2011 (5) TMI 1003 - AT - Income Tax

Summary

Issues involved: Assessment of addition on account of closing stock of work-in-progress for the assessment year 2005-2006.

Summary:

Issue 1: Addition of work-in-progress by Assessing Officer (AO)

The appeal was filed by the assessee against the addition of Rs. 5,35,942 on account of closing stock of work-in-progress for the assessment year 2005-2006. The AO observed that the fabric under process bore expenses incurred for five days, which had not been reflected in the income. Citing the decision of the Hon'ble Supreme Court in the case of British Paints India Ltd., the AO calculated the value of work-in-progress and made the addition.

Issue 2: Decision of the CIT(A) and Tribunal

The CIT(A) upheld the AO's action based on the Supreme Court's decision. The Tribunal noted that the assessee operated on a job work basis, where raw material did not belong to them, and consumables like colour and chemicals lost their identity once applied. Relying on previous judgments, the Tribunal concluded that the AO erred in valuing work-in-progress and deleted the addition.

Conclusion:

The Tribunal allowed the appeal, stating that the AO's valuation of work-in-progress was incorrect in law. The addition of Rs. 5,35,942 was deleted, in favor of the assessee.