2018 (8) TMI 1207 - HC - Income Tax

Charging section for discrepancy between book value and physical value of capital work in progress- ITAT observed that the same cannot be taxed u/s 69C of the Income Tax Act, but it can be taxed u/s 69 to 69B only - ITAT observed that Section 69C of the Act would not be applicable to the facts of the present case as there is no evidence of any unaccounted expenditure. The difference was only on account of estimation of the value of Work in Progress by the site engineers in November, 2008 and actually arriving at the value on physical verification which is reflected in the return of income as on 31.3.2009. In the above circumstances, no occasion to apply Section 69C of the Act would arise. Held that - The proposed question that the Tribunal held that there is a difference in the book value and the physical value of the Work in Progress is factually not correct. We did point out this to the counsel for the Revenue but he insisted to pressing this question. However, during the course of his submission, he was not able to substantiate the above presumption in the question as framed. In the above view, in the facts of this case, question as proposed is academic, unless the Revenue first challenges finding of fact arrived at by the Tribunal. The finding of fact is that, there is no excess work in progress than that declared by the RespondentAssessee as on 31.3.2009 and the valuation done of the workinprogress as on 31.11.2008 was only on provisional basis. Moreover, even if assume that the closing stock i.e. workinprogress is in excess of that recorded/disclosed by the Respondent, the same has to be added to the income only under Section 69A of the Act - Decided against the revenue.

Summary

Issues:
1. Interpretation of Section 69C of the Income Tax Act, 1961 regarding taxing discrepancies between book value and physical value.

Analysis:
The case involved a dispute regarding the application of Section 69C of the Income Tax Act, 1961, concerning the taxation of discrepancies between book value and physical value. The Respondent, a civil construction company, faced an addition of ?10 Crores by the Assessing Officer under Section 69C due to excess work in progress financed from unexplained sources. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, stating that the Assessing Officer failed to prove unexplained expenditure and that the Respondent correctly valued work in progress. The CIT(A) emphasized that Section 69C is a deeming provision and must be interpreted strictly, placing the onus on the Assessing Officer to demonstrate unexplained expenses. The Tribunal upheld the CIT(A)'s decision, noting that the closing work in progress was correctly valued and no evidence of unaccounted expenditure existed, thereby negating the application of Section 69C.

The Appellant Revenue argued that the Respondent offered ?10 Crores as additional income due to work in progress but failed to explain the source of this expenditure, justifying the application of Section 69C. However, both the CIT(A) and the Tribunal found that the work in progress was accurately reflected in the return of income and valued on physical verification, with the provisional valuation by site engineers being accepted by the Assessing Officer. The Tribunal emphasized that unless unexplained expenditure is proven, Section 69C cannot be applied. The Appellant's claim of a difference between book and physical value was refuted by the court, stating that no excess work in progress existed beyond what was declared by the Respondent.

Furthermore, the court highlighted that even if there was excess closing stock, it should be added to income under Section 69A, as per precedent. The court dismissed the appeal, stating that the proposed question did not raise any substantial legal issue, as the findings of fact indicated no excess work in progress and the valuation was provisional. The court also noted the lack of challenge to the applicable precedent cited in the Tribunal's decision, leading to the dismissal of the appeal.

In conclusion, the court upheld the decisions of the CIT(A) and the Tribunal, emphasizing the importance of proving unexplained expenditure for the application of Section 69C and clarifying the appropriate sections for taxing discrepancies in stock valuation.