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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by the Revenue is directed against the order dated 04.05.2017 of Commissioner of Income Tax(Appeal), for A.Y.2009-10. The assesse has raised following grounds of appeal:
Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has justified in deleting the addition made by the AO of Rs. 6,13,95,780/- in respect of reduction of stock/inventory without giving any basis and details as to which inventory/stock has become obsolete or unserviceable store or non-moving items.
2. Ld. DR has submitted that the AO noted that the assessee has shown under valuation of inventories on account of surplus/obsolete/unserviceable stores as well as nonmoving items. She has referred to the assessment order and submitted that from the reply Page 1 of 5 Nepa Ltd. Page 2 of 5 filed by the assesse the AO noted that the assessee has not been able to explain reduction of value of the stock to the extent of Rs.6,13,95,780/- and accordingly the AO made the addition of the said amount. She has relied upon the order of the authorities below.
3. On the other hand, Ld. AR of the assesse has submitted that the AO has not considered the reply filed by the assessee though the same is reproduced in the assessment order. The assesse has given the details of the opening and closing inventories as well as current provisions made on account of obsolete/unserviceable stock and for non-moving items of Rs.10,85,161/- and Rs.9,35,389/- respectively. The said provision has been made by the assessee company which is public sector enterprises in accordance with the scientific method. Thus, Ld. AR has submitted that Ld. CIT(A) after noting these factual mistake in the assessment order has deleted the addition made by the AO. He has supported the impugned order of the Ld. CIT(A).
We have considered the rival submissions as well as relevant material on record. The Ld. AO has considered this issue of under valuation of inventories in para 5C as under:
“C. Under valuation of inventory: The assessee has furnished reply which is as under- 2. Under valuation of Actual inventory of Surplus/obsolete /unserviceable stores and non moving items a. In Schedule of Inventories in obsolete /unserviceable stores Account Closing Balance as on 31.03.2009 Rs. 70,24,318 Opening balance as on 01.04.2008 Rs.53,53,634 During the year there were transfers from nonmoving account amounting to Rs.35,57,490 and consumption amounting to Rs. 29,71,968 Nepa Ltd. Page 3 of 5 Further, Provision has been made to the extent of Rs.10,85,161 during the year on account of obsolete unserviceable stores. b. In Provision for non moving items Closing balance as on 31.03.2009 Rs.5,43,71,442 Opening balance as on 01.04.2008 Rs.6,04,01,835 During the year, there were transfers to Surplus/obsolete /unserviceable stores account amounting to Rs.35,57 490. Consumption from such non moving entries being reversed amounted to Rs.34,08,291/- Further, Provision has been made to the extent of Rs.9,35,389 during the year on account of non moving items for more than 5 years and above. The aforesaid transactions are routine transactions and properly recorded therefore the question of undervaluation does not arise at all. Annexure. B.-I to The reply of the assessee on the issue is not convincing. No working was furnished during the course of assessment proceedings. In re- assessment proceedings, the person attending the proceedings have not been able to explain reduction of Rs. 6,13,95,780/- from total stock. Therefore, the amount of Rs. 6.13,95,780/-. Addition Rs. 6,13,95,780/-.
Thus, it is apparent from the reply of the assessee reproduced by the AO containing the details of the inventories that the AO has made the addition of opening as well as closing balance of the inventories instead of considering only the provisions made by the assessee on account of obsolete/unserviceable stock and nonmoving items. On appeal the CIT(A) has considered and decided this issue in para 4.2 to 4.5 as under:
“4.2 I have gone through the appellant's contentions. Vide letter dated 19/07/2013 the issue of undervaluation of inventory of surplus/obsolete/unserviceable stores and non moving 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 Nepa Ltd. Page 4 of 5 consumption of Rs. 29,71,968/- during the year the closing balance as 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. 6,04,01,835/-. After reducing transfer surplus/obsolete/unserviceable stores 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 on 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.”
Thus, it is evident from record that the Ld. CIT(A) has considered the fact that the current provision has been made by the assesse of Rs.10,85,161/- on account of obsolete/unserviceable stock and Rs. Rs.9,35,389/- made on account of nonmoving items. The assessee explained that the basis of making these provisions is scientifically determined on past experience and empirical evidences as per accounting standard 29 issued by ICAI and by considering these facts the Ld. CIT(A) has deleted the addition made by the AO. We find that the AO has committed a factual mistake in making addition by clubbing both opening balance of inventories as well as closing balance of inventories instead of taking the provision made by the assessee during the year under consideration. Therefore, in the facts and circumstances of the case we do not find any error or illegality in the impugned order of the Ld. CIT(A) qua this issue. Hence the appeal of the revenue is devoid of any merit or substance. Page 4 of 5 Nepa Ltd. Page 5 of 5 7. In the result, the appeal of revenue is dismissed.
Order pronounced in the open court on 09.10.2023