Tribunal Decision: Revenue's appeals dismissed, assessee's objections partly allowed. CIT(A) decisions upheld.

The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's cross objections. It upheld the CIT(A)'s decisions on the deletion of the addition of closing stock value due to diminution and claiming depreciation, adjustment to the value of current year opening stock, and adjustment while computing book profit under section 115JB. The Tribunal addressed the disallowance of provision for leave encashment pending a Supreme Court decision.

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Issues Involved:
1. Deletion of addition of value of closing stock due to diminution and claiming depreciation.
2. Adjustment to value of current year opening stock.
3. Adjustment while computing book profit under section 115JB of the Income-tax Act.
4. Disallowance of provision for leave encashment under section 43B of the Income-tax Act.

Detailed Analysis:

1. Deletion of Addition of Value of Closing Stock:

The primary issue in both appeals by the Revenue (ITA No.5792/Mum/2018 for AY 2013-14 and ITA No. 5793/Mum/2018 for AY 2014-15) and the corresponding cross objections by the assessee (CO. No. 204/Mum/2019 and CO. No. 205/Mum/2019) pertains to the deletion of the addition of value of closing stock due to diminution and claiming depreciation. The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 7,94,91,740/- and Rs. 5,94,98,161/- respectively, without appreciating the findings of the Assessing Officer (AO). The AO had disallowed the reduction in closing stock value based on the previous year's assessment, which was still pending before CIT(A). However, the CIT(A) deleted the disallowance, noting that the same issue had been resolved in favor of the assessee for the earlier year by CIT(A). The Tribunal upheld CIT(A)'s decision, referencing its order for AY 2012-13, where it was established that the assessee's valuation method, which accounted for depreciation, was consistent with accounting standards and did not warrant disallowance.

2. Adjustment to Value of Current Year Opening Stock:

The assessee raised grounds for corresponding adjustments to the opening stock value for the current year, arguing that the closing stock value from the previous year as computed by the AO should be taken as the opening stock for the current year. The Tribunal noted that any adjustment in the closing stock for one year would naturally result in an adjustment to the opening stock of the subsequent year. Hence, the Tribunal confirmed CIT(A)'s order and deleted the addition, ensuring consistency in stock valuation.

3. Adjustment while Computing Book Profit under Section 115JB:

The Revenue also contested the deletion of the addition of Rs. 7,94,91,740/- and Rs. 5,94,98,161/- respectively, in arriving at the book profit under section 115JB of the Act. The AO argued that the diminution in the value of stock in trade should be adjusted as per Clause-I inserted in Explanation-1 to sub-section 2 of section 115JB. The Tribunal, however, found that this issue was inherently linked to the first issue regarding the valuation of closing stock. Since the Tribunal upheld CIT(A)'s decision on the first issue, it similarly confirmed the deletion of the addition while computing book profit.

4. Disallowance of Provision for Leave Encashment under Section 43B:

In the cross objection for AY 2013-14, the assessee contested the disallowance of provision for leave encashment under section 43B(f) of the Act, amounting to Rs. 12,76,830/-. The assessee argued that this provision should not fall under section 43B(f) and should be allowable as a deduction. The Tribunal noted the pending decision of the Hon'ble Supreme Court in the case of Exide Industries Limited, where the provision of section 43B(f) was struck down by the Calcutta High Court but stayed. Consequently, the Tribunal restored the matter to the AO to decide based on the forthcoming Supreme Court decision.

Conclusion:

The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's cross objections for statistical purposes. The Tribunal consistently upheld the CIT(A)'s decisions regarding the valuation of closing stock and its impact on book profit computation, while also addressing the provision for leave encashment pending the Supreme Court's decision. The order was pronounced in the open court on 29.11.2019.

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