IBM INDIA PRIVATE LIMITED ,BANGALORE vs. DCIT, CIRCLE-3(1)(1), BANGALORE

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ITTPA 1177/BANG/2025Status: DisposedITAT Bangalore04 November 2025AY 2006-077 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the issue of the provision for obsolescence is covered in favor of the assessee by the decision of the Karnataka High Court in the assessee's own case for earlier years, as well as by the decision of the coordinate bench for some earlier years. Therefore, in principle, the loss is allowable. The primary issue was the submission of details regarding such obsolescence losses. Although the assessee stated that details were available in annual accounts, the AO needed to be shown the manner of making the provision and its quantum. Consequently, the Tribunal restored the entire issue back to the file of the learned Assessing Officer. The assessee was directed to submit the necessary details, and if found reasonable and adequate by the AO, the claim must be allowed, following the precedent of the Karnataka High Court and the coordinate bench. Ground No. 2 of the appeal was allowed. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, IBM India Private Limited, filed an appeal for assessment year 2006-07 against an order passed under section 143(3) r.w.s. 92CA r.w.s. 254 of the Income-tax Act, 1961. The dispute concerns the disallowance of a provision for obsolescence amounting to INR 4,96,52,000. The assessment order was passed on March 19, 2025. The procedural history indicates that the issue has been restored to the Assessing Officer (AO) by the Tribunal on multiple occasions. The assessee contends that the AO failed to consider the claim despite favorable decisions from the Karnataka High Court and the ITAT for earlier assessment years. The AO reiterated the disallowance, stating that the assessee did not produce new details beyond company policy.

What were the issues?

1. Whether the assessment order dated March 19, 2025, passed under section 143(3) r.w.s. 92CA r.w.s. 254 of the Income-tax Act, 1961, is bad in law and invalid? (Mixed law and fact) 2. Whether the Assessing Officer erred in disallowing the deduction claimed for provision for obsolescence amounting to INR 4,96,52,000, despite prior favorable rulings? (Mixed law and fact, turning on the AO's adherence to precedent and sufficiency of evidence) Assessee's Contentions: - The assessment order is bad in law. - The AO erred in disallowing the provision for obsolescence, disregarding the Karnataka High Court's decision in the assessee's own case for AY 2001-02 and AY 2002-03, and the ITAT's decision for AY 2005-06. Revenue's Contentions: - The judgment records no specific contentions for the revenue on the merits of the disallowance, but it notes that the AO reiterated the disallowance due to the assessee not producing adequate details.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 92CA,Section 254

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH: BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

For Respondent: Shri Rahul Jain & Ajay Rotti, CAs, Dr. Divya K J, CIT(DR)(ITAT), Bengaluru
Hearing: 06.08.2025Pronounced: 04.11.2025

Per Prashant Maharishi, Vice President 1. This appeal is filed by IBM India Private Ltd. (the assessee/appellant) for the assessment year 2006-07 against the order passed u/s. 143(3) r.w.s. 92CA r.w.s. 254 of the Income-tax Act, 1961 [the Act] dated 19.3.2025 raising the following grounds of appeal:-

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“The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under: 1. Assessment order bad in law 1.1. At the outset, M/s IBM India Private Limited (hereinafter referred to as 'the Appellant' or `the Company') prays that the order dated March 19, 2025, received on March 20, 2025, passed under section 143(3) read with section 92CA read with section 254 of the Income-tax Ad, 1961 ('the Act'), by the Deputy Commissioner of Income Tax, Circle 3(1)(1), Bengaluru ('learned DCIT'), be struck down as invalid, as the order is bad in law and on facts. 2. Disallowance of provision for obsolescence 2.1. The Learned DCIT have erred in law and on facts in disallowing the deduction claimed in respect of provision for obsolescence amounting to INR 4,96,52,000. 2.2. The Learned DDT have erred in disregarding the orders of the jurisdictional High Court in the Appellant's own case for AY 2001-02 and AY 2002-03 where in the Hon'ble Karnataka High Court has upheld the deduction in respect of provision of obsolescence claimed by the Appellant. 2.3. The Learned DCIT have erred in disregarding the orders of the jurisdictional Income-tax Appellate Tribunal ('Hon'ble ITAT') in the Appellant's own case for AY 2005-06 where in the Hon'ble ITAT, Bengaluru Bench has upheld the deduction in respect of provision of obsolescence claimed by the Appellant. 3. Relief 3.1. The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto. 3.2. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of

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appeal, at any time before or during the hearing of the appeal.”

2.

The only ground of appeal on the merits is that the ld. AO has erred in not following the decision of the Hon’ble jurisdictional High Court in assessee’s own case for AY 2001-02 & 2002-03 wherein the Hon’ble High Court has allowed the deduction in respect of provision of obsolescence claimed by the appellant. There is also the decision of the coordinate bench in assessee's favour allowing the laws of obsolescence for earlier assessment years. The assessee has also challenged that the assessment order is bad in law.

3.

The brief facts of the case show that assessee filed its return of income for AY 2006-07 on 30.11.2006 at a total income of Rs.138,33,26,054. The case of the assessee was assessed u/s. 143(3) r.w.s. 144C of the Act on 18.10.2020 wherein the total income is assessed at Rs.814,97,97,426. This order was challenged before the coordinate Bench which passed the appellate order on 28.7.2017 restoring the issue back to the file of the ld. AO vide IT(TP)A No. 2588/Bang/2019 subsequently, once again the impugned appeal reached at the doorstep of the Tribunal wherein the order dated 30.12.2022 was passed restoring the matter back to the file of the learned assessing officer. Before the tribunal, assessee raised ground No.15 before the coordinate Bench that the ld. AO and the DRP have disallowed the deduction of provision of obsolescence amounting to Rs.4,96,52,000 despite the decision of the Hon’ble High Court in assessee’s own case for AY 2001-02 & 2002-03. Therefore,

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the above ground was also restored back to the file of the learned assessing officer. The learned assessing officer passed the order under section 143 (3) read with section 92 CA read with section 254 of the income tax act 1961 on 19th of March 2025, wherein the above issue was not decided in favour of the assessee. Therefore, the claim of the assessee is that the learned assessing officer has not considered the claim of the assessee for the allowance of deduction in respect of provision for obsolescence amounting to ₹ 4,96,52,000/–.

4.

The learned authorised representative Shri Ajay Rotti and Shri Rahul and the learned CIT DR Dr Divya K J was also heard.

5.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. Originally by the first order of the coordinate bench the issue was restored back to the file of the learned assessing officer for determining the allowance of the above item if the assessee can establish that the provision was made on a proper basis, if it is found so, no disallowance to be made. Subsequently during the course of set-aside proceedings the assessee submitted by letter dated 17/12/2018 that the above provision was created in respect of provisions for obsolescence. The assessee explained the nature of the business and due to the rapid technological changes it was stated that the computer industry has been facing in the last decade or so, periodically assessee undertake the exercise of reviewing the inventory items and the value of inventory items which are found obsolete are written off in the books

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of accounts. The assessee submitted that such provision has been created on the basis of the applicable accounting standards and relevant industry practice.

6.

The learned assessing officer was also shown the decision of the honourable Karnataka High Court in case of the assessee wherein the issue was decided in favour of the assessee. Further it was shown that for assessment year 2002 – 03 the coordinate bench has also taken a view to allow the above claim.

7.

However the learned assessing officer at page No. 16 of his order held that the issue was taken up for examination as per the direction of the coordinate bench and assessee was asked to furnish details in support of the expenses claimed. As the assessee has not produced anything new except stating that it was part of company policy, the disallowance was reiterated.

8.

When the matter reached before the learned dispute resolution panel the opinion of the learned assessing officer was justified. Thus the disallowance was made in the hands of the assessee as the assessee could not furnish the adequate details.

9.

Therefore now this issue has reached twice to the tribunal. Partly because of the reason that the learned assessing officer has not accepted the claim of the assessee despite it already concluded in favour of the assessee by the decision of the honourable Karnataka High Court as well as the order of the tribunal stating that assessee has failed to furnish the requisite details. Thus, it is apparent that the

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issue is covered in favour of the assessee by the decision of the honourable Karnataka High Court in assessee's own case for earlier year as well as by the decision of the coordinate bench in assessee's own case for some of the earlier years. Therefore, in principle the loss is allowable to the assessee. The issue is only with respect to the submission of the details of such obsolescence losses. Though it was stated that the details are available in the annual accounts. Naturally, the learned assessing officer must be shown the manner of making the provision and quantum of such provision. In view of these facts we restore the whole issue back to the file of the learned assessing officer with a direction to the assessee to submit the necessary details before the learned assessing officer and if the learned AO found them to be reasonable and adequate, he must allow the claim of the assessee following the decision of the honourable Karnataka High Court and the coordinate bench in assessee's own case.

10.

In view of the above facts ground No. two of the appeal of the assessee is allowed.

11.

In the result appeal of the assessee is allowed for statistical purposes.

Pronounced in the open court on this 04th day of November, 2025.

Sd/- Sd/-

(KESHAV DUBEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 4th November, 2025. /Desai S Murthy /

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Copy to:

1.

Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.

By order

Assistant Registrar ITAT, Bangalore.

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