M/S. CDYMAX (INDIA) PHARMA PRIVATE LIMITED,BENGALURU V. INCOME TAX OFFICER, WARD-1(1)(1), BANGALORE

ITA 2498/BANG/2024

AI Insights

The case involves M/s. CDYmax (India) Pharma Pvt. Ltd., which appealed against the order of the Addl./Jt. CIT(A)-2, challenging the restriction of stock revaluation adjustments to only the closing stock for the assessment year 2017-18. The assessee argued that both opening and closing stocks should be revalued under the Indian Accounting Standards (ICDS). The Assessing Officer (AO) had disallowed a deduction claimed by the assessee, which was the net effect of the revalued stocks, citing a violation of ICDS-II provisions. The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471020 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, ICDS-II
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASSESSEES
• Assessee Lawyers: VISHAL S. RAO
• Keywords: Additional evidence
• Section: 22; 13; 145; 145(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No.2498/Bang/2024 Assessment year : 2017-18 M/s. CDYmax (India) Pharma Pvt. Ltd., [formerly Acebright (India) Pharma Pvt. Ltd.), No.77D & 116/117, KIADB Industrial Area, Jigani, Bengaluru – 560 105. PAN: AAACI 8027N Vs. The Income Tax Officer, Ward 1(1)(1), Bengaluru. APPELLANT RESPONDENT Appellant by : Shri Vishal S. Rao, CA Respondent by : Smt. Neha Reddy, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 04.02.2025 Date of Pronouncement : 21.02.2025 O R D E R Per Lakshmi Prasad Sahu, Accountant Member This is an appeal filed by the assessee for the assessment year 2017-18 challenging the order passed by the Addl./Jt. CIT(A)-2 dated 24.10.2024 DIN ITBA/APL/S/250/2024-25/1069919758(1). 2. The sum and substance of the grounds taken by the assessee is that both the opening and closing stock must be revalued as part of comprehensive adjustment under ICDS and AO’s decision to restrict the adjustment to only closing stock was contrary to the principles of correct income computation. ITA No.2498/Bang/2024 Page 2 of 14 3. Briefly stated the facts of the case are that the assessee filed return of income on 27.09.2017 declaring Nil income after setting off brought forward losses of Rs.11,67,41,840. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee filed reply. Further show cause notice was issued on 05.12.2019 calling for assessee’s comments/objections on the proposal to disallow the claim of ‘other deductions’ in the return of income and to assess the income as stipulated in section 145(3) of the Act. In response the assessee filed details. The AO noted that the assessee has claimed an amount of Rs.2,03,34,538 as ‘other deductions’ in the computation of income and mentioned that it was net effect of inventories on revaluation as per ICDS. From the details filed, it was noticed that the assessee has revalued the opening stock & closing stock and arrived at the above amount as net impact of the stock valuation. The assessee has furnished details of stock valuation impact on computation as under:- Opening Stock Closing Stock Net Impact Stock as per books Revalued at Difference Stock as per books Revalued at Difference 18,79,52,991 22,53,75,921 3,74,22,930 10,63,41,958 12,34,30,349 1,70,88,392 (2,03,34,538) 4. The assessee further submitted explanation relying on ICDS-II clause- 22 – Valuation of Inventories which is reproduced herewith:- “22. The value of the inventory as on the beginning of the previous year shall be : (i) the cost of inventory available, if any, on the day of the commencement of the business when the business has commenced during the previous year, and (ii) the value of the inventory as on the close of the immediately preceding previous year, in any other case.” ITA No.2498/Bang/2024 Page 3 of 14 5. The assessee submitted the implementation of ICDS and stated that clause 22 of ICDS-II relating to valuation of inventories shall be interpreted harmoniously and equitable manner since it is not a transitional clause. According to the assessee, there is no difference between the valuation of inventories as per section 145A(ii) of the Act and as per provisions of ICDS- II issued by the CBDT when the assessee makes realisation of the inventories. The AO noticed that assessee has not computed its income in accordance with the standard notified u/s. 142(2) of the Act. As per financial statements, the value of closing stock of FY 2015-16 was Rs.18,79,52,991 and it should have been adopted as value of opening stock for FY 2016-17 as per clause 22(ii) of ICDS-II. Instead the assessee has revalued the opening stock in contravention of the provisions of ICDS-II and has arrived at a figure of Rs.22,53,75,921, thus increased the value of opening stock by Rs.3,74,22,930. While computing its total income, the closing stock as per books amounting to Rs.10,63,41,958 has been revalued at Rs.12,34,30,349 resulting in increase of closing stock at Rs.1,70,88,392. After reworking there is a net difference of closing stock of Rs.2,03,34,538. As per the opinion of the AO, the assessee has violated the basic tenet of ICDS-II. Accordingly the deduction claimed by the assessee of Rs.3,74,22,930 was disallowed. 6. Aggrieved by the above order, the assessee filed appeal before the CIT(A). During the appellate proceedings the assessee also filed detailed written synopsis and the ld. CIT(A) after considering the entire submissions and relying on case law, he dismissed the appeal of the assessee. Aggrieved by the above order, the assessee is in appeal before the ITAT. ITA No.2498/Bang/2024 Page 4 of 14 7. The ld. counsel for the assessee has filed written synopsis which is as under:- ITA No.2498/Bang/2024 Page 5 of 14 ITA No.2498/Bang/2024 Page 6 of 14 ITA No.2498/Bang/2024 Page 7 of 14 ITA No.2498/Bang/2024 Page 8 of 14 ITA No.2498/Bang/2024 Page 9 of 14 ITA No.2498/Bang/2024 Page 10 of 14 ITA No.2498/Bang/2024 Page 11 of 14 ITA No.2498/Bang/2024 Page 12 of 14 ITA No.2498/Bang/2024 Page 13 of 14 8. The ld. DR relied on the order of the lower authorities and submitted that the assessee has not followed the provisions of section 145 in disclosing the correct/true profit as per clause 22 of ICDS-II and submitted that the lower authorities are justified. 9. Considering the rival submissions we note that the assessee has inflated the value of closing stock, resultantly there is excess claim of expenditure as observed by the AO in the assessment order and both the authorities below have observed that the assessee has not computed its profit in terms of section 145. Before us, the ld. counsel has also filed additional evidence which is listed in PB-I at sl.no.9, 13, 14 & 14A. These documents were not filed before the lower authorities. The assessee has also filed application under Rule 29 of the Appellate Tribunal Rules 1963 stating the reason for not filing these documents before the lower authorities. ITA No.2498/Bang/2024 Page 14 of 14 Therefore, considering the reasons we accept the additional evidence filed by the assessee and with the consent of both the parties, we remit this issue back to the AO for fresh consideration and to decide the issue as per law. Needless to say that reasonable opportunity of hearing be given to the assessee and assessee is directed to produce necessary documents in support of its claim. 10. Ground No.9 raised by the assessee was not pressed, therefore this ground is dismissed as not pressed. 11. Ground Nos.10 & 11 are consequential in nature. 12. To sum up, the appeal of the assessee is partly allowed for statistical purposes. Pronounced in the open court on this 21st day of February. 2025. Sd/- Sd/- ( SOUNDARARAJAN K.) ( LAXMI PRASAD SAHU ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 21st February, 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "