Reversal of provision for obsolete stock allowed as deduction when original provision was taxed

ITAT Bangalore allowed the assessee's claim for deduction of reversal of provision made towards obsolete/bad stock. The tribunal held that since the provision was originally offered to tax in AY 2015-16 when created, the reversal in the current year was allowable as deduction. The decision was supported by AO's verification and allowance of similar claim in AY 2018-19, establishing that the reversal was part of the original provision made in AY 2015-16.

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Issues:
- Disallowance of provision for inventory written off due to obsolescence
- Failure to consider submissions made by the Appellant
- Disallowance of interest under Sections 234A, 234B, and 234C

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017-18. The assessee challenged the disallowance of a sum claimed under Section 37 of the Income-tax Act for "provision for inventory written off due to obsolescence." The Appellant argued that the provision was voluntarily disallowed in a previous year and should be allowed in the year of reversal to avoid double taxation. The Dispute Resolution Panel had held it was not allowable, but the Appellant contended that the disallowance was unwarranted. The Appellant also argued that the CIT(A) failed to consider their submissions during the appellate proceedings. Additionally, the Appellant claimed that the disallowance contradicted a previous decision in their favor for a different assessment year.

2. The assessee, engaged in trading optical products, filed its return for the year declaring income. The case underwent scrutiny due to international transactions with its AE. The Transfer Pricing Officer proposed adjustments. The Assessing Officer made various disallowances, including provision write-offs and interest write-offs. The Dispute Resolution Panel upheld the transfer pricing adjustments but directed verification of the corporate tax addition. The AO, in the final assessment order, did not consider the DRP directions, leading to an appeal. The Tribunal remanded the corporate tax issue back to the AO for reconsideration.

3. The Appellant argued that the provision for inventory written off was not claimed as a deduction in a previous year and was reversed in subsequent years. The Appellant sought relief based on a similar issue in a different assessment year where the AO allowed the claim. The AO, in a subsequent year, disallowed a portion of the reversal, leading to an appeal. The Tribunal found merit in the Appellant's claim, noting that the reversal was part of the provision made in the initial year and had been offered for taxation. Consequently, the claim for the reversal of provision was allowed.

4. The Tribunal reviewed the facts and the AO's findings, concluding that the reversal of provision as a deduction was justified since the amount was previously offered for taxation. The Tribunal relied on the AO's verification in a different assessment year where a similar claim was allowed. Considering the circumstances, the Tribunal found the Appellant's claim for the reversal of provision to be valid and allowed the appeal, granting relief to the assessee.

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