2020 (9) TMI 184 - AT - Income Tax

Opening work-in-progress - business loss on demolished project - AO was of the opinion that the opening work-in-progress was a capital loss as the assessee has demolished the constructed property - HELD THAT - Assessee s case is that there has been court cases and amendments in the rules and plans which have led to the change in plan and consequent amendment and demolition of certain aspects of the project. But the assessee s contention is that assessee is still continuing with the project and the expenditure in this regard has to be treated as work-in-progress in as much as assessee is following project completion method Matter needs to be remitted to the file of AO as directed to consider the veracity of assessee s submission with reference to the relevant evidences. If the assessee s submissions regarding the change in rules and other aspects are found to be cogent, then the assessee s claim of work-in-progress and the assessee s following of project completion method have to be examined on the touchstone of Hon'ble Delhi High Court decision in the case of Lunar Electrical 2012 (4) TMI 51 - DELHI HIGH COURT - Remit the issue to the file of Assessing Officer - Assessee appeal allowed for statistical purposes

Summary

Issues:
Confirmation of opening work-in-progress as business loss.

Detailed Analysis:
The appeal pertains to the confirmation of the Assessing Officer's order by the CIT(A) regarding the treatment of the opening work-in-progress as a business loss. The Assessing Officer considered the opening work-in-progress of ?5,71,59,128/- as a capital loss due to the demolition of a constructed property by the assessee. The firm, engaged in development and construction projects, had debited various expenses to work-in-progress during the year amounting to ?90,98,858/-. The Assessing Officer opined that the demolition resulted in a capital loss, which the assessee disputed by providing detailed submissions regarding modifications in plans, court cases, and amendments in rules and regulations.

The Assessing Officer's decision was based on the inference that the expenditures incurred on the commercial property, which was subsequently demolished, constituted a business loss. The CIT(A) upheld this treatment, distinguishing a decision of the Delhi High Court cited by the assessee regarding the project completion method. The ITAT Mumbai, after hearing both parties, found that the authorities had not properly appreciated the detailed submissions made by the assessee. The Tribunal observed that the matter required a thorough examination of the veracity of the assessee's submissions, particularly regarding changes in rules and plans, and directed the Assessing Officer to reconsider the issue with reference to relevant evidence.

The ITAT Mumbai emphasized that substance prevails over form, and the assessee's claim of work-in-progress needed to be re-evaluated in light of the project completion method. The Tribunal remitted the issue to the Assessing Officer for a fresh consideration, instructing a detailed examination of the assessee's submissions and granting the assessee an adequate opportunity to present their case. The delay in pronouncement was attributed to the Covid-19 lockdown, in compliance with Rule 34(5) of the Appellate Tribunal Rules and a Bombay High Court decision extending time-bound periods. Ultimately, the appeal by the assessee was allowed for statistical purposes on 16th July 2020.