Law: Income Tax Act, 1961

Section: 28(i)

Section 28(i), of the Income-tax Act, 1961 - Business loss/deduction - Allowable as (Write off value of corroded items) - Assessment years 2002-03 to 2004-05 - Assessee, a government company, claimed loss on account of certain slow moving items and had written off certain amounts in profit and loss account - Assessing Officer was of view that amount claimed towards loss of non-moving stores could not be so claimed as assessee was believed to have changed its method of accounting in respect of stores and spares, inasmuch as it wrote off 95 per cent of value of such stores and spares which had not moved over last three years and retained only 5 per cent of residual value - It was found that assessee's plants were located in remote places and near sea - Non-moving stores and spares were corroded over a period of time due to wear and tear - Whether since write off claimed was essentially on basis of deterioration of various materials including raw-materials and in particular, slow moving items of machinery, assessee would be entitled for said deduction - Held, yes [Para 9] [In favour of assessee] FACTS â–  The assessee, a government company, claimed loss on account of certain slow moving items and had written off and debited certain amounts in the profit and loss account under the head 'General Expenses Schedule 11A'. â–  The Assessing Officer in the course of scrutiny was of the view that the amount claimed towards loss of non-moving stores could not be so claimed in view of the fact that the assessee was believed to have changed its method of accounting in respect of stores and spares, inasmuch as it wrote off 95 per cent of the value of such stores and spares which had not moved over the last three years and retained only 5 per cent of the residual value. He was further of view that no specific reasons were mentioned for change of method of accounting. â–  According to the Assessing Officer, merely by writing off the value, the assessee was not entitled to claim deduction in the year in which it had written off the sum and that there must be something positive to show that the value had become nil only in that particular year so as to justify the…

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