The Income Tax Appellate Tribunal (ITAT), Mumbai Bench consisting of Amit Shukla, Judicial Member and Amarjit Singh, Accountant Member held that no income tax addition can be made when expenses are shown under Work in Progress (WIP) and not added in trading account.
Return of income declaring total income was filed by the assessee, Vipin Madanlal Thapar. The case was subject to scrutiny assessment and notice under Section 143(2) of the Income Tax Act was issued. The assessee was a proprietor of Shubham Builder and Developers and a director in Swaraj Formulation Pvt Ltd.
The A.O stated that as per the information received from Sale Tax Department the assessee has made purchases from the bogus dealers listed by the Sale Tax Department during the year under consideration. On query the assessee submitted that payment for the purchase material and payment has been made through cheques/RTGS and he submitted a copy of certificate issue by Greater Bank.
The assessee further submitted that all the payments were made by account payee cheques only. The assessee has also submitted the summary of quantity wise materialconsumed in construction of the project.
The assessee also furnished certificate from the civil engineer, who has certified the construction work showing the quantity of total consumption of steel and cement in the project. The A.O has not agreed with the submission of the assessee and stated that it has been established by the Sale Tax Department that the parties from whom the purchases were made by the assessee were bogus. Therefore, the A.O disallowed the amount as purchases made from the aforesaid parties.
The Counsel for the assessee submitted that the expenditure were capitalized in work in progress as on 31.03.2011 and such disallowance could only reduce the work in progress and the same cannot be treated as income of the year as the project of the assessee was completed in the financial year 2011-12.
The Bench observed that “We have considered the judicial pronouncements referred by the Counsel wherein it is held that since the expenses were shown by the assessee under the head work in progress and has not been reflected in the trading account, therefore, no addition can be made.”
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