2016 (12) TMI 1237 - AT - Income Tax

Addition on work in progress - addition based on loose paper found - Held that - There is merit in the contentions of the assessee that the noting made in the loose sheet does not represent actual amount of work in progress, but the same represents estimate made, which would facilitate raising of bills to clients. Hence the explanation of the assessee that the noting made in the loose sheet would include gross profit as well as the value of pending bills, in our view, sounds reasonable. The tax authorities have taken the view that the assessee has not retracted from the statement given during the course of survey. However we notice that the assessee did not think of retraction, since it has explained the nature of noting made in the loose paper and has taken a stand that the partner has made admission without properly understanding the noting made in the loose paper, i.e., according to the assessee, the loose paper was incorrectly interpreted by the partner of the firm at the time of survey. A loose paper found at the time of survey operation, particularly when the contents of the loose paper were not corroborated with any other credible material. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition - Decided in favour of assessee Addition of unexplained investment made in the renovation and on purchase of furniture and fixture - Held that - It is an undisputed fact that the noting made in the loose sheet contained expenses incurred in the month of October, 2006 and they were incorporated by the assessee only after the date of survey. It is also a fact that the survey officials have found cash shortage to the tune of ₹ 21,59,599/-. Normally cash shortage would represent the expenditure incurred/investment made outside the books of accounts. Under these set of facts, we are of the view that the assessee may be given credit to the extent of cash shortage amount of ₹ 21,59,599/-, since it may not be proper to ignore the fact of cash shortage, i.e., the expenses have been incurred to the extent of ₹ 21,59,599/- by drawing cash from the books of the assessee, but they have not been accounted on the date of survey. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to give credit to the extent of ₹ 21,59,599/-. Accordingly the remaining addition of ₹ 3,13,401/- is hereby confirmed. Disallowance of expenses incurred on Shuttering materials treating the same as Capital expenditure - Held that - The period for which benefit would be derived from usage of an asset would depend upon the nature of usage. In the instant case, it is seen that the assessee is undertaking contracts for construction of multi storoyed buildings, meaning thereby, these materials would be used again and again for construction of each of the floor. Hence there is merit in the contentions of the assessee that these materials would generally be useful for one project or for about one year only. Thus the longevity of these materials does not long last in the hands of the assessee, in view of the nature of business carried on by it. Hence, we are of the view that the cost of shuttering materials should be treated as revenue expenditure in the hands of the assessee. Accordingly we find merit in the contentions of the assessee that the cost of shuttering materials should be treated as revenue expenditure, in the facts and circumstances of the case. Addition on alleged sale of scrap - Held that - A.R contended that the Ld CIT(A) has enhanced the amount of actual scrap sales without brining any supporting material, i.e., on the basis of presumptions. On the contrary, the Ld D.R supported the order passed by Ld CIT(A). However, we find merit in the contentions of the assessee, since the Ld CIT(A) has made enhancement purely on presumptions without any material. Accordingly we set aside the enhancement made by Ld CIT(A)

Summary

Issues Involved:
1. Addition of Rs. 74,12,287/- on account of difference in work-in-progress.
2. Addition of Rs. 24,73,000/- for unexplained investment in renovation and purchase of furniture and fixture.
3. Disallowance of expenses on shuttering materials treating them as capital expenditure.
4. Enhancement of scrap sales value by Ld CIT(A).

Issue-wise Detailed Analysis:

1. Addition of Rs. 74,12,287/- on account of difference in work-in-progress:
The Revenue conducted a survey operation and found a discrepancy between the value of work-in-progress recorded in the books and a handwritten note. The note indicated a higher value, leading to an addition of Rs. 74,12,287/-. The assessee argued that the note was an adhoc estimate for billing purposes, including profit markup and pending bills. The Assessing Officer (AO) rejected this explanation, relying on the partner's admission during the survey. However, the Tribunal found that the AO did not corroborate the note with other evidence and that the nature of the business did not support the assumption of unaccounted investment. The Tribunal concluded that the addition was unjustified and directed its deletion.

2. Addition of Rs. 24,73,000/- for unexplained investment in renovation and purchase of furniture and fixture:
During the survey, a loose sheet detailing unaccounted expenses for renovation and furniture was found. The assessee initially admitted these expenses but later claimed they were accounted for in the books. The AO added the amount as income, which was confirmed by Ld CIT(A). The Tribunal noted a cash shortage of Rs. 21,59,599/- during the survey, suggesting unaccounted expenses. The Tribunal allowed credit for this shortage, reducing the addition to Rs. 3,13,401/-.

3. Disallowance of expenses on shuttering materials treating them as capital expenditure:
The AO treated the cost of shuttering materials as capital expenditure, allowing only depreciation. The Ld CIT(A) provided partial relief, treating some items as revenue expenditure. The Tribunal examined the nature and usage of the materials, noting that they were project-specific and had limited durability. Given the volume of work and the nature of the business, the Tribunal concluded that these materials should be treated as revenue expenditure and directed the AO to allow the claim.

4. Enhancement of scrap sales value by Ld CIT(A):
The Ld CIT(A) enhanced the value of scrap sales based on an estimation, without supporting evidence. The Tribunal found this enhancement to be based on presumptions and set it aside.

For A.Y. 2008-09:
The issues were similar to those in A.Y. 2007-08, specifically the disallowance of shuttering material expenses. The Tribunal, consistent with its earlier decision, directed the AO to treat these expenses as revenue expenditure.

Conclusion:
Both appeals were partly allowed, with the Tribunal providing significant relief to the assessee on various contested issues. The Tribunal emphasized the need for corroborative evidence and reasonable assumptions in tax assessments.