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TMI Blog2016 (12) TMI 1237X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out survey operation u/s. 133A of the Act on 2.2.2007. During the course of survey certain discrepancies were noticed. When they were put before the partner of the assessee, he accepted the discrepancies and agreed to offer a sum of Rs. 1 crore as income of the firm. The assessee discrepancies noticed at the time of survey are given below:- a) Difference in valuation of work in progress as on the date of survey Rs. 74,12,287 b) Amount spent in cash on renovation of office premises and furniture and fixture Rs. 24,73,000 However, the assessee did not offer the additional income in the return of income filed for A.Y. 2007-08. Hence the Assessing Officer added both the amounts cited above to the income of the assessee. The Assessing Officer further noticed that the assessee has claimed shuttering material costing Rs. 4,57,14,039/-as revenue expenditure. The Assessing Officer treated the same as capital expenditure and accordingly disallowed the said claim in excess of admissible depreciation. In the appellate proceedings the assessee got partial relief a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - on the basis of impounded documents, in his sworn statement. Even on the day of survey, assessee handed over post dated cheques to the Department to prove his sincerity in paying the due tax on surrendered amount. e) The survey action was carried out way back on 2.2.2007 and despite the lapse of more than 2 years and 10 months, it did not file any letter with the department to claim that surrender of ₹ 74,12,287/- on account of difference in work in progress was wrongly made. In absence of any such reply, the present contention of the assessee that impounded documents only contained estimated value of work done till 31.1.2007 and not the actual figure of work in progress cannot be accepted. 4. The Assessing Officer, by placing reliance on some case laws, expressed the view that the assessee did not retract from his statement within a reasonable period. Accordingly the Assessing Officer added the amount of Rs. 74,12,287/-, being the difference in the work-in-progress to the total income of the assessee. The Ld CIT(A) also confirmed the addition. 5. The Ld A.R reiterated the submissions made before the tax authorities, while the Ld D.R supported the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain unbilled. Generally the exercise of ascertaining the value of Work in progress is carried out at the year end, since the books of accounts are required to be closed on that date. The work in progress in a construction project is akin to closing stock in a business concern. The necessity to estimate the work in progress arises, since the profit/loss is required to be ascertained under revenue cost matching principle. The value of work in progress is generally ascertained by aggregating various expenses incurred since the date of raising of last bill. 9. We notice that the noting made in the loose sheet found at the time of survey operation, has been taken as representing the actual amount of work in progress on various projects executed by the assessee. However, we notice that the assessing officer has not examined the books of accounts and other materials in order to corroborate the veracity of the noting made in the loose paper, particularly when the assessee has offered explanations on the losse paper. The question of any excess investment shall arise only when the assessee has incurred expenses outside the books of accounts. We notice that the AO did not take any st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this addition solely on the basis of 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 of ₹ 74,12,287/-, referred above. 12. The next issue relates to the addition of ₹ 24,73,000/- relating to unexplained investment made in the renovation and on purchase of furniture and fixture. During the course of survey operation, another loose sheet containing details of certain expenses was found. In the sworn statement, the assessee admitted the same to be the expenses incurred on account of renovation and on purchase of furniture and fixtures in the month of October, 2006 in cash. The assessee admitted that these expenses were not recorded in the books of account and accordingly agreed to offer the same as additional income. The assessee did not offer the same in the return of income. Before the AO, the assessee submitted that it has accounted all the expenses in its books of accounts and no part of expenditure remained unaccounted. It was further submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the tax authorities have ignored the fact of cash shortage of ₹ 21,59,599/-. 16. 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. 17. The next issue urged by the assessee relates to the disallowance of expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same as revenue expenditure. 2 G.I. Binding Wire 75,600/- G.I. binding wires used for fixing the sheet/reinforcement of pillars/columns of the building. G.I. binding wires used in tying the pillars finally gets embedded in the concrete and thus, cannot be removed. Hence, the appellant cannot use it again and again. 3 G.I. Sheets 2,81,640/- G.I. sheets are used for covering the site and also making temporary structures for the labourers at site. Once utilised it cannot be utilized again as the same is cuploks used in one project cannot be used in other project. Thus, the cuplocks have no enduring life. 5 M.S. Shuttering 37,61,418 M.S. Shuttering includes small items such as Propos, span, H. Frame, Swivel couples, M.S. Pharma, Brassing and Shikanja. These items are used for giving support to the slabs. Some of the items are embedded in the concrete and some can be used two to three times in the same project. However, these shuttering material once used in one project cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials would qualify for 100% depreciation, since the cost of each component of shuttering material was less than ₹ 5,000/-. He submitted that the Act had provided for 100% depreciation in those relevant period, if the cost of asset was less than ₹ 5,000/-. 20. The Ld A.R submitted that the nature of usage and durability of shuttering materials are not identical to the one dealt with by the Hon ble High Court. He submitted that the assessee has been constructing multiple storey buildings and hence the shuttering materials purchased by it are project specific, i.e., particular shuttering material is used for a project as per the requirements of the contractee. These materials are either consumed in the construction itself or will be worn out after completion of the project. Accordingly he submitted that the shelf life and usage period of the materials do not last longer and hence the tax authorities are not justified in presuming that the assessee would get benefit of enduring nature on purchase and use of shuttering materials. He submitted that the GI Sheets are used to make temporary sheds at the construction sites and the same would generally wear out upon completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat these items are generally used for about three times. Even if it is presumed that they can be used for more number of times, there is merit in the contentions of the assessee that these items generally do not last longer than one project. For example, if the assessee is constructing 20 storied building, then these materials shall be used more than 20 times in the same project, in which case, it is inconceivable that the same would be capable of being used in another project after using them for about 20 times. 25. The usage of an asset and the period for which the benefit derived is derived there from would generally determine the nature of expenditure. If the benefit is expected to be derived for sufficient period extending for more number of years, then the same may be categorized as Capital expenditure. 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 t ..... 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