2023 (11) TMI 924 - AT - Income Tax

Reassessment notice upheld but inventory provision addition deleted as revenue-neutral change prevents double taxation under Section 145

Cummins Technologies India Pvt. Ltd. Versus ACIT circle -1 (1) Ujjain

Cummins Technologies India Pvt. Ltd. Versus ACIT circle -1 (1) Ujjain - TMI Issues Involved:1. Validity of the impugned re-assessment order and/or the additions made therein.2. Validity of re-assessment proceedings under Section 148 of the Income-tax Act, 1961.3. Addition on account of slow and non-moving inventory.Summary:1. Validity of the Impugned Re-assessment Order and/or the Additions Made Therein:The assessee argued that the Commissioner of Income-tax (Appeals) erred in upholding the addition made by the Assessing Officer (AO). It was contended that the order passed by the Commissioner and/or the AO was 'bad in law' and should be struck down. The Tribunal considered the rival submissions and relevant material, ultimately dismissing the grounds raised by the assessee regarding the validity of the re-assessment order and the additions made therein.2. Validity of Re-assessment Proceedings:The assessee challenged the re-opening of the assessment under Section 148, arguing that it was in excess of jurisdiction and not in accordance with the law. The AO had reopened the assessment based on the audit report, which indicated a change in the estimate of provisions for slow/non-moving inventory. The assessee claimed there was no new material that came to the AO's knowledge post the original assessment, and thus, the re-opening after four years was not valid. The Tribunal noted that the jurisdictional High Court had already dismissed the writ petition filed by the assessee challenging the validity of the re-opening. The High Court held that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Consequently, the Tribunal found that the issue was covered by the High Court's judgment and dismissed the grounds raised by the assessee on this matter.3. Addition on Account of Slow and Non-moving Inventory:The assessee contended that the Commissioner erred in upholding the AO's addition of Rs. 2,94,03,474/- due to a change in the method of accounting for slow and non-moving inventories. The assessee argued that the change in the estimation of provision for slow/non-moving inventory from age-based to consumption pattern-based was more realistic and in accordance with accounting standards. The Tribunal observed that there was no change in the accounting policy for valuation of closing stock, but only in the estimation method. The Tribunal also noted that the addition made by the AO for the year under consideration without giving consequential effect in the subsequent year amounted to double taxation. Citing the Supreme Court's judgment in CIT vs. Excel Industries Ltd., the Tribunal found that the issue was revenue neutral and academic in nature. Consequently, the Tribunal deleted the addition made by the AO on this account.Conclusion:The appeal of the assessee was partly allowed, with the Tribunal dismissing the grounds related to the validity of the re-assessment order and proceedings, but deleting the addition made on account of slow and non-moving inventory. The order was pronounced in the open court on 25.08.2023.