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TMI Blog2010 (4) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... irrespective of whether the appellant claimed for it or not in view of the specific provisions of section 32 of the Income-tax Act, 1961 (in short, the Act ). According to the Revenue, the learned Commissioner of Income-tax (Appeals) failed to follow the principles laid down by the hon ble apex court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 and also failed to note that designs and drawings which were shown by the assessee as the work-in-progress was in the nature of plant as per the decision of the hon ble apex court in the case of Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86. Further according to the Revenue, the work-in-progress consisted only of designs and drawings and not transformers, the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,95,28,714 1,66,79,200 32.43 31.3.2003 3,23,33,856 5,98,12,400 1,02,83,686 31.8 Thus the claim of the assessee was that part of the revenue expenditure was transferred to the work-in-progress every year and shown as closing work-in-progress. These were according to the assessee expenses incurred by it relating on development of designs and drawings used for its own business of manufacturing transformers. Statements were also recorded from the executive director of the company, wherein it was stated by him that once such designs were developed, it could be used for repeat orders for transformers when received from customers. The Assessing Officer was of the opinion that such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns could not be sold in the market and it had become not useful, due to efflux of time, changes in the raw material specifications and changes in installation techniques. The assessee also relied on the method of valuation of inventory as adopted by it, which was lower of cost and net realisable value. Placing reliance on the valuation certificate obtained from an expert, the assessee submitted that work in progress value on designs and drawings was nil and therefore, as per section 145 of the Act, it could value inventory at nil being the net realisable value. The Assessing Officer, in reply to the above submissions of the assessee stated before the learned Commissioner of Income-tax (Appeals) that issue was not with regard to value, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in selling designs but such designs having been used for manufacture of transformers would partake of the character of capital asset. Therefore, she urged that write-off of such capital asset could not be allowed under section 37 of the Act. Further according to her, the assessee had itself admitted such work-in-progress to be designs and therefore, it could not, in the same breath, claim that it represented a sum which was allowable under the revenue head. Per contra, the learned authorised representative strongly supported the order of the learned Commissioner of Income-tax (Appeals). We have heard the rival submissions and perused the orders. The facts which are not disputed are that the amount appearing under the head work- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the profit and loss account for work-in-progress, the claim of such revenue expenditure would stand deflated to that extent in the respective years. The Revenue has not doubted the veracity of the claim of the assessee that the value of such work-in-progress shown by it in its profit and loss account was nil as on March 31, 2004. Its only qualm is that such amount represented capital work-in-progress. Had it been capital work-in-progress, no doubt the assessee would not have shown it as part of its profit and loss account. Just because the assessee had not independently sold its designs, it would not convert work-in-progress shown by it in its profit and loss account on a year-to-year basis to capital work-in-progress. The expenditure c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. As for the decision in Scientific Engineering House P. Ltd. [1986] 157 ITR 86, it was held therein that plant was not confined to an apparatus which was used for operations and any article of some degree of durability if it fulfilled the function of plant and was tool of his trade needed to be considered as capital asset. Here, on the other hand the assessee s case is that there is no durability for designs and there was no possibility of any repeat orders and, therefore, work-in-progress could never have been considered as to have a sufficient durability to call it a work-in-progress. Hence in our opinion, the learned Commissioner of Income-tax (Appeals) was justified in deleting the addition made by the Assessing Officer. No interfe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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