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

ITTPA 1177/BANG/2025

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IBM India Private Limited appealed against the order passed under section 143(3) read with sections 92CA and 254 of the Income-tax Act, 1961, which disallowed a deduction claimed for provision for obsolescence amounting to INR 4,96,52,000 for the assessment year 2006-07. The Tribunal noted that similar claims had been allowed in the assessee's earlier years based on decisions by the Hon'ble Karnataka High Court and the ITAT. The Tribunal found that the assessing officer had not adequately considered these precedents and had not allowed the deduction despite the provision being made based on applicable accounting standards and industry practices. The matter was thus restored to the assessing officer with directions to reconsider the claim if substantiated with adequate details.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783562 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 22-05-2025
• Other Referred Cases: IBM India Private Limited vs. Deputy Commissioner of Income Tax
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RAHUL JAIN; AJAY ROTTI
• Section: 143(3); 92

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER IT(TP)A No.1177/Bang/2025 Assessment year: 2006-07 IBM India Private Limited, No.12, Subramanya Arcade, Bannerghatta Road, Bengaluru – 560 029. PAN: AAACI4403L Vs. The Deputy Commissioner of Income Tax, Circle 3(1)(1), Bengaluru. APPELLANT RESPONDENT Revenue by : S/Shri Rahul Jain & Ajay Rotti, CAs Respondent by : Dr. Divya K J, CIT(DR)(ITAT), Bengaluru. Date of hearing : 06.08.2025 Date of Pronouncement : 04.11.2025 O R D E R 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:- Printed from counselvise.com IT(TP)A No.1177/Bang/2025 Page 2 of 7 “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 Printed from counselvise.com IT(TP)A No.1177/Bang/2025 Page 3 of 7 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, Printed from counselvise.com IT(TP)A No.1177/Bang/2025 Page 4 of 7 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 Printed from counselvise.com IT(TP)A No.1177/Bang/2025 Page 5 of 7 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 Printed from counselvise.com IT(TP)A No.1177/Bang/2025 Page 6 of 7 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 / Printed from counselvise.com IT(TP)A No.1177/Bang/2025 Page 7 of 7 Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "