2022 (5) TMI 1530 - AT - Income Tax

Disallowance of provision for obsolescence of inventory - valuation of the so-called obsolete inventory and whether the provision of obsolete inventory is allowed or not - HELD THAT - As respectfully following the order of Hon ble ITAT 2022 (3) TMI 1518 - ITAT PUNE we remand the issue to the file of the Assessing Officer with a direction that the provision for obsolete stock to be allowed as deduction subject to Assessing Officer himself satisfying that the valuation is done based on the principle of cost or market price or net realisable value whichever is less. Accordingly the Ground No.1 is allowed for the statistical purpose.

Summary

Issues involved:
1. Disallowance of provision for obsolescence of inventory
2. General

Analysis:

Issue 1: Disallowance of provision for obsolescence of inventory
The appeal pertains to the disallowance of a provision for obsolescence of inventory amounting to Rs. 60,00,000 by the Commissioner of Income Tax (Appeals). The assessee argued that no disallowance was warranted based on the facts, circumstances, and prevailing law. The Assessing Officer (AO) added Rs. 74,00,000 to the income, contending that without evidence of market value or cost price reduction, inventory value cannot be decreased. The Commissioner of Income Tax (Appeals) upheld the addition, leading to the appeal before the Tribunal. The central issue was the valuation of obsolete inventory and the allowance of the provision. The Tribunal noted a previous decision for AY 2011-12 where the issue was remanded to the AO for verification. The Departmental Representative acknowledged the similarity with the previous year's issue. The Tribunal referred to the earlier decision, emphasizing the need to value obsolete items based on cost, market price, or net realizable value, whichever is lower. Consequently, the Tribunal remanded the matter to the AO for proper valuation, allowing the appeal for statistical purposes.

Issue 2: General
The second ground of appeal was of a general nature, with no alterations or amendments made by the appellant. As a result, this ground was dismissed. The final decision of the Tribunal was to allow the appeal of the assessee for statistical purposes. The order was pronounced in open court on 12th May 2022.