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4 Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of Rs. 1,14,999/- depreciation claimed with respect to closed unit. Ld. CIT (A) ought to have deleted disallowance of depreciation claimed of unit forming part of block of assets not permanently closed. It be so held now.
5 Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs. 1,53,28,000/- to closing stock of value written off of raw material, spares, work in process and finished goods determined by internal auditors. Ld. CIT (A) failed to appreciate ITA Nos.722,218&1306/Ahd/2014 A.Ys. 2000-01&2007-08 to 2009-10 submissions that addition of obsolete stock written off at lower of cost or net relizable value as per policy of the company deserved to be deleted. It be so held now.

88. The issue raised by the assessee in ground No. 5 and 6 is that the Ld. CIT- A erred in confirming the addition made by the AO for Rs. 1,53,28,000/- representing the closing value of raw materials, spares, WIP and finished goods written off on account of obsolescence.

89. The assessee during the assessment proceedings claimed that there were certain forms of raw materials, stores and spares, work in progress and finished goods which were not serviceable and became obsolete. To this effect, a report was prepared by the chartered accountant being internal auditor and stock auditor of those items which were non-moving. Accordingly, the assessee has recorded ITA Nos.722,218&1306/Ahd/2014 A.Ys. 2000-01&2007-08 to 2009-10 these items either at nil value or the realisable value. Thus, the assessee has written off the value of such items by Rs.1,53,28,000/-.

94. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us.

95. The Ld. AR before us submitted that the items which were non-moving and unusable have been written off in the profit and loss account which are eligible for deduction. These items were written off based on the report of the chartered accountant/internal auditor.

96. On the contrary Ld. DR before us vehemently supported the order of the authorities below.

97. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the Assessee has reduced value of the closing stock as on 31st March 2006 with respect to raw materials, WIP finished goods by Rs. 1,53,28,000/-. As per the assessee is engaged in the manufacturing activity for past several years and in the process several item of Raw material WIPs and finished including goods return from customer were pilled which were non salable/non-moving. Thus the new management in order to clean up the inventory and financial statement appointed internal auditor/ stock auditor to identify non-moving items and as per report furnished by the chartered accountant the management of the assessee company has in consultation with departmental head such production and stores decided to value of these items at the realisable value or nil value as the case may be. However, the AO, disagreed ITA Nos.722,218&1306/Ahd/2014 A.Ys. 2000-01&2007-08 to 2009-10 with the claim of the assessee on the reasoning that there was no proof furnished whether the impugned items were representing non saleable/non-moving. Likewise, the internal auditor/stock auditor is not an expert to value such stocks. The view taken by the AO was subsequently confirmed by the Ld. CIT-A on the reasoning that the assessee has failed to prove on the basis of cogent material either stock become obsolete and unsellable or stock rejected and become defective. Further stock were revalued by the internal auditor which is not independent thus its report cannot relied upon as the same is not free from biasness.

(ii) The stock statement certified by Auditors and production heads being an expert product properties and qualities have been taken into consideration for the items like Aluminium Foil papers for printing labels. BOPP Film, self adhesive film, plastic cups, stamping foil etc. which due to the passage of time results into oxidization and deteriorates in vatability.
(ii) Board had decided to cleanse the Balance sheet and the assignment was given to internal Auditors by Board of Directors. It is pertinent to note here that Board consisted of three other Nominee Directors of financial institutions like IDBI, Arcil, UTI Bank Ltd. which are renowned and independent agencies who will not allow write off without proper investigation as writing off the value of closing stock would result in impairment of the balance sheet which will eventually jeopardize their recovery once the debt is labeled as bad.