2010 (4) TMI 921 - AT - Income Tax

Summary

Issues:
- Disallowance of write-off of work in progress made by the assessee
- Claim for depreciation on work-in-progress held as a capital asset

Analysis:
- The Revenue challenged the deletion of addition made by the Assessing Officer disallowing a write-off of the work in progress, arguing that the work-in-progress consisted only of designs and drawings, not transformers, and should be considered capital assets. The Revenue contended that the work-in-progress represented capital work-in-progress in the nature of plant and machinery, resulting in a capital loss. The learned Commissioner of Income-tax (Appeals) disagreed, stating that the work-in-progress was essentially revenue expenses justified in valuing it at nil when no commercial value was attached to it. The Commissioner held that the work-in-progress was not capital work-in-progress, as it appeared in the profit and loss account annually, and deleted the addition.

- The assessee argued that the designs, once held as stock-in-trade, had to be written off when found no longer useful due to changes, reducing the work-in-progress value to nil. The Assessing Officer maintained that the work-in-progress was capital in nature, not disputing the nil valuation but contending it was capital work-in-progress. The Tribunal noted that the work-in-progress was a percentage of revenue expenditure shown annually in the profit and loss account, indicating revenue nature. It was held that the expenditure comprised in the work-in-progress was always revenue in nature, justifying the assessee's nil valuation. The Tribunal upheld the Commissioner's decision to delete the addition.

- Regarding the claim for depreciation on work-in-progress held as a capital asset, the Tribunal dismissed the cross-objection as infructuous since the addition was deleted. The Tribunal upheld the decision of the Commissioner and dismissed both the Revenue's appeal and the assessee's cross-objection.

In conclusion, the Tribunal affirmed the Commissioner's decision to delete the addition disallowing the write-off of work in progress, ruling that the work-in-progress was revenue in nature and justified the nil valuation. The cross-objection for depreciation was dismissed as the addition was deleted. The Tribunal upheld the dismissal of both the Revenue's appeal and the assessee's cross-objection.