NORTH ARCOT DISTRICT COOPERATIVE SUPPLY AND MARKETING SOCIETY LTD. VS COMMISSIONER OF INCOME-TAX
2001 P T D 81
[238 I T R 480]
[Madras High Court (India)]
Before N. V. Balasubramanian and P. Thangavel, JJ
NORTH ARCOT DISTRICT COOPERATIVE SUPPLY AND MARKETING SOCIETY LTD.
versus
COMMISSIONER OF INCOME‑TAX
Tax Case No.455 of 1980 (Reference No.224 of 1980), decided on 13/10/1997.
Income‑tax‑‑‑
‑‑‑‑Business income‑‑‑Deduction‑‑‑Deficiency in stock‑‑‑Loss not allowable as deduction.
In the assessment year 1971‑72 relevant for the accounting year ending June 30, 1970, the Income‑tax Officer disallowed deduction claimed by the assessee towards reserve for deficit stock of Rs.1,87,544. According to the assessee, the reserve represented the estimated value of damaged stock. The Income‑tax Officer found that the value of goods had not been written off in the books of account, and hence disallowed the claim. The Tribunal confirmed the same on the ground that the assessee had not proved the loss of stock and the assessee could claim the loss as a deduction only when the departmental enquiry under the Cooperative Societies Act finally settled as to how the loss arose and whether anything could be recouped from those in charge of the stock. On a reference:
Held, that the legal position was that unless it was shown that there was a loss by way of deficiency in stocks in the year of account and a reserve had been created for that loss, no deduction could be claimed for that reserve. If the deficiency had been written off in the year of account it would be taken as a loss of stock and the reserve created for the purpose would be allowed as a deduction to the extent of the deficiency written off.
North Arcot District Cooperative Supply and Marketing Society Ltd. v. CIT (1987) 165 ITR 623 (Mad.) fol.
Goenka (R.N.) v. CWT (1989) 176 ITR 129 (Mad.); North Arcot District Cooperative Supply and Marketing Society Ltd v. CIT (1998) 230 ITR 33 (Mad.) and Union of India v. Raghubir Singh (1989) 178 ITR 548 (SC) ref.
K.S. Sivaraman for the Assessee.
C.V. Rajan for the Commissioner.
JUDGMENT
N.V. BALASUBRAMANIAN, J.‑‑‑At the instance of the assessee, the Income‑tax. Appellate Tribunal, Madras, has stated a case and referred the following question of law under section 256(1) of the Income Tax Act, 1961.
"Whether, on the facts and circumstances of the case, a sum of Rs.1,87,544, representing reserve for deficit stock on account of handling was includible in the income of the society?"
The assessee is a cooperative and marketing society and the assessment year concerning the tax case reference is the assessment year 1971‑72 and the relevant accounting year is the year ending with June 30, 1970. In computing its income for the said assessment year 1971‑72, the Income‑tax Officer made the following addition towards the reserve for deficit stock of Rs.1,87,544. The Income‑tax Officer disallowed the same for the reasons stated in the earlier assessment years. The case of the assessee before the Income‑tax Officer was that the stocks were damaged and since they would not be sold normally, the reserve was created and the reserve made for the deficit stocks should be allowed as deduction. According to the assessee, the reserve represented estimated value for the damaged stock and the estimated value called for adjustment in the computation of the income under the Income Tax Act, 1961. The Income‑tax Officer found that. the value of the goods had not been written off in the books of account of the assessee and hence disallowed the claim.
The assessee filed an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, following an earlier order of the Income‑tax Appellate Tribunal in the assessee's own case in I.T.As. Nos. 1678, 1679 (Madras) of 1972‑73 and 795 (Madras) of 1973‑74, dated July 30, 1975, upheld the addition made by the Income‑tax Officer.
The assessee carried the matter by filing an appeal before the Income‑tax Appellate Tribunal. The assessee filed details of the excess and deficit as shown by the cooperative auditors before the Tribunal and claimed that since there was a loss of stock, it should be allowed as a deduction and there is no reason why a separate treatment should be given in the case of the assessee when the Appellate Tribunal has allowed the deduction for other cooperative societies. The Appellate Tribunal went into the matter in details and found that the assessee had not proved the loss of stock and the assessee can claim the loss as a deduction only when the Departmental enquiry under the Cooperative Societies Act finally settled as to how the loss arose and whether anything could be recouped from those in charge of the stock. The Appellate Tribunal also found that it cannot be said that the assessee had explained the loss of stocks. The further finding of the Appellate Tribunal is that when it is proved that the stock were damaged, the assessee will be entitled to claim deduction at that time. In this view of the matter, the Appellate Tribunal dismissed the appeal filed by the assessee. Dissatisfied with the order the present reference has been sought for by the assessee and the Appellate Tribunal has stated the case and referred the question of law as set out supra.
?
Mr. K.S. Sivaraman, learned counsel appearing for the assessee, fairly brought to our notice an earlier decision of this Court in the assessee's own case in the case of North Arcot District Cooperative Supply and Marketing Society Ltd. v. CIT (1987) 165 ITR 623 (Mad.), relating to the assessment year 1967‑68 and a subsequent unreported decision of this Court in T.C. Nos. 243 and 244 of 1981, dated January 9, 1997 (North Arcot District Cooperative Supply and Marketing Society Ltd. v. CIT‑‑‑Since reported in (1998) 230 ITR 33 (Mad)). It is further submitted that the loss has actually arisen and there is a conflict of views between the Tribunal with reference to the tax treatment of the loss between the cooperative societies. Therefore, he submitted that the earlier decision requires reconsideration and he relied upon the decision by the Supreme Court in the case of Union of India v. Raghubir Singh (1989) 178 ITR 548, and a decision of this Court in the case of R.N. Goenka v. CWT (1989) 176 ITR 129. He, therefore, submitted that the earlier decision should be referred to a Pull Bench.
We have carefully considered the submissions of learned counsel for the assessee. In the earlier decision of this Court in the assessee's own case reported in North Arcot District Cooperative Supply and Marketing Society Ltd. v. CIT (1987) 165 ITR 623 (Mad.), this Court considered the same question and came to a conclusion that whatever may be the difficulty that may be faced by a cooperative society in writing off the deficiency in stock, the legal position is that unless it is shown that there is a loss by way of deficiency in stocks in the year of account and a reserve had been created for that loss, no deduction can be claimed for that reserve. If the deficiency had been written off in the year of account, it can be taken as a loss of stock and the reserve created for the purpose will be allowed as a deduction to the extent of the deficiency written off. The finding of the Tribunal, as we have already seen, is that the assessee has not established the loss of stock in the year of account and the assessee can claim the amount as a deduction after the Departmental enquiry finally settled as to how the loss arose and how much was the loss. In view of the specific finding of the Appellate Tribunal that loss has not arisen in the year of account, we are of the opinion that the earlier decision of this Court in North Arcot District Cooperative Supply and Marketing Society Ltd v. CIT (1987) 165 ITR 623, squarely applies to the facts of this case. We do not find any reason to differ from the reasoning given by this Court in the earlier decisions.
In this view of the matter, we answer the question of law referred to us in the affirmative and against the assessee, But, however, there will be no order as to costs.
M. B. A./116/FC????????
Reference answered.