
retail industry
2 Country wise periodical comparative analysis of 22
shrinkage borne by retail industry
3 Asia-Pacific: Statistics Shrinkage rates 2009 84
and 2010
4 Asia-Pacific: Percentage change in Shrinkage 85
expressed as a percentage of sales
5 Contribution of various causes to the total 87
shrinkage loss
Thus the above statistics clearly conclude that India has the highest shrinkage rate as compared to other countries whether comparison is made globally or restricted to Asia- Pacific.
d. Below is the summary of shrinkage loss borne by the appellant vis-à- vis the industry standard.
ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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AY Loss on stock Turnover Percentage of As reported
(Rs. Crore) (Rs. Crore) loss in GRTB
2009-10 17.49 647.76 2.70 3.20%
Thus, from the above, it can be concluded that the shrinkage loss borne by appellant is reasonable and less than the industry standard.
a. During the year under consideration, the Appellant company had incurred Stock Losses on account of Shrinkage, Loss on proceed of sale and Slow and Non- moving stocks. These were provided for in the accounts and which are audited and approved by the shareholders. The said accounts have been accepted by the Ld. AO. Having accepted the accounts of the Appellant, the said addition ought not have been made.
b. Thus, in view of the above submissions, the Appellant prays that since it is now established that the aforementioned disallowance are in the nature of commercial/trading form that is incidental to the business activity the same shall be allowed. Therefore the appellant prays that the AO be directed to delete the said addition of Rs. 24,24,09,476/-.
8. The assessee has submitted the voluminous details which are referred in the above paragraphs. Finally the Ld.CIT(A) considering the assessee's submissions dealt on the ground of appeal No. 1 at page 19 para 6.1 to para 6.1.8 of the order as under:
6.1.1 Vide this ground the appellant has agitated against disallowance of Rs,24,24,09,476/- on account of stock losses and diminution u/s 37 of Income Tax Act. In para 2 of assessment order the ld. A.O, had mentioned that in absence of clear & verifiable evidence in support of expenditure ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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claimed, the same cannot be allowed under provisions of Income Tax Act. According to the Id. A,O. stock losses and diminution debited to profit and loss account is not the deductible item under Income Tax Act. After considering the reply of the appellant, the Ld. AO. Disallowed Rs. 24,24,09,476/- on account of shrinkage of stock losses and diminution.
6.1.2 During appellate proceedings a written submission was filed which find place in Para 5 of this order. I have carefully considered the submissions and evidence s filed by the appellant during course of hearings. it is not a dispute that the appellant is engaged in the business of operating a chain of Food and Grocery retail stores, and the appellant is dealing in thousands of varieties of articles viz, food and groceries fruits and vegetables, stapes, general merchandise, etc. and by the nature of business reasonable level of losses on account of shrinkage & expiry are inevitable and part and parcel of the business operations of the appellant. In the written submission the appellant has relied on various court cases to substantiate that the losses are allowable u/S 37(1) and treated as incurred wholly and exclusively for the purpose of the business. The Hon'blc Bombay High Court in the case of Indian Rare Earth Ltd. (375 ITR 376) has dealt in detailed allowability of the losses write-off on account of non-moving stores. The Hon'ble High Court held that, write-off claimed on the basis of deterioration for various material s including raw materials, and in particular slow moving items would be entitled for deduction.
6.1.3 Similarly, the Hon'ble Jurisdictional High court in case of G I G Dandekar (202 ITR 161) held that, embezzlement of the amount from assesses current account which was maintained by it for running of its business was incidental to business of assessee and was, therefore allowable. 6.1.4 The appellant company also relied on Hon'ble Mumbai Tribunal in case of DCIT vs M/s Procter & Gamble Hygiene & Healthcare Ltd. (ITA No 859fMuni/2003) wherein it was held that there is nothing wrong in making provision at the end of ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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the year if assessee has identified the unsaleable goods. The appellant has also relied on various other judgments which are not dealt separately for the sake of brevity. 6.1.5 Therefore, on the facts of the case and looking into nature of the business, I am of the view that, the losses / write-offs on account of shrinkage etc. are incidental for the business of the assessee and therefore deductible under section 28 and 37(1) of the Income-tax Act.
6.1.6 The Assessing Officer also contended that the appellant has not substantiated the losses and failed to produce evidence to support its claim of theft and expiry of products. During the appeal hearing the appellant was asked to produce documentary evidence to substantiate II Thi11eappc ant has provided the following data and documents;
1. Details of looses on diminution of stock of preceding and succeeding years (submitted vide letter dated 24.07.2017 as annexure )
2. Copies of FIR's filed with police for theft and burglary
3. Summary of Zone wise stock report which indicates opening stock COGS, shrinkages, expiry and closing stock, (submitted vide letter dated 21.08.2017 as annexure - 2
4. The SKU Shrink wise detailed r eport of O pening Stock, Purchases, COGS, shrinkages, W-off / expiries loss and Closing , stock. Since the file is heavy/voluminous and containing line i tems of approx. 30 - 35 thousands in each s heets, the appellant c ompany provided the same in soft copy on the pen drive. (submitted vide letter dated 21/08/2017 on pen drive)
5. Samples of i nvoices along with their weighted average cost of items (submitted(1 vide letter dated 21/08/2017 as Annexure 3) ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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6. Items wise details of the expired / written off stocks of few samples ( s ubmitted vide letter dated 21/08/2017 as Annexure 4)
7. Certificate issued by the Statutory Auditors of the company certifying . the loss incurred by the appellant on account of shrinkage and expire s toc k.(Enclosed vide letter dated 08/09/2017) 6.1.7 I have carefully considered the details and evidences submitted by the appellant. The Appellant Company also submitted the report issued by various research institute on percentage of shrinkage borne by the retail industry i.e. Global Retail Theft Barometer (GRTB), KPMG and attached articles from prominent newspapers (Enclosed vide letter dated 08/09/2017). As per the report the losses suffered by the Indian retailers on account of Shrinkage is 2.72% and 2.90 % while the appellant suffered the shrinkage loss which is 1.99% of the Sales. It also noteworthy that the losses on account of shrinkage, etc. is separately disclosed under the schedule no. 25, 'Other Expenses' of Profit and Loss account duly audited by one of the Big 4 Audit firms.
6.1.8 After considering the Profit and Loss account, details submitted by the appellant during the hearings, and various evidences placed on records, I am of the view that, the losses claimed by the appellant is allowable under section 37(1), hence this ground of appeal is allowed.
9.On perusal of the information submitted by the assessee, the Ld.CIT(A) has dealt on the disputed issues considering the percentage of shrinkage available to the industry and other factors. We found that the assessee company ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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considering the turnover of Rs 608 crores has claimed as shrinkage &other losses of Rs. 24.69 crores in the books of accounts. The CIT(A) should have called for the comments of the A.O. on the vital issues when the voluminous information was submitted by the assessee and dealt at para 6.1.6 of the order. The CIT(A) has power u/s 251 of the Act and are co-terminus with the AO. Considering the facts and importance of the case, the CIT(A) on the disputed matter should have called for remand report from the assessing officer as most of the factual details are required to be test checked and examined. We on perusal of the assessment order at page 2 para - 3 found that the assessee company has given the explanations in respect of claim of stock losses and diminution. Further the A.O on considering the facts and details has called for the information on the method of physical verification of stocks. But the assessee could not produce the corresponding details in respect of loss on account of shrinkage, loss on account of expired stock written off and the ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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criteria followed. The assessee has not filed any documentary evidence as per the observations of the A.O. at page 3 para 3.3 of the order as under:
"3.3. As can be seen from the nomenclature of expenses, these are loss of stock. The assessee stated during the assessment proceedings that once in a month, the loss presentation team checks all the stores and takes actual stock present at the store. The difference of stock found on physical verification of the store and the stock as per the books are treated as shrinkage loss. The assessee could not produce or not able to produce all the details corresponding to the loss under the head stock losses on account of shrinkage and stock losses on account of expired stocks written off and the criterion followed by the assessee is in itself not suitable for verification. The assessee is al ways having option of provision which he made and disallowed and could have claimed insurance on the stock loss. The said heads of expenditure cannot be allowed under the provision of income tax Act. By its mere nature, the desertion involved and as per the above discussion. Any loss of stock, or any asset, is not a deductible item in income tax Act.
10. The Ld.AR in the course of hearing before us has referred to the paper book emphasizing on the submissions at page 40 to 45, where the details were filed before the Ld.CIT(A) on 24.07.2017 &21.08.2017 along with the copies of FIR lodge for the theft, zone wise stock report and details of stocks along with ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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sample, item wise details of expired and written off stock and details of percentage of stock loss and diminution of turnover and the certificate of statutory auditor and report by the global retail theft barometer 2010. We find though the assessee company was making out its case stronger by filling the supporting details before the Ld.CIT(A) but as it was rightly pointed out by the Ld.DR that the assessee in the assessment proceedings before the A.O. has not filed the said details nor any iota of information except making a submissions as referred in the assessment order. We find when such a huge disallowances were made by the A.O, the Ld.CIT(A) upon calling for the information from the assessee and having accepted the same should have called for the information / comments from the A.O. before granting the relief. Further, in the circumstances, where the assessee deals in thousands of stocks of goods, it is practically impossible to verify each and every aspect of claim of shrinkage, theft and expiry written off. But the assessee should explain the basis and the criteria of claim. As rightly pointed out by the Ld.DR, the A.O. should not be deprived to verify the ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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facts on sample basis or in full and make enquiries and shall take a decision considering the assessee's past record. We are of the opinion that the revenue should be provided a minimum opportunity to verify the facts submitted by the assessee for the first time before the Ld.CIT(A. We notice that though the information was submitted for the first time before the appellate authority, the Ld.CIT(A) having accepted the evidences should have called for the comments of the A.O. on vital specific issues before deciding the assessee appeal. We Considering the overall facts, circumstances, provisions of law and principles of natural justice are inclined to provide an opportunity to the revenue by restoring the disputed issue for limited purpose to the file of the CIT(A) to call for the remand report from the AO and also adequate opportunity of hearing be provided to the assessee and pass a reasonable and speaking order and allow this ground of appeal of the revenue for statistical purposes.
11. The second disputed issue the Ld.DR submitted that the CIT(A) has erred in deleting the addition on account of depreciation on weighing scales @ 60% ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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instead of @ 15% as it does not form part of the computer items. The Ld.AR fairly accepted the submissions made by the Ld.DR and submitted that in assessee's own case for the earlier assessment year in ITA No.4086/Mum/2013 and ITA 4326/Mum/2013 dated 27.11.2017, the Honorable Tribunal has dealt on this disputed issue in the revenues appeal at page 14 para 19 & 20 of the order as under:
"19. We have head rival contentions and perused the material available on record. It is evident, the dispute between the assessee and the department in respect of claim of depreciation @ 60% is on the items bizerba weighing scales, printers, router, scanner, switches etc.
20. The issue before us is whether these items on which the assessee has claimed depreciation @ 60% can be considered to be part of computer. The Hon'ble Delhi High Court in CIT Vs. BSES Yamuna Power Ltd., (Supra) has held that computer accessories and peripherals such as, printer, router, scanner, switches, etc., formed integral part of computer system, hence, entitled to depreciation at highs rate of 60%. The special Bench decision of the Tribunal, Mumbai Bench, in data craf t India Ltd., held that computer system would include all input and output devices. It was held that external hardware devices like Monitor, Keyboard, Mouse, Printer Router, Scanner, Switches, etc., would fall under the category of computer hardware. The same is also the case with router and switches. The other decisions relied upon by the Ld. AR also have expressed similar view. As far as the decision of M/s. Dinamater (supra) relied upon by the Ld. DR is concerned, it cannot be interpreted in a manner to propound that depreciation @ 60% is not allowable on the items referred to above. The being the case, we do not find any infirmity in ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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the order of the CIT(A) in allowing assessee's cl aim of depreciation on printer, router, scanner, switches etc., However, as far as the claim of depreciation @ 60% on Bizerba weighting scales is concerned, in our opinion nothing has been on record to demonstrate that this particular asset functions integral part of computer and cannot function independentl y. A photocopy (xerox) machine can also be attached to a computer, however, that does not entitle it for depreciation @ 60%. CIT(A) has allowed assessee's claim of depreciation on the weighing scales without proper reasoning. Therefore, while allowing assessee's claim of depreciation on printer, router, scanner, switches, etc. We uphold disallowance of assessee's claim of depreciation on bizerba weighing scales @ 60%.
12. We find the facts of the present case are identical as envisaged by the Ld.DR. Accordingly this ground of appeal of the revenue is allowed.
13. In the result the appeal filed by the revenue is partly allowed for statistical purposes.ITA No. 7186/Mum/2017, A.Y: 2010-11
14. As the facts and circumstances in this appeal is identical to ITA No. 7187/Mum/2017 for the A.Y. 2009-10, and the decision rendered in above paragraphs would apply mutatis mutandis for this case also. Accordingly, grounds of appeal raised by the revenue are partly allowed for statistical purposes.
15. In the result, the appeal filed by the revenue is partly allowed for statistical purposes.
ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
- 24 -ITA No. 1653/Mum/2018, A.Y: 2011-12
16. The revenue has filed the appeal against the order of the CIT(A)-16, Mumbai passed u/s. 143(3) and 250 of the Income Tax Act, 1961. The revenue has raised the following grounds of appeal:
"1. Whether in the facts and circumstances of the case in law, the Ld. CIT(A) erred in deleting the addition of Rs. 21,73,58,644/- on account of stock losses & diminution, whereas the AO has rightl y made the addition in absence of documentary proof regarding clear & verifiable evidence in support of the expenditure claimed by the assessee?
2. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition u/s 14A rwr 8D whereas the AO has rightly made the addition as assessee was having investment in share, income from which is exempt from tax?
3. Whether in the facts and circumstances of the case and in l aw, the Ld. CIT(A) erred in deleting the addition on account of depreciation on bizerba weighing scales whereas the AO has rightly made the addition as the depreciation was claimed @ 60% on said plant and machinery instead of 15% as this was not forming part of computer and independent computers items?
4. Whether in the facts and circumstances of the case and in l aw, the Ld. CIT(A) erred in deleting the addition on account of insurance claim receivable written off whereas the AO has rightly made the addition as during the assessment proceedings, assessee had not submitted any explanation in this regard?
17. We have already dealt on ground of appeal No. 1 and No 3 in above paragraphs in respect of stock ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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losses and diminution where the disputed issue was restored to the file of the CIT(A) with specific directions and in respect of claim of depreciation on weighing scales the ground of appeal was allowed. As the facts and circumstances in this appeal is identical to ITA No. 7187/Mum/2017 for A.Y. 2009-10, The decision rendered in appeal would apply mutatis mutandis for this case also.
18. Now we shall take up ground of appeal Nos. 2 & 4 raised by the revenue. The A.O has made disallowance under section 14A r.w.r. 8D of the Act of Rs. 5,06,483/-and the Ld.CIT(A) considered the facts and financial statements and relied on the judicial decisions and deleted the addition.
19. Whereas, theLd.DR submitted that the CIT(A) has erred in deleting the addition without considering the provisions mandatory for disallowance.Contra, the Ld.AR submitted that in assessee's successor M/s Aditya Birla Retail Ltd case for the A.Y 2011-12 & 2012-13 the appellate authority has granted relief. The Ld. AR submitted that addition cannot be made u/s 14A as there is no exempted income. At the time of hearing the Ld. AR submitted that no exempted ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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income has been received by the assessee and therefore Ld.CIT(A) was correct in deleting the addition.
20.We heard rival submissions and perused the material on record. We dealt on the disputed issue and observed at para 6.3.7 to 6.3.8 of the CIT(A) order as under:
"6.3.7. Similar disallowance was made by Ld. AO in appellant successor i.e Aditya Birla Retail Ltd., case for A.Ys 2011-12 & 2012-13 against which appellant filed appeal which had been already decided. The relevant portion of orders are reproduced below:-
A.Y 2011-12 6.3.6 Since the total exempt income earned by the appellant was only Rs. 57,539/- therefore respectfuylly following the judgment of Hon'ble jurisdiction Tribunal in the case of Nimbus Communication Hon'ble Punjab & Haryana High Court in the case of Empire Package Pvt Ltd., (supra) the disallowance u/s 14A is restricted up to Rs. 57,539/-, the actual quantum of exempt income earned by the appellant. This ground of appellant is partly allowed.
A.Y 2012-13 6.3.6 Since the appellant had not earned any exempt income during the year under consideration, therefore respectfully following the judgment of Hon'ble Delhi High Court in the case of Cheminvest Ltd., jurisdiction Tribunal in the case of Avshesh Mercantile P. Ltd and Gujarat High court in the case of Corrtech Energy P. Ltd., the addition made by the AO for an amount of Rs. 87,15,79,365/- u/s 14A is deleted and the appeal of the appellant on this ground is allowed . However, appellant had itself disallowed and amount of Rs.
ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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13,74,31,390/-. Therefore, net relief to the appellant will be Rs. 73,41,47,975/- (Rs. 87,15,79,365/ -Rs. 13,74,31,390/-) 6.3.8. Since, the appellant had not earned any exempt income during the year under consideration and the facts are similar to earlier years i.e AY 2011-12 & 2012-13 (in case of appellant's successor Aditya Birla Ltd,) where the company had not earned exempt income. The same were adjudicated in favour of appellant's successor. Therefore, I have no reason to deviate from the findings given by my processor in above mentioned cases of the successor or appellant. In view of these facts, the appeal of the appellant on this ground is allowed and the disallowance of Rs. 50,06,483/- made by the AO is deleted.
21.We considering the facts and the observations find that the CIT(A) has relied on the provisions and judicial decision and deleted the addition. Accordingly we are not inclined to interfere with the order of CIT(A) on this disputed issue and upheld the same and dismiss the ground of appeal of the revenue.
22.. The second disputed issue that, the assessee has claimed in the books of accounts the doubtful debts and advances written off, the A.O found that out of the said amount of Rs. 1,22,494/- being insurance claim is receivable has been written off. Since there are no explanations submitted , the A.O has made an addition. Whereas the CIT(A) considered the submissions of the assessee and observed at para 6.4.2 to 6.4.4 of the order and has allowed the claim ITA Nos. 7187, 7186/Mum/2017 & 1653/Mum/2018
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of the assessee. The Ld.DR relied on the order of the A.O but could not controvert the observations of the CIT(A)with any cogent evidence or new information. The Ld.AR supported the orders of the CIT(A) and relied on the judicial decisions. Accordingly we are not inclined to interfere with the findings of the CIT(A) on this disputed issue and upheld the same and dismiss the ground of appeal of the revenue. The revenue appeal is partly allowed for statistical purposes.
23. In the result, all the three appeals filed by the revenue are partly allowed for statistical purposes.
Order pronounced in the open court on 22.03.2021.
Sd/- Sd/-
(SHAMIM YAHYA) (PAVAN KUMAR GADALE )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 22.03.2021
KRK, PS
ITA Nos. 7187, 7186/Mum/2017
& 1653/Mum/2018
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आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं'धत आयकर आयु)त / The CIT(A)
4. आयकर आयु)त(अपील) / Concerned CIT
5. ,वभागीय /त/न'ध, आयकर अपील य अ'धकरण, अहमदाबाद / DR, ITAT, Mumbai
6. गाड4 फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या,पत /त //True Copy//
1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपील य अ!धकरण, अहमदाबाद / ITAT, Mumbai