2024 (7) TMI 777 - AT - Income Tax

Estimation of work in progress - as per AO assessee has shown work in progress without showing any sales he estimated 75% of work in progress as sales of the assessee and profit was estimated at 18.54% - CIT(A) deleted addition - HELD THAT - We observe that the CIT(A) after his detailed analysis came to the conclusion that no part of work in progress can be treated as sales and estimate the GP on such sales, thus, we sustain the order of the CIT(A). Ground no.1 of grounds of appeal of Revenue is dismissed. Addition towards Sales Tax and Service Tax - Addition made for the reason that the assessee did not file requisite details/reconciliation of Sales Tax with sales and purchases, details on additional tax paid year wise, assessee failed to furnish details of Sales Tax on purchases year wise the AO made the addition - CIT(A) restricted addition - HELD THAT - We see no infirmity in the observations of the Ld.CIT(A) who do not agree with the numerical working of the Assessing Officer in as much as the total sales tax including the service tax on the entire sales made cannot be adopted for working out the calculation The value of closing stock can be enhanced only by the amount of sales tax pertaining to the closing stock on a pro-rata-basis. The closing stock of the appellant stands at Rs. 1,66,80,664/-. The sales tax on purchases was only Rs. 65,41,478/-. Material consumed during the year amounts to Rs. 16,57,76,188/-. Sales tax on the material consumed come to 3.94%. The value of closing stock therefore is required to be enhanced by 3.94%. The amount of addition thus works out to Rs. 6,56,280/-. Addition of additional Sales Tax pertaining to earlier years - contention of the assessee is that this amount has to be allowed as deduction u/s 43B of the Act has some force - HELD THAT - We direct the AO to consider for allowing deduction u/s 43B the additional Sales Tax pertained to earlier years on payment basis. This ground of assessee is allowed for statistical purpose.

Issues Involved:
1. Deletion of addition by treating 75% of 'work in progress' as sales.
2. Restriction of addition made by enhancing the value of raw materials and goods sold.
3. Sustaining addition on account of increase in closing stock due to proportionate sales tax on purchases.
4. Disallowance of electricity expenses incurred at business premises.
5. Disallowance of business expenses paid through credit cards.

Detailed Analysis:

Issue 1: Deletion of Addition by Treating 75% of 'Work in Progress' as Sales
The Revenue appealed against the deletion of an addition of Rs. 2,62,74,248/- made by the Assessing Officer (AO) by treating 75% of 'work in progress' (WIP) as sales. The AO observed that the assessee, engaged in civil construction, had shown WIP amounting to Rs. 18,89,55,400/- without raising bills or booking sales. The AO estimated 75% of WIP as sales and applied a gross profit (GP) rate of 18.54%, adding Rs. 2,62,74,248/- to the income. The Ld. CIT(A) deleted this addition, noting that the AO had no basis for the 75% estimation and that the agreements did not stipulate billing at 50% completion. The CIT(A) also examined the details of sales billed in subsequent years and found that part of the WIP was indeed billed later. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

Issue 2: Restriction of Addition Made by Enhancing the Value of Raw Materials and Goods Sold
The AO made an addition of Rs. 5,54,45,938/- due to discrepancies in sales tax and service tax details. The assessee contended that all necessary details were provided. The CIT(A) called for records and found that the AO's calculation was incorrect. The CIT(A) restricted the addition to Rs. 17,63,289/-, comprising Rs. 6,56,280/- for enhancement of closing stock value by 3.94% and Rs. 11,07,071/- for additional sales tax pertaining to earlier years. The Tribunal found no infirmity in the CIT(A)'s observations and dismissed the Revenue's appeal.

Issue 3: Sustaining Addition on Account of Increase in Closing Stock Due to Proportionate Sales Tax on Purchases
The assessee appealed against the CIT(A)'s decision to sustain an addition of Rs. 17,63,289/- for proportionate sales tax on purchases, arguing that Rs. 11,07,071/- of this amount represented additional sales tax from earlier years and should be allowed as a deduction under Section 43B on a payment basis. The Tribunal directed the AO to consider allowing this deduction, thus allowing the assessee's ground for statistical purposes.

Issue 4: Disallowance of Electricity Expenses Incurred at Business Premises
The assessee did not press this ground. Consequently, the Tribunal dismissed this ground as not pressed.

Issue 5: Disallowance of Business Expenses Paid Through Credit Cards
Similarly, the assessee did not press this ground, and it was dismissed as not pressed.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing the AO to consider the deduction under Section 43B for additional sales tax pertaining to earlier years. The Tribunal upheld the CIT(A)'s findings on the other issues, finding no reason to interfere with the detailed analysis and observations.

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