2022 (5) TMI 111 - AT - Income Tax

Addition on account of provision for inventory of obsolescence - assessee could not give justification regarding provision made by the assessee - CIT-A deleted the addition - HELD THAT - The assessee has claimed provision for inventory of obsolescence as allowable expenditure. The AO disallowed the same being a provision and not the actual expenses. As per the Assessing Officer, the expenses being uncertain is not allowable expense u/s 37(1) of the Act. We find that this reasoning of AO is contrary to ratio laid down by the binding precedents. See HOTLINE TELETUBE AND COMPONENTS LTD. 2008 (8) TMI 6 - HIGH COURT DELHI and HOTLINE TELETUBE AND COMPONENTS LTD. 2008 (8) TMI 6 - HIGH COURT DELHI - Decided against revenue. CIT-A admitting the additional evidences without affording an opportunity to AO - HELD THAT - We find that Ld. Sr. DR could not point out that what were the additional evidences filed before Ld.CIT(A) which was not confronted to the AO. Therefore, in the absence of specific averment regarding additional evidences, we do not see any merit in the ground of Revenue s appeal. Thus, Ground No.2 raised by the Revenue is dismissed. Disallowance of non business expenses - HELD THAT - The disallowance was purely made on adhoc basis. The AO has merely stated that the assessee could not justify the business expediency. We are unable to understand that how the AO was convinced in respect of 95% of expenses being incurred as per the business expediency and with regard to 5%, the assessee could not prove business expediency. This approach of the AO is not inconsonance with the settled principle of law. We therefore, do not see any reason to interfere in the finding of Ld.CIT(A), the same is hereby confirmed. Ground No.3 raised by the Revenue is therefore, dismissed. Addition to the total income on account of deferred grant - assessee submitted that Ld.CIT(A) failed to appreciate the fact that the assessee himself had offered this income in the Assessment Year 2016-17. Therefore, this amount cannot be allowed to be taxed twice - HELD THAT - It is the say of the assessee that grant was given with specific direction by the grantor to be utilized for capital infrastructure. Since the amount could not be utilized during the year, it was booked as liability and same was written back in the Assessment Year 2016-17 and offered for tax. The Revenue could not controvert the fact that the amount was offered for tax in Assessment Year 2016-17. It is settled principle of law that an amount cannot be taxed in the hands of the assessee if it does not partake the character of income. In the present case, the amount of grant was offered for tax in the year 2016-17. It is also equally settled principle of law that the income is required to be taxed in the correct Assessment Year. We therefore, set aside the impugned order on this issue and direct the Assessing Officer to verify and tax the impugned amount in correct Assessment Year. This ground of assessee s cross-objection is allowed for statistical purposes only.

Summary

Issues Involved:
1. Deletion of addition on account of provision for inventory obsolescence.
2. Admitting additional evidences without affording an opportunity to AO.
3. Deletion of disallowance of telecom expenses.
4. Addition on account of deferred grant.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Provision for Inventory Obsolescence:
The Revenue contested the deletion of Rs.3,96,41,576/- by the CIT(A), arguing that the assessee failed to provide necessary details and documentary evidence. The assessee countered, citing internal policy for inventory valuation and referencing precedents like the Karnataka High Court in CIT vs IBM India Ltd. and the Delhi High Court in CIT vs Hotline Teletube & Components Ltd. The Tribunal upheld the CIT(A)'s decision, noting the AO's adhoc disallowance without rejecting the audited books of accounts, and referenced binding precedents affirming the principle of valuing stock at cost or realizable market price, whichever is lower.

2. Admitting Additional Evidences Without Affording an Opportunity to AO:
The Revenue argued that the CIT(A) erred in admitting additional evidence without giving the AO a chance to examine them. The assessee clarified that no additional evidence was filed before the CIT(A). The Tribunal found no merit in the Revenue's claim due to the lack of specific averment regarding additional evidence and dismissed this ground.

3. Deletion of Disallowance of Telecom Expenses:
The Revenue challenged the deletion of Rs.9,45,712/-, arguing the expenses were not fully supported by documentary evidence. The assessee contended the disallowance was adhoc and unsupported by specific instances of non-business expenditure. The Tribunal agreed with the assessee, criticizing the AO's inconsistent approach in disallowing only 5% of the expenses without clear justification, and upheld the CIT(A)'s decision.

4. Addition on Account of Deferred Grant:
The assessee's cross-objection concerned the addition of Rs.2,42,47,861/- as deferred grant, arguing it was already offered as income in the Assessment Year 2016-17, and thus should not be taxed twice. The Tribunal acknowledged the principle that income cannot be taxed twice and directed the AO to verify and tax the amount in the correct assessment year, allowing the cross-objection for statistical purposes.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on inventory obsolescence and telecom expenses, and found no merit in the claim regarding additional evidence. It allowed the assessee's cross-objection on deferred grant for statistical purposes, directing verification and correct assessment year taxation.