Pr. Commissioner Of Income Tax I vs. M/S Nepa Limited

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ITA/140/2024HC Madhya Pradesh18 October 2024Bench: HON'BLE SHRI JUSTICE VIVEK RUSIA5 pages
For Petitioner: Veena Mandlik
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal filed by the Principal Commissioner of Income Tax-I is dismissed. The Court found no question of law involved. The reasoning was based on the concurrent findings of the CIT(A) and the ITAT. The CIT(A) had noted that the AO made the addition by including the closing balance of the previous year which also encompassed the opening balance of the provision. The CIT(A) detailed the calculations for both surplus/obsolete/unserviceable stores and non-moving items, showing how the closing balances were arrived at scientifically. The ITAT confirmed this, specifically stating that the AO committed a factual mistake by clubbing both the opening and closing balances of inventories instead of considering the provision made by the assessee during the year. Given these concurrent findings, the High Court was not inclined to interfere.

What were the facts?

The Principal Commissioner of Income Tax-I (appellant) filed an appeal against the order of the ITAT, Indore Bench, which upheld the order of the CIT(A). The assessee, M/s Nepa Limited, a public sector undertaking, filed its return for AY 2009-10 declaring a loss. During reassessment proceedings initiated under Section 148, the Assessing Officer (AO) made an addition of Rs.6,13,95,780/- concerning non-moving items, stating the assessee could not explain the reduction in stock. The assessee contended that the opening balance of non-moving items was Rs.6,04,01,835/- and the closing balance was Rs.5,43,71,442/-. The CIT(A) allowed the assessee's appeal, deleting the addition. The ITAT dismissed the Revenue's appeal, finding a factual mistake by the AO in clubbing opening and closing balances.

What were the issues?

1. Whether the Tribunal erred in law and on facts by upholding the deletion of the addition of Rs.6,13,95,780/- made by the Assessing Officer on account of non-moving items, thereby interfering with the findings of the Assessing Officer. (Question of law and fact, relating to Section 147 of the Income Tax Act, 1961). Assessee's Contention: The assessee argued that the CIT(A) and ITAT correctly deleted the addition. The assessee provided the opening and closing balances for non-moving items, and the AO failed to demonstrate how the addition was calculated. The CIT(A) found the AO made a factual mistake by clubbing opening and closing balances. The assessee relied on AS29 for scientific determination of provisions and cited case laws supporting that scientifically determined liabilities cannot be contingent. Revenue's Contention: The Revenue argued that the assessee did not provide supporting documents for the valuation of inventories (surplus/obsolete/unserviceable stores and non-moving assets) when confronted by the AO. Therefore, the AO was justified in making the addition, and the CIT(A) and ITAT should not have interfered with the AO's findings.

Which sections of the Income-tax Act were involved?

Section 260A,Section 148,Section 147,Section 143

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF MADHYA PRADESH AT INDORE BEFORE HON'BLE SHRI JUSTICE VIVEK RUSIA & HON'BLE SHRI JUSTICE GAJENDRA SINGH ON THE 18th OF OCTOBER, 2024 INCOME TAX APPEAL No. 140 of 2024 PR. COMMISSIONER OF INCOME TAX I Versus M/S NEPA LIMITED Appearance: Ms. Veena Mandlik, learned counsel for the appellant. ORDER Per: Justice Vivek Rusia Heard on the question of admission. The appellant / Principal Commissioner of Income Tax-I has filed the present appeal under Section 260A of the Income Tax Act, 1961 being dissatisfied by the order dated 05.05.2017 passed by the Commissioner of Income Tax (Appeals)-III, Indore and order dated 09.10.2023 passed by the Income Tax Appellate Tribunal (ITAT), Indore Bench, whereby both the appeals have been dismissed. 02. Facts of the case in short are as under:- 2.1. Respondent / M/s Nepa Limited is a Public Sector Undertaking engaged in manufacturing of newspaper and tree plantation activities. The respondent filed its return of income tax for the Assessment Year - 2009 - 10 declaring loss of Rs.44,37,83,242/-. The original assessment under Section 1 ITA-140-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30415 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

143(3) of the Income Tax Act was completed on 29.12.2011 on a loss of Rs.36,75,11,240/-. Thereafter, a notice under Section 148 of the Income Tax Act was issued on 15.03.2013 on believing that the income of Rs.4681.52 lakh has escaped the assessment within the meaning of Section 147 of the Income Tax Act. 2.2. In response to the aforesaid notice, the assessee filed its reply on 19.07.2013. During the reassessment proceeding, the reply submitted by the assessee was not found satisfactory and total income of Rs.30,60,42,444/- including penalty was passed by the Deputy Commissioner of Income Tax, Khandwa on 22.11.2013. The major part of the aforesaid tax liability is in respect of addition of Rs.6,13,95,780/- with regard to the non-moving items which is the subject matter of this Income Tax Appeal. 2.3. The Assessing Officer has made the addition only by observing that in reassessment proceeding, the person attending the proceeding has not been able to explain the reduction of Rs.6,13,95,780/- from the total stock, whereas the assessee explained that the opening balance on 01.04.2008 was Rs.6,04,01,835/- and the closing balance as on 31.03.2009 was Rs.5,43,71,442/- in respect of non-moving items. 2.4. Being dissatisfied with the aforesaid order of assessment, the respondent / assessee filed an appeal before the Commissioner of Income Tax (Appeals) - III under Section 143 r/w section 147 of the Income Tax Act. Vide order dated 05.05.2017, learned CIT has allowed the appeal and set aside the addition of Rs.6,13,95,780/-. The findings recorded by the CIT is as under:- 2 ITA-140-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30415 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

"4.2. I have gone through the appellant's contention. Vide order dated 19/07/2013 the issue of undervaluation of inventory of surplus/obsolete/unserviceable stores and non movi9ng items was explained and the working was given on the margin. It is seen that in the schedule of inventories of surplus/obsolete/unserviceable stores the opening balance as on 01/04/2008 is Rs.53,53,634/-. After adding the provision of Rs.10,85,161/- made during the year on account of obsolete unserviceable stores and transfer from non- moving account amounting to Rs.35,57,490/- and reducing the consumption of Rs.29,71,968/- during the year the closing balance on 31/03/2009 is Rs.70,24,318/-. 4.2.1. The opening balance as on 01/04/2008 for provision for non-moving items is Rs.06,04,01,835/-. After reducing transfer surplus/obsolete/unserviceable store of Rs.35,57,490/- and consumption from such non-moving entries being reversed amounting to Rs.34,08,291/- and addition on account of provision of Rs.9,35,389/- made during the year an account of non-moving items of more than 5 years and above, the closing balance as on 31/03/2009 is Rs.5,43,71,442/-. 4.3. The Assessing Officer has made the addition of closing balance of provision which also includes opening balance of provision as stated above. 4.4. The appellant has also submitted that the current year provisions are scientifically determined based on past experience and empirical evidences as per AS29 issued by ICAI. The appellant has also cited various case laws to support that liability determined on a scientific basis cannot be regarded as a contingent liability. 4.5. In view of the above, I am of the view that the Assessing Officer has made the addition of Rs.6,13,95,780/- without any cogent justification and therefore, the said addition is deleted. Ground No.2 is allowed." 2.5. Being aggrieved by the aforesaid order, the Deputy Commissioner of Income Tax filed an appeal before the ITAT, Indore Bench which came to be dismissed vide order dated 09.10.2023 with a specific finding that the Assessing Officer has committed a factual mistake in making addition by clubbing both the opening balance of the inventory as well as closing balance of inventory instead of taking the provision made by the 3 ITA-140-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30415 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

assessee during the year under consideration. Hence, the present appeal is before this Court. 03. We have heard Ms. Veena Mandlik, learned counsel for the appellant and perused the record. 04. Learned counsel for the appellant submits that when the assessee was confronted with the valuation of the inventories on account of surplus/obsolete/unserviceable store as well as non-moving assets, it did not explain the same with supporting documents, therefore, the Assessing Officer has rightly made an addition of Rs.6,13,95,780/-. The CIT as well as ITAT ought not to have interfered with the finding recorded by the Assessing Officer. 05. The assessee declared in the Income Tax Return that opening balance as on 01.04.2008 was Rs.6,04,01,935/- and the closing balance as on 31.03.2009 was Rs.5,43,71,442/-. The Assessing Officer did not explain as to how the amount of Rs.6,13,95,780/- has been arrived from the total stock. It was the duty of the Assessing Officer to explain the details as to why the amount of Rs.6,13,95,780/- has been arrived in order to add in the total income. 06. The CIT in its order dated 05.05.2017 has found that the Assessing Officer has made the addition of closing balance of the previous year which also includes opening balance of provision as stated above. The CIT has explained the aforesaid in paragraph - 4.2 & 4.2.1, which are reproduced above and have been duly confirmed by the ITAT by holding that the Assessing Officer had committed a factual mistake in clubbing 4 ITA-140-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30415 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

(VIVEK RUSIA) JUDGE (GAJENDRA SINGH) JUDGE opening as well as closing balance of inventories instead of taking the provision made by the assessee during the year under consideration. There are the concurrent findings recorded by the CIT as well as ITAT, therefore, we are not inclined to interfere with the same. We also do not find any question of law involved in this appeal. 07. In view of the above, Income Tax Appeal stands dismissed. Ravi

5 ITA-140-2024 NEUTRAL CITATION NO. 2024:MPHC-IND:30415 Signed by: RAVI PRAKASH Signing time: 22-10-2024 18:41:19 Signature Not Verified

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