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TMI Blog2023 (9) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of Prudence also and the said action of the assessee stands vindicated by the future events. When the arbitration award is not expected to be fully favourable to the assessee, then it is the duty of the assessee to provide for known loss and in our view, the action of the assessee in reducing the value of closing work in progress may be substantiated under this principle also. If the assessee receives any money in excess of the value of WIP, the same shall be taxable in the year of receipt. Accordingly, in the facts and circumstances of the case, we are of the view that there is no reason to disbelieve the value of closing work in progress disclosed by the assessee. We are of the view that the tax authorities are not justified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the matter was referred to Arbitration. It is the submission of the assessee that in view of the passage of time, the value of Closing Work in progress has gone down and hence the assessee has adjusted the value by revaluing the same at Rs. 39,43,256/-. It is the submission of the assessee that he did so following the accounting principle of valuation of stock at Cost or market value, whichever is lower . 3. Before the AO, the assessee submitted that he shall be offering the arbitration award amount received as his income by adjusting the same against stock. The AO took the view that the assessee did not provide any basis for revaluing the stock and the revaluation has been done on the whims of the assessee. He also took the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rs. 6,16,571/- during the years relevant to the AY 2018-19 and 2019-20. The above said awards were adjusted against the value of closing stock. After the receipt of above said award, the value of closing stock stood at Rs. 7,95,000/- as on 31.3.2019. 6. It is the contention of the assessee that the value of construction work executed by it partially was deteriorating with the passage of time and hence he has factored in the said loss by reducing the value of stock. According to the assessee, the stock has to be valued at cost or market value, whichever is less and the said accounting principle has been followed in reducing the value of stock. Since the assessee did not furnish any basis for reducing the value, the tax authorities re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognized accounting principle. There is one more principle, i.e., the Principle of Prudence, as per which, all known losses should be provided for, even if it is not actually incurred. In our view, the wisdom of the assessee in reducing the value of closing stock (work in progress) could be covered under the Principle of Prudence also and the said action of the assessee stands vindicated by the future events. When the arbitration award is not expected to be fully favourable to the assessee, then it is the duty of the assessee to provide for known loss and in our view, the action of the assessee in reducing the value of closing work in progress may be substantiated under this principle also. If the assessee receives any money in excess of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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