Deputy Commissioner Of Income Tax, Circle - 7(1)(1), Bangalore V. M/s. Trelleborg India Private Limited (Formerly known Trelleborg Sealing Solutions Private Limited), Bangalore

ITA 450/BANG/2020

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8884 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 27-05-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rectification of order
• Section: 154; 73; 92CA

Judgement Text

ITA No.450/Bang/2020 M/s. Trelleborg India Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA No.450/Bang/2020 AssessmentYear:2012-13 Deputy Commissioner of Income-tax Circle-7(1)(1) Bangalore Vs. M/s. Trelleborg India Pvt. Ltd. (Formerly known Trelleborg Sealing Solutions Pvt. Ltd.) No.22/9, Beratena Agrahara Hosur Main Road Bangalore 560 100 PAN NO : AAECT1088L APPELLANT RESPONDENT Appellant by : Shri Sankar Ganesh K., D.R. Respondent by : Shri H.V. Gowthama, A.R. Date of Hearing : 27.10.2021 Date of Pronouncement : 11.11.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: The revenue has filed this appeal challenging the order dated 19.2.2020 passed by Ld. CIT(A)-7, Bengaluru and it relates to the assessment year 2012-13. The revenue is aggrieved by the decision of Ld. CIT(A) in deleting the addition of Rs.1,00,12,615/-, being the amount of “Inventory provision reversed back” made by the A.O. in the order passed u/s 154 of the Income-tax Act,1961 ['the Act' for short]. ITA No.450/Bang/2020 M/s. Trelleborg India Pvt. Ltd., Bangalore Page 2 of 6 2. The facts relating to the above said issue are stated in brief. The assessee is engaged in the business of manufacture of trading of seals and bearings. The original assessment was completed u/s 143(3) r.w.s. 92CA of the Act on 29.2.2016. Subsequently, the A.O. initiated rectification proceedings u/s 154 of the Act, since he noticed that the assessee had claimed deduction of “Inventory provision reversed back” amounting to Rs.1,00,12,615/- from the Net profit and the above said amount was not seen credited in the profit and loss account. Since, the above said deduction had been allowed in the original assessment order, he considered the same as mistake apparent from record and accordingly initiated the rectification proceedings u/s 154 of the Act. Subsequently, the AO passed rectification order, wherein he added the above said amount to the total income. 3. Before Ld CIT(A), the assessee explained that it is creating “Provision of obsolete inventory” every year and the provision amount is reduced from the value of stock in trade. Further, the assessee debits the profit & loss account only with “changes in inventories”, being the difference between “Opening stock of inventories” and “Closing stock of inventories”. Accordingly, it was submitted that the provisions created and reversal of provision are netted of in “change in inventories”. The Ld. CIT(A) appreciated the submissions made by the assessee and accordingly deleted the disallowance of addition of Rs.1,00,12,615/-. The revenue is aggrieved. 4. We heard the parties and perused the record. The Ld. CIT(A) has extracted the profit & loss account schedules pertaining to inventories, cost of material consumed and statement of total income at pages 6 to 8 of his order. A perusal of the same would show that the assessee is deducting the amount of “provision for ITA No.450/Bang/2020 M/s. Trelleborg India Pvt. Ltd., Bangalore Page 3 of 6 obsolete inventory” from the cost of inventories. The amount of “Provision for obsolete inventory” stood at Rs.1,44,84,457/- as on 31.3.2011 and at Rs.1,17,10,50,580/- as on 31.3.2012. These figures are shown in “Note 2.13” relating to “inventories” and these amounts have been reduced from the value of inventories. The net amount is reflected in the Balance Sheet. It is pertinent to note that the “Provision for obsolete inventory” may be shown separately in the Liability side of Balance Sheet or it may be reduced from the value of inventory. The assessee has adopted the second method. 5. “Note 2.21” relates to “Changes in inventories of finished goods, work in progress and stock in trade”. This schedule reflects the difference between Opening stock and Closing stock. The difference between opening and closing stock is reflected in profit & loss account as “changes in inventories of finished goods, work in progress and stock in trade”. This is another method of disclosure. Usually Opening stock is shown on the debit side of Profit and Loss account and Closing stock is shown in the credit side. Another method is to disclose the difference between opening stock and closing stock only in the profit and loss account either on the debit side or in the credit side, depending upon the fact. The assessee, in the instant case, has followed the alternative method. 6. We noticed that in “Note 2.13” stock in trade value (bought out) is shown at Rs.6,37,86,214/- as on 31.3.2011 and Rs.5,18,07,712/- as on 31.3.2012. However, while computing the changes in inventories in Note 2.21, the closing stock value of stock in trade (bought out) is shown as Rs.4,93,01,758/- as on 31.3.2011 and Rs.4,00,97,132/- as on 31.3.2012. The above said figures have been arrived at after reducing the amount of provision for obsolete inventory. Thus, the change in the value of stock i.e. the difference between opening stock and closing stock has actually subsumed ITA No.450/Bang/2020 M/s. Trelleborg India Pvt. Ltd., Bangalore Page 4 of 6 the amount of provision for obsolete inventory also. Hence the provision for obsolete inventory created during the year and the reversal of provision have not been disclosed separately in the Profit and Loss account. 7. We have culled out the “Provision for obsolete stock” ledger account from the details available from the Balance sheet. It should reflect as under:- PROVISION FOR OBSOLETE INVENTORY Date Debit Amount(Rs.) Date Credit Amount(Rs.) 31.03.12 Reversal of provision 1,00,12,615 01.04.2011 Opening Balance 1,44,84,457 31.03.2012 Provision created 72,38,739 Total 1,00,12,615 Total 2,17,23,196 Closing balance 1,17,10,581 The above ledger account would show that the assessee had created provision of Rs.72,38,739/- and reversed provision of Rs.1,00,12,615/- during the year under consideration. The opening balance of provision was Rs.1,44,84,457/- and closing balance on provision was Rs.1,17,10,581/-. We have noticed that both these amounts have been reduced the Stock of inventory shown in Note 2.13. Further these amounts have been reduced from the value of closing stock in trade as on 31.3.2011 and 31.3.2012 while computing “changes in value of stock” in Note 2.21. The Profit and Loss account is debited with the amount of Rs.1,44,54,013/- under the head “Changes in inventories of finished goods, work-in progress and stock-in-trade. In the above said amount of Rs.1,44,54,013/-, the provision created during the year amounting to Rs.72,38,739/- and reversal of provision amounting to Rs.1,00,12,615/- have got netted off. Accordingly, ITA No.450/Bang/2020 M/s. Trelleborg India Pvt. Ltd., Bangalore Page 5 of 6 while computing the total income the assessee has disallowed the provision created with an amount of Rs.72,38,739/- and reduced the reversal of provision of Rs.1,00,12,615/- from the net profit amount. 8. We notice that the Ld. CIT(A) has rightly appreciated the above factual aspects and accordingly decided the issue as under:- “ F r om t he a b ov e , it c ou l d be s e e n t ha t i nv e n t or y of s t o c k -i n -t r ad e o f R s 5 , 18 , 0 7, 7 1 2/ - as r e f l e c t e d i n i n v en t o r i e s (n o t e 2 . 13) w h e n r e du c e d b y ne t p r o v is ion of R s 1 , 17 , 1 0, 5 8 0/ -w o rk s o u t t o R s 4, 0 0 ,97 , 1 32 / - a nd the s a m e i s s h o w n as c lo s i n g s t o c k - in - t r ad e i n c h an g e s i n i n v en t o r i e s a t no t e 2.2 1 ab o ve . So t he d e b i t a nd c re d i t t o t h e p r o v i s i on a c co u nt a r e i m p ac t i n g t h e P& L ac c o un t by w ay o f ne t e f f e c t o n t h e c l os i n g s t oc k . A s fa r a s de bi t m a d e t o t h i s ac c o un t i n r e s p e c t o f p r o v i s i on c r e at ed fo r t h is y e a r a m o un t in g to R s 7 2, 3 8 , 73 9/ -, it i s a d de d b ac k i n th e c o m p ut a t i on of i n c o m e . I n t h e pr e vi o u s as s e ss m e nt y e a r a ls o, it i s ad d e d b a ck an d pr o v i s i on r e v e r s a l wa s c l a im e d a s d e d uc t i o n. S o, t hi s p r o v is i on s i nc e no t be i n g c l a im e d a s d e du c t i on, t h e w r i te b a c k of t h e s a m e d oe s n ot b e c om e a n i n c om e i t e m . T h u s , t h e ap p e l la n t ha s r i g ht l y c l a i m e d th a t am ou nt a s a d e du c t ion i n t h e inc o m e c o m p ut a t io n . I a m t he r e f or e o f t he c on si de r e d v i e w t h at t h e d is all o w a n c e ma d e b y t h e A O i n the r e c t i f i c at i on o r d er i s no t c o r r e c t . H e n c e , t h e s a m e i s d e l e te d a nd a pp e l l an t 's g r o u nds a r e a l l ow e d. ” 9. From the foregoing discussions, we are of the view that the order passed by Ld. CIT(A) does not call for any interference. Accordingly, we uphold his order. ITA No.450/Bang/2020 M/s. Trelleborg India Pvt. Ltd., Bangalore Page 6 of 6 10. In the result, the appeal filed by the revenue is dismissed. Order pronounced in the open court on 11 th Nov, 2021 Sd/- (George George K.) Judicial Member Sd/- (B.R. Baskaran) Accountant Member Bangalore, Dated 11 th Nov, 2021. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.