Back
2025 Supreme(Online)(ITAT) 7183
INCOME TAX APPELLATE TRIBUNAL (BANGALORE BENCH)
SHRI PRASHANT MAHARISHI, VP, SHRI SOUNDARARAJAN K., JM
M/s. GE India Exports Pvt. Ltd. – Appellant
Versus
The Assistant Commissioner of Income Tax – Respondent
Income Tax Appeal
For the Appellant:Shri Sachit Jolly, Senior Advocate
For the Respondents: Dr. Divya K.J, CIT-DR
The CIT(A) overstepped jurisdiction in disallowing provisions for obsolete inventory without lawful basis or new evidence, contradicting established accounting standards.
Headnote:(A) Income Tax Act, 1961 - Section 253 - Appeal against disallowance of provision for obsolete inventory - Assessee’s claims for provisions for obsolete stock were rejected by the CIT(A) and AO as contingent liabilities - Court found that such provisions were established on reasonable basis over prior assessments and classified as per Accounting Standard - 2 - No new evidence was presented against previous assessments which had allowed such provisions - Disallowance by CIT(A) for wind energy division was not within jurisdiction and lacked supporting rationale. (Paras 10-14)
(B) Jurisdiction of CIT(A) - The jurisdiction of the CIT(A) is limited and cannot include issues not explicitly placed before it during prior assessments. (Paras 11-12)
Facts of the case:
The assessee claimed provisions for obsolete inventory of its low voltage components amounting to Rs. 80,58,706/- and wind energy division worth Rs. 1,77,41,995/-. previous appeals had allowed similar claims. The appellate authority issued disallowances without jurisdiction, contradicting established accounting practices.
Findings of Court:
Provisions must be allowed as they complied with the accounting standards and were consistently followed in prior periods. No new facts were brought against previous accepted claims. Thus, allowing issuance for renewable proportions is warranted and just.
Issues: The main issues were the authority of the CIT(A) to disallow claims of provisions created for obsolete inventories where jurisdiction was already reconciled and established precedents were not addressed satisfactorily.
Ratio Decidendi: Courts found a consistent approach acceptable under Accounting Standards was not acknowledged by CIT(A) as per required jurisdictional authority while assessing claims of provisions, leading to unfair penalties against the company.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. arguments regarding lack of authority for disallowance (Para 6 , 7 , 8 , 9) |
| 2. judicial observations on accounting standards and jurisdiction limits (Para 10 , 11 , 12 , 13 , 14) |
| 3. conclusion to allow appeal based on established reasoning (Para 15 , 16) |
ORDER
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the Ld.CIT(A)-3, Bengaluru dated 30/09/2016 in respect of the A.Y. 2003-04 and raised the following grounds:
“Based on the facts and circumstances of the case and in law, GE India Exports Private Limited (hereinafter referred to as ''the Company" or "the Appellant") respectfully craves, leave to prefer an appeal under Section 253 of the Income-
tax Act, 1961 ("the Act") against the order dated 30 September 2016, passed by the Commissioner of Income- tax (Appeals) - 3 [''the learned CIT(A)"] under Section 250 of the Act, on the following grounds:
That on the facts and circumstances of the case and in law:
General Grounds
1. That the order passed by the learned CIT(A) / Assessing Officer ("learned AO"), is based on incorrect appreciation of facts and interpretation of law and is, therefore, bad in law and on facts and is liable to be quashed.
Grounds relating to disallowance of the provision for obsolete / slow moving inventory of INR 80,58,706 for Low Voltage Component and Equipment division ("LVCE Divisions")
2. That the learned CIT(A) has erred in law and on facts, by upholding the addition made by learned AO with regard to the disallowance of provision for obsolete / slow moving inventory to the tune of INR 80,58,706.
3. That the learned CIT(A) has erred in law and on facts, in stating that the provision of obsolete / slow moving inventory for LVCE Divisions was without any basis and thus arbitrary and has completely disregarded the specific factors and reasons submitted to him and the learned AO.
4. That the learned CIT(A) has erred in law and on facts, in upholding the action of the learned AO without considering the fact that the Appellant has been making provision for obsolete / slow moving inventory year on year by following consistent method.
5. That the learned CIT(A) erred in law and on facts, by not considering the ratio laid down in various judicial precedents relied by the Appellant in support of the allowability of the provision of obsolete / slow moving inventory including ruling of the jurisdictional Hon'ble High Court in the case of CIT v/s. IBM India Ltd [2015] 55 Taxmann.com 515.
Grounds relating to enhancement of income for obsolete / slow moving inventory of Wind Energy Division amounting to INR 1,77,41,995
6. That the learned CIT(A) has erred in law and on facts. in disallowing / adding back the provision of obsolete / slow moving inventory for Wind Energy Division and enhancing the income of the Appellant by INR 1,77,41,995.
7. That the learned CIT(A) has failed to appreciate that the jurisdiction of the CIT(A) is restricted only to the issue restored to the file of the AO in accordance with the specific direction of the Hon'ble Income-tax Appellate Tribunal (i.e. disallowance of provision for obsolesce and slow moving stock pertaining LVCE Divisions) in the second round of appeal and thus the learned CIT(A) has erred in holding that the provision of stock obsolescence of Wind energy division forms part of the specific direction of the Hon'ble Income-tax Appellate Tribunal.
8. That the learned CIT(A) has failed to appreciate that in set aside / remanded back proceedings, the jurisdiction of the learned AO was limited only to the issue of verification of the provision for obsolete and slow moving inventory of LVCE Divisions and therefore, the learned CIT(A) exceeded his jurisdiction by enhancing the income by making addition of INR 1,77,41,995 on account of provision for slow moving inventory pertaining to Wind Energy Division.
9. That the learned CIT(A) has failed to appreciate that the powers of revision of order does not vest with the CIT(A) wh
