2012 (12) TMI 1009 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Closing Work in Progress (WIP)
2. Disallowance of Interest on Interest-Free Loans
3. Consistency in Method of Accounting
4. Double Taxation Concerns
5. Opening Stock/Opening WIP
6. Interest-Free Loans and Advances
7. Distinction from Supreme Court Decision
8. Levy of Interest u/s 234A, 234B, and 234C

Summary:

1. Addition of Closing Work in Progress (WIP):
The assessee declared a total income of Rs. 1,42,43,430/- with a gross turnover of Rs. 28,78,16,634/-. The AO noted the absence of closing stock or WIP in the financial statements and made additions totaling Rs. 36,41,702/- for materials, wages, earth filling, and fuel expenses. The CIT(A) confirmed these additions. The Tribunal found that the assessee consistently followed the same accounting method for many years, which the Revenue did not dispute. The Tribunal held that the AO and CIT(A) were not justified in adopting a different methodology without providing a deduction for opening stock, thus reversing the CIT(A)'s order.

2. Disallowance of Interest on Interest-Free Loans:
The assessee contested the disallowance of Rs. 38,000/- interest on interest-free loans. The Tribunal did not specifically address this issue in the judgment, implying that the primary focus was on the addition of closing WIP.

3. Consistency in Method of Accounting:
The Tribunal emphasized the principle of consistency, noting that the assessee's method of accounting had been accepted in previous assessment years without dispute. The Tribunal cited various court decisions supporting the principle of consistency and ruled that the AO was not justified in changing the method of accounting without proper justification.

4. Double Taxation Concerns:
The assessee argued that most of the stock at sites was accounted for in running bills, leading to potential double taxation. The Tribunal found that the AO's computation of income was based on surmises and conjectures, without proper basis, and thus could not be upheld.

5. Opening Stock/Opening WIP:
The Tribunal noted that the AO failed to account for the opening stock when making additions for closing stock, which is an accepted method of accounting. Therefore, the AO's addition was not justified.

6. Interest-Free Loans and Advances:
The assessee argued that interest-free funds were sufficient to cover interest-free advances. The Tribunal did not specifically address this issue, focusing instead on the addition of closing WIP.

7. Distinction from Supreme Court Decision:
The CIT(A) distinguished the assessee's case from the Supreme Court decision in Munjal Sales Corporation. The Tribunal did not find this distinction relevant to the primary issue of closing WIP addition.

8. Levy of Interest u/s 234A, 234B, and 234C:
The assessee did not press this ground, and it was dismissed as not pressed.

Conclusion:
The Tribunal reversed the CIT(A)'s order, allowing the assessee's appeal regarding the addition of closing WIP and emphasizing the principle of consistency in the method of accounting. The appeal was partly allowed.