Writing off stores & spares.

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Praveen Nigam (Querist)
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08 January 2008 stores & spares, which have become unusable, and written off from the books of the company. Whether such writ off is an allowable expenditure in income tax or not. Is there any case law in support of such write off.

R.V.RAO

R.V.RAO (Expert)
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08 January 2008 [1966] 60 ITR 531 (MAD.)
HIGH COURT OF MADRAS
India Motor Parts and Accessories (P.) Ltd.
v.
Commissioner of Income-tax
TAX CASE NO. 147 OF 1962
FEBRUARY 12, 1965
IN THE ABOVE CASE , The assessee treated a part of its stock as obsolete and some other stock as slow-moving and valued them notionally at 100 per cent. and 50 per cent. less than the cost price as the case may be. The Income-tax Officer added this under pricing back, taking into account the circumstance that when the assessee applied for an overdraft to the State Bank of India they declared the value of these goods as Rs. 24,96,207 and also insured these stocks for the same amount...........
The final decision was given in favor of the assessee that there is no justification requiring the assessee to change the method( of valuing and assessing stocks as to what is obsolete, and what is not) which has been consistently followed, especially to claim the protection of section 13 of the Act.
IN THE FOLLOWING OTHER CASES ALSO AN ASSESSEE IS DECIDED TO HAVE THE ULTIMATE RIGHT TO ASSESS THE STOCKS AS TO WHAT IS SLOW,OBSOLETE AND WHAT IS NOT. BUT THE METHOD OF ACCOUNTING SHOULD BE CONSISTENT.
It has been laid down by a Division Bench of this court in CIT v. Chari & Ram1 that under section 13 of the Indian Income-tax Act an assessee is entitled to compute the income, profits and gains in accordance with the method of accounting regularly employed by him, and ordinarily this method must be accepted by the department in the absence of anything to suggest that it is improper or patently false. The proposition is contained in more emphatic terms in the latest pronouncement of the Supreme Court in CIT v. A. Krishnaswami Mudaliar2. The rule stated there is that it was left to the option of the assessee to adopt any system of accounting and oblige the Income-tax Officer to compute the income, profits and gains in accordance with such method of accounting regularly employed, if profits of the business can properly be deduced therefrom. It means that it imposes a statutory duty on the Income-tax Officer to examine in every case the method of accounting employed and to see whether or not it has been regularly employed.
R.V.RAO

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